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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
ARONEX PHARMACEUTICALS, INC.
(Name of Registrant as Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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[ANTIGENICS LOGO]
[ARONEX LOGO] PROSPECTUS OF ANTIGENICS INC.
PROXY STATEMENT FOR SPECIAL MEETING FOR SHARES OF COMMON STOCK AND
OF STOCKHOLDERS OF CONTINGENT VALUE RIGHTS.
ARONEX PHARMACEUTICALS, INC.
A MERGER PROPOSAL -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of Antigenics Inc. and Aronex Pharmaceuticals, Inc.
have unanimously approved a merger agreement between Aronex Pharmaceuticals,
Antigenics and a wholly-owned subsidiary of Antigenics. As a result of the
merger, Aronex Pharmaceuticals will become a wholly-owned subsidiary of
Antigenics.
In the merger, each share of Aronex Pharmaceuticals common stock will be
converted into between 0.0550 and 0.0917 of a share of Antigenics common stock.
In addition, each share of Aronex Pharmaceuticals common stock will receive a
contingent value right that may entitle its holder to between 0.0075 and 0.0125
of a share of Antigenics common stock in the event that a milestone is achieved
by July 6, 2002. Antigenics common stock is listed on the Nasdaq National Market
under the trading symbol "AGEN," and on June 1, 2001, AGEN closed at $19.01 per
share.
AFTER CAREFUL CONSIDERATION, ARONEX PHARMACEUTICALS'S BOARD OF DIRECTORS
UNANIMOUSLY DETERMINED THE MERGER TO BE FAIR TO YOU AND IN YOUR BEST INTERESTS.
ARONEX PHARMACEUTICALS'S BOARD OF DIRECTORS APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE MERGER AGREEMENT.
This proxy statement/prospectus provides you with detailed information
about Aronex Pharmaceuticals, Antigenics and the merger. Each company has
provided the information about itself. Please give all of the information
contained in this proxy statement/prospectus your careful attention. IN
PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE 14 OF THIS PROXY STATEMENT/PROSPECTUS BEFORE
YOU VOTE.
Whether or not you plan to attend the meeting, please complete, sign, date
and return the accompanying proxy in the enclosed self-addressed stamped
envelope. Returning the proxy does NOT deprive you of your right to attend the
meeting and to vote your shares in person. YOUR VOTE IS VERY IMPORTANT. THE
FAILURE TO VOTE BY NOT RETURNING YOUR PROXY CARD, OR THE FAILURE TO INSTRUCT
YOUR BROKER TO VOTE, OPERATES AS A VOTE AGAINST THE MERGER.
/s/ Geoffrey F. Cox
GEOFFREY F. COX, PH.D.
Chairman of the Board and Chief Executive Officer
Aronex Pharmaceuticals, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OR THE ANTIGENICS COMMON STOCK OR CONTINGENT VALUE RIGHTS
TO BE ISSUED IN CONNECTION WITH THE MERGER, OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated June 4, 2001 and was first mailed
to stockholders on or about June 7, 2001.
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[ARONEX PHARMACEUTICALS LOGO]
8707 TECHNOLOGY FOREST PLACE
THE WOODLANDS, TEXAS 77381-1191
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 12, 2001 AT 9:00 A.M.
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To the Stockholders of Aronex Pharmaceuticals, Inc.:
We will hold a special meeting of our stockholders at the offices of Palmer
& Dodge LLP, One Beacon Street, 23rd Floor, Boston, Massachusetts 02108, on July
12, 2001, at 9:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to adopt the merger agreement
among us, Antigenics Inc., and its merger subsidiary. In the merger, we
will become a wholly-owned subsidiary of Antigenics, and each
outstanding share of our common stock will be converted into the right
to receive between 0.0550 and 0.0917 of a share of Antigenics common
stock and contingent value rights to receive between 0.0075 and 0.0125
of a share of Antigenics common stock upon the achievement of a
milestone.
2. To transact such other business as may properly be brought before the
special meeting or any adjournment of it by our board of directors.
We cannot complete the merger unless a majority of the shares outstanding
on June 1, 2001, the record date for the special meeting, affirmatively adopt
the merger agreement. Only stockholders who owned shares of our common stock at
the close of business on June 1, 2001 are entitled to notice of, and to vote at,
the special meeting and any adjournments or postponements of it.
For more information about the merger, please review the accompanying proxy
statement/prospectus and the merger agreement attached as Annex A.
By Order of the Board of Directors,
/s/ Terance A. Murnane
Terance A. Murnane,
Secretary
The Woodlands, Texas
June 4, 2001
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU CAN REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
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REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Antigenics and Aronex Pharmaceuticals from other
documents that are not included in or delivered with this proxy
statement/prospectus. This information is available to you without charge upon
your written or oral request. You can obtain those documents, which are
incorporated by reference in this proxy statement/prospectus, by requesting them
in writing or by telephone from the appropriate company at the following
addresses and telephone numbers:
ANTIGENICS INC. ARONEX PHARMACEUTICALS, INC.
INVESTOR RELATIONS INVESTOR RELATIONS
630 FIFTH AVENUE, SUITE 2100 8707 TECHNOLOGY FOREST PLACE
NEW YORK, NEW YORK 10111 THE WOODLANDS, TX 77381-1191
(212) 332-4774 (281) 367-1666
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JULY 5, 2001 IN
ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
See "Where You Can Find More Information" beginning on page 95.
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TABLE OF CONTENTS
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Questions & Answers About The Merger........................ 1
Summary..................................................... 2
Antigenics Selected Historical Financial Data............... 8
Aronex Pharmaceuticals Selected Historical Financial Data... 10
Selected Unaudited Pro Forma Consolidated Financial
Information............................................... 12
Comparative Per Share Data.................................. 13
Risk Factors................................................ 14
Special Note Regarding Forward-Looking Statements........... 29
The Aronex Pharmaceuticals Special Meeting.................. 30
Background and Reasons For the Merger....................... 33
Background................................................ 33
Joint Reasons for the Merger.............................. 34
Aronex Pharmaceuticals's Reasons For The Merger........... 35
Recommendation of Aronex Pharmaceuticals's Board of
Directors.............................................. 36
Opinion of Aronex Pharmaceuticals's Financial Advisor..... 36
Antigenics's Reasons for the Merger....................... 43
Potential Conflicts and Interests of Aronex
Pharmaceuticals Management in the Merger............... 43
The Merger and the Merger Agreement......................... 45
General Description of the Merger......................... 45
Effective Time............................................ 45
Merger Consideration for Aronex Pharmaceuticals Stock and
Exchange Ratios........................................ 45
No Fractional Shares...................................... 46
Exchange of Aronex Pharmaceuticals Stock Certificates..... 47
Treatment of Aronex Pharmaceuticals Stock Options,
Warrants, and Convertible Note......................... 47
Treatment of Aronex Pharmaceuticals Benefits and Stock
Purchase Plans and Other Employee Matters.............. 49
Accounting Treatment...................................... 49
Material United States Federal Income Tax Consequences of
the Merger............................................. 50
Representations and Warranties............................ 53
Conditions to the Merger.................................. 54
Termination of the Merger Agreement....................... 55
Termination Fees and Expenses............................. 55
Amendments and Waivers.................................... 56
Appraisal or Dissenters' Rights........................... 56
Nasdaq Listing of Antigenics common stock................. 56
Delisting of Aronex Pharmaceuticals Stock................. 56
Resales of Antigenics common stock by Aronex
Pharmaceuticals Affiliates............................. 57
Regulatory Matters........................................ 57
Business Of Antigenics...................................... 58
Business of Aronex Pharmaceuticals.......................... 59
Aronex Pharmaceuticals Management's Discussion and Analysis
of Financial Condition and Results of Operations.......... 74
Material Contracts with Aronex Pharmaceuticals.............. 79
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................... 80
Management After the Merger................................. 86
Stock Ownership of Directors, Executive Officers and
Principal Stockholders.................................... 87
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PAGE
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Comparative Stock Prices and Dividends...................... 88
Comparison of Rights of Antigenics and Aronex
Pharmaceuticals Stockholders.............................. 90
Legal Matters............................................... 94
Experts..................................................... 94
Future Aronex Pharmaceuticals Stockholder Proposals......... 94
Other Matters............................................... 95
Where You Can Find More Information......................... 95
Index To Financial Statements............................... F-1
ANNEXES
Agreement and Plan of Merger................................ Annex A
Form of Contingent Value Right Agreement.................... Annex B
Opinion of Robertson Stephens, Inc.......................... Annex C
NOTE REGARDING TRADEMARKS
Oncophage(R), Stimulon(R), Quilimmune(TM), Quilimmune-P(TM),
Quilimmune-M(TM), Quilvax(TM) and Quilvax-FeLV(TM) are trademarks of Antigenics
Inc.
ATRAGEN(R), Nyotran(R) and Aroplatin(TM) are trademarks of Aronex
Pharmaceuticals, Inc.
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QUESTIONS & ANSWERS ABOUT THE MERGER
Q: WHAT DO I NEED TO DO NOW?
A: Carefully read and consider the information contained in this proxy
statement/prospectus. Then, please complete, sign and date your proxy and
return it as soon as possible so that your shares may be represented at the
special meeting. If you sign and send in your proxy, your shares will be
voted as you indicate in your proxy. If you sign and send in your proxy, but
do not indicate how you want to vote, Aronex Pharmaceuticals will count your
proxy as a vote FOR adoption of the merger agreement. IF YOU ABSTAIN FROM
VOTING OR DO NOT VOTE BY NOT RETURNING YOUR PROXY CARD, IT WILL HAVE THE
EFFECT OF A VOTE AGAINST THE MERGER AGREEMENT.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A: Yes. You can change your vote at any time before your proxy is voted. You
can do this in one of three ways. First, you can send a written notice
stating that you would like to revoke your proxy. Second, you can complete
and submit a new proxy dated after the date of your original proxy. If you
choose either of these two methods, you must submit your notice of
revocation or your new proxy to the Secretary of Aronex Pharmaceuticals at
8707 Technology Forest Place, The Woodlands, Texas 77381-1191. Third, you
can attend the special meeting and vote in person. Simply attending the
meeting, however, will not revoke your proxy; you must also vote at the
special meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. Follow the information provided to you by your broker. WITHOUT YOUR
INSTRUCTIONS, YOUR BROKER WILL NOT VOTE YOUR SHARES, WHICH WILL HAVE THE
EFFECT OF A VOTE AGAINST THE MERGER.
Q: SHOULD I SEND IN MY ARONEX PHARMACEUTICALS STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will receive written instructions for
exchanging your stock certificates. Please do not send in your stock
certificates with your proxy.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. If
approved by the Aronex Pharmaceuticals stockholders, Antigenics expects to
complete the merger during July 2001.
Q: HOW MANY SHARES OF ANTIGENICS COMMON STOCK WILL BE ISSUED TO ARONEX
PHARMACEUTICALS'S STOCKHOLDERS?
A: It is estimated that Antigenics will issue approximately 1,514,375 shares of
its common stock and 26,020,191 contingent value rights to Aronex
Pharmaceuticals stockholders in the merger, based on the number of shares of
Aronex Pharmaceuticals common stock outstanding on June 1, 2001, and based
on the average closing price of Antigenics common stock as reported on the
Nasdaq National Market for the ten trading days prior to June 1, 2001, which
was $18.916.
Q: WHAT PERCENTAGE OF ANTIGENICS'S COMMON STOCK OUTSTANDING WILL THIS
REPRESENT?
A: These shares (not including the shares underlying the contingent value
rights) will represent approximately 5.23% of the outstanding Antigenics
common stock after the merger. Antigenics shares held by its stockholders
before the merger will represent approximately 94.7% of the outstanding
Antigenics shares after the merger.
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SUMMARY
This summary highlights what we believe is the most important information about
the merger. To more fully understand the transaction, you should read this
entire proxy statement/prospectus, including the materials attached as annexes,
as well as the other documents to which we have referred you. See "Where You Can
Find More Information" on page 95. The page references in parentheses will
direct you to a more detailed description of each topic presented in this
summary.
THE COMPANIES
ANTIGENICS (SEE PAGE 58)
Antigenics is a biotechnology company engaged in the discovery and
development of novel immunotherapeutic drugs for the treatment of life
threatening and chronic medical conditions.
The principal executive offices of Antigenics, a Delaware corporation, are
located at 630 Fifth Avenue, Suite 2100, New York, New York, 10111 and its
telephone number at these offices is (212) 332-4774.
ARONEX PHARMACEUTICALS (SEE PAGES 59-73)
Aronex Pharmaceuticals is a biopharmaceutical company engaged in the
identification and development of proprietary innovative medicines to treat
infectious diseases and cancers.
The principal offices of Aronex Pharmaceuticals, a Delaware corporation,
are located at 8707 Technology Forest Place, The Woodlands, Texas 77381-1191,
and its telephone number at these offices is (281) 367-1666.
THE MERGER
SUMMARY OF THE TRANSACTION (SEE PAGES 2-5)
In the proposed merger, Nasa Merger Corp., a Delaware corporation and a
wholly-owned subsidiary of Antigenics, will be merged into Aronex
Pharmaceuticals. Aronex Pharmaceuticals will be the surviving corporation and
the name of the surviving corporation will be Aronex Pharmaceuticals, Inc.
The proposed merger will occur following adoption of the merger agreement
by the Aronex Pharmaceuticals stockholders and satisfaction or waiver of the
other conditions to the merger. The merger agreement is attached as Annex A. We
encourage you to read it because it is the legal document that governs the
merger.
WHAT THE HOLDERS OF ARONEX PHARMACEUTICALS COMMON STOCK WILL RECEIVE IN THE
MERGER (SEE PAGES 45-46)
In the proposed merger, Aronex Pharmaceuticals common stockholders will
receive Antigenics common stock and contingent value rights to receive
additional shares of Antigenics common stock. When Antigenics and Aronex
Pharmaceuticals complete the merger, each outstanding share of Aronex
Pharmaceuticals common stock will convert into a right to receive a fraction of
a share of Antigenics common stock at an exchange ratio based on Antigenics
common stock's then-average closing price. The average closing price will be
Antigenics common stock's average closing price for the 10 trading days ending
the second trading day before the closing of the merger. If the average closing
price falls within $12.00 and $20.00, then the exchange ratio will equal $1.10
divided by that price. If the average closing price is less than $12.00, then
the exchange ratio will be 0.0917. If the average closing price is greater than
$20.00, then the exchange ratio will be 0.0550. Antigenics will not issue any
fractional shares of Antigenics common stock in the merger. Instead, Aronex
Pharmaceuticals stockholders will receive cash for fractional shares.
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The contingent value rights will be governed by the contingent value rights
agreement, the form of which is attached to this proxy statement/prospectus as
Annex B. We encourage you to read this agreement carefully. A contingent value
right represents the right to receive a fraction of a share of Antigenics common
stock if the U.S. Food and Drug Administration, commonly known as the FDA,
approves ATRAGEN for the treatment of acute promyelocytic leukemia, or APL,
which is referred to in this proxy statement/prospectus as the "milestone," on
or before July 6, 2002. The fraction shall equal an exchange ratio, which is
calculated by dividing $0.15 by the average per share closing price of
Antigenics common stock during a 10-day trading period ending the third trading
day prior to the date the milestone is achieved. If the average closing price
falls within $12.00 and $20.00, then the exchange ratio will equal $0.15 divided
by that price. If the average closing price is less than $12.00, then the
exchange ratio will be 0.0125. If the average closing price is greater than
$20.00, then the exchange ratio will be 0.0075. In addition, the exchange ratio
will be reduced in 10% increments for each $50,000 increment above $4,000,000
that Aronex Pharmaceuticals incurs certain merger transaction expenses. If these
merger transaction expenses exceed $4,500,000, the exchange ratio will be 0, and
no Antigenics common stock shall be issued under the contingent value rights.
See "The Merger and the Merger Agreement -- Merger Consideration for Aronex
Pharmaceuticals Stock and Exchange Ratios" for a description of the transaction
expenses.
If the milestone is not achieved on or before July 6, 2002 or specific
merger transaction expenses are greater than $4,500,000, the holders of
contingent value rights will not receive any additional shares of Antigenics
common stock.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGES 50-51)
We intend that the merger qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code. If the merger does qualify as a
reorganization, no gain or loss will be recognized by Aronex Pharmaceuticals,
Antigenics or the merger subsidiary by reason of the merger. Except for any cash
you receive instead of fractional shares, you will not recognize gain or loss on
your receipt of Antigenics common stock, including your receipt of any
additional shares of Antigenics common stock pursuant to the contingent value
rights agreement, in exchange for your shares of Aronex Pharmaceuticals stock in
the merger.
BECAUSE THE TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON EACH
ARONEX PHARMACEUTICALS STOCKHOLDER'S PARTICULAR CIRCUMSTANCES, ANTIGENICS URGES
YOU TO CONSULT YOUR OWN TAX ADVISORS ABOUT THE FEDERAL, STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES TO YOU OF THE MERGER.
APPRAISAL OR DISSENTERS' RIGHTS (SEE PAGE 56)
Under Section 262(b) of the Delaware General Corporation Law, Aronex
Pharmaceuticals stockholders do not have appraisal or dissenters' rights in
connection with the merger.
ARONEX PHARMACEUTICALS'S REASONS FOR THE MERGER (SEE PAGES 35-36)
The Aronex Pharmaceuticals board concluded that the merger was in the best
interests of Aronex Pharmaceuticals and its stockholders. In reaching its
decision, the board considered, among other things:
- Aronex Pharmaceuticals's difficulty in raising additional capital to meet
its ongoing commitments as well as its drug development goals;
- Aronex Pharmaceuticals's inability to meet the continued listing
requirements of the Nasdaq National Market and the current difficulty, in
light of the recent FDA non-approval letter for ATRAGEN for APL, of
raising sufficient capital to satisfy such requirements;
- increased ability of the combined company to fund research and
development of Aronex Pharmaceuticals's products;
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- the opportunity the merger affords Aronex Pharmaceuticals's stockholders
to reduce their exposure to the risks inherent in Aronex
Pharmaceuticals's reliance on a limited number of currently
uncommercialized products;
- the difficulties in competing against larger companies with greater
financial resources;
- the merger will allow holders of Aronex Pharmaceuticals common stock to
retain an equity interest in the combined company, to achieve greater
liquidity than could be achieved by continuing to hold Aronex
Pharmaceuticals common stock, and to participate in the potential growth
of Antigenics;
- the board's belief that the exchange ratio fractions are favorable based
upon the recent trading prices for Aronex Pharmaceuticals and Antigenics
common stock;
- the likelihood that the merger will be consummated, including the terms
and conditions of the merger agreement, and the limited conditions to the
consummation of the merger;
- the oral opinion of Robertson Stephens delivered April 20, 2001
(subsequently confirmed in a written opinion dated April 23, 2001) that
as of such date and based on and subject to the assumptions, limitations,
and qualifications referred to in the written opinion, the merger
consideration was fair to holders of Aronex Pharmaceuticals common stock
from a financial point of view; and
- although the FDA recently rejected Aronex Pharmaceuticals's New Drug
Application, or NDA, for ATRAGEN in APL, Aronex Pharmaceuticals's
stockholders have the opportunity for recognizing additional
consideration should the NDA be approved on or before July 6, 2002.
OPINION OF ARONEX PHARMACEUTICALS'S FINANCIAL ADVISOR (SEE PAGES 36-42)
In deciding to approve the merger, the Aronex Pharmaceuticals board
considered an opinion from its financial advisor, Robertson Stephens, Inc. On
April 23, 2001, Robertson Stephens delivered its written opinion to the Aronex
Pharmaceuticals board, that as of that date and based on and subject to the
assumptions, limitations, and qualifications referred to in the opinion, the
merger consideration pursuant to the merger agreement was fair, from a financial
point of view, to the holders of Aronex Pharmaceuticals common stock. The full
text of this written opinion is attached as Annex C to this proxy
statement/prospectus. Aronex Pharmaceuticals encourages you to read this opinion
carefully in its entirety. The opinion of Robertson Stephens is directed to the
Aronex Pharmaceuticals board and is not a recommendation to any stockholder on
how to vote on the merger or the merger agreement.
ANTIGENICS REASONS FOR THE MERGER (SEE PAGE 43)
In reaching its decision to approve the merger, the Antigenics board
considered, among other things, the benefits of:
- Aronex Pharmaceuticals's products, technology, and patent portfolio;
- the positive effect on Antigenics's ability to produce effective
therapies from acquiring Aronex Pharmaceuticals's technology; and
- the expansion of Antigenics's product pipeline, particularly by the
addition of products in the later stages of FDA approval.
THE SPECIAL MEETING
DATE AND PURPOSE (SEE PAGE 30)
A special meeting of Aronex Pharmaceuticals stockholders will be held at
the offices of Palmer & Dodge LLP, One Beacon Street, 23(rd) Floor, Boston,
Massachusetts 02108 on July 12, 2001 at 9:00 a.m., local time.
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RECORD DATE; VOTING RIGHTS (SEE PAGE 30)
If you owned shares of Aronex Pharmaceuticals common stock as of the close
of business on June 1, 2001, the record date for the special meeting, you may
vote on the adoption of the merger agreement.
On that date, there were 26,020,191 shares of Aronex Pharmaceuticals common
stock outstanding. Aronex Pharmaceuticals stockholders will have one vote at the
meeting for each share of common stock they owned on the record date.
QUORUM; REQUIRED VOTES (SEE PAGE 30)
The holders of a majority of the outstanding shares of Aronex
Pharmaceuticals common stock must be present, in person or by proxy, at the
Aronex Pharmaceuticals special meeting for there to be a quorum. To approve the
merger, holders of a majority of the outstanding shares of Aronex
Pharmaceuticals common stock must vote to adopt the merger agreement. IF YOU
FAIL TO VOTE BY NOT RETURNING YOUR PROXY CARD OR BY ABSTAINING FROM VOTING, IT
WILL HAVE THE EFFECT OF A VOTE AGAINST THE MERGER. A broker who holds Aronex
Pharmaceuticals stock as your nominee generally will not have authority to vote
your shares unless you provide the broker with voting instructions.
On the record date, directors and officers of Antigenics as a group owned
no shares of Aronex Pharmaceuticals stock, and directors and officers of Aronex
Pharmaceuticals as a group owned approximately 12.0% of the outstanding shares
of Aronex Pharmaceuticals common stock.
RECOMMENDATION OF THE ARONEX PHARMACEUTICALS BOARD (SEE PAGE 30)
ARONEX PHARMACEUTICALS'S BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN
THE BEST INTEREST OF ARONEX PHARMACEUTICALS STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
OTHER SELECTED INFORMATION
POTENTIAL CONFLICTS OF INTEREST OF OFFICERS AND DIRECTORS (SEE PAGES 43-44)
The officers and directors of Aronex Pharmaceuticals may have interests in
the merger that are different from, or in addition to, those of Aronex
Pharmaceuticals stockholders. The Aronex Pharmaceuticals and Antigenics boards
were aware of these interests and considered them in approving the merger
agreement.
VOTING AGREEMENTS (SEE PAGE 31)
Two Aronex Pharmaceuticals stockholders and all of Aronex Pharmaceuticals's
directors and executive officers holding Aronex Pharmaceuticals stock have
entered into voting agreements with Antigenics, in which they agreed to vote
their shares of Aronex Pharmaceuticals common stock in favor of adopting the
merger agreement. They also granted irrevocable proxies to an executive officer
of Antigenics to vote their shares of Aronex Pharmaceuticals common stock at the
special meeting. Approximately 3,113,764 shares of Aronex Pharmaceuticals common
stock and options to acquire an additional 1,450,286 shares that are exercisable
during the 60 days following April 24, 2001, or approximately 12.0% of the
outstanding shares and approximately 16.6% of the outstanding shares including
the options, are subject to the voting agreements and irrevocable proxies. These
voting agreements effectively ensure that 12.0% of the outstanding shares of
Aronex Pharmaceuticals common stock will vote in favor of adoption of the merger
agreement.
TREATMENT OF STOCK OPTIONS AND WARRANTS (SEE PAGES 47-49)
Under the terms of Aronex Pharmaceuticals's amended and restated 1989 stock
option plan and the amended and restated 1998 stock option plan and their
related option agreements, all of the options
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granted under those plans shall accelerate in full and be fully exercisable
immediately prior to the merger. In addition, except for an option granted to
one of Aronex Pharmaceuticals's directors, all of the options granted under the
Aronex Pharmaceuticals's amended and restated 1993 non-employee director stock
option plan are fully exercisable or will be fully exercisable as a result of
the merger.
Each option and warrant to purchase shares of Aronex Pharmaceuticals stock
outstanding after the merger will be assumed by Antigenics and will become an
option or warrant, as the case may be, to acquire Antigenics common stock.
Antigenics will adjust the number of shares issuable upon exercise and the
exercise prices to reflect the merger's exchange ratio. If the option or warrant
is exercised prior to July 6, 2002 or the date the milestone is achieved,
whichever is earlier, the option holder or warrant holder will receive that
number of contingent value rights equal to the number of shares of Antigenics
common stock subject to the option or warrant; and if the option or warrant is
exercised after the date the milestone is achieved (so long as it is achieved
prior to July 6, 2002), the option holder or warrant holder will receive that
number of shares of Antigenics common stock that would have been issued, if any,
had the holder of the option or warrant held the contingent value rights on the
date the milestone was achieved. All of the options that were accelerated as a
result of the merger as described above shall remain fully exercisable following
the merger.
EMPLOYEE MATTERS (SEE PAGE 49)
Antigenics has agreed to give credit for services rendered to Aronex
Pharmaceuticals while employed there under its employee benefit plans to Aronex
Pharmaceuticals employees who remain with the company after the merger.
Antigenics has also agreed to assume Aronex Pharmaceuticals's employment,
severance and other compensation agreements.
ACCOUNTING TREATMENT (SEE PAGE 49)
Antigenics expects to account for the merger under the purchase method of
accounting, which means the assets and liabilities of Aronex Pharmaceuticals,
including its intangible assets, will be recorded on Antigenics's books at their
fair values. The results of operations and cash flows of Aronex Pharmaceuticals
will be included in Antigenics's consolidated financial statements prospectively
as of the closing of the merger.
REGULATORY APPROVALS (SEE PAGE 57)
We are not aware of any governmental or regulatory approvals required for
closing the merger other than compliance with federal securities laws.
CONDITIONS TO THE MERGER (SEE PAGES 54-55)
We must satisfy the following conditions before completing the merger:
- Aronex Pharmaceuticals stockholders must adopt the merger agreement; and
- the registration statement of which this proxy statement/prospectus is a
part must not be the subject of any stop order or related proceeding.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 55)
We can mutually terminate the merger agreement without completing the
merger. Either Antigenics or Aronex Pharmaceuticals may terminate the agreement
if the merger is not completed by September 30, 2001, and under other
circumstances, including failure to obtain required stockholder approval.
TERMINATION FEES AND EXPENSES (SEE PAGES 55-56)
If Antigenics terminates the merger agreement under circumstances involving
an alternative acquisition proposal made to or by Aronex Pharmaceuticals, or
through a tender or exchange offer, or if Antigenics's closing conditions are
not satisfied by Aronex Pharmaceuticals, Aronex Pharmaceuticals may be required
to pay a termination fee of $1,200,000 to Antigenics. If Aronex
Pharmaceuticals's closing
6
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conditions are not satisfied by Antigenics, Antigenics may be required to pay
$1,200,000 to Aronex Pharmaceuticals.
If Antigenics and Aronex Pharmaceuticals do not complete the merger, each
party generally will pay its own expenses. However, if the agreement is
terminated by Antigenics because Aronex Pharmaceuticals's directors have
undertaken certain actions permitted under the agreement in furtherance of an
alternative transaction, Aronex Pharmaceuticals will pay Antigenics's reasonable
fees and expenses. If Antigenics and Aronex Pharmaceuticals complete the merger,
the combined company will be responsible for unpaid expenses.
COMPARATIVE STOCKHOLDER RIGHTS (SEE PAGES 90-93)
When Antigenics and Aronex Pharmaceuticals complete the merger, Aronex
Pharmaceuticals stockholders will hold shares of Antigenics common stock. Their
rights will thus be governed by Antigenics's charter and by-laws.
COMPARATIVE STOCK PRICE INFORMATION AND DIVIDEND INFORMATION (SEE PAGES 88-89)
Antigenics common stock (Nasdaq: AGEN) and Aronex Pharmaceuticals stock
(Nasdaq: ARNX) are quoted on the Nasdaq National Market. The following table
presents the market value of Antigenics common stock (on a historical basis) and
the market value of Aronex Pharmaceuticals common stock (on a historical and
equivalent per share basis) as of April 23, 2001, the last business day before
Antigenics and Aronex Pharmaceuticals publicly announced the merger agreement.
The equivalent per share value of Aronex Pharmaceuticals common stock equals the
closing price of Antigenics common stock multiplied by 0.0707.
EQUIVALENT PER
ARONEX PHARMACEUTICALS SHARE VALUE OF
ANTIGENICS COMMON STOCK COMMON STOCK ARONEX
--------------------------- ------------------------- PHARMACEUTICALS
HIGH LOW CLOSING HIGH LOW CLOSING COMMON STOCK
------ ------ ------- ----- ----- ------- ---------------
April 23, 2001.................. $16.05 $14.72 $15.55 $0.88 $0.80 $0.85 $1.10
We encourage you to obtain current market quotations for Antigenics common
stock and Aronex Pharmaceuticals common stock.
The market price of Antigenics common stock is likely to fluctuate before
and after the merger is completed. Antigenics cannot predict the future prices
for its stock, or on which markets it will be traded in the future.
No cash dividends have ever been paid or declared on shares of Aronex
Pharmaceuticals common stock or Antigenics common stock. Antigenics does not
anticipate paying cash dividends on its stock in the foreseeable future.
7
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ANTIGENICS SELECTED HISTORICAL FINANCIAL DATA
Antigenics is providing the following information to aid you in your
analysis of the financial aspects of the merger. Antigenics derived the selected
balance sheet data set forth below as of December 31, 1999 and 2000, and the
statement of operations data for each of the years in the three-year period
ended December 31, 2000, from its audited consolidated financial statements
incorporated by reference into this proxy statement/prospectus. Antigenics
derived the selected balance sheet data as of December 31, 1998, and selected
statement of operations data for the two years ended December 31, 1996 and 1997,
from its audited financial statements which are not included in this proxy
statement/prospectus.
Antigenics derived the selected financial data for the three months ended
March 31, 2000 and 2001 from its unaudited consolidated financial statements
which are incorporated by reference into this proxy statement/prospectus. The
unaudited consolidated financial statement data includes, in Antigenics's
opinion, all adjustments (consisting only of normal recurring adjustments) that
are necessary for a fair presentation of their financial position and the
results of their operations for these periods. Operating results for the three
months ended March 31, 2001 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2001. This information
is only a summary and you should read it in conjunction with Antigenics's
historical consolidated financial statements and related notes and "Antigenics's
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Antigenics's annual reports, quarterly reports, and
other information on file with the SEC. For more details on how you can obtain
these reports and other information, you should read the section of this proxy
statement/prospectus entitled "Where You Can Find More Information" beginning on
page 95.
Prior to Antigenics's converting to a corporation in February 2000, as a
limited liability company, no federal, state or local income taxes were levied
on Antigenics. Each member of the limited liability company was individually
responsible for reporting his share of Antigenics's net income or loss on his
personal tax returns. As a result, Antigenics will not be able to offset future
taxable income, if any, against losses incurred prior to the closing of the
conversion to a corporation.
Given Antigenics's history of incurring operating losses, management
believes that it is more likely than not that any deferred tax assets, net of
deferred tax liabilities, will not be realized. Therefore, there is no income
tax benefit in the consolidated financial statements for periods ended after
February 2000 because of a loss before income taxes and the need to recognize a
valuation allowance on net deferred tax assets.
Increases in cash and cash equivalents, total current assets, total assets
and stockholders' equity in the periods presented below include the effects of
the receipt of net proceeds from Antigenics's equity offerings that totaled
approximately $18.0 million, $41.4 million, and $66.8 million in 1998, 1999, and
2000. In addition, in November 2000, Antigenics acquired Aquila
Biopharmaceuticals, Inc. through the issuance of Antigenics common stock. The
acquisition of Aquila was accounted for as a purchase and resulted in increases
in total assets, liabilities and stockholders' equity of $14.6 million, $5.3
million and $16.9 million respectively, after the write-off of acquired
in-process research and development of $25.8 million.
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THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
------- ------- ------- -------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue............................... $ -- $ -- $ -- $ -- $ 443 $ -- $ 884
Expenses:
Cost of sales....................... -- -- -- -- (363) -- (226)
Research and development............ (2,077) (2,725) (5,947) (11,377) (17,575) (3,530) (6,168)
General and administrative.......... (1,800) (1,589) (3,693) (7,480) (9,190) (1,900) (2,949)
Acquired in-process research and
development....................... -- -- -- -- (25,800) -- --
------- ------- ------- -------- -------- ------- -------
Operating loss........................ (3,877) (4,314) (9,640) (18,857) (52,485) (5,430) (8,459)
Interest income, net.................. 281 481 736 723 5,756 1,067 1,152
Non-operating income.................. 250 -- -- 10 -- -- --
------- ------- ------- -------- -------- ------- -------
Net loss(1)........................... $(3,346) $(3,833) $(8,904) $(18,124) $(46,729) $(4,363) $(7,307)
======= ======= ======= ======== ======== ======= =======
Net loss per share, basic and
diluted............................. $ (0.23) $ (0.25) $ (0.54) $ (1.00) $ (1.90) $ (0.19) $ (0.27)
======= ======= ======= ======== ======== ======= =======
Weighted average number of shares
outstanding, basic and diluted...... 14,602 15,401 16,459 18,144 24,659 22,991 27,341
======= ======= ======= ======== ======== ======= =======
AS OF DECEMBER 31, AS OF MARCH 31, 2001
---------------------------- --------------------
1998 1999 2000 (UNAUDITED)
------- ------- -------- --------------------
BALANCE SHEET DATA:
Cash and cash equivalents..................... $22,168 $46,418 $ 99,139 $ 90,078
Total current assets.......................... 22,447 47,672 101,593 93,082
Total assets.................................. 26,636 56,004 127,966 119,251
Total current liabilities..................... 2,285 2,171 8,611 6,819
Long-term liabilities, less current portion... 709 2,155 2,651 2,264
Stockholders' equity.......................... 23,641 51,678 116,703 110,168
- ---------------
(1) Prior to Antigenics's conversion from a limited liability company to a
corporation in February 2000, in accordance with federal, state and local
income tax regulations which provide that no income taxes are levied on
United States limited liability companies, each member of the limited
liability company was individually responsible for reporting his share of
the company's net income or loss. Accordingly, Antigenics has not provided
for income taxes in their consolidated financial statements for periods
before February 2000. Given Antigenics's history of incurring operating
losses, no income tax benefit is recognized in their consolidated financial
statements for periods after February 2000 because of a loss before income
taxes and the need to recognize a valuation allowance on net deferred tax
assets.
9
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ARONEX PHARMACEUTICALS SELECTED HISTORICAL FINANCIAL DATA
The selected financial data set forth below are derived from Aronex
Pharmaceuticals's financial statements as of and for each of the years in the
five-year period ended December 31, 2000, which have been audited by Arthur
Andersen LLP, independent public accountants and unaudited financial statements
for the three months ended March 31, 2000 and 2001. In order to complete the
development and other activities to commercialize Aronex Pharmaceuticals's
products, additional financing will be required. Accordingly, Aronex
Pharmaceuticals's independent public accountants' report on the financial
statements for the year ended December 31, 2000 includes an explanatory fourth
paragraph expressing substantial doubt about Aronex Pharmaceuticals's ability to
continue as a going concern. In Aronex Pharmaceuticals's opinion, the
information for the three months ended March 31, 2000 and 2001 reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results of operations and financial condition. Results for
interim periods should not be considered indicative of results for any other
periods or for the year. This information is only a summary and you should read
it in conjunction with Aronex Pharmaceuticals's historical financial statements
and related notes and "Aronex Pharmaceuticals Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in this
proxy statement/prospectus.
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues:
Research and development grants and
contracts......................... $ 2,670 $ 841 $ 6,737 $ 11,052 $ 3,219 $ 1,451 $ 92
------- -------- -------- -------- -------- ------- -------
Expenses:
Research and development............ 10,357 13,993 22,793 21,494 16,611 5,800 2,090
Purchase of in-process research and
development....................... 242 3,000 -- -- -- -- --
Selling, general and
administrative.................... 1,620 2,641 3,354 4,652 3,241 699 1,009
------- -------- -------- -------- -------- ------- -------
Total expenses...................... 12,219 19,634 26,147 26,146 19,852 6,499 3,099
------- -------- -------- -------- -------- ------- -------
Operating loss........................ (9,549) (18,793) (19,410) (15,094) (16,633) (5,048) (3,007)
Other income (expense):
Interest income..................... 1,692 2,059 1,265 1,330 926 221 106
Gain on sale of investments......... -- -- -- -- 2,653 2,653 --
Interest expense and other.......... (173) (257) (86) (330) (448) (127) (162)
------- -------- -------- -------- -------- ------- -------
Other income (expense), net......... 1,519 1,802 1,179 1,000 3,131 2,747 (56)
Net loss before cumulative effect of
change in accounting principle...... (8,030) (16,991) (18,231) (14,094) (13,502) (2,301) (3,063)
Cumulative effect of change in
accounting principle................ -- -- -- -- (4,455) (4,455) --
------- -------- -------- -------- -------- ------- -------
Net loss.......................... $(8,030) $(16,991) $(18,231) $(14,094) $(17,957) $(6,756) $(3,063)
======= ======== ======== ======== ======== ======= =======
Loss per share before cumulative
effect of change in accounting
principle........................... $ (0.62) $ (1.14) $ (1.17) $ (0.65) $ (0.54) $ (0.10) $ (0.12)
Cumulative effect of change in
accounting principle................ -- -- -- -- (0.18) (0.19) --
------- -------- -------- -------- -------- ------- -------
Net loss per share................ $ (0.62) $ (1.14) $ (1.17) $ (0.65) $ (0.72) $ (0.29) $ (0.12)
======= ======== ======== ======== ======== ======= =======
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THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Weighted average shares used in
computing basic and diluted loss per
share............................... 13,048 14,896 15,571 21,727 24,847 22,881 25,974
Pro forma amounts assuming the
accounting change is applied
retroactively:
Net loss.......................... $(8,030) $(16,991) $(23,104) $(13,676)
======= ======== ======== ========
Net loss per share................ $ (0.62) $ (1.14) $ (1.48) $ (0.63)
======= ======== ======== ========
AS OF DECEMBER 31, AS OF MARCH 31, 2001
------------------------------------------------------ --------------------
1996 1997 1998 1999 2000
-------- -------- -------- --------- --------- (UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term and long-term
investments..................... $ 41,388 $ 29,954 $ 20,390 $ 20,252 $ 9,075 $ 5,258
Total assets...................... 44,281 32,125 23,045 22,734 11,042 7,183
Total long-term obligations....... 146 6 1,012 3,517 3,620 3,445
Deficit accumulated during
development stage............... (52,213) (69,204) (87,435) (101,529) (119,486) (122,549)
Total stockholders' equity
(deficit)....................... 40,477 27,379 13,610 14,731 2,665 (398)
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SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following selected unaudited pro forma consolidated financial data
present the consolidated financial data of Antigenics and Aronex Pharmaceuticals
after giving effect to the merger, assuming the merger had been effective for
the periods indicated. The selected unaudited pro forma consolidated financial
data for the year ended December 31, 2000 and as of March 31, 2001 and for the
three months then ended were derived from, and should be read in conjunction
with, the unaudited pro forma condensed consolidated balance sheet and unaudited
pro forma condensed consolidated statements of operations, including the notes,
which are contained in this proxy statement/prospectus. You should read the
selected unaudited pro forma condensed consolidated financial data in
conjunction with the historical financial statements of both Antigenics and
Aronex Pharmaceuticals, which are incorporated by reference or contained in this
proxy statement/prospectus. Antigenics has presented the selected unaudited pro
forma condensed consolidated financial data for illustration purposes only in
accordance with the assumptions set forth below. This data does not necessarily
show what the operating results or financial position would have been if the
merger had been completed at the beginning of the period indicated, nor does it
indicate the future operating results or financial position of the combined
enterprise. The selected unaudited pro forma condensed consolidated financial
data do not include any adjustments to reflect any cost savings or other
synergies anticipated as a result of the merger.
SELECTED UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA:
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 2000 MARCH 31, 2001
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue........................................... $ 7,762 $ 976
Cost of sales..................................... (1,614) (226)
Research and development.......................... (39,966) (8,365)
General and administration........................ (16,284) (3,947)
-------- --------
Operating loss.................................... (50,102) (11,562)
Interest income................................... 7,140 1,420
Other, net........................................ 1,380 (324)
-------- --------
Loss before non-recurring charges directly
attributable to the Aquila Biopharmaceuticals,
Inc. and Aronex Pharmaceuticals, Inc.
acquisitions and change in accounting
principle....................................... $(41,582) $(10,466)
======== ========
Loss before non-recurring charges directly
attributable to the Aquila Biopharmaceuticals,
Inc. and Aronex Pharmaceuticals, Inc.
acquisitions and change in accounting principle
per common share, basic and diluted............. $ (1.58) $ (0.36)
======== ========
Weighted average number of common shares,
outstanding, basic and diluted.................. 26,335 29,017
======== ========
SELECTED UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
MARCH 31, 2001
--------------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 94,563
Total current assets........................................ 97,812
Total assets................................................ 129,996
Total current liabilities................................... 14,252
Long-term debt, less current portion........................ 5,335
Stockholders' equity........................................ 110,409
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COMPARATIVE PER SHARE DATA
We are providing the following comparative per share information to aid you
in your analysis of the financial aspects of the merger. You should read this
information in conjunction with Antigenics's historical consolidated financial
statements that are incorporated by reference into this proxy
statement/prospectus and Aronex Pharmaceuticals's historical financial
statements and unaudited pro forma consolidated financial statements and the
related notes that are included elsewhere in this proxy statement/prospectus.
The unaudited pro forma consolidated per share data presented below reflects the
purchase method of accounting for business combinations. The results may have
been different if Antigenics and Aronex Pharmaceuticals had always been
consolidated.
Both Antigenics and Aronex Pharmaceuticals have fiscal years ending on
December 31. The Aronex Pharmaceuticals pro forma equivalent per share data
equals an assumed exchange ratio of 0.0645 multiplied by the Antigenics pro
forma consolidated per share data. This exchange ratio is based on an assumed
value of Antigenics common stock of $17.051 based on the average closing price
for the ten trading days ending the second trading day before closing the
merger, assuming the closing occurred on May 18, 2001. The pro forma per share
data are not necessarily indicative of the results that would have occurred if
the merger had been completed on the date indicated or the results that will
occur after the merger. See "Selected Unaudited Pro Forma Consolidated Financial
Information."
ARONEX PHARMACEUTICALS
STOCKHOLDERS
ANTIGENICS STOCKHOLDERS ------------------------
------------------------- PRO FORMA
ADJUSTED AND PRO FORMA EQUIVALENT
HISTORICAL PER SHARE HISTORICAL PER SHARE
------------ --------- ---------- ----------
Loss before non-recurring charges directly
attributable to the Aquila
Biopharmaceuticals, Inc. and Aronex
Pharmaceuticals, Inc. acquisition and change
in accounting principle per share:
Year ended December 31, 2000................. $(1.12)(1) $(1.58) $(0.72) $(0.10)
Three months ended March 31, 2001............ (0.27) (0.36) (0.12) (0.02)
Dividends per share:
Year ended December 31, 2000................. -- -- -- --
Three months ended March 31, 2001............ -- -- -- --
Book value per share at March 31, 2001......... 4.02 3.80 (0.02) 0.25
- ---------------
(1) Adjusted to reflect the acquisition of Aquila Biopharmaceuticals, Inc. on
November 16, 2000 as if it had occurred on January 1, 2000 and to eliminate
the related write-off of acquired in-process research and development costs
of $25,800,000 recorded on November 16, 2000 because the charge is
nonrecurring in nature.
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RISK FACTORS
In addition to the other information included in this proxy
statement/prospectus, you should consider carefully the risk factors described
below in deciding how to vote on the merger proposal. You should keep these risk
factors in mind when you read forward-looking statements.
RISKS RELATING TO THE MERGER
YOU MAY RECEIVE LESS THAN $1.10 WORTH OF ANTIGENICS COMMON STOCK FOR EACH
SHARE OF ARONEX PHARMACEUTICALS COMMON STOCK YOU OWN, AND YOU MAY NOT RECEIVE
ANY ADDITIONAL SHARES FOR THE CONTINGENT VALUE RIGHTS.
In the merger, each share of Aronex Pharmaceuticals common stock will be
converted into the right to receive a fraction of a share of Antigenics common
stock equal to the exchange ratio. The exchange ratio will be between 0.0550 and
0.0917, depending on the market price for Antigenics common stock. If the
average closing price of Antigenics common stock is less than $12.00 during the
10-day trading period ending the second trading day before the closing date of
the merger, you will receive 0.0917 of a share of Antigenics common stock for
each share of Aronex Pharmaceuticals common stock. This may be less than $1.10
worth of Antigenics common stock. Aronex Pharmaceuticals cannot terminate the
merger agreement because this value is below $1.10. The actual number of shares
of Antigenics common stock issued will not be determined until two trading days
before the closing date of the merger. The market value of Antigenics common
stock on and after the closing date of the merger may vary significantly from
the prices on the date of execution of the merger agreement, the date of this
proxy statement/prospectus or the date on which you vote on the merger.
In the merger, each share of Aronex Pharmaceuticals common stock will also
convert into a contingent value right. The contingent value right represents the
right to receive a fraction of a share of Antigenics common stock equal to an
exchange ratio if the milestone is achieved and the transaction expenses are
below a certain amount. The milestone may not be achieved on or before July 6,
2002 due to numerous factors, including a delay in the FDA's approval of ATRAGEN
in APL or the transaction expenses may exceed $4,500,000. In either case, you
would not receive any Antigenics common stock for your contingent value rights.
ANTIGENICS FACES DIFFERENT MARKET RISKS FROM THOSE FACED BY ARONEX
PHARMACEUTICALS, AND THESE RISKS MAY CAUSE THE VALUE OF THE SHARES OF ANTIGENICS
COMMON STOCK ISSUED TO YOU TO DECLINE.
In the merger you will receive shares of Antigenics common stock.
Antigenics common stock has recently experienced extreme fluctuations in price
and volume. The business, strategy and financial condition of Antigenics is
somewhat different from that of Aronex Pharmaceuticals. Antigenics's results of
operations, as well as the price of Antigenics common stock, may be affected by
various factors different from those affecting Aronex Pharmaceuticals's results
of operations and its common stock price. Future events that may not have
affected the price of Aronex Pharmaceuticals stock may cause the price of
Antigenics common stock to fall.
For a description of and other information about Antigenics common stock
and the differences between Antigenics common stock and Aronex Pharmaceuticals
stock, see "Comparative Per Share Data" on page 13, "Comparative Stock Prices
and Dividends" on pages 88-89, and "Comparison of Rights of Antigenics and
Aronex Pharmaceuticals Stockholders" on pages 90-93.
ANTIGENICS AND ARONEX PHARMACEUTICALS MAY NOT SUCCESSFULLY INTEGRATE OPERATIONS,
AND THE INTEGRATION OF THE BUSINESSES MAY BE COSTLY.
After the merger, Antigenics and Aronex Pharmaceuticals, each of which
previously operated independently, will have to integrate operations. The
integration will require significant efforts from each company, including
coordinating research and development efforts. Aronex Pharmaceuticals's
collaborators, customers, distributors or suppliers may terminate their
arrangements with Aronex Pharmaceuticals or
14
21
demand new arrangements. Integrating operations may distract management's
attention from the day-to-day business of the combined company. If Antigenics is
unable to successfully integrate the operations of the two companies or if this
integration process costs more than expected, Antigenics's future results will
be negatively impacted.
OFFICERS AND DIRECTORS OF ARONEX PHARMACEUTICALS MAY HAVE INTERESTS THAT ARE
DIFFERENT FROM, OR IN ADDITION TO, THOSE OF ARONEX PHARMACEUTICALS STOCKHOLDERS
GENERALLY.
You should be aware of potential conflicts of interest, and the benefits
available to officers and directors of Aronex Pharmaceuticals when considering
the Aronex Pharmaceuticals board's recommendation of the merger. The officers
and directors of Aronex Pharmaceuticals have interests in the merger that are in
addition to, or different from, their interests as Aronex Pharmaceuticals
stockholders. The Aronex Pharmaceuticals board was aware of these conflicts of
interest when it approved the merger. These interests include the right of
Aronex Pharmaceuticals's officers and directors to:
- accelerated vesting of their stock options upon consummation of the
merger;
- receipt of severance benefits under employee retention agreements in the
event they are terminated by Antigenics after the merger; and
- indemnification and insurance coverage with respect to acts and omissions
in their capacities as officers and directors of Aronex Pharmaceuticals.
For a more detailed discussion of potential conflicts of interests of
Aronex Pharmaceuticals management, see "Background and Reasons for the
Merger -- Potential Conflicts of Interests of Aronex Pharmaceuticals Management
in the Merger" on pages 43-44 of this proxy statement/prospectus.
RISKS RELATING TO ARONEX PHARMACEUTICALS IF THE MERGER IS NOT COMPLETED.
IF THE MERGER IS NOT CONSUMMATED, ARONEX PHARMACEUTICALS WILL REQUIRE FUTURE
CAPITAL WHICH MAY NOT BE AVAILABLE.
In the event that the merger is not consummated, Aronex Pharmaceuticals
will continue to require substantial additional funds for its operations. At
March 31, 2001, Aronex Pharmaceuticals had $5.3 million in cash, cash
equivalents and investments, which it believes would not be sufficient to fund
operations through the end of 2001. Furthermore, Aronex Pharmaceuticals's
accountants have issued a qualified opinion on its consolidated financial
statements for the year ended December 31, 2000 expressing substantial doubt
about its ability to continue as a going concern. Aronex Pharmaceuticals may
have to close operations and/or seek legal protection from its creditors if the
merger is not consummated on a timely basis, or at all. Aronex Pharmaceuticals
does not know if additional funding will be available at all or on acceptable
terms. If Aronex Pharmaceuticals raises funds by selling more stock, share
ownership by its current stockholders will be diluted. In addition, Aronex
Pharmaceuticals may grant future investors rights which are superior to those of
current stockholders.
IF THE MERGER IS NOT CONSUMMATED, ARONEX PHARMACEUTICALS'S COMMON STOCK WILL
PROBABLY BE DELISTED FROM NASDAQ.
Although Aronex Pharmaceuticals's common stock presently lists on the
Nasdaq National Market, it must maintain certain minimum financial requirements
for continued inclusion on Nasdaq. On April 9, 2001, Aronex Pharmaceuticals
received a letter from Nasdaq informing Aronex Pharmaceuticals that it no longer
meets these criteria. Aronex Pharmaceuticals replied to Nasdaq's letter on April
23, 2001, in which Aronex Pharmaceuticals stated that it was undertaking the
merger with Antigenics in order to address Nasdaq's concerns. Nasdaq has advised
Aronex Pharmaceuticals that it will waive these requirements through August 31,
2001 and that it will consider an extension of this waiver if the merger is not
yet consummated by that date. If the merger is not consummated by that date (or,
if an extension is granted, by such later date) or if the merger agreement is
terminated prior to that date, Nasdaq will most likely
15
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delist Aronex Pharmaceuticals's common stock. In such event, trading in Aronex
Pharmaceuticals's common stock would thereafter be conducted in the
over-the-counter markets in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." Consequently, the liquidity of Aronex
Pharmaceuticals's common stock could be impaired, not only in the number of
shares which could be bought and sold, but also through delays in the timing of
the transactions, reductions in the security analysts' and the news media's
coverage of Aronex Pharmaceuticals, and lower prices for its common stock that
it might otherwise attain.
IF ARONEX PHARMACEUTICALS'S COMMON STOCK IS DELISTED, IT MAY BE SUBJECT TO THE
"PENNY STOCK" REGULATIONS WHICH MAY AFFECT YOUR ABILITY TO SELL YOUR SHARES.
If Nasdaq delists Aronex Pharmaceuticals's common stock, it could become
subject to Rule 15g-9 under the Exchange Act, which imposes additional sales
practice requirements on broker-dealers that sell such securities to persons
other than established customers and "accredited investors" (generally, an
individual with a net worth in excess of $1,000,000 or an annual income
exceeding $200,000, or $300,000 together with his or her spouse's income). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
consent to the transaction prior to the sale. Consequently, the rule may
adversely affect the ability of the holders of Aronex Pharmaceuticals's common
stock to sell their shares in the secondary market.
Regulations of the Commission define "penny stock" to be any non-Nasdaq
equity security that has a market price (as therein defined) of less than $5.00
per share or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require delivery, prior to any transaction of penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The Commission also requires disclosure about commissions payable to
both of the broker-dealer and the registered representative and current
quotations of the securities. Finally, the Commission requires monthly
statements to be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
These penny stock restrictions will not apply to Aronex Pharmaceuticals's
common stock if Nasdaq continues to list it and has certain price and volume
information provided on a current and continuing basis, and Aronex
Pharmaceuticals meets certain minimum net tangible assets or average revenue
criteria. At the present time, Aronex Pharmaceuticals does not meet these
criteria. Even if Aronex Pharmaceuticals's common stock were exempt from such
restrictions, it would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the Commission the authority to prohibit any person engaged in
unlawful conduct while participating in a distribution of a penny stock from
associating with a broker-dealer or participating in a distribution of a penny
stock, if the Commission finds that such a restriction would be in the public
interest. If Aronex Pharmaceuticals's common stock were subject to the rules on
penny stocks, the market liquidity for its common stock could be severely and
adversely affected.
THE TERMINATION FEE, THE RESTRICTIONS ON SOLICITATION CONTAINED IN THE MERGER
AGREEMENT, AND THE VOTING AGREEMENTS MAY DISCOURAGE OTHER COMPANIES FROM TRYING
TO ACQUIRE ARONEX PHARMACEUTICALS.
Until the completion of the merger, and with some exceptions, Aronex
Pharmaceuticals is prohibited from entering into or soliciting, initiating or
encouraging any inquiries or proposals that may lead to a proposal or offer for
a merger or other business combination transaction with any person other than
Antigenics. In addition, Aronex Pharmaceuticals agreed to pay a termination fee
to Antigenics in specified circumstances, including when a third party acquires
or seeks to acquire Aronex Pharmaceuticals. These provisions could discourage
other companies from trying to acquire Aronex Pharmaceuticals even though those
other companies might be willing to offer greater value to Aronex
Pharmaceuticals stockholders than Antigenics has offered in the merger. The
payment of the termination fee could also have a material adverse effect on
Aronex Pharmaceuticals's financial condition. Furthermore, two Aronex
Pharmaceuticals stockholders and all directors and officers who own Aronex
Pharmaceuticals common stock, beneficially owning an aggregate of approximately
12.0% of the Aronex Pharmaceuticals common stock outstanding on
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the record date have entered into voting agreements with Antigenics whereby they
have agreed to vote their shares in favor of the approval of the merger
agreement and against any competing transaction. These agreements could
discourage other companies from trying to acquire Aronex Pharmaceuticals even
though those other companies might be willing to offer greater value to Aronex
Pharmaceuticals stockholders than Antigenics has offered in the merger
agreement.
RISKS RELATING TO ANTIGENICS
In the merger, Antigenics will issue shares of its common stock in exchange
for Aronex Pharmaceuticals common stock. Accordingly, before voting on the
merger, you should carefully consider the following factors affecting the
business of Antigenics. These risks could result in material adverse
consequences to Antigenics's business, financial condition, operating results or
cash flows. This could cause the trading price of Antigenics common stock to
decline.
ANTIGENICS CANNOT GUARANTEE THAT IT WILL EVER COMMERCIALIZE ANY OF ITS
THERAPEUTIC OR PROPHYLACTIC VACCINES AND GENERATE ADDITIONAL REVENUE IN THE
FUTURE.
Antigenics must receive separate regulatory approvals for each of its
vaccines in each indication before it can sell them commercially for any
such indication in the United States or internationally.
To obtain regulatory approvals, Antigenics must, among other requirements,
complete clinical trials demonstrating that a particular therapeutic or
prophylactic vaccine is safe and effective. Antigenics has a number of
therapeutic or prophylactic vaccines in clinical trials. Any delays or
difficulties that Antigenics encounters in these clinical trials may have a
substantial adverse impact on its operations and cause its stock price to
decline significantly. Antigenics has limited clinical data, and future clinical
trials may not show that its vaccines are safe and effective. In addition,
Antigenics or the FDA might delay or halt the clinical trials for various
reasons, including:
- its vaccines may not appear to be more effective than current therapies;
- its vaccines may have adverse side effects;
- the time required to determine whether its vaccines are effective may be
longer than expected;
- patients may die during a clinical trial because their disease is too
advanced or because they experience medical problems that may not be
related to Antigenics's vaccines;
- sufficient numbers of patients may not enroll in the trials; or
- Antigenics may not be able to produce sufficient quantities of a vaccine
to complete the trials.
Antigenics relies on third party clinical investigators to conduct its
clinical trials. As a result, Antigenics may encounter delays outside its
control. Furthermore, the success of these third parties in performing their
responsibilities under license agreements may affect the timing and amount of
license fee payments, royalties and revenues from product sales, and Antigenics
cannot assure you that these collaborations will be successful.
Antigenics may not be able to establish additional acceptable collaborative
arrangements or license agreements should it deem these necessary to develop and
commercialize product candidates, nor can Antigenics assure you that such future
arrangements will be successful.
The process of obtaining and maintaining regulatory approvals for new
therapeutic products is lengthy, expensive and uncertain. It also can vary
substantially, based on the type, complexity and novelty of the product
involved. To date, the FDA and foreign regulatory agencies have approved only a
limited number of cancer therapeutic vaccines for commercial sale. Furthermore,
the FDA and foreign regulatory agencies have relatively little experience with
autologous therapies. This lack of experience may lengthen the regulatory review
process for Oncophage, Antigenics's lead cancer product, increase its
development costs and delay or prevent commercialization. In addition, problems
encountered with other companies' therapeutic vaccine products may slow the
regulatory review of its therapeutic vaccines. The FDA may not
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consider Oncophage to be an appropriate candidate for fast track designation
should Antigenics choose to seek it. Accordingly, Oncophage or any of
Antigenics's other future drug candidates could take a significantly longer time
to gain regulatory approval than Antigenics expects or may never gain approval.
Because development of Antigenics's therapeutic or preventive vaccines for
infectious diseases, autoimmune disorders, and degenerative disorders will
involve a lengthy and complex process, Antigenics is not certain it will be
able to develop any marketable therapeutic or preventive vaccines for these
indications.
With the exception of Antigenics's immunotherapeutic agent for the
treatment of genital herpes, Antigenics has not completed all of the preclinical
development of any of its therapeutic or preventive vaccines for infectious
diseases, autoimmune disorders or degenerative disorders. Antigenics will need
to conduct extensive additional research and preclinical and clinical testing of
these vaccines prior to commercialization. This development process takes
several years and often fails to yield commercial products. Regulatory
authorities may not permit human testing of these vaccines; and, even if they
permit human testing, Antigenics may not demonstrate that a vaccine is safe and
effective.
Even if some of Antigenics's vaccines receive regulatory approval, those
vaccines may still face subsequent regulatory difficulties.
If Antigenics receives regulatory approval to sell any of its human
therapeutic or prophylactic vaccines, the FDA or a comparable foreign regulatory
agency may, nevertheless, limit the categories of patients who can use that
therapeutic or prophylactic vaccine. In addition, regulatory agencies subject a
marketed product, its manufacturer and the manufacturer's facilities to
continual review and periodic inspections. Furthermore, the FDA or foreign
regulatory agencies may require expensive post-approval trials. If Antigenics
discovers previously unknown problems with a product or its manufacturing and
laboratory facility, a regulatory agency may impose restrictions on that product
or on Antigenics, including requiring Antigenics to withdraw the product from
the market. If Antigenics fails to comply with applicable regulatory approval
requirements, a regulatory agency may:
- send Antigenics warning letters;
- impose fines and other civil penalties on Antigenics;
- suspend Antigenics's regulatory approvals;
- refuse to approve pending applications or supplements to approved
applications filed by Antigenics;
- refuse to permit exports of Antigenics's products from the United States;
- require Antigenics to recall products;
- seize Antigenics's products;
- impose restrictions on Antigenics's operations; or
- criminally prosecute Antigenics.
ANTIGENICS MAY ENCOUNTER MANUFACTURING PROBLEMS THAT LIMIT ITS ABILITY TO
SUCCESSFULLY COMMERCIALIZE ITS THERAPEUTIC AND PROPHYLACTIC VACCINES.
If Antigenics is unable to purify heat shock proteins from some cancer
types, the size of its potential market would decrease.
Antigenics's ability to successfully commercialize a therapeutic vaccine
for a particular cancer type depends on its ability to purify heat shock
proteins from that type of cancer. Based on Antigenics's clinical trials
conducted to date, in renal cell carcinoma, Antigenics has been able to
manufacture Oncophage from 98% of the tumors delivered to its manufacturing
facility; for melanoma, 86%; for colorectal carcinoma, 100%; for gastric cancer,
70%; and for pancreatic cancer, 30%. The relatively low rate for pancreatic
cancer is due to the abundance of proteases in pancreatic tissue. Proteases are
enzymes that break down proteins.
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These proteases degrade the heat shock proteins during the purification process.
Antigenics may encounter this problem or similar problems with other types of
cancers as it expands its research. If Antigenics cannot overcome these
problems, the number of cancer types that its therapeutic vaccines could treat
would be limited.
Delays in obtaining regulatory approval of Antigenics's manufacturing
facility and disruptions in its manufacturing process may delay or disrupt
its commercialization efforts.
Before Antigenics can begin commercially manufacturing its therapeutic
vaccines, it must obtain regulatory approval of its manufacturing facility and
process. Manufacturing of Antigenics's therapeutic vaccines must comply with the
FDA's current Good Manufacturing Practices requirements, commonly known as cGMP,
and foreign regulatory requirements. The cGMP requirements govern quality
control and documentation policies and procedures. In complying with cGMP and
foreign regulatory requirements, Antigenics will be obligated to expend time,
money and effort in production, recordkeeping and quality control to assure that
the product meets applicable specifications and other requirements. If
Antigenics fails to comply with these requirements, it will be subject to
possible regulatory action and may be limited in the jurisdictions in which it
is permitted to sell its therapeutic vaccines.
The FDA, the Commonwealth of Massachusetts and foreign regulatory
authorities have the authority to continuously inspect Antigenics's
manufacturing facility in Woburn, Massachusetts. Preparing this facility for
commercial manufacturing may take longer than planned, and the costs of
complying with FDA regulations may be higher than those for which Antigenics has
budgeted. In addition, any material changes Antigenics makes to the
manufacturing process may require approval by the FDA, the Commonwealth of
Massachusetts or foreign regulatory authorities. It could take longer than
Antigenics expects to obtain these approvals. Any delays in obtaining these
approvals could disrupt Antigenics's manufacturing process.
Antigenics is the only manufacturer of its therapeutic vaccines. For the
next several years, Antigenics expects that it will conduct all of the
manufacturing of its therapeutic vaccines in the facility in Woburn,
Massachusetts. If this facility or the equipment in the facility is
significantly damaged or destroyed, Antigenics will not be able to quickly or
inexpensively replace its manufacturing capacity. Due to the nature of
Antigenics's therapeutic vaccines, a third party may not be able to manufacture
Antigenics's therapeutic vaccines.
Antigenics has no experience manufacturing Oncophage in the volumes that
will be necessary to support large clinical trials or commercial sales. Its
present manufacturing process may not meet its initial expectations as to:
- scheduling;
- reproducibility;
- yield;
- purity;
- cost;
- potency;
- quality; and
- other measurements of performance.
Antigenics is the only manufacturer of its Feline Leukemia vaccine and the
QS-21 family of adjuvants. For the next several years, Antigenics expects that
it will conduct all of its manufacturing of these products in its facility in
Framingham, Massachusetts. If this facility or the equipment in the facility is
significantly damaged or destroyed, Antigenics will not be able to quickly or
inexpensively replace its manufacturing capacity. This manufacturing facility
has limited expansion potential, and Antigenics may need to construct additional
manufacturing facilities or contract with another company to manufacture its
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products. Furthermore, if product demand increases substantially, Antigenics
will not be able to respond quickly or inexpensively to meet this demand.
Antigenics cannot guarantee that it will be able to construct additional
facilities or out-source its manufacturing at a reasonable cost, if at all.
ANTIGENICS MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM COLLABORATORS DUE TO
UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A FAILURE TO ENTER INTO
FUTURE COLLABORATIONS.
Part of Antigenics's strategy is to develop and commercialize some of its
products by continuing its existing collaborative arrangements with academic and
corporate collaborators and licensees and by entering into new collaborations.
Antigenics's success depends on the success of these parties in performing
research, preclinical and clinical testing. These arrangements may require
Antigenics to transfer important rights to these corporate collaborators and
licensees. These collaborators and licensees could choose not to devote
resources to these arrangements or, under certain circumstances, may terminate
these arrangements early. In addition, these collaborators and licensees,
outside of their arrangements with us, may develop technologies or products that
are competitive with those that Antigenics is developing. As a result,
Antigenics cannot guarantee that any of its strategic collaborations will
continue, that Antigenics will be able to enter into new collaborations, or that
Antigenics will receive revenues from any of these relationships.
ANTIGENICS MAY HAVE CONFLICTS OF INTEREST WITH ITS CORPORATE PARTNERS THAT COULD
ADVERSELY AFFECT EXPECTATIONS REGARDING ITS COLLABORATIONS.
Antigenics may have conflicts of interest with its corporate partners that
could adversely affect its business. For example, existing or future corporate
partners may pursue alternative technologies, including those of Antigenics's
competitors. Disputes may arise with respect to the ownership of rights to any
technology or products developed with any current or future corporate partner.
If Antigenics's corporate partners pursue alternative technologies or fail to
develop or commercialize successfully any product candidate to which they have
obtained rights from Antigenics, Antigenics's business will suffer.
IF ANTIGENICS IS UNABLE TO PROTECT ITS PROPRIETARY TECHNOLOGY, TRADE SECRETS OR
KNOW-HOW, IT MAY NOT BE ABLE TO OPERATE ITS BUSINESS PROFITABLY.
If Antigenics fails to sustain and further build its intellectual property
rights, competitors will be able to take advantage of its research and
development efforts to develop competing therapies.
Antigenics's success depends, in part, on its ability to maintain
protection for its products and technologies under the patent laws of the United
States and other countries, so that Antigenics can stop others from using its
inventions. Antigenics's success also will depend on its ability to prevent
others from using its trade secrets. In addition, Antigenics must operate in a
way that does not infringe, or violate, the intellectual property rights of
others.
Antigenics currently has exclusive rights to 30 issued United States
patents and foreign counterpart patents relating to its heat shock protein
technology. Its rights to these patents are a result of exclusive worldwide
licenses with Fordham University and Mount Sinai School of Medicine of New York
University. In addition, Antigenics has licensed or optioned rights to 106
pending United States patent applications and foreign counterpart patent
applications relating to its heat shock protein technology. Antigenics also has
exclusive rights to 31 issued and 59 pending U.S. and foreign patents and patent
applications, respectively, relating to its Saponin and CD1 technology. The
standards which the United States Patent and Trademark Office uses to grant
patents are not always applied predictably or uniformly and can change.
Consequently, Antigenics cannot be certain as to the type and extent of patent
claims that will be issued to Antigenics in the future. Any patents which are
issued may not contain claims which will permit Antigenics to stop competitors
from using similar technology. The standards which courts use to interpret
patents are not always applied predictably or uniformly and can change,
particularly as new technologies develop. Consequently, Antigenics cannot be
certain as to how much protection, if any, will be given to its patents, if
Antigenics attempts to enforce them and they are challenged in court. If
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Antigenics chooses to go to court to stop someone else from using the inventions
claimed in its patents, that individual or company has the right to ask the
court to rule that Antigenics's patents are invalid and should not be enforced
against that third party. These lawsuits are expensive and would consume time
and other resources even if Antigenics were successful in stopping the violation
of its patents. In addition, there is a risk that the court will decide that its
patents are not valid and that Antigenics does not have the right to stop the
other party from using the inventions. There is also the risk that, even if the
validity of its patents is upheld, the court will refuse to stop the other party
on the ground that such other party's activities are not covered by (that is, do
not infringe) its patents.
Furthermore, a third party may claim that Antigenics is using inventions
covered by such third party's patent and may go to court to stop Antigenics from
engaging in its normal operations and activities. These lawsuits are expensive
and would consume time and other resources. There is a risk that a court would
decide that Antigenics is violating the third party's patent and would order
Antigenics to stop the activities covered by the patent. In addition, there is a
risk that a court will order Antigenics to pay the other party damages for
having violated the other party's patent.
Antigenics relies on certain proprietary trade secrets and know-how.
Antigenics has taken measures to protect its trade secrets and know-how,
including the use of confidentiality agreements with its employees, consultants
and certain contractors. It is possible, however, that:
- these persons will breach the agreements;
- Antigenics would have inadequate remedies for any breach; or
- Antigenics's competitors will independently develop or otherwise discover
its trade secrets.
Antigenics may incur substantial costs as a result of litigation or other
proceedings relating to patent and other intellectual property rights.
The cost to Antigenics of any litigation or other proceeding relating to
intellectual property rights, even if resolved in its favor, could be
substantial. Some of its competitors may be able to sustain the costs of complex
patent litigation more effectively than Antigenics can because they have
substantially greater resources. Uncertainties resulting from the initiation and
continuation of any litigation could have a material adverse effect on
Antigenics's ability to continue its operations.
Should third parties file patent applications, or be issued patents
claiming technology also claimed by Antigenics in pending applications,
Antigenics may be required to participate in interference proceedings in the
United States Patent and Trademark Office to determine priority of invention.
Antigenics, or its licensors, may also need to participate in interference
proceedings involving its issued patents and pending applications of another
entity. An unfavorable outcome in an interference proceeding could require
Antigenics to cease using the technology or to license rights from prevailing
third parties. There is no guarantee that any prevailing party would offer
Antigenics a license or that Antigenics could acquire any license made available
to it on commercially acceptable terms.
Antigenics cannot guarantee that the practice of its technologies will not
conflict with the rights of others. Antigenics is aware of a United States
patent, issued to a third party, with claims directed to certain heat shock
protein based therapeutic vaccines and their use in the field of tissue
grafting. Antigenics does not believe that its products or activities are
infringing any valid claims of this patent. Antigenics also is aware of two
United States patents, issued to a different third party, with claims directed
to certain methods of making heat shock protein products and related
apparatuses. These patents do not claim any therapeutic applications. These
patents also do not claim any of the methods Antigenics presently uses to make
Oncophage. Moreover, Antigenics does not believe that its methods of producing
any of its heat shock protein-based therapeutic vaccines would infringe any
valid claim of either of these patents. However, Antigenics cannot guarantee
that this third party, or any other third party, will not sue Antigenics for
infringing these, or any other, patents. One of the patent applications licensed
to Antigenics contains claims which are substantially the same as claims in one
of the third party's patents. Therefore, there is a possibility that the United
States Patent and Trademark Office will declare an interference
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proceeding between one or both of the third party's patents and its patent
application. In an interference proceeding, the party with the earliest
effective filing date has certain advantages. Antigenics believes that its
claims have an earlier effective filing date than the claims of the other
patents. However, Antigenics cannot guarantee that it would prevail in any
interference proceeding. In the past and again recently, this third party has
contacted Antigenics about licensing patents rights, and Antigenics has not yet
made a decision regarding this matter.
In some foreign jurisdictions, Antigenics could become involved in
opposition proceedings, either by opposing the validity of another's foreign
patent or by third parties' opposing the validity of its foreign patents. In
1995, the European Patent Office issued a European patent, with claims directed
to the use of heat shock proteins to produce or enhance immune responses to
cancer and infectious diseases, to the Whitehead Institute for Biomedical
Research and the Medical Research Council. This patent is exclusively licensed
to StressGen Biotechnologies Corporation. The patent holders have made no
attempt to enforce this patent against us. Nevertheless, Antigenics has
successfully sought to have this patent revoked in its entirety in an opposition
proceeding in the European Patent Office. After an oral hearing at the European
Patent Office before the Opposition Division, the Opposition Division revoked
the patent in its entirety. The holders of the patent have the right to appeal
the decision to revoke the patent in its entirety. Even if the decision to
revoke the patent were to be reversed on appeal, Antigenics still should be free
to practice its autologous cancer business in Europe.
However, the patent owners or their licensee might still try to enforce the
revoked patent against Antigenics's infectious disease business in Europe during
any appeal. Antigenics may not obtain a final, non-appealable decision for
several years, during which time the patent remains enforceable. Antigenics may
incur significant costs by participating in the opposition proceedings and any
appeals. Furthermore, if Antigenics is sued on this patent in Europe prior to
any final decision of revocation, Antigenics may incur significant defense costs
even if it ultimately succeeds in proving that it does not infringe any valid
claims of this patent.
This European patent claims priority to a United States patent application
filed in 1988. Antigenics does not know whether this application, or any related
application, is still pending. Antigenics does not believe that any United
States patent has issued from this application, and it does not know whether a
United States patent will ever issue from this patent application. If a United
States patent does issue, Antigenics does not know whether the patent will be
enforceable, whether any valid claims will cover its activities or products, or
whether the patent owner will attempt to assert the patent against Antigenics.
In 1999, Antigenics received correspondence from both Copernicus
Therapeutics, Inc. and its counsel alleging similarity between the companies'
respective logos and demanding that Antigenics cease using its logo. In July
1999, Antigenics sent a response to Copernicus stating that Antigenics has prior
rights in the logo. In the response to Copernicus, Antigenics also stated that
since the respective corporate names are vastly different, both companies should
be able to continue the use of their respective logos without causing public
confusion. At this time, Antigenics has not received any further communications
from Copernicus or its counsel. Although Antigenics does not believe it is
infringing any rights owned by Copernicus, Copernicus may proceed with a
trademark lawsuit against us.
ANTIGENICS IS AN EARLY STAGE BIOTECHNOLOGY COMPANY THAT MAY NEVER BE PROFITABLE.
If Antigenics incurs operating losses for longer than it expects, it may be
unable to continue its operations.
Antigenics has generated $443,000 in revenues for the year ended December
31, 2000 and $884,000 for the three months ended March 31, 2001. Antigenics does
not expect to generate significant revenues for several years. Antigenics has
incurred losses since it was formed. From inception through March 31, 2001,
Antigenics has generated losses totaling $91.65 million. Antigenics expects to
incur increasing and significant losses over the next several years as it
completes its Oncophage clinical trials, applies for regulatory approvals,
continues development of its technology, and expands its operations, including
increased expenses associated with development of the technologies and product
pipeline that may be
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acquired as a result of the merger with Aronex Pharmaceuticals. Its
profitability will depend on the market acceptance of any of its therapeutic and
prophylactic vaccines that receive FDA or foreign regulatory marketing approval.
The commercial success of any of Antigenics's vaccines will depend on whether:
- the vaccine is more effective than alternative treatments;
- side effects of the vaccine are acceptable to doctors and patients;
- Antigenics produces the vaccine at a competitive price;
- Antigenics obtains sufficient reimbursement for the vaccine; and
- Antigenics has sufficient capital to market the vaccine effectively.
Because Oncophage is autologous, or patient specific, it may be more
expensive to manufacture than conventional therapeutic products. This increased
expense may decrease Antigenics's profit margins. Furthermore, because
Antigenics's autologous products are novel, some doctors and patients may be
reluctant to use them.
If Antigenics fails to obtain the capital necessary to fund its operations,
Antigenics will be unable to advance its development programs and complete
its clinical trials.
Developing therapeutic and prophylactic vaccines and conducting clinical
trials for multiple diseases is expensive. Antigenics plan to conduct clinical
trials for many different diseases simultaneously, which will increase its
costs. Antigenics will need to raise additional capital:
- to fund operations;
- to continue the research and development of its vaccines; and
- to commercialize its vaccines.
Additional financing may not be available on favorable terms or at all. If
Antigenics is unable to raise additional funds when Antigenics needs them,
Antigenics may be required to delay, reduce or eliminate some or all of its
development programs and some or all of its clinical trials. Antigenics also may
be forced to license technologies to others that Antigenics would prefer to
develop internally.
On March 31, 2001, Antigenics had approximately $90.1 million in cash and
cash equivalents. Antigenics believes that it will have sufficient capital to
fund its operations for the next two years. Antigenics may need to raise capital
sooner, however, due to a number of factors, including:
- an acceleration of the number, size or complexity of its clinical trials,
including any increase attributable to its potential acquisition of
Aronex Pharmaceuticals's product pipeline as a result of the merger;
- slower than expected progress in developing its vaccines;
- higher than expected costs to obtain regulatory approvals;
- higher than expected costs to pursue its intellectual property strategy;
- higher than expected costs to further develop its manufacturing
capability; and
- higher than expected costs to develop its sales and marketing capability.
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BECAUSE OF THE SPECIALIZED NATURE OF ANTIGENICS'S BUSINESS, THE TERMINATION OF
RELATIONSHIPS WITH ITS SCIENTIFIC ADVISORS OR THE DEPARTURE OF KEY MEMBERS OF
MANAGEMENT MAY PREVENT ANTIGENICS FROM ACHIEVING ITS OBJECTIVES.
If Pramod K. Srivastava, Ph.D. severs his relationship with Antigenics,
Antigenics may experience significant difficulties in its future
development efforts.
Since Antigenics's formation, Dr. Srivastava has played a significant role
in its research efforts. Dr. Srivastava is its chief scientific officer, a
member of its board of directors and acts as chairman of its scientific advisory
board. In addition, Antigenics has licensed a significant portion of its
intellectual property from institutions at which Dr. Srivastava has worked.
Antigenics sponsors research in Dr. Srivastava's laboratory at the University of
Connecticut Health Center in exchange for the right to license discoveries made
in that laboratory with its funding. Dr. Srivastava is a member of the faculty
of the University of Connecticut School of Medicine. The regulations and
policies of the University of Connecticut Health Center govern the relationship
between a faculty member and a commercial enterprise. These regulations and
policies prohibit Dr. Srivastava from becoming an employee of Antigenics.
Furthermore, the University of Connecticut may modify these regulations and
policies in the future to further limit Dr. Srivastava's relationship with us.
While Dr. Srivastava has a consulting agreement with Antigenics, which includes
financial incentives for him to remain associated with Antigenics, Antigenics
cannot guarantee that he will remain associated with Antigenics even during the
time covered by the consulting agreement. In addition, this agreement does not
restrict his ability to compete with Antigenics after his association is
terminated.
If Antigenics fails to keep key management and scientific personnel, it may
be unable to successfully develop its therapeutic or prophylactic vaccines,
conduct clinical trials and obtain financing.
Antigenics is highly dependent on its senior management and scientific
staff, particularly Garo H. Armen, Ph.D., its chairman and chief executive
officer, Russell Herndon, its chief operating officer and Elma Hawkins, Ph.D.,
its vice chairman. The competition for qualified personnel in the biotechnology
field is intense, and Antigenics relies heavily on its ability to attract and
retain qualified scientific, technical and managerial personnel. Since its
manufacturing process is unique, its manufacturing and quality control personnel
are also very important.
THE COMMERCIAL SUCCESS OF ANY OF ANTIGENICS'S THERAPEUTIC OR PREVENTIVE VACCINES
WILL DEPEND UPON THE STRENGTH OF ITS SALES AND MARKETING EFFORT AND THE
AVAILABILITY OF THIRD PARTY REIMBURSEMENT.
If Antigenics is unable to establish sales and marketing capabilities or
enter into agreements with pharmaceutical companies to sell and market its
therapeutic or prophylactic vaccines, Antigenics may experience difficulty
generating revenues.
Antigenics does not have a sales organization and has no experience in the
sales, marketing and distribution of pharmaceutical products. If Oncophage is
approved for commercial sale, Antigenics plans to market it in the United States
with its own sales force. Developing a sales force is expensive and time
consuming and could delay any product launch. Antigenics cannot be certain that
it would be able to develop this capacity. If Antigenics is unable to establish
its sales and marketing capability, it will need to enter into sales and
marketing agreements to market Oncophage in the United States. Antigenics plans
to enter into these types of arrangements for sales outside the United States.
If Antigenics is unable to establish successful distribution relationships with
pharmaceutical companies, it may fail to realize the full sales potential of its
vaccines.
If Antigenics fails to obtain adequate levels of reimbursement for its
therapeutic or prophylactic vaccines from third party payers, the
commercial potential of its therapeutic or prophylactic vaccines will be
significantly limited.
Antigenics's profitability will depend on the extent to which government
authorities, private health insurance providers and other organizations provide
reimbursement for the cost of its therapeutic or prophylactic vaccines. Many
patients will not be capable of paying for its therapeutic or prophylactic
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vaccines themselves. A primary trend in the United States health care industry
is toward cost containment. Large private payers, managed care organizations,
group purchasing organizations and similar organizations are exerting increasing
influence on decisions regarding the use of particular treatments. These
organizations are becoming increasingly economically focused. Furthermore, many
third party payers limit reimbursement for newly approved health care products.
Cost containment measures may prevent Antigenics from becoming profitable.
In addition, healthcare reform is an area of significant government focus.
Any reform measures, if adopted, could adversely affect:
- the pricing of therapeutic or prophylactic vaccines in the United States
or internationally; and
- the amount of reimbursement available from governmental agencies or other
third party payers.
For example, recent proposals regarding Medicare coverage, if they take
effect, may put novel cancer therapies like Oncophage at a competitive
disadvantage compared to existing therapies.
PRODUCT LIABILITY AND OTHER CLAIMS AGAINST ANTIGENICS MAY REDUCE DEMAND FOR ITS
PRODUCTS OR RESULT IN SUBSTANTIAL DAMAGES.
Antigenics faces an inherent risk of product liability exposure related to
testing therapeutic or prophylactic vaccines in human clinical trials and will
face even greater risks when Antigenics sells such therapeutic or prophylactic
products commercially. An individual may bring a product liability claim against
Antigenics if one of its therapeutic or prophylactic vaccines causes, or merely
appears to have caused, an injury. Regardless of merit or eventual outcome,
product liability claims may result in:
- decreased demand for Antigenics's therapeutic or prophylactic vaccines;
- injury to its reputation;
- withdrawal of clinical trial volunteers;
- costs of related litigation; and
- substantial monetary awards to plaintiffs.
Antigenics manufactures Oncophage from a patient's tumor, and a medical
professional must inject the Oncophage into that same patient. A patient may sue
Antigenics if it, a hospital or a delivery company fails to deliver the removed
tumor or that patient's Oncophage. Antigenics anticipates that the logistics of
shipping will become more complex as the number of patients Antigenics treats
increases, and Antigenics cannot assure you that all shipments will be made
without incident. In addition, administration of Oncophage at a hospital poses
another chance for delivery to the wrong patient. Currently, Antigenics does not
have insurance that covers loss of or damage to Oncophage and does not know
whether insurance will be available to Antigenics at a reasonable price or at
all.
Antigenics has limited product liability coverage for clinical research use
of product candidates such as the Stimulon adjuvants and Oncophage, Quilvax and
Quilimmune products. Antigenics also maintains limited product liability
insurance for the commercial sale of its feline leukemia vaccine.
ANTIGENICS MAY INCUR SIGNIFICANT COSTS COMPLYING WITH ENVIRONMENTAL LAWS AND
REGULATIONS.
Antigenics uses hazardous, infectious and radioactive materials that could
be dangerous to human health, safety or the environment. As appropriate,
Antigenics stores these materials and various wastes resulting from their use at
its facility pending ultimate use and disposal. Antigenics is subject to a
variety of federal, state and local laws and regulations governing the use,
generation, manufacture, storage, handling and disposal of these materials and
wastes resulting from their use. Antigenics may incur significant costs
complying with both existing and future environmental laws and regulations. In
particular, Antigenics is subject to regulation by the Occupational Safety and
Health Administration and the Environmental Protection Agency and to regulation
under the Toxic Substances Control Act and the Resource Conservation and
Recovery Act. OSHA or the EPA may adopt regulations that may affect its
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research and development programs. Antigenics is unable to predict whether any
agency will adopt any regulations which could have a material adverse effect on
its operations.
Although Antigenics believes its safety procedures for handling and
disposing of these materials comply with federal, state and local laws and
regulations, it cannot entirely eliminate the risk of accidental injury or
contamination from these materials. In the event of an accident, Antigenics
could be held liable for any resulting damages which could be substantial.
ANTIGENICS'S COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY
HAVE SUPERIOR PRODUCTS, MANUFACTURING CAPABILITY OR MARKETING EXPERTISE.
Antigenics's business may fail because it faces intense competition from
major pharmaceutical companies and specialized biotechnology companies engaged
in the development of therapeutic or preventive vaccines and other therapeutic
products directed at cancer, infectious diseases, autoimmune disorders, and
degenerative disorders. Many of its competitors have greater financial and human
resources and more experience. Its competitors may:
- develop safer or more effective therapeutic or preventive vaccines and
other therapeutic products;
- implement more effective approaches to sales and marketing; or
- establish superior proprietary positions.
More specifically, if Antigenics receives regulatory approvals, some of its
therapeutic or preventive vaccines will compete with well-established, FDA
approved therapies that have generated substantial sales over a number of years.
Antigenics anticipates that it will face increased competition in the
future as new companies enter its markets and scientific developments
surrounding immunotherapy and other cancer therapies continue to accelerate.
ANTIGENICS MAY NOT BE ABLE TO KEEP UP WITH THE RAPID TECHNOLOGICAL CHANGES IN
THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES WHICH COULD MAKE ITS VACCINES
OBSOLETE.
The field of biotechnology is characterized by significant and rapid
technological change. Research and discoveries by others may result in medical
insights or breakthroughs which may render Antigenics's vaccines obsolete even
before they generate any revenue.
ANTIGENICS MAY NOT SUCCESSFULLY INTEGRATE OPERATIONS WITH ITS RECENTLY ACQUIRED
BUSINESS, AND THE INTEGRATION OF THE BUSINESSES MAY BE COSTLY.
On November 16, 2000, Antigenics acquired Aquila Biopharmaceuticals, Inc.
Antigenics is currently integrating its operations with those of Aquila. If
Aronex Pharmaceuticals's stockholders approve the merger as described herein,
Antigenics will acquire the business of Aronex Pharmaceuticals which will
require additional integration of its operations. These integrations require
significant efforts from each entity, including coordinating research and
development efforts. Aquila's and Aronex Pharmaceuticals's collaborators,
customers, distributors or suppliers may terminate their arrangements or demand
new arrangements; and Aquila or Aronex Pharmaceuticals personnel may leave as a
result of the acquisitions. Integrating operations may distract management's
attention from the day-to-day business of the combined company. If Antigenics is
unable to successfully integrate the operations of these companies or if this
integration process costs more than expected, its future results will be
negatively impacted.
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ANTIGENICS'S OFFICERS AND DIRECTORS MAY BE ABLE TO BLOCK PROPOSALS FOR A CHANGE
IN CONTROL.
As of March 19, 2001, Antigenics Holdings L.L.C. controlled approximately
40.1% of Antigenics's outstanding common stock. Due to this concentration of
ownership, Antigenics Holdings may be able to prevail on all matters requiring a
stockholder vote, including:
- the election of directors;
- the amendment of Antigenics's organizational documents; or
- the approval of a merger, sale of assets or other major corporate
transaction.
Antigenics's directors and officers, if they elect to act together, can
control Antigenics Holdings. In addition, several of Antigenics's directors and
officers directly and indirectly own shares of its common stock.
ANTI-TAKEOVER PROVISIONS IN ANTIGENICS'S CHARTER DOCUMENTS AND UNDER DELAWARE
LAW MAY MAKE AN ACQUISITION OF ANTIGENICS MORE DIFFICULT.
Antigenics is incorporated in Delaware. Anti-takeover provisions of
Delaware law and its charter documents may make a change in control more
difficult even if the stockholders desire a change in control. Antigenics's
anti-takeover provisions include provisions in its certificate of incorporation
providing that stockholders' meetings may only be called by the president or the
majority of the board of directors and a provision in its by-laws providing that
its stockholders may not take action by written consent. Additionally, its board
of directors has the authority to issue 1,000,000 shares of preferred stock and
to determine the terms of those shares of stock without any further action by
its stockholders. The rights of holders of Antigenics's stock are subject to the
rights of the holders of any preferred stock that may be issued. The issuance of
preferred stock could make it more difficult for a third party to acquire a
majority of its outstanding voting stock. Antigenics's charter also provides for
the classification of its board of directors into three classes. This "staggered
board" generally may prevent stockholders from replacing the entire board in a
single proxy contest. In addition, its directors may only be removed from office
for cause. Delaware law also prohibits a corporation from engaging in a business
combination with any holder of 15% or more of its capital stock until the holder
has held the stock for three years unless, among other possibilities, the board
of directors approves the transaction. The board may use this provision to
prevent changes in its management. Also, under applicable Delaware law,
Antigenics's board of directors may adopt additional anti-takeover measures in
the future.
ANTIGENICS'S STOCK HAS LOW TRADING VOLUME AND THEREFORE ITS PUBLIC TRADING PRICE
MAY BE VOLATILE.
Since Antigenics's initial public offering on February 4, 2000, the per
share price of its common stock has fluctuated between $10.00 and $71.50 with an
average daily trading volume over the three months ended March 31, 2001 of
approximately 102,000 shares. The market has experienced significant price and
volume fluctuations that are often unrelated to the operating performance of
individual companies. In addition to general market volatility, many factors may
have a significant adverse effect on the market price of its stock, including:
- announcements of decisions made by public officials;
- results of its preclinical and clinical trials;
- announcement of technological innovations or new commercial products by
Antigenics or its competitors;
- developments concerning proprietary rights, including patent and
litigation matters;
- publicity regarding actual or potential results with respect to products
under development by Antigenics or by its competitors;
- regulatory developments; and
- quarterly fluctuations in its revenues and other financial results.
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THE SALE OF A SUBSTANTIAL NUMBER OF SHARES COULD CAUSE THE MARKET PRICE OF ITS
STOCK TO DECLINE.
The sale by Antigenics or the resale by stockholders of shares of its stock
could cause the market price of its stock to decline. As of March 31, 2001,
Antigenics had 27,404,654 shares of common stock outstanding. All of these
shares are eligible for sale on the Nasdaq National Market, although certain of
the shares are subject to sale volume and other limitations.
Antigenics has filed a registration statement to permit the sale of
approximately 4,800,000 shares of common stock under its equity incentive plan
and 300,000 shares of common stock under its employee stock purchase plan. As of
March 31, 2001, options to purchase 2,895,432 shares of its stock upon exercise
of options with a weighted average exercise price per share of $9.01 were
outstanding. Many of these options are subject to vesting that generally occurs
over a period of up to five years following the date of grant. As of March 31,
2001, warrants to purchase 296,989 shares of Antigenics common stock with a
weighted average exercise price per share of $13.98 were outstanding.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains forward-looking statements about
Antigenics's and Aronex Pharmaceuticals's financial condition, results of
operations, business strategies, operating efficiencies, competitive positions,
growth opportunities for existing products, future success of development-stage
products, plans and objectives of management and other matters. These
forward-looking statements involve a number of risks and uncertainties that
could cause actual results to differ materially from those suggested by the
forward-looking statements. Forward-looking statements, therefore, should be
considered in light of all of the information included or referred to in this
proxy statement/prospectus, including that set forth under the heading "Risk
Factors."
Words such as "estimate," "project," "plan," "intend," "expect," "believe,"
"should," "may," "anticipate," "will," and similar expressions are intended to
identify forward-looking statements. These forward-looking statements are found
at various places throughout this proxy statement/prospectus. You are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this proxy statement/prospectus.
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THE ARONEX PHARMACEUTICALS SPECIAL MEETING
The Aronex Pharmaceuticals board of directors is soliciting the proxies of
the common stockholders in connection with the special meeting of common
stockholders to vote on the proposed merger. This proxy statement/prospectus
contains information about the proposed merger to help you in determining how to
vote.
DATE, TIME, PLACE AND PURPOSE OF THE ARONEX PHARMACEUTICALS SPECIAL MEETING
The special meeting of stockholders of Aronex Pharmaceuticals will be held
at the offices of Palmer & Dodge LLP, One Beacon Street, 23rd Floor, Boston,
Massachusetts 02108, on July 12, 2001 at 9:00 a.m., local time. At the meeting,
Aronex Pharmaceuticals will ask its stockholders to adopt the merger agreement.
The merger agreement is attached as Annex A to this proxy
statement/prospectus. Please read it and the other information contained in this
proxy statement/prospectus carefully before deciding how to vote.
RECORD DATE AND OUTSTANDING SHARES
The board of directors has fixed the close of business on June 1, 2001 as
the record date for Aronex Pharmaceuticals stockholders entitled to notice of
and to vote at the special meeting.
The only outstanding securities of Aronex Pharmaceuticals entitled to vote
on the merger are the shares of Aronex Pharmaceuticals common stock. Only record
holders of Aronex Pharmaceuticals common stock at the close of business on the
record date may vote at the meeting. Each stockholder is entitled to one vote
for each share of common stock held on the record date.
At the close of business on the record date, 26,020,191 shares of Aronex
Pharmaceuticals common stock were outstanding. They were held of record by
approximately 270 stockholders. Aronex Pharmaceuticals has been informed that
there are in excess of 6,800 beneficial owners.
VOTE REQUIRED
To approve the merger, a majority of the outstanding shares of Aronex
Pharmaceuticals common stock must affirmatively vote for adoption of the merger
agreement. FOR PURPOSES OF THE VOTE REQUIRED, A FAILURE TO VOTE, A VOTE TO
ABSTAIN AND A BROKER NON-VOTE WILL EACH HAVE THE SAME LEGAL EFFECT AS A VOTE
AGAINST ADOPTION OF THE MERGER AGREEMENT. If you execute a proxy card without
giving instructions, the shares of Aronex Pharmaceuticals common stock
represented by that proxy card will be voted "FOR" adoption of the proposed
merger agreement. The Aronex Pharmaceuticals board of directors is not aware of
any other matters to be voted on at the special meeting. If any other matters
properly come before the special meeting, including a motion to adjourn the
special meeting in order to solicit additional proxies, the persons named on the
proxy card will vote the shares represented by all properly executed proxies on
those matters in their discretion, except that shares represented by proxies
that have been voted "AGAINST" adoption of the merger agreement will not be used
to vote "FOR" adjournment of the special meeting to allow additional time to
solicit additional votes "FOR" the merger agreement.
RECOMMENDATION OF THE ARONEX PHARMACEUTICALS BOARD
THE ARONEX PHARMACEUTICALS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
SHARE OWNERSHIP OF MANAGEMENT AND AFFILIATED STOCKHOLDERS
On the record date, directors, executive officers and affiliates of Aronex
Pharmaceuticals as a group beneficially owned 4,555,550 shares of Aronex
Pharmaceuticals common stock, or approximately 16.6 % of the outstanding shares.
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QUORUM; ABSTENTIONS; BROKER NON-VOTES
A majority of the shares of Aronex Pharmaceuticals common stock outstanding
on the record date must be present at the meeting to establish a quorum.
Stockholders may be present in person or by proxy. Abstentions will count toward
the quorum and be treated as votes at the meeting, but they will have the effect
of votes against the merger. If you hold your shares of Aronex Pharmaceuticals
common stock through a broker, bank or other nominee, generally the nominee may
only vote your Aronex Pharmaceuticals common stock in accordance with your
instructions. However, if your broker or nominee has not timely received your
instructions, the nominee may vote on matters for which it has discretionary
voting authority. Brokers generally will not have discretionary voting authority
to vote on the proposal to adopt the merger agreement. If a nominee cannot vote
on a matter because it does not have discretionary voting authority, this is a
"broker non-vote" on that matter. Broker non-votes are counted as shares present
or represented at the special meeting for purposes of determining whether a
quorum exists, but will be counted as votes against adoption of the merger
agreement.
VOTING AGREEMENTS
As a condition and inducement to Antigenics's entering into the merger
agreement, Antigenics entered into stockholder voting agreements with Essex
Woodlands Health Ventures IV, L.L.C., Prince Venture Partners III, L.P., and all
of Aronex Pharmaceuticals's directors and executive officers holding Aronex
Pharmaceuticals common stock under which they agreed to vote all of their shares
of Aronex Pharmaceuticals common stock as of the record date in favor of the
proposal to adopt the merger agreement. These stockholders also agreed to grant
a representative of Antigenics irrevocable proxies to vote their shares of
Aronex Pharmaceuticals common stock in favor of the proposal to adopt the merger
agreement. Approximately 3,113,764 shares of Aronex Pharmaceuticals common
stock, which represents approximately 12.0% of the outstanding shares of Aronex
Pharmaceuticals common stock as of the record date, are subject to these voting
agreements and irrevocable proxies. These voting agreements effectively ensure
that 12.0% of the outstanding shares of Aronex Pharmaceuticals common stock will
vote in favor of adoption of the merger agreement.
VOTING OF PROXIES
Accompanying this proxy statement/prospectus is a proxy card by which the
Aronex Pharmaceuticals board of directors is soliciting your proxy. Aronex
Pharmaceuticals asks that you complete, date and sign the proxy card and
promptly mail it to Aronex Pharmaceuticals. All properly executed proxies
received prior to taking the vote at the meeting, and not revoked, will be voted
as instructed on the proxy card. If no instructions are given, Aronex
Pharmaceuticals will vote the proxy in favor of adopting the merger agreement.
You may revoke your proxy at any time before it is voted at the meeting by:
- delivering to the secretary of Aronex Pharmaceuticals, by any means,
including facsimile, a written notice, bearing a date later than the date
on your proxy, stating that the proxy is revoked;
- signing and delivering to Aronex Pharmaceuticals before Aronex
Pharmaceuticals takes the vote at the meeting a proxy for the same shares
and bearing a later date; or
- attending the meeting and voting in person -- you must vote, because your
attendance, by itself, does not revoke your proxy.
Please note, however, that if the holder of record of your shares is your
broker, bank or other nominee and you wish to vote at the meeting, you must
bring a letter from the broker, bank or other nominee confirming that you are
the beneficial owner of the shares.
You should not send any certificates representing Aronex Pharmaceuticals
common stock with your proxy. After the merger, you will receive instructions
for the surrender and exchange of your stock certificates.
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APPRAISAL OR DISSENTERS' RIGHTS
Under Delaware law, Aronex Pharmaceuticals stockholders are not entitled to
appraisal or dissenters' rights in connection with the merger because:
- Aronex Pharmaceuticals common stock was, as of the record date for the
special meeting, designated and reported for trading on the Nasdaq
National Market; and
- Aronex Pharmaceuticals common stock will be converted into shares of
Antigenics common stock, which also will be designated and reported for
trading on the Nasdaq National Market.
SOLICITATION OF PROXIES
Aronex Pharmaceuticals and Antigenics will share equally the proxy
solicitation expenses. Aronex Pharmaceuticals is paying Innisfree M&A
Incorporated, a proxy solicitation firm, $8,000 plus expenses to help with the
proxy solicitation. Aronex Pharmaceuticals's employees may solicit proxies by
mail, telephone, telegraph or in person. Following the mailing of the proxies
and other soliciting materials, Aronex Pharmaceuticals will request brokers,
custodians, nominees and other record holders of common stock to forward the
proxy and other soliciting materials to the persons on behalf of whom they hold
shares of Aronex Pharmaceuticals stock, along with a request for authority to
exercise the proxies. If the record holder requests, Aronex Pharmaceuticals will
reimburse the holder's reasonable expenses.
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BACKGROUND AND REASONS FOR THE MERGER
BACKGROUND
For some time, the board of directors and management of Aronex
Pharmaceuticals has believed that beneficial alliances or other partnership
arrangements with significant partners would provide it with important support
and leverage in its research and development efforts, including increased
financial and personnel resources with which to develop its product portfolio.
With this in mind, in March 2000, Aronex Pharmaceuticals entered into an
agreement with Robertson Stephens, Inc. pursuant to which Robertson Stephens was
engaged to provide Aronex Pharmaceuticals with financial advisory and investment
banking services in connection with Aronex Pharmaceuticals's exploration of
various strategic alternatives, including potentially the identification and
review of possible merger candidates for, and/or acquirers of, Aronex
Pharmaceuticals. As a result, Aronex Pharmaceuticals has been in the process of
evaluating companies with complementary technologies and products under
development that would provide a good fit with its own technologies as well as
companies with substantial additional resources with which to develop its
technologies.
In line with this strategy, Geoffrey F. Cox, Ph.D., Aronex
Pharmaceuticals's Chairman and Chief Executive Officer, met with Garo H. Armen,
Ph.D., Antigenics's President, Chief Executive Officer and Chairman, in July
2000 as a result of an introduction by Robertson Stephens. Drs. Cox and Armen
discussed possible transactions between Aronex Pharmaceuticals and Antigenics.
As a result of these discussions, on July 24, 2000, Antigenics and Aronex
Pharmaceuticals entered into a confidentiality agreement to facilitate further
discussions, and subsequently, Antigenics commenced a due diligence review of
Aronex Pharmaceuticals's technologies, which included a meeting between Dr. Cox
and Elma Hawkins, Ph.D., Antigenics's Vice Chairman, at Aronex Pharmaceuticals's
The Woodlands, Texas office and a meeting between Anthony Williams, M.D., Aronex
Pharmaceuticals's Vice President, Medical Affairs, Pramod Srivastava, Ph.D., a
member of Antigenics's board of directors and chairman of Antigenics's
scientific advisory board, and Jonathan Lewis, M.D., Ph.D., Antigenics's Chief
Medical Officer, at Antigenics's New York City headquarters.
Dr. Armen indicated that Antigenics was discontinuing negotiations with
Aronex Pharmaceuticals in September 2000. However, in January 2001, following
the receipt of the non-approval letter for ATRAGEN from the FDA as discussed in
"Business of Aronex Pharmaceuticals" above, Aronex Pharmaceuticals's board
requested that Robertson Stephens broaden its search for a potential acquirer of
Aronex Pharmaceuticals's business.
As a result of this request, Robertson Stephens contacted additional
potential partners, and Antigenics expressed interest in acquiring Aronex
Pharmaceuticals. Overall, Robertson Stephens had discussions with a substantial
number of potential partners, and Aronex Pharmaceuticals's management made
presentations to twelve of those companies.
In March 2001, Aronex Pharmaceuticals officers met with Antigenics officers
in New York City at which time Aronex Pharmaceuticals provided updated diligence
information with respect to its clinical programs and regulatory matters. On
March 19, 2001, Aronex Pharmaceuticals received a non-binding offer letter from
Antigenics to acquire Aronex Pharmaceuticals. After receiving this letter, Dr.
Cox contacted Dr. Armen to discuss the terms, and on March 28, 2001, the
directors of Aronex Pharmaceuticals held a board meeting at Antigenics's New
York headquarters in which Drs. Armen and Hawkins and Russell H. Herndon,
Antigenics's Chief Operating Officer, made presentations about Antigenics to the
Aronex Pharmaceuticals board.
Following this board meeting, Antigenics provided a revised non-binding
offer letter to Aronex Pharmaceuticals dated April 6, 2001 which contained some
of the major terms of the proposed transaction. Following receipt of this
letter, Aronex Pharmaceuticals's board, with Robertson Stephens's assistance,
negotiated the major terms of the merger transaction.
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Following these initial negotiations, the parties negotiated and entered
into an exclusivity letter dated April 9, 2001 in which Aronex Pharmaceuticals
agreed to negotiate exclusively with Antigenics for a two week period. During
this period, Aronex Pharmaceuticals's board, with the assistance of its legal
counsel, Andrews & Kurth L.L.P., and Robertson Stephens, and Antigenics's
management, with the assistance of its legal counsel, Palmer & Dodge LLP,
negotiated the terms of the merger agreement and its related documents. The
parties finalized negotiations on April 20, 2001.
The Aronex Pharmaceuticals board of directors held the telephonic meeting
on April 20, 2001 at which representatives from Andrews & Kurth L.L.P. and
Robertson Stephens also participated. At the meeting, the board received a
presentation from Robertson Stephens regarding the financial terms of the
proposed transaction and the analysis undertaken by Robertson Stephens in
connection with its opinion. The board discussed generally the transaction and
also discussed other alternatives to the merger with Antigenics, including the
consequences of not undertaking the transaction and the benefits and
disadvantages of an alternative proposal that had been received by the board
prior to its negotiations with Antigenics. After consulting with both counsel
and its financial advisor, the board determined that the merger transaction with
Antigenics was the best course for Aronex Pharmaceuticals to undertake.
The board then undertook a detailed review and discussion of the terms of
the proposed merger agreement and its related documents, and discussions
regarding the financial and other effects the proposed merger would have on
Aronex Pharmaceuticals stockholders. Robertson Stephens then delivered its oral
opinion to the board that the merger consideration in the proposed transaction
was fair to Aronex Pharmaceuticals's stockholders from a financial point of
view. See "Opinion of Aronex Pharmaceuticals's Financial Advisor" on pages
36-40. After the presentations and discussions, Aronex Pharmaceuticals's board
of directors unanimously approved the merger and authorized the officers of
Aronex Pharmaceuticals to finalize and execute the merger agreement after
Antigenics's board of directors approved the transaction, subject to a review of
the final merger agreement and related documents by Dr. Cox and counsel.
The Antigenics board of directors held a telephonic meeting on April 22,
2001 at which attorneys from Palmer & Dodge LLP also participated. After a
review and discussion of the terms of the proposed merger agreement, and
discussions regarding the financial and other effects the proposed merger would
have on Antigenics's stockholders and employees, the Antigenics board of
directors unanimously approved the merger and authorized the officers of
Antigenics to finalize and execute the merger agreement.
After Dr. Cox and counsel for Aronex Pharmaceuticals conducted a review of
the final merger agreement and related documents and Aronex Pharmaceuticals
received the written fairness opinion of Robertson Stephens, Aronex
Pharmaceuticals and Antigenics and its merger subsidiary executed and delivered
the definitive merger agreement after the close of business on April 23, 2001.
JOINT REASONS FOR THE MERGER
The boards of directors of Antigenics and Aronex Pharmaceuticals have
determined that the combined company following the merger would have the
potential to realize long-term improved operating results and a stronger
competitive position. The boards of directors of Antigenics and Aronex
Pharmaceuticals have identified additional potential mutual benefits of the
merger that they believe will contribute to the success of the combined company.
These potential benefits include the following:
- Antigenics may enhance its product pipeline, particularly by the addition
of products in the late stages of FDA approval for the treatment of
different types of cancer;
- a possible more rapid path to commercialization for Aronex
Pharmaceuticals's late stage products. Antigenics intends to apply its
expertise in clinical development and regulatory review to accelerate
these applications;
- a diversification of technologies and product portfolio offerings;
- the application of Antigenics's regulatory experience in the management
of the earlier stage Investigational New Drug (IND) applications
submitted by Aronex Pharmaceuticals;
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- greater financial resources allow Antigenics to better develop the Aronex
Pharmaceuticals product candidates; and
- an additional technology platform that could complement technologies
already resident at Antigenics.
ARONEX PHARMACEUTICALS'S REASONS FOR THE MERGER
The Aronex Pharmaceuticals board of directors has unanimously approved the
merger agreement and the transactions contemplated thereby and has determined
that the merger is fair to, and in the best interests of, Aronex Pharmaceuticals
and its stockholders. In reaching its determination, the Aronex Pharmaceuticals
board consulted with Aronex Pharmaceuticals's management, as well as its legal
counsel and financial advisor, and considered the following material factors:
- Aronex Pharmaceuticals's difficulty in raising additional capital to meet
its ongoing commitments as well as its drug development goals;
- Aronex Pharmaceuticals's inability to meet the continued listing
requirements of the Nasdaq National Market and the current difficulty, in
light of the recent FDA non-approval letter for ATRAGEN for APL, of
raising sufficient capital to satisfy such requirements;
- increased ability of the combined company to fund research and
development of Aronex Pharmaceuticals's products;
- the opportunity the merger affords Aronex Pharmaceuticals's stockholders
to reduce their exposure to the risks inherent in Aronex
Pharmaceuticals's reliance on a limited number of currently
uncommercialized products;
- the difficulties in competing against larger companies with greater
financial resources;
- the merger will allow holders of Aronex Pharmaceuticals common stock to
retain an equity interest in the combined company, to achieve greater
liquidity than could be achieved by continuing to hold Aronex
Pharmaceuticals common stock, and to participate in the potential growth
of Antigenics;
- the board's belief that the exchange ratio fractions are favorable based
upon the recent trading prices for Aronex Pharmaceuticals and Antigenics
common stock;
- the likelihood that the merger will be consummated, including the terms
and conditions of the merger agreement, and the limited conditions to the
consummation of the merger;
- the oral opinion of Robertson Stephens delivered April 20, 2001
(subsequently confirmed in a written opinion dated April 23, 2001) that
as of such date and based on and subject to the assumptions, limitations,
and qualifications referred to in the written opinion, the merger
consideration was fair to holders of Aronex Pharmaceuticals common stock
from a financial point of view. (Please see "Background and Reasons for
the Merger -- Opinion of Aronex Pharmaceuticals's Financial Advisor");
and
- although the FDA recently rejected Aronex Pharmaceuticals's New Drug
Application, or NDA, for ATRAGEN for APL, Aronex Pharmaceuticals's
stockholders have the opportunity for recognizing additional
consideration should the NDA be approved prior to July 6, 2002.
The Aronex Pharmaceuticals board also considered the following potentially
negative material factors in its deliberations concerning the merger:
- the loss of control over the future operations of Aronex Pharmaceuticals
following the merger, and
- the risk that the benefits sought to be achieved in the merger may not be
achieved.
After reviewing these potentially negative factors, the Aronex
Pharmaceuticals board concluded that they were outweighed by the positive
factors described above and accordingly determined that the merger is fair to,
and in the best interests of, Aronex Pharmaceuticals and its stockholders.
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In view of the wide variety of factors considered by the Aronex
Pharmaceuticals board, it did not find it practicable to quantify, or otherwise
attempt to assign relative weights to, the specific factors considered in making
its determination. Consequently, the Aronex Pharmaceuticals board did not
quantify the assumptions and results of its analysis in reaching its
determination that the merger is fair to, and in the best interests of, Aronex
Pharmaceuticals and its stockholders.
The Aronex Pharmaceuticals board unanimously recommends that Aronex
Pharmaceuticals stockholders vote "FOR" the proposal to approve and adopt the
merger agreement and approve the merger.
RECOMMENDATION OF ARONEX PHARMACEUTICALS'S BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, ARONEX PHARMACEUTICALS'S BOARD OF DIRECTORS
UNANIMOUSLY DETERMINED THE MERGER TO BE FAIR TO YOU AND IN YOUR BEST INTEREST.
ARONEX PHARMACEUTICALS'S BOARD OF DIRECTORS APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS YOUR ADOPTION OF THE MERGER AGREEMENT.
In considering the recommendation of the Aronex Pharmaceuticals board of
directors with respect to the merger agreement, you should be aware that certain
directors and officers of Aronex Pharmaceuticals have certain interests in the
merger that are different from, or are in addition to the interests of Aronex
Pharmaceuticals stockholders generally. Please see the section entitled
"Potential Conflicts and Interests of Aronex Pharmaceuticals Management in the
Merger" on pages 43-44 of this proxy statement/prospectus.
OPINION OF ARONEX PHARMACEUTICALS'S FINANCIAL ADVISOR
Aronex Pharmaceuticals engaged Robertson Stephens to provide financial
advisory and investment banking services to it in connection with the proposed
merger, and to render an opinion as to the fairness of the "merger
consideration" in the proposed merger, from a financial point of view, to the
"holders of Aronex common stock." (See Annex C for a copy of the full opinion.)
For purposes of this section, "merger consideration" means the shares of
Antigenics common stock and the contingent value rights to be issued in the
merger. The "holders of Aronex common stock" was defined in Robertson Stephens's
written opinion letter to the board of directors of Aronex Pharmaceuticals,
dated April 23, 2001, as all holders of Aronex Pharmaceuticals common stock
other than Antigenics, Nasa Merger Corp. or any affiliates of Antigenics or Nasa
Merger Corp. or any holders of Aronex Pharmaceuticals common stock who are
officers or directors (or who have representatives serving as directors) of
Aronex Pharmaceuticals.
On April 20, 2001, at a meeting of Aronex Pharmaceuticals's board held to
evaluate the proposed merger, Robertson Stephens delivered to Aronex
Pharmaceuticals's board its oral opinion, subsequently confirmed in a written
opinion dated as of April 23, 2001, that as of that date and based on the
assumptions made, matters considered and the limitations on the review
undertaken described in the written opinion, the merger consideration in the
proposed merger was fair from a financial point of view to the holders of Aronex
common stock. The merger consideration was determined through negotiations
between the respective managements of Aronex Pharmaceuticals and Antigenics.
Although Robertson Stephens did assist the management of Aronex Pharmaceuticals
in those negotiations, it was not asked by, and did not recommend to, Aronex
Pharmaceuticals that any specific merger consideration constituted the
appropriate merger consideration for the merger.
You should consider the following when reading the discussion of the
opinion of Aronex Pharmaceuticals' financial advisor in this document:
- We urge you to read carefully the entire opinion of Robertson Stephens,
which is set forth in Annex C to this proxy statement/prospectus and is
incorporated by reference. The following description of the Robertson
Stephens opinion is qualified by reference to the full opinion located in
Annex C. The full opinion sets forth, among other things, the assumptions
made, the matters considered and the limitations on the review undertaken
by Robertson Stephens.
- The Robertson Stephens opinion was prepared for the information of Aronex
Pharmaceuticals's board in connection with its evaluation of the merger
and does not constitute a recommendation to
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the stockholders of Aronex Pharmaceuticals as to how they should vote, or
take any other action, with respect to the merger.
- The Robertson Stephens opinion did not address the relative merits of the
merger and the other business strategies that Aronex Pharmaceuticals's
board has considered or may be considering, nor does it address the
decision of Aronex Pharmaceuticals's board to proceed with the merger.
- The Robertson Stephens opinion was necessarily based upon market,
economic and other conditions that were in effect on, and information
made available to Robertson Stephens as of, the date of the opinion. You
should understand that subsequent developments may affect the conclusion
expressed in the Robertson Stephens opinion, and that Robertson Stephens
disclaims any undertaking or obligation to advise any person of any
change in any matter affecting its opinion which may come or be brought
to Robertson Stephens's attention after the date of its opinion.
- The Robertson Stephens opinion was limited to the fairness, from a
financial point of view and as of the date thereof, of the merger
consideration in the merger to the holders of Aronex common stock.
Opinion and Analysis of Robertson Stephens
In connection with the preparation of the Robertson Stephens opinion,
Robertson Stephens:
- reviewed certain publicly available financial statements and other
business and financial information of Aronex Pharmaceuticals and
Antigenics, respectively;
- reviewed certain internal financial statements and other financial and
operating data, including certain financial forecasts and other forward
looking information, concerning Aronex Pharmaceuticals prepared by the
management of Aronex Pharmaceuticals;
- reviewed with Antigenics certain publicly available estimates of research
analysts relating to Antigenics;
- held discussions with the respective managements of Aronex
Pharmaceuticals and Antigenics concerning the businesses, past and
current operations, financial condition and future prospects of both
Aronex Pharmaceuticals and Antigenics, independently and combined,
including discussions with the managements of Aronex Pharmaceuticals and
Antigenics concerning their views regarding the strategic rationale for
the merger;
- reviewed the financial terms and conditions set forth in drafts, dated
April 20, 2001, of the merger agreement, the form of contingent value
rights agreement and the stockholder voting agreements;
- reviewed the stock price and trading history of Aronex Pharmaceuticals
common stock and Antigenics common stock;
- compared the financial performance of Antigenics and the prices and
trading activity of Antigenics common stock with that of certain other
publicly traded companies comparable with Antigenics;
- compared the financial performance of Aronex Pharmaceuticals with that of
certain other publicly traded companies comparable with Aronex
Pharmaceuticals;
- compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other transactions that Robertson
Stephens deemed relevant;
- reviewed the pro forma impact of the merger;
- participated in discussions and negotiations among representatives of
Aronex Pharmaceuticals and Antigenics and their financial and legal
advisors; and
- made such other studies and inquiries, and reviewed such other data, as
Robertson Stephens deemed relevant.
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In its review and analysis, and in arriving at its opinion, Robertson
Stephens assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it (including information furnished
to it orally or otherwise discussed with it by the managements of Aronex
Pharmaceuticals and Antigenics) or publicly available and neither attempted to
verify, nor assumed responsibility for verifying, any of such information.
Robertson Stephens relied upon the assurances of the managements of Aronex
Pharmaceuticals and Antigenics that they were not aware of any facts that would
make such information inaccurate or misleading. Furthermore, Robertson Stephens
did not obtain or make, or assume any responsibility for obtaining or making,
any independent evaluation or appraisal of the properties, assets or liabilities
(contingent or otherwise) of Aronex Pharmaceuticals or Antigenics, nor was it
furnished with any such evaluation or appraisal.
With respect to the financial forecasts and other forward-looking financial
information (and the assumptions and bases therefor) for Aronex Pharmaceuticals
that Robertson Stephens reviewed, Robertson Stephens has assumed that:
- these forecasts and other forward-looking financial information were
reasonably prepared in good faith on the basis of reasonable assumptions;
- these forecasts and other forward-looking financial information reflect
the best currently available estimates and judgments as to the future
financial condition and performance of Aronex Pharmaceuticals; and
- these forecasts and other forward-looking information would be realized
in the amounts and in the time periods currently estimated.
In addition, Robertson Stephens assumed that:
- the merger will be consummated upon the terms set forth in the drafts,
dated April 20, 2001, of the merger agreement, the form of contingent
value rights agreement and the stockholder voting agreements without
material alteration thereof, including, among other things, that the
merger will be accounted for as a "purchase method" business combination
in accordance with U.S. generally accepted accounting principles;
- the merger will be treated as a tax-free reorganization pursuant to the
Internal Revenue Code of 1986, as amended; and
- the historical financial statements of each of Aronex Pharmaceuticals and
Antigenics reviewed by Robertson Stephens were prepared and fairly
presented in accordance with U.S. generally accepted accounting
principles consistently applied.
Robertson Stephens relied as to all legal matters relevant to rendering its
opinion on the advice of counsel to Aronex Pharmaceuticals.
Robertson Stephens expressed no opinion as to:
- the value of any employee agreement or other arrangement entered into in
connection with the merger;
- any tax or other consequences that may result from the merger; or
- what the value of the Antigenics common stock or the contingent value
rights will be when issued to Aronex Pharmaceuticals's stockholders
pursuant to the merger or the price at which the shares of Antigenics
common stock that are issued pursuant to the merger may be traded in the
future.
The following is a summary of the material financial analyses performed by
Robertson Stephens in connection with rendering its opinion. The summary of the
financial analyses is not a complete description of all of the analyses
performed by Robertson Stephens. Certain of the information in this section is
presented in tabular form. IN ORDER TO BETTER UNDERSTAND THE FINANCIAL ANALYSES
PERFORMED BY ROBERTSON STEPHENS, THESE TABLES MUST BE READ TOGETHER WITH THE
TEXT ACCOMPANYING EACH TABLE. THE OPINION IS
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BASED UPON THE TOTALITY OF THE VARIOUS ANALYSES PERFORMED BY ROBERTSON STEPHENS
AND NO PARTICULAR PORTION OF THE ANALYSES HAS ANY MERIT STANDING ALONE.
Comparable Companies Analysis
Using publicly available information, Robertson Stephens analyzed, among
other things, the stock performance of the following selected publicly traded
companies in the biotechnology industry which Robertson Stephens believed to be
reasonably comparable to Aronex Pharmaceuticals:
- Fusion Medical Technologies, Inc.
- Immtech International, Inc.
- LifeCell Corporation
- DepoMed, Inc.
- Interleukin Genetics, Inc.
- Epimmune Inc.
- Calypte Biomedical Corporation
Stock performances compared by Robertson Stephens included the percentage
below the highest intraday stock price and the percentage above the lowest
intraday stock price for each company for the previous 52-week period, based
upon the closing stock prices as of April 19, 2001. As set forth in the
following table, applying the mean percentages derived from the percentages for
the comparable companies to the closing stock price of Aronex Pharmaceuticals as
of April 19, 2001 resulted in the following implied equity values, prices per
share and exchange ratios for Aronex Pharmaceuticals:
IMPLIED IMPLIED IMPLIED
EQUITY VALUE PRICE PER EXCHANGE
MEAN (IN MILLIONS) SHARE RATIO
---- ------------- --------- --------
Percent below 52-week high.................. 70.5% $41.8 $1.60 0.1016
Percent above 52-week low................... 97.0% $28.7 $1.10 0.0698
This compares to the $1.10 in Antigenics common stock and the one
contingent value right that each share of Aronex Pharmaceuticals common stock
will be exchanged for in the merger, based on the closing price of Antigenics
common stock as of April 19, 2001.
The implied equity values reflected $2.7 million of Aronex
Pharmaceuticals's cash surplus over its debt as of February 28, 2001. The
implied prices per share were based on approximately 26 million shares of Aronex
Pharmaceuticals common stock outstanding using the treasury stock method. The
implied exchange ratios were based on the closing share price of $15.80 for
Antigenics common stock as of April 19, 2001.
Selected Precedent Transactions Analysis
Using publicly available information, Robertson Stephens reviewed and
analyzed, among other things, the consideration paid and the purchase price
premiums paid on the following selected acquisition transactions in the
biotechnology industry (listing the acquired company followed by the acquirer
and with the date these transactions were publicly announced in parenthesis)
which Robertson Stephens believed to be reasonably comparable to the proposed
merger:
- Aquila Biopharmaceuticals, Inc./Antigenics Inc. (August 21, 2000)
- Cambridge NeuroScience, Inc./CeNeS Pharmaceuticals plc (May 23, 2000)
- Celtrix Pharmaceuticals, Inc./Insmed Pharmaceuticals Inc. (December 1,
1999)
- Axogen Limited/Elan Corporation, plc (November 29, 1999)
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- North American Vaccine, Inc./Baxter International Inc. (November 18,
1999)
- Allelix Biopharmaceuticals Inc./NPS Pharmaceuticals, Inc. (September 27,
1999)
- CoCensys, Inc./Purdue Pharma L.P. (August 6, 1999)
- SIBIA Neurosciences, Inc./Merck & Co., Inc. (August 2, 1999)
The following table sets forth the ranges of the implied Aronex
Pharmaceuticals equity valuations, prices per share and exchange ratios, based
on the closing stock price of Aronex Pharmaceuticals as of April 19, 2001,
derived from applying a range of one day and one month purchase price premiums
that Robertson Stephens derived from the precedent transactions:
IMPLIED IMPLIED IMPLIED
RANGE OF EQUITY VALUES PRICE PER EXCHANGE
PREMIUMS (IN MILLIONS) SHARE RATIO
--------- ------------- ------------- ---------------
One day premium........... 20% - 30% $23.4 - $25.4 $0.90 - $0.98 0.0570 - 0.0617
One month premium......... 30% - 40% $30.7 - $33.0 $1.18 - $1.27 0.0746 - 0.0803
Mean...................... $1.04 - $1.12 0.0658 - 0.0710
This compares to the $1.10 in Antigenics common stock and the one
contingent value right that each share of Aronex Pharmaceuticals common stock
will be exchanged for in the merger, based on the closing price of Antigenics
common stock as of April 19, 2001.
The implied equity values reflected $2.7 million of Aronex
Pharmaceuticals's cash surplus over its debt as of February 28, 2001. The
implied prices per share were based on approximately 26 million shares of Aronex
Pharmaceuticals common stock outstanding using the treasury stock method. The
implied exchange ratios were based on a closing share price of $15.80 for
Antigenics common stock as of April 19, 2001.
Discounted Cash Flow Analysis
Robertson Stephens performed a discounted cash flow analysis on the
after-tax free cash flows of Aronex Pharmaceuticals for calendar years 2001
through 2005 using estimates prepared by Aronex Pharmaceuticals's management.
Robertson Stephens first discounted the estimated after-tax free cash flows
through the calendar year ending 2005 using discount rates ranging from 40.0% to
50.0%. Robertson Stephens then added to the present value of these after-tax
free cash flows the exit value of Aronex Pharmaceuticals in the calendar year
ending 2005, discounted back to the present at the same discount rates. The exit
value was computed by multiplying estimated revenue for calendar year 2005 by
exit revenue multiples ranging from 1.50x to 2.50x. The range of exit revenue
multiples selected reflects Robertson Stephens's judgment as to an appropriate
range of multiples at the end of the referenced period. Applying the above
ranges of discount rates and exit revenue multiples to the after-tax free cash
flows of Aronex Pharmaceuticals and taking into account $2.7 million of Aronex
Pharmaceuticals's cash surplus over its debt as of February 28, 2001 yielded the
following ranges:
IMPLIED IMPLIED IMPLIED
EQUITY VALUES PRICE PER EXCHANGE
(IN MILLIONS) SHARE RATIO
- ------------- ------------- ---------------
$8.0 - $36.7 $0.31 - $1.41 0.0195 - 0.0894
This compares to the $1.10 in Antigenics common stock and the one
contingent value right that each share of Aronex Pharmaceuticals common stock
will be exchanged for in the merger, based on the closing price of Antigenics
common stock as of April 19, 2001.
Antigenics Comparable Companies Analysis
Using publicly available information, Robertson Stephens analyzed, among
other things, the total enterprise value, trading multiples and stock
performance of Antigenics and the following selected publicly
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traded companies in the biotechnology industry which Robertson Stephens believed
to be reasonably comparable to Antigenics:
- NPS Pharmaceuticals, Inc.
- Adolor Corporation
- Alexion Pharmaceuticals, Inc.
- EntreMed, Inc.
- SuperGen, Inc.
- Pharmacyclics, Inc.
- Vical Incorporated
- Progenics Pharmaceuticals, Inc.
In examining these selected publicly traded companies, Robertson Stephens
calculated the total enterprise value of each company as a multiple of its
respective estimated calendar year 2001 and 2002 revenues and compared such
multiples to corresponding multiples for Antigenics. Total enterprise value
means diluted equity value using the treasury method plus debt less cash, based
on the closing stock prices as of April 19, 2001. Revenue data for the selected
publicly traded companies were obtained from research analysts estimates. Stock
performances compared by Robertson Stephens included the percentage below the
highest intraday stock price and the percentage above the lowest intraday stock
price for each company for the previous 52-week period and the year to date
performance of the stock for each company, based upon the closing stock prices
as of April 19, 2001. Robertson Stephens's analysis of these selected publicly
traded companies resulted in the following:
TOTAL ENTERPRISE VALUE/
-------------------------- STOCK PERFORMANCE
CY 2001 CY 2002 -----------------------------
REVENUE REVENUE % BELOW % ABOVE YEAR TO
(ESTIMATED) (ESTIMATED) HIGH LOW DATE
----------- ----------- ------- ------- -------
High............................. 91.8x 36.0x 23.7% 220.1% 7.9%
Low.............................. 8.7x 5.6x 82.8% 34.9% (59.4)%
ANTIGENICS....................... 57.4X 50.6X 26.5% 48.7% 42.8%
Based on an analysis of this data, Robertson Stephens concluded that the
trading multiples and stock performance of Antigenics common stock were within
the range of the comparable companies.
Other Factors
In rendering its opinion, Robertson Stephens considered other factors and
conducted other analyses, including a review of certain pro forma effects
resulting from the merger which took into account the impact of the merger on
the projected earnings per share of the combined company for calendar years 2001
through 2005 based on Aronex Pharmaceuticals management projections for its
revenues and Robertson Stephens equity research analyst estimates for Antigenics
revenues.
No company, business or transaction compared in any of the above analyses
is identical to Aronex Pharmaceuticals, Antigenics or the proposed merger.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the public trading, acquisition and other values of the comparable
companies, precedent transactions or the business segment, company or
transaction to which they are being compared. In addition, various analyses
performed by Robertson Stephens incorporate projections prepared by research
analysts using only publicly available information. These estimates may or may
not prove to be accurate.
While this summary describes the analysis and factors that Robertson
Stephens deemed material in its presentation to the Aronex Pharmaceuticals
board, it is not a comprehensive description of all analysis
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and factors considered by Robertson Stephens. The preparation of a fairness
opinion is a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances. Therefore, a fairness opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, Robertson Stephens did not attribute any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor. Accordingly,
Robertson Stephens believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, could create a misleading or
incomplete view of the evaluation process underlying its opinion. Several
analytical methodologies were employed and no one method of analysis should be
regarded as critical to the overall conclusion reached by Robertson Stephens.
Each analytical technique has inherent strengths and weaknesses, and the nature
of the available information may further affect the value of particular
techniques. The conclusion reached by Robertson Stephens is based on all
analyses and factors taken as a whole and also on application of Robertson
Stephens's own experience and judgment. This conclusion may involve significant
elements of subjective judgment and qualitative analysis. Robertson Stephens
expresses no opinion as to the value or merit standing alone of any one or more
parts of the analysis it performed. In performing its analyses, Robertson
Stephens made numerous assumptions with respect to industry performance, general
business and other conditions and matters, many of which are beyond the control
of Aronex Pharmaceuticals, Antigenics or Robertson Stephens. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by these analyses. Accordingly, analyses relating
to the value of businesses do not purport to be appraisals or to reflect the
prices at which these businesses actually may be sold in the future, and these
estimates are inherently subject to uncertainty.
The engagement letter between Robertson Stephens and Aronex Pharmaceuticals
provides that, for its services, Robertson Stephens is entitled to receive usual
and customary fees in connection with the transaction and the delivery of the
fairness opinion, and with respect to the fee payable upon delivery of the
fairness opinion, such fee is payable without regard to the conclusion reached
in the opinion. The payment of Robertson Stephens's fees, other than the fee
payable on the delivery of the opinion, is contingent upon the consummation of
the merger. Aronex Pharmaceuticals has also agreed to reimburse Robertson
Stephens for its reasonable and customary out-of-pocket expenses related to this
work, including legal fees, and to indemnify and hold harmless Robertson
Stephens and its affiliates and any other person, director, employee or agent of
Robertson Stephens or any of its affiliates, or any person controlling Robertson
Stephens or its affiliates, for certain losses, claims, damages, expenses and
liabilities relating to or arising out of services provided by Robertson
Stephens as financial advisor to Aronex Pharmaceuticals. The terms of the fee
arrangement with Robertson Stephens, which Aronex Pharmaceuticals and Robertson
Stephens believe are customary in transactions of this nature, were negotiated
at arm's length between Aronex Pharmaceuticals and Robertson Stephens, and
Aronex Pharmaceuticals's board approved these fee arrangements.
In the past, Robertson Stephens has provided certain investment banking
services to Antigenics, including acting as co-manager for Antigenics's initial
public offering, for which it has been paid customary fees. In the ordinary
course of its business, Robertson Stephens may actively trade securities of
Aronex Pharmaceuticals or Antigenics for its own account and for the account of
its customers and, accordingly, may at any time hold a long or short position in
the securities of Aronex Pharmaceuticals or Antigenics.
Robertson Stephens is an internationally recognized investment banking firm
and was retained based on its experience as a financial advisor in connection
with mergers and acquisitions and in securities valuations generally. As part of
its investment banking business, Robertson Stephens is frequently engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and other purposes.
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ANTIGENICS'S REASONS FOR THE MERGER
In evaluating the proposed merger, the Antigenics board of directors
reviewed presentations from management. In reaching its determination to approve
the merger agreement and the merger, the Antigenics board of directors
considered the following factors in favor of the merger:
- the acquisition of Aronex Pharmaceuticals's technology and its current
products, which may enhance Antigenics's ability to produce effective
therapies for infectious diseases and cancer;
- the expansion of Antigenics's product pipeline by adding Aronex
Pharmaceuticals's product pipeline, which includes 4 product candidates
in phase II and III clinical trials;
- diversification of Antigenics's product portfolio to include small
molecules;
- the addition of a new technology platform; and
- the potential for marketing approval of a product earlier than previously
planned.
The Antigenics board of directors weighed these advantages against
potential risks of the merger. The following summarizes factors against the
merger:
- As with most mergers, there is a risk that anticipated benefits will not
be realized; for example, Antigenics may encounter difficulties
integrating Aronex Pharmaceuticals's operations. Although Antigenics has
acquired one other company, Antigenics does not have significant
experience integrating acquired businesses. The board, however, believed
that the relative sizes of the companies, along with the strategic fit,
more than offset this risk.
- There is inherent uncertainty in developing and commercializing
biotechnology products. The board, however, believed that the promise of
Aronex Pharmaceuticals's programs and technology outweighs the risk that
Antigenics will not successfully develop them.
After considering the potential positive and negative factors of the
merger, the Antigenics directors did not attempt to quantify or prioritize
particular considerations. Each board member may have viewed the various
considerations differently than other board members. Ultimately, the Antigenics
board unanimously concluded that the Aronex Pharmaceuticals merger should
provide significant long-term benefits to Antigenics common stockholders;
consequently, the board approved the merger agreement.
POTENTIAL CONFLICTS AND INTERESTS OF ARONEX PHARMACEUTICALS MANAGEMENT IN THE
MERGER
When considering the recommendation of Aronex Pharmaceuticals's board of
directors with respect to approving the merger, you should be aware that the
directors and officers of Aronex Pharmaceuticals have interests in the merger
and participate in arrangements that are different from, or are in addition to,
those of Aronex Pharmaceuticals stockholders generally. The Aronex
Pharmaceuticals board was aware of these interests and considered them, among
other matters, in approving the merger agreement. These include:
- Employment. At the closing of the merger, certain executive officers of
Aronex Pharmaceuticals may become employees of Antigenics.
- Accelerated Vesting of Options. All outstanding options to purchase
Aronex Pharmaceuticals stock held by a director, officer or employee of
Aronex Pharmaceuticals that are unvested as of the date of the merger
will accelerate in full and be immediately vested and exercisable
immediately preceding the consummation of the merger, except for an
option granted to one of Aronex Pharmaceutical's directors. Consequently,
all options outstanding immediately prior to the effective time of the
merger will be subject to accelerated vesting. On May 16, 2001, options
to purchase 3,021,287 shares of Aronex Pharmaceuticals stock were
outstanding with a weighted average exercise price per share of $3.41. In
addition, Antigenics has agreed to assume all of the options held by
Aronex Pharmaceuticals's directors, officers and employees. As a result,
those options shall become exercisable for Antigenics common stock
following the merger.
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- Change of Control/Severance Agreements. Geoffrey F. Cox, Ph.D., Paul A.
Cossum, Ph.D., Anthony Williams, M.D., Terance A. Murnane and Seenu
Srinivasan, Ph.D. (each an executive officer of Aronex Pharmaceuticals)
have employment agreements with Aronex Pharmaceuticals which contain
severance provisions. After completion of the merger, if any of these
officers is terminated without cause, each is entitled to continue to
receive for the amount of time set forth opposite their name in the table
below (1) their salary at the time of termination and (2) health, dental,
vision and related benefits, including if they decide to terminate their
employment for good reason, which means that they terminate their
employment because of a material diminution in their title or
responsibilities within 12 months following the merger. The table also
includes the total amount payable to each of the officers as a result of
these severance obligations. The salary payable under these severance
arrangements is to be paid in substantially the same manner as salary is
paid to other employees, except that the salary payable to Dr. Cox is to
be paid in a lump sum at his termination.
HEALTH AND AGGREGATE
NAME SALARY RELATED BENEFITS AMOUNT
- ---- --------- ---------------- ---------
Geoffrey F. Cox, Ph.D. ................. 2.5 years 18 months $775,000
Paul A. Cossum, Ph.D. .................. 2 years 12 months $362,800
Terance A. Murnane...................... 2 years 12 months $250,000
Anthony Williams, M.D. ................. 1 year 12 months $210,000
Seenu Srinivasan, Ph.D. ................ 1 year 12 months $170,000
- Indemnification. Aronex Pharmaceuticals officers and directors have
continuing indemnification against some liabilities. Under the merger
agreement, Antigenics has committed to continue to honor the existing
indemnification obligations of Aronex Pharmaceuticals to its officers and
directors after the completion of the merger.
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THE MERGER AND THE MERGER AGREEMENT
The following is a summary of significant provisions of the merger
agreement. For a more complete understanding of the merger agreement, you should
read the agreement. The agreement is attached as Annex A and is incorporated
into this proxy statement/prospectus by reference.
GENERAL DESCRIPTION OF THE MERGER
In the merger, Nasa Merger Corp., a specially formed, wholly owned
subsidiary of Antigenics, will merge with and into Aronex Pharmaceuticals.
Aronex Pharmaceuticals will be the surviving corporation and will continue to
exist under Delaware law as a wholly owned subsidiary of Antigenics. The charter
and by-laws of the specially formed, wholly owned subsidiary, as in effect
immediately before the merger, will be the charter and by-laws of the surviving
company.
EFFECTIVE TIME
Antigenics expects to close the merger by July 12, 2001. The merger will be
effective upon the filing of a certificate of merger with the Delaware Secretary
of State, or a later time that Antigenics specifies in the certificate of
merger. Antigenics plans to file the certificate of merger soon after the Aronex
Pharmaceuticals special meeting.
MERGER CONSIDERATION FOR ARONEX PHARMACEUTICALS STOCK AND EXCHANGE RATIOS
At the effective time of the merger, each then-outstanding share of Aronex
Pharmaceuticals common stock will be converted into a fraction of a share of
Antigenics common stock according to an exchange ratio. The exchange ratio will
be based upon the average closing price of the Antigenics common stock on the
Nasdaq National Market over the 10 trading days ending on the second trading day
before the closing of the merger. The exchange ratio of Aronex Pharmaceuticals
common stock into Antigenics common stock will be calculated as follows:
IF THE AVERAGE CLOSING PRICE OF
ANTIGENICS COMMON STOCK IS THEN THE EXCHANGE RATIO WILL BE
- ------------------------------- -------------------------------------------------
Less than or equal to $12.00 0.0917
Between $12.00 and $20.00 $1.10 divided by the average closing price of
Antigenics common stock as calculated above
Greater than or equal to $20.00 0.0550
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To illustrate further, the table below provides a sample range of
Antigenics common stock average closing prices and the corresponding exchange
ratios and per share values of Aronex Pharmaceuticals common stock exchanged in
the merger (the value attributed to Aronex Pharmaceuticals common stock does not
take into account any potential value for the contingent value rights). The
actual Antigenics common stock average closing prices could be greater or lower
than those set forth below.
AVERAGE CLOSING VALUE OF ONE SHARE OF
PRICE OF ANTIGENICS ARONEX PHARMACEUTICALS
COMMON STOCK EXCHANGE RATIO COMMON STOCK
- ------------------- -------------- ----------------------
$ 7.00 0.0917 $0.64
$10.00 0.0917 $0.92
$11.00 0.0917 $1.01
$11.50 0.0917 $1.05
$12.00 0.0917 $1.10
$12.50 0.0880 $1.10
$13.00 0.0846 $1.10
$16.00 0.0688 $1.10
$18.50 0.0595 $1.10
$19.00 0.0579 $1.10
$20.00 0.0550 $1.10
$21.00 0.0550 $1.16
$21.50 0.0550 $1.18
$22.00 0.0550 $1.21
$25.00 0.0550 $1.38
The exchange ratio was agreed to in arm's-length negotiations between
representatives of Antigenics and Aronex Pharmaceuticals, with the benefit of
advice from their respective financial advisors.
Each holder of Aronex Pharmaceuticals common stock will also receive one
contingent value right for each share of Aronex Pharmaceuticals stock it holds.
Each contingent value right represents the right to receive, upon the
achievement of a milestone by Aronex Pharmaceuticals prior to July 6, 2002, a
fraction of a share of Antigenics common stock equal to an exchange ratio. The
exchange ratio will be calculated by dividing $0.15 by the average per share
closing price of Antigenics common stock during a 10-day period ending on the
third day prior to the date the milestone is achieved. The exchange ratio for
the contingent value right shall not be less than 0.0075 or greater than 0.0125
and the exchange ratio shall be reduced by 10% increments for each $50,000
increment above $4,000,000 that Aronex Pharmaceuticals incurs merger transaction
expenses, which are defined as (1) fees and expenses of Aronex Pharmaceuticals's
attorneys, accountants, financial advisors and other outside advisors directly
related to the merger agreement and (2) severance payments payable because of
either the merger or the termination of its employees as a direct result of the
merger. If these merger transaction expenses exceed $4,500,000, the exchange
ratio will be 0. The milestone to be achieved is the receipt of final approval
by the FDA of Aronex Pharmaceuticals's NDA for ATRAGEN as a treatment for
patients with APL in any indication. If Aronex Pharmaceuticals achieves this
milestone on or before July 6, 2002 and the merger transaction expenses are less
than $4,500,000, each contingent value right becomes the right to receive
Antigenics common stock.
NO FRACTIONAL SHARES
Antigenics will not issue fractional shares in the merger. Instead,
Antigenics will pay cash to each Aronex Pharmaceuticals stockholder who
otherwise would be entitled to receive a fractional share of Antigenics common
stock. The cash amount for the shares of Antigenics common stock to be issued at
the closing of the merger will equal the fractional share number multiplied by
the per share closing price of Antigenics common stock as reported by the Nasdaq
National Market on the trading day the effective time occurs.
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The cash amount for the shares of Antigenics to be issued pursuant to the
contingent value right, if any, will equal the fractional share number
multiplied by the per share closing price of Antigenics common stock as reported
by the Nasdaq National Market on the trading day on which Aronex Pharmaceuticals
achieves the milestone.
EXCHANGE OF ARONEX PHARMACEUTICALS STOCK CERTIFICATES
Promptly after the effective time, Antigenics or the exchange agent will
mail transmittal forms to each person who held shares of Aronex Pharmaceuticals
common stock as of the effective time for use in exchanging Aronex
Pharmaceuticals stock certificates for Antigenics common stock certificates,
cash for fractional shares, and contingent value right certificates. The
transmittal forms will include instructions specifying details of the exchange.
If the milestone is achieved, promptly thereafter Antigenics or the rights
agent will mail transmittal forms to each person who held contingent value right
certificates as of the date the milestone is achieved for use in exchanging the
contingent value right certificates for Antigenics common stock certificates and
any cash for fractional shares. The transmittal forms will include instructions
specifying details of the exchange.
DO NOT SEND IN YOUR ARONEX PHARMACEUTICALS CERTIFICATES UNTIL YOU RECEIVE A
TRANSMITTAL FORM.
If certificates for any shares of Aronex Pharmaceuticals common stock have
been lost, stolen or destroyed, the holder must submit appropriate evidence
regarding the ownership, loss, theft or destruction of the certificate, an
affidavit to that effect and a customary indemnification agreement to the
exchange agent.
Antigenics will honor a request from a person surrendering an Aronex
Pharmaceuticals common stock certificate that the Antigenics common stock being
given in exchange be issued to a person other than the registered holder of the
certificate on the exchange agent's books, so long as the requesting person:
- submits all documents necessary to evidence and effect the transfer to
the new holder; and
- pays any transfer or other taxes for issuing shares of Antigenics common
stock to a person other than the registered holder of the certificate,
unless the requesting person satisfactorily establishes to Antigenics
that any tax has been paid or is inapplicable.
Holders of Aronex Pharmaceuticals common stock exchanged for Antigenics
common stock in the merger will be entitled to receive dividends and other
distributions on Antigenics common stock (without interest) that are declared or
made with a record date after the effective time. Dividends or other
distributions will not be paid to any former holder of Aronex Pharmaceuticals
common stock, however, until that holder surrenders its shares of Aronex
Pharmaceuticals stock to the exchange agent.
TREATMENT OF ARONEX PHARMACEUTICALS STOCK OPTIONS, WARRANTS, AND CONVERTIBLE
NOTE
Options
At the effective time of the merger, Antigenics will assume each
outstanding and unexercised option to purchase shares of Aronex Pharmaceuticals
stock granted under Aronex Pharmaceuticals's Amended and Restated 1989 Stock
Option Plan, Amended and Restated 1998 Stock Option Plan, and Amended and
Restated 1993 Non-Employee Director Stock Option Plan, whether or not
exercisable. Each assumed option will continue to be governed by the same terms
and conditions of the applicable Aronex Pharmaceuticals stock option plan that
were in effect immediately before the effective time of the merger, except that:
- each option will be exercisable for (1) a number of shares of Antigenics
common stock equal to the number of shares of Aronex Pharmaceuticals
stock that were issuable upon exercise of the option immediately before
the effective time multiplied by the merger's exchange ratio, rounded
down to the nearest whole number of shares of Antigenics common stock and
(2) either (A) if
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exercised prior to the date the milestone is achieved (but not after July 6,
2002), that number of contingent value rights equal to the number of shares of
Aronex Pharmaceuticals common stock subject to the option or (B) if exercised
after the milestone is achieved (so long as it was achieved prior to July
6, 2002), that number of shares of Antigenics common stock that would have
been issued, if any, had the holder of the option had contingent value
rights on the date the milestone was achieved;
- the per share exercise price for the shares of Antigenics common stock
issuable upon exercise of the assumed option will be equal to the
exercise price per share of Aronex Pharmaceuticals stock at which the
option was exercisable immediately before the effective time divided by
the merger's exchange ratio, rounded up to the nearest whole cent; and
- all options to purchase shares of Aronex Pharmaceuticals stock will
become fully vested and exercisable, except for an option granted to one
of Aronex Pharmaceuticals's directors.
On May 16, 2001, options to purchase 3,021,287 shares of Aronex
Pharmaceuticals stock were outstanding; the weighted average exercise price per
share of these options was $3.41.
Antigenics has agreed to file a registration statement on Form S-8 for the
shares of Antigenics common stock subject to Aronex Pharmaceuticals stock
options. Antigenics expects that the registration statement will be effective
shortly after the effective time of the merger, and Antigenics has agreed to use
commercially reasonably efforts to maintain the effectiveness of that
registration statement for so long as former Aronex Pharmaceuticals stock
options remain outstanding.
Warrants
At the effective time of the merger, Antigenics will assume each
outstanding and unexercised warrant to purchase shares of Aronex Pharmaceuticals
stock, which in the aggregate are exercisable for 1,762,175 shares of Aronex
Pharmaceuticals common stock with a weighted average exercise price per share of
$3.14. Each assumed warrant will continue to be governed by the same terms and
conditions as were applicable to the respective Aronex Pharmaceuticals warrant,
except that:
- each warrant will be exercisable for (1) a number of shares of Antigenics
common stock equal to the number of shares of Aronex Pharmaceuticals
stock that were issuable upon exercise of the warrant immediately before
the effective time multiplied by the merger's exchange ratio, rounded
down to the nearest whole number of shares of Antigenics common stock and
(2) either (A) if exercised prior to the date the milestone is achieved
(but not after July 6, 2002), that number of contingent value rights
equal to the number of shares of Aronex Pharmaceuticals common stock
subject to the warrant or (B) if exercised after the milestone is
achieved (so long as it was achieved prior to July 6, 2002), that number
of shares of Antigenics common stock that would have been issued, if any,
had the holder of the warrant had contingent value rights on the date the
milestone was achieved; and
- the per share exercise price for the shares of Antigenics common stock
issuable upon exercise of the assumed warrant will be equal to the
exercise price per share of Aronex Pharmaceuticals stock at which the
warrant was exercisable immediately before the effective time divided by
the merger's exchange ratio, rounded up to the nearest whole cent.
Antigenics has agreed to file a registration statement on Form S-3 for the
shares of Antigenics common stock subject to Aronex Pharmaceuticals warrants, to
the extent required under the warrants. Antigenics expects that the registration
statement will be effective shortly after the effective time of the merger, and
Antigenics has agreed to use commercially reasonably efforts to maintain the
effectiveness of that registration statement for so long as former Aronex
Pharmaceuticals warrants remain outstanding.
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Convertible Note
At the effective time of the merger, the surviving corporation will assume
all obligations and duties of Aronex Pharmaceuticals under its outstanding $2.5
million 10% convertible note payable to Genzyme Corporation dated May 21, 1999.
The convertible note will continue to be governed by the same terms and
conditions set forth in the convertible note that were in effect immediately
prior to the effective time of the merger, except that the convertible note
shall be convertible into whole shares of Antigenics common stock and cash in
lieu of fractional shares calculated as follows:
- the conversion price will be equal to the conversion price of the
convertible note at which the note was convertible immediately before the
effective time divided by the merger's exchange ratio, rounded up to the
nearest whole cent;
- cash in lieu of fractional shares shall be paid, immediately after the
effective time of the merger agreement, based upon the conversion price
in effect immediately after the effective time; and
- either (i) if the convertible note is converted prior to the date the
milestone is achieved or July 6, 2002, whichever is earlier, that number
of contingent value rights equal to the number of shares of Antigenics
common stock issuable upon conversion of the convertible note immediately
prior to the effective time, or (ii) if the convertible note is converted
after the date the milestone is achieved (so long as it is achieved by
July 6, 2002) that number of shares of Antigenics common stock that would
have been issued, if any, had the holder of the convertible note held
such contingent value rights.
TREATMENT OF ARONEX PHARMACEUTICALS BENEFITS AND STOCK PURCHASE PLANS AND OTHER
EMPLOYEE MATTERS
Antigenics has agreed to give Aronex Pharmaceuticals employees who remain
with the company after the merger full credit in terms of eligibility, vesting,
benefit accrual, except benefit accrual under defined benefit pension plans and
except as would result in duplication of benefits, and determination of the
level of benefits under any employee benefit plans. Antigenics has also agreed
to waive limitations for preexisting condition exclusions and waiting periods
under any Antigenics welfare benefit plans that a continuing Aronex
Pharmaceuticals employee is eligible to participate in after the merger. This
waiver would not include, however, limitations and waiting periods that have not
been satisfied under any Aronex Pharmaceuticals welfare plan maintained for the
employee prior to the merger.
Antigenics has further agreed to assume and honor all Aronex
Pharmaceuticals employment, severance and other compensation agreements existing
prior to execution of the merger agreement.
Aronex Pharmaceuticals has agreed to terminate its 401(k) plan immediately
before closing unless Antigenics agrees to sponsor the plan following the
merger.
Aronex Pharmaceuticals has also agreed to terminate its 1997 Employee Stock
Purchase Plan on the effective date of the merger.
ACCOUNTING TREATMENT
Antigenics will account for the merger using the purchase method of
accounting for a business combination. Under this method of accounting, the
assets and liabilities of Aronex Pharmaceuticals, including intangible assets,
will be recorded at their fair values. The results of operations and cash flows
of Aronex Pharmaceuticals will be included in Antigenics's financial statements
following the completion of the merger. Consistent with GAAP, amounts assigned
to acquired in-process research and development -- i.e., Aronex Pharmaceuticals
research and development projects that are still in process at the closing of
the merger, but which, if unsuccessful, have no alternative future use -- must
be charged to expense on the date that the merger closes.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material U.S. federal income tax
consequences of the merger. The discussion is based on the Internal Revenue
Code, related regulations, existing administrative interpretations and court
decisions, all of which may change, possibly with retroactive effect. This
discussion assumes that Aronex Pharmaceuticals stockholders hold their shares of
Aronex Pharmaceuticals stock as capital assets within the meaning of Section
1221 of the Internal Revenue Code. This discussion does not address all aspects
of U.S. federal income taxation that may be important to you either in light of
your particular circumstances or if you are subject to special rules. These
special rules include those relating to:
- stockholders who are not U.S. citizens or residents or that are foreign
corporations, partnerships, estates or trusts;
- financial institutions;
- tax-exempt organizations;
- insurance companies;
- dealers in securities;
- stockholders who acquired their Aronex Pharmaceuticals stock by
exercising options or similar derivative securities or otherwise as
compensation; and
- stockholders who hold their Aronex Pharmaceuticals stock as part of a
hedge, straddle, appreciated financial position or conversion
transaction.
This section, as it relates to matters of United States federal income tax
law, constitutes the opinions of Andrews & Kurth L.L.P., counsel to Aronex
Pharmaceuticals, and Palmer & Dodge LLP, counsel to Antigenics. These opinions
are based on a number of assumptions, representations and covenants, including
the assumption that the merger will be completed as described in this document
and that the representations contained in letters delivered to counsel by Aronex
Pharmaceuticals, Antigenics and the merger subsidiary in connection with the
delivery of the opinions will be accurate through the closing. The opinions
neither bind the IRS nor preclude the IRS from adopting a position contrary to
that expressed in the opinions. Aronex Pharmaceuticals and Antigenics cannot
assure you that contrary positions will not be successfully asserted by the IRS
or adopted by a court if the issues are litigated. Neither Aronex
Pharmaceuticals nor Antigenics intends to obtain a ruling from the IRS with
respect to the tax consequences of the merger.
Based upon and subject to the assumptions and limitations stated above, it
is the opinion of Andrews & Kurth L.L.P. and Palmer & Dodge LLP that the merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code and Antigenics, Aronex Pharmaceuticals and the merger subsidiary will each
be a party to that reorganization. As a result of the qualification of the
merger as a reorganization, the material federal income tax consequences will be
as described below.
Tax Consequences to Aronex Pharmaceuticals Stockholders
Except as discussed below with respect to the receipt of cash in lieu of
fractional shares, Aronex Pharmaceuticals stockholders will not recognize gain
or loss for U.S. federal income tax purposes on their receipt of Antigenics
common stock, including their receipt of any additional shares of Antigenics
common stock pursuant to the contingent value rights agreement, in exchange for
their Aronex Pharmaceuticals common stock in the merger.
The aggregate tax basis of the Antigenics common stock received by Aronex
Pharmaceuticals common stockholders in exchange for their Aronex Pharmaceuticals
common stock (including fractional shares of Antigenics common stock that are
converted to cash and any additional shares of Antigenics common stock that are
distributed pursuant to the contingent value rights agreement) will be the same
as the aggregate tax basis of the Aronex Pharmaceuticals common stock
surrendered in exchange therefor.
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Until additional shares, if any, are distributed pursuant to the contingent
value rights agreement, the interim basis of the Antigenics common stock
received by Aronex Pharmaceuticals stockholders in exchange for their Aronex
Pharmaceuticals common stock will be determined by assuming that Aronex
Pharmaceuticals stockholders will receive, in exchange for their Aronex
Pharmaceuticals common stock, the maximum number of additional shares that could
be issued pursuant to the contingent value rights agreement.
The holding period of the Antigenics common stock received by Aronex
Pharmaceuticals stockholders in exchange for their Aronex Pharmaceuticals common
stock (including fractional shares of Antigenics common stock that are converted
to cash and any additional shares of Antigenics common stock that are
distributed pursuant to the contingent value rights agreement) will include the
holding period of the Aronex Pharmaceuticals common stock surrendered in
exchange therefor.
Stockholders who receive cash in lieu of fractional shares of Antigenics
common stock will be treated as having received the fractional shares and then
as having exchanged the fractional shares for cash in a redemption by
Antigenics. A stockholder will recognize gain or loss as a result of this deemed
redemption in an amount equal to the difference between the amount of cash
received and the portion of the tax basis of the stockholder's Aronex
Pharmaceuticals common stock surrendered in the merger that is allocable to the
fractional share.
Tax Consequences to Antigenics and Aronex Pharmaceuticals
Antigenics, including its merger subsidiary, and Aronex Pharmaceuticals
will not recognize gain or loss for U.S. federal income tax purposes by reason
of the merger.
Backup Withholding
Unless a stockholder complies with reporting and/or certification
procedures or is an exempt recipient under the backup withholding and
information reporting provisions of the Internal Revenue Code and Treasury
regulations, the holder may be subject to a 31% backup withholding tax on any
cash payments received in the merger. Any amounts withheld under the backup
withholding rules may be allowed as a refund or a credit against the holder's
federal income tax liability, provided the required information is furnished to
the IRS.
THIS DISCUSSION IS ONLY INTENDED TO PROVIDE YOU WITH A GENERAL SUMMARY OF
THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. THIS DISCUSSION
IS NOT A COMPLETE ANALYSIS OR DESCRIPTION OF EVERY POTENTIAL U.S. FEDERAL INCOME
TAX CONSEQUENCE OR ANY OTHER CONSEQUENCE OF THE MERGER. IN ADDITION, THE
DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH, OR ARE
CONTINGENT ON, YOUR INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION DOES NOT
ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF
THE MERGER. ACCORDINGLY, ANTIGENICS STRONGLY URGES YOU TO CONSULT WITH YOUR TAX
ADVISOR TO DETERMINE THE PARTICULAR U.S. FEDERAL, STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES TO YOU OF THE MERGER.
COVENANTS UNDER THE MERGER AGREEMENT
Aronex Pharmaceuticals's Interim Operations
Until the closing of the merger, Aronex Pharmaceuticals has agreed to
operate its business solely in the ordinary course consistent with its past
practices. Aronex Pharmaceuticals also agreed to:
- use reasonable commercial efforts to keep available the services of its
employees;
- use reasonable commercial efforts to maintain its insurance policies;
- use reasonable commercial efforts to preserve intact its business and
physical properties;
- use best efforts to preserve and protect its proprietary rights;
- use reasonable commercial efforts to comply with the terms of its
material contracts;
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- take all actions with respect to Aronex Pharmaceuticals's outstanding
options and warrants necessary to effectuate the merger; and
- consult with Antigenics upon receipt of any material communication from
the FDA or before making any material submission to the FDA, before
materially changing any study protocol or timeline for product candidates
or programs or before adding new clinical trials.
Antigenics may agree to exceptions to these obligations in writing.
Aronex Pharmaceuticals has also agreed until the merger closes, with some
exceptions, that it will not do or agree to do any of the following without
Antigenics's prior written consent:
- sell or encumber any of its assets other than sales or transfers in the
ordinary course of business not exceeding $50,000;
- incur any indebtedness for borrowed money, obligation or liability or
enter into any contracts or commitments involving potential payments of
$50,000 or more;
- increase the compensation of any officer, director, employee, agent or
consultant; adopt or increase benefits under any employee plan; or enter
into any employment, severance or other agreement with an officer or
director;
- change the amount of its authorized, issued or outstanding capital stock;
grant, accelerate or modify any option, warrant or other right to
purchase; declare or pay any dividend or other distribution on shares of
its capital stock; or sell, transfer, repurchase or redeem any shares of
its capital stock, except to honor the exercise of convertible securities
outstanding on the date of execution of the merger agreement;
- amend its charter or bylaws;
- acquire a material amount of property or assets other than in the
ordinary course of business;
- authorize any single capital expenditure exceeding $50,000 or $100,000 in
the aggregate;
- change any of its accounting practices or principles or restate its
financial statements, except as may be required by a change in law or
GAAP;
- take any action that would prevent the merger from qualifying as a
reorganization within Section 368(a) of the Internal Revenue Code;
- settle or compromise any material tax liability, change its tax
accounting methods or periods, enter into any tax-related closing
agreement, surrender its right to any tax refund, or consent to any
extension or waiver of the limitations period applicable to any tax claim
or assessment;
- settle or compromise any pending or threatened material legal proceeding;
- adopt any plan of liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization, other than this
merger;
- satisfy any liabilities other than in the ordinary course of business
consistent with past practice;
- redeem the purchase rights issued under its stockholder rights plan or
render the plan inapplicable to a transaction other than this merger;
- enter into or modify any license, development, research or collaboration
agreement; or
- modify, amend, terminate or assign any material rights or claims under
any confidentiality agreement to which Aronex Pharmaceuticals is a party.
No Solicitation by Aronex Pharmaceuticals
Aronex Pharmaceuticals has agreed not to (1) solicit any person regarding
either a business combination with Aronex Pharmaceuticals or any other
transaction as an alternative to this merger,
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(2) participate in any negotiations with or provide information to, any person
to seek any alternative transaction to this merger, or (3) negotiate with or
furnish information to, a third party regarding an alternative transaction
unless Aronex Pharmaceuticals's board or officers are otherwise required by
their fiduciary duties. Aronex Pharmaceuticals has agreed to inform Antigenics
of any written inquiry it receives relating to an alternative transaction.
Recommendation of the Aronex Pharmaceuticals Board
The Aronex Pharmaceuticals board of directors has agreed to take all lawful
action that does not interfere with its fiduciary duties to secure the vote of
its stockholders adopting the merger agreement.
Indemnification and Insurance for Aronex Pharmaceuticals Officers and
Directors
Antigenics has agreed to cause the surviving corporation of the merger to
honor Aronex Pharmaceuticals's indemnification obligations under agreements with
its directors and officers and its charter and bylaws in effect before the
effective time of the merger. Aronex Pharmaceuticals has agreed to purchase and
maintain for six years, a directors' and officers' liability insurance policy
that provides coverage substantially similar to the coverage provided to Aronex
Pharmaceuticals's directors and officers on the date of the merger agreement for
events occurring before the effective time of the merger. Aronex
Pharmaceuticals, however, may not pay more than $250,000 for directors' and
officers' liability insurance coverage without Antigenics prior written consent.
Other Covenants
The merger agreement contains covenants of both parties relating to, among
other things, public announcements, notifications, regulatory filings, employee
matters, reporting of the transaction for federal income tax purposes, and
further assurances, and cooperation in obtaining consents and approvals.
Aronex Pharmaceuticals has also agreed, among other things, to grant
Antigenics access to company information as is reasonably necessary to
investigate Aronex Pharmaceuticals.
Antigenics has also agreed, among other things, to list the shares of
Antigenics common stock to be issued in the merger on the Nasdaq National
Market.
REPRESENTATIONS AND WARRANTIES
Each of Antigenics and Aronex Pharmaceuticals has made customary
representations and warranties to the other in the merger agreement regarding,
among other things:
- its and its subsidiaries' organization and similar corporate matters;
- the authorization, execution, delivery and performance of the merger
agreement;
- its capital structure;
- reports and financial statements filed with the SEC and the accuracy of
the information contained in those documents;
- the absence of any undisclosed liabilities and material adverse events
since December 31, 2000;
- the absence of litigation;
- necessary governmental consents and filings;
- ownership, use and non-infringement of intellectual property rights;
- commercial relationships with suppliers, collaborators, licensors and
licensees;
- the absence of conflicts, violations or defaults under its organizational
documents and other agreements and documents as a result of executing the
merger agreement;
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- the absence of conflicts with or violations of any laws as a result of
executing the merger agreement; and
- the accuracy of the information in this proxy statement/prospectus.
Aronex Pharmaceuticals has made additional representations and warranties
to Antigenics regarding, among other things:
- its subsidiaries and joint ventures;
- its material contracts;
- insurance coverage;
- the filing of tax returns and payment of taxes;
- its employee benefit plans;
- compliance with governmental regulations concerning employees and
relations with employees;
- compliance with environmental laws and other environmental matters;
- board approval of the merger and the board's amending the Aronex
Pharmaceuticals stockholder rights plan to permit the merger;
- receipt of fairness opinion; and
- merger-related brokers' and finders' fees;
Antigenics has made additional representations and warranties to Aronex
Pharmaceuticals regarding, among other things:
- the capitalization of Nasa Merger Corp., the subsidiary Antigenics formed
to effect the merger; and
- the business activities of Nasa Merger Corp.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligation to Effect the Merger
Antigenics and Aronex Pharmaceuticals do not have to consummate the merger
unless the following conditions are met:
- Aronex Pharmaceuticals stockholders must adopt the merger agreement; and
- the registration statement of which this proxy statement/prospectus is a
part must not be subject to any stop order or related proceeding.
Conditions to the Obligation of Antigenics
Antigenics does not have to consummate the merger unless the following
additional conditions are met or waived:
- Aronex Pharmaceuticals must have performed and complied with all its
agreements and covenants in the merger agreement, and the representations
and warranties of Aronex Pharmaceuticals contained in the merger
agreement must be true and correct when made and on and as of the closing
date as if made at and as of that date, except for any inaccuracies or
failures to perform that would not reasonably be expected to have a
material adverse effect on Aronex Pharmaceuticals;
- Antigenics must receive the customary closing documents described in the
merger agreement; and
- each affiliate of Aronex Pharmaceuticals must deliver to Antigenics an
agreement regarding restrictions on the resale of the shares of
Antigenics common stock issued in the merger.
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Conditions to the Obligation of Aronex Pharmaceuticals
Aronex Pharmaceuticals does not have to consummate the merger unless
Antigenics has performed and complied with all its agreements and covenants in
the merger agreement, the representations and warranties of Antigenics contained
in the merger agreement are true and correct when made and on and as of the
closing date as if made at and as of that date, except for any inaccuracies or
failures to perform that would not reasonably be expected to have a material
adverse effect on Antigenics.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the effective
time, whether before or after its adoption by Aronex Pharmaceuticals
stockholders:
- by mutual written consent of Antigenics and Aronex Pharmaceuticals;
- by Aronex Pharmaceuticals:
-- for material misrepresentations or uncured breaches by Antigenics.
- by Antigenics:
-- for material misrepresentations or uncured breaches by Aronex
Pharmaceuticals;
-- if the Aronex Pharmaceuticals board of directors, in the exercise of
its fiduciary duties, is obligated to approve or recommend an
alternative to the merger;
-- if the Aronex Pharmaceuticals board of directors withdraws its
recommendation of the merger agreement, recommends an alternative to
the merger or fails to recommend against, or takes a neutral position
with respect to, any tender or exchange offer; or
-- if any person or group, other than Antigenics or any of its affiliates,
becomes the owner of at least 15% of the outstanding shares of Aronex
Pharmaceuticals stock;
- by either Antigenics or Aronex Pharmaceuticals:
-- if the merger has not closed by September 30, 2001, unless that party's
own breach of the agreement is the reason that the merger has not been
consummated;
-- if there is a non-appealable government action prohibiting the
consummation of the merger; or
-- if Aronex Pharmaceuticals stockholders do not vote to adopt the merger
agreement.
TERMINATION FEES AND EXPENSES
Payment of Termination Fee
Aronex Pharmaceuticals has agreed to pay Antigenics $1,200,000 if the
merger agreement is terminated in any of the following circumstances:
- Antigenics terminates the merger agreement because either Aronex
Pharmaceuticals has breached the representations and warranties in the
merger agreement or has failed to materially comply with any of the
covenants or agreements contained in the merger agreement or Aronex
Pharmaceuticals's board of directors withdraws it recommendation of the
merger agreement, recommends an alternative to the merger or fails to
recommend against, or takes a neutral position with respect to, a tender
or exchange offer; or
- Antigenics or Aronex Pharmaceuticals terminates the merger agreement
because Aronex Pharmaceuticals stockholders have failed to vote to adopt
the merger agreement if, at the time of termination, either an
alternative transaction between Aronex Pharmaceuticals and a third party
has been announced or Aronex Pharmaceuticals or its stockholders have
received a proposal for an alternative to the merger.
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Antigenics has agreed to pay Aronex Pharmaceuticals $1,200,000 if:
- the merger agreement is terminated by Aronex Pharmaceuticals for uncured
breaches by Antigenics;
- Aronex Pharmaceuticals is not in breach of any provisions of the merger
agreement; and
- an alternative transaction has not been announced or Aronex
Pharmaceuticals or its stockholders have not received a proposal for an
alternative transaction.
The payment of this fee by Antigenics is Aronex Pharmaceuticals's sole and
exclusive remedy for any breach of Antigenics's obligations under the merger
agreement.
Expense Reimbursement
If the merger agreement is terminated by Antigenics because the Aronex
Pharmaceuticals board of directors, in the exercise of its fiduciary duties, has
approved or recommended an alternative to the merger, then Aronex
Pharmaceuticals will pay Antigenics's reasonable out-of-pocket expenses incurred
in connection with the merger agreement and the merger.
Payment of Expenses
Antigenics and Aronex Pharmaceuticals will share equally the fees and
expenses of printing and filing this proxy statement/prospectus and the
registration statement, and except for the expense reimbursement described
above, Antigenics and Aronex Pharmaceuticals will each pay its own
merger-related fees and expenses.
AMENDMENTS AND WAIVERS
Generally, Antigenics and Aronex Pharmaceuticals may amend or waive any
provision of the merger agreement before the effective time of the merger.
However, if a material condition is waived, Antigenics will amend the
registration statement of which this proxy statement/prospectus forms a part,
and Aronex Pharmaceuticals will resolicit proxies for the adoption of the merger
agreement. In addition, after Aronex Pharmaceuticals stockholders have approved
the merger, their further approval would be required to modify the amount or
type of consideration that they will receive in the merger, to alter the charter
of the surviving corporation or to otherwise alter the merger agreement in a
manner materially adverse to them.
APPRAISAL OR DISSENTERS' RIGHTS
Under Delaware law, Aronex Pharmaceuticals stockholders are not entitled to
appraisal or dissenters' rights in connection with the merger because:
- Aronex Pharmaceuticals common stock was, as of the record date for the
special meeting, designated and reported for trading on the Nasdaq
National Market; and
- Aronex Pharmaceuticals common stock will be converted into shares of
Antigenics common stock, which also will be designated and reported for
trading on the Nasdaq National Market.
NASDAQ LISTING OF ANTIGENICS COMMON STOCK
Antigenics has agreed to file a listing notification with Nasdaq concerning
the Antigenics common stock to be issued to Aronex Pharmaceuticals stockholders
in the merger including shares of Antigenics common stock issuable upon exercise
of Aronex Pharmaceuticals options and warrants, upon conversion of Aronex
Pharmaceuticals's convertible note and upon exercise of the contingent value
rights.
DELISTING OF ARONEX PHARMACEUTICALS COMMON STOCK
If the merger is completed, Aronex Pharmaceuticals common stock will cease
to be quoted on the Nasdaq National Market.
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RESALES OF ANTIGENICS COMMON STOCK BY ARONEX PHARMACEUTICALS AFFILIATES
Aronex Pharmaceuticals stockholders may freely transfer the shares of
Antigenics common stock received in the merger, unless they are individuals and
entities who are deemed to be "affiliates" of Aronex Pharmaceuticals before the
merger or affiliates of Antigenics after the merger. Persons who may be deemed
to be affiliates of Aronex Pharmaceuticals or Antigenics include individuals or
entities that control, are controlled by, or are under common control with,
Antigenics and may include executive officers and directors as well as principal
stockholders. These affiliates or their brokers risk being characterized as
"underwriters" when they sell shares of Antigenics common stock received in the
merger. The United States securities laws require registration of shares sold by
underwriters. An affiliate and its broker can avoid being characterized as an
underwriter and, therefore, avoid the Securities Act registration requirements
by selling shares in compliance with Rule 145 or Rule 144 under the Securities
Act. Rule 145 covers sales by Aronex Pharmaceuticals affiliates, and Rule 144
covers sales by Antigenics affiliates. Each rule limits the number of shares an
affiliate can sell in a particular period of time. The merger agreement requires
Aronex Pharmaceuticals to use its best efforts to cause each of its affiliates
to execute and deliver to Antigenics a written agreement to the effect that the
affiliate will not offer or sell or otherwise dispose of Antigenics common stock
issued to the affiliate in the merger, including shares issued pursuant to the
contingent value rights, if any, in violation of the Securities Act or the
related rules and regulations adopted by the SEC.
This proxy statement/prospectus does not cover resales of Antigenics common
stock received by any person who may be deemed to be an affiliate of Aronex
Pharmaceuticals and/or Antigenics.
REGULATORY MATTERS
Antigenics and Aronex Pharmaceuticals are not aware of any material
governmental or regulatory requirements that must be complied with regarding the
merger, other than federal securities laws and the filing of documents
describing principal terms of the merger agreement with the secretary of state
of Delaware.
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BUSINESS OF ANTIGENICS
Antigenics is developing treatments for cancers, serious infections,
autoimmune disorders and degenerative disorders using its proprietary
technologies intended to program the immune system and improve quality of life.
These products include immunotherapeutics based on a specific class of proteins
known as heat shock proteins, also referred to as HSPs, which activate powerful
cellular immune response, and Stimulon(R) based products, including QS-21, which
activate superior antibody response. Antigenics is evaluating its lead HSP-based
immunotherapeutic, Oncophage(R), in an international multi-center Phase III
clinical trial in kidney cancer and in five additional cancer indications in
Phase II or Phase I/II trials. Through its internal programs and partnerships
with GlaxoSmithKline, Aventis Pasteur, Wyeth-Lederle, Bristol-Myers Squibb,
VaxGen and Elan Pharmaceuticals, Antigenics is testing its Stimulon-based
products in 11 Phase III and Phase II clinical trials for cancer, several
infectious diseases and degenerative diseases. Based upon its scientific and
drug development skills, Antigenics' pioneering technology platforms and its
strategic expertise, Antigenics plans to establish a leadership position in drug
discovery, development and commercialization.
You can find additional information regarding Antigenics in its filings
with the SEC. For more details about how you can obtain this information, you
should read the section of this proxy statement/prospectus entitled "Where You
Can Find More Information" beginning on page 95.
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BUSINESS OF ARONEX PHARMACEUTICALS
GENERAL
Aronex Pharmaceuticals is a biopharmaceutical company engaged in the
identification and development of proprietary innovative medicines to treat
cancer and infectious diseases. Aronex Pharmaceuticals's strategy is to identify
and develop medicines based upon either refinements of proven therapies or new
ways of treating specific diseases. Its focus is on medicines for cancer and
infectious diseases for which current therapy is inadequate. The effectiveness
of the current generation of anti-cancer and anti-infective drugs is limited
because of two significant factors. First, cancer cells frequently become
resistant to commonly used anti-cancer drugs, and organisms responsible for
infectious diseases may also develop resistance to anti-infective drugs. This
resistance results in the ultimate progression of many cancers and some
infections. Second, these current generation drugs, particularly cancer drugs,
are generally toxic because of their lack of selectivity that results in
significant side effects on normal cells. Aronex Pharmaceuticals is targeting
the development of drugs for cancer and infectious diseases that are selective
in their action, with unique or special ways of acting and more favorable safety
profiles.
In January 2001, Aronex Pharmaceuticals received a non-approval letter from
the FDA for its NDA, amendment for ATRAGEN(R) for patients with APL, for whom
therapy with tretinoin is necessary but for whom an intravenous administration
is required. Following this event, Aronex Pharmaceuticals reduced expenditures
in its development plans and activities. Additionally, Aronex Pharmaceuticals
reduced the number of full-time employees in January 2001 from 77 to 29. Aronex
Pharmaceuticals is currently in discussions with the FDA to determine its
alternatives regarding the NDA.
Aronex Pharmaceuticals will continue to require substantial additional
funds for its operations. As of March 31, 2001, Aronex Pharmaceuticals had $5.3
million in cash, cash equivalents and investments. Aronex Pharmaceuticals
believes that it can conserve its existing financial resources to satisfy its
capital and operating requirements into the fourth quarter of 2001. Its
accountants have issued a qualified opinion on its consolidated financial
statements for the year ended December 31, 2000 indicating substantial doubt
about its ability to continue as a going concern. In the event the merger with
Antigenics is not completed, Aronex Pharmaceuticals will need to immediately
raise additional funds, or it will have to close operations and seek legal
protection from its creditors.
PRODUCTS IN CLINICAL DEVELOPMENT
The following table lists Aronex Pharmaceuticals's clinical products, along
with their current indications and clinical status:
PRODUCT INDICATIONS CLINICAL STATUS
- ------- ----------- ---------------
CANCER
ATRAGEN(R)................ Acute Promyelocytic Leukemia NDA appeal pending
Monotherapy Phase II enrollment closed
Non-Hodgkin's Lymphoma Phase II enrollment closed
Prostate Cancer Phase II completed
Renal Cell Carcinoma Phase I/II enrollment closed
Acute Myelogenous Leukemia Phase II enrollment closed
Kaposi's Sarcoma Phase II completed
Annamycin................. Breast Cancer Phase II completed
Leukemia Phase I/II completed
Aroplatin(TM)............. Lung Cancer Phase II completed
Renal Cell Carcinoma Phase II completed
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PRODUCT INDICATIONS CLINICAL STATUS
- ------- ----------- ---------------
INFECTIOUS DISEASES
Nyotran(R)................ Presumed Fungal Infections Phase III completed
Cryptococcal Meningitis Phase III completed
Candidemia Phase II completed
Aspergillus Salvage Phase II
ATRAGEN(R)................ Hepatitis Preclinical
"Appeal pending" indicates that Aronex Pharmaceuticals is currently in
discussions with the FDA to determine its alternatives. "Preclinical" indicates
that the compound exhibits activity and that the product is being evaluated in
animal models. "Phase I" indicates that the first phase of human clinical
studies is being conducted with a small number of subjects in order to gain
evidence of safety, establish the maximum dose of the drug which may be safely
administered to patients and to characterize the distribution of a drug in a
human patient. "Phase I/II" indicates that a product is being tested in humans
primarily for safety and drug distribution, while preliminary measures of
efficacy are also observed. "Phase II" indicates that a product is being tested
in humans for safety and preliminary evidence of efficacy. "Phase III" indicates
that a product is being tested in multi-center studies generally designed to
provide evidence of efficacy and further safety of the product in a large number
of patients. "Enrollment closed" indicates that Aronex Pharmaceuticals is no
longer recruiting patients, recruited patients are being monitored according to
the protocol and data is being gathered.
Aronex Pharmaceuticals can give no assurance that the results of any of its
clinical trials will be favorable or that its products will obtain regulatory
approval for commercialization.
CANCER
Aronex Pharmaceuticals's programs in cancer focus on developing medicines
based upon either refinements of proven therapies or new approaches to the
treatment of specific disease targets. The clinical programs currently focus on
development of ATRAGEN(R) for hematological malignancies and solid tumors,
Annamycin for solid tumors and hematological malignancies and Aroplatin(TM) for
solid tumors.
ATRAGEN(R) for APL (NDA appeal pending), APL monotherapy (Phase II enrollment
closed), Non-Hodgkin's Lymphoma (Phase II enrollment closed), Prostate Cancer
(Phase II completed), Renal Cell Carcinoma (Phase I/II enrollment closed), AML
(Phase II enrollment closed), and Kaposi's Sarcoma (Phase II completed)
ATRAGEN(R) is a lipid-based, intravenous formulation of all-trans-retinoic
acid (ATRA). Aronex Pharmaceuticals's lipid formulation has been developed to
change certain aspects of the drug's behavior in the body to overcome the known
deficiencies of oral retinoids, such as the oral formulation of ATRA. ATRAGEN(R)
has a different pharmacokinetics and distribution profile. In December 2000,
Aronex Pharmaceuticals presented ATRAGEN(R) pharmacokinetic data at the 42nd
Annual Meeting of the American Society of Hematology. These data were gathered
from healthy volunteers in its pharmacokinetic study of ATRAGEN(R) compared to
Vesanoid(R) (the oral formulation of ATRA). Analysis of pharmacokinetic
parameters revealed a statistically significant 45% decrease in the area under
the plasma drug concentration-time curve (AUC) after 9 days of oral ATRA dosing
and a 32% decrease in day 9 maximum concentrations of the drug in the plasma
(Cmax). In contrast, with ATRAGEN(R) there were no decreases in the AUC or Cmax.
Dose-normalized exposure to tretinoin was 6 to 11 times greater with ATRAGEN(R)
dosing than with oral ATRA dosing. Similarly, Cmax was 15 to 23 times higher
following ATRAGEN(R) administration. Investigators concluded that patient
exposure to tretinoin was much less variable with ATRAGEN(R) than with the oral
formulation of ATRA. Although the results from this study did not constitute
evidence of safety or effectiveness, they nevertheless provided a basis for
investigating the safety and efficacy of ATRAGEN(R) in a broad range of cancers.
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Claims to methods of using ATRAGEN(R) are found in an issued United States
patent. Claims to both the composition and its method of use are pending in
continuing patent applications in the United States Patent Office. The issued
patent drawn to ATRAGEN(R) and the continuing applications are assigned jointly
to the Board of Regents of The University of Texas and Aronex Pharmaceuticals,
with Aronex Pharmaceuticals as the exclusive licensee. Claims to the ATRAGEN(R)
formulation have been allowed in the European Patent Office. See "Business of
Aronex Pharmaceuticals -- Patents and Proprietary Rights" on page 69.
ATRAGEN(R) has been designated an orphan drug for the treatment of acute
and chronic leukemia by the FDA. See "Government Regulation" on page 70.
INDICATIONS
i. Acute Promyelocytic Leukemia (NDA appeal pending)
According to the American Cancer Society, approximately 1,000 new cases of
APL in the United States are diagnosed annually, and each year approximately
277,000 patients in the United States develop the various types of cancer
identified as potential indications for ATRAGEN(R). ATRAGEN(R) also may be
useful in treating a variety of hematological malignancies and solid tumors.
Aronex Pharmaceuticals completed a Phase I clinical trial of ATRAGEN(R) in
1995 in patients with cancers of the blood. Phase I data presented in the
journal Blood during 1996 indicated that ATRAGEN(R) sustains levels in the blood
after prolonged dosing, is well tolerated and shows evidence of activity against
certain leukemias and lymphomas. Aronex Pharmaceuticals recently completed
patient enrollment for the Phase II clinical evaluation of ATRAGEN(R) for its
potential to induce remission in APL patients. In December 2000, pivotal Phase
II efficacy and safety data compiled from sites in the United States and Peru
were presented at the 42nd Annual Meeting of the American Society of Hematology.
Efficacy data on 95 evaluable patients indicated that ATRAGEN(R) was an
effective agent for inducing complete remission in APL patients. Safety data
from 117 APL patients indicated that ATRAGEN(R) was safe and well tolerated at
the 90 mg/m(2) dose. Based on the pivotal Phase II data, in December 1998,
Aronex Pharmaceuticals submitted an NDA with the FDA for ATRAGEN(R) for the
treatment of patients with APL for whom therapy with the drug tretinoin is
necessary but for whom an intravenous administration is required.
In September 1999, Aronex Pharmaceuticals received a letter from the FDA
notifying it that the application was not approvable in its current form. In
July 2000, Aronex Pharmaceuticals submitted an amendment to the NDA and in
January 2001, the FDA denied approval of its NDA amendment for ATRAGEN(R). Based
on their review of the NDA amendment, the FDA stated that the proposed claim was
not supported by the data contained in the amendment, and did not establish an
identifiable population of patients who need tretinoin and cannot use the oral
formulation. Aronex Pharmaceuticals is currently in discussions with the FDA
seeking guidance regarding its available options at this time.
This indication represents a therapeutic area where new therapies are
needed. ATRA, or tretinoin, has been approved as an oral formulation by the FDA
as a treatment for APL. ATRA and other retinoids cause cell differentiation in
contrast to most conventional chemotherapeutic agents. Retinoids are molecules
comprising both natural and synthetic derivatives of retinol, otherwise known as
vitamin A. However, Aronex Pharmaceuticals believes the effectiveness of the
oral formulation of ATRA may be reduced by the rate at which it is metabolized,
which lowers the amount of drug that reaches the cancer target.
ii. APL monotherapy (Phase II enrollment closed)
ATRAGEN(R) is also being assessed in Phase II clinical trials for its use
as a monotherapy in the treatment of newly-diagnosed APL patients. Interim Phase
II data presented in the journal Blood in January 2001 indicated that ATRAGEN(R)
can induce long-term remissions. Some of the patients sustained ongoing
remissions for as long as 24 months. Patient enrollment for this trial is now
closed.
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iii. Non-Hodgkin's Lymphoma (Phase II enrollment closed)
In 1998, Aronex Pharmaceuticals initiated a Phase II clinical trial in
relapsed and refractory non-Hodgkin's lymphoma. In December 2000, Aronex
Pharmaceuticals presented preliminary results at the 42nd Annual Meeting of the
American Society of Hematology. The presented data represented 57 evaluable
patients. In this heavily treated patient population with a highly unfavorable
prognosis, 17 patients with cutaneous T cell lymphoma, aggressive B cell
lymphoma or peripheral T cell lymphoma responded to treatment with ATRAGEN(R).
Responders, some of whom are still being monitored, had a median
progression-free survival of 6 months, an encouraging result. Toxicities were
mostly mild, and side effects most commonly were headache, dry skin, edema,
arthralgia and xerostomia. Patient enrollment for this trial is now closed.
iv. Prostate Cancer (Phase II completed)
In 1998, Aronex Pharmaceuticals initiated a Phase II clinical trial in
hormone-refractory prostate cancer. This trial has been completed. Aronex
Pharmaceuticals is reviewing the data for this trial and anticipates presenting
the data at an appropriate scientific meeting.
v. Renal Cell Carcinoma (Phase I/II enrollment closed)
In early 1999, a Phase I/II clinical trial in renal cell carcinoma was
initiated at New York Presbyterian Hospital and the Weill Medical College of
Cornell University under an institutional Investigational New Drug application,
or IND. The Phase I/II trial was designed to determine the maximum tolerated
dose of ATRAGEN(R) in combination with interferon alpha. In May 2001, data were
presented at the American Society for Clinical Oncology (ASCO) meeting.
Investigators reported that the combination of ATRAGEN(R) at 15 mg/m(2) every
other day and interferon alpha at 3 to 5 to 7 million units five days a week was
well tolerated without toxicity. Of the 16 evaluable patients, two had partial
remission in bone and lung, including one patient whose remission has lasted for
longer than 77 weeks and is ongoing. Five patients had stable disease, two
progressed in bone only.
vi. Acute Myelogenous Leukemia (Phase II enrollment closed)
In late 1999, Aronex Pharmaceuticals initiated a Phase II clinical trial in
acute myelogenous leukemia. Patient enrollment for this trial is closed and
Aronex Pharmaceuticals continues to monitor patients according to the protocol.
Aronex Pharmaceuticals is currently gathering the data for analysis.
vii. Kaposi's sarcoma (Phase II completed)
ATRAGEN(R) has also been assessed in Phase II clinical trials for the
treatment of Kaposi's sarcoma. Clinical trial results indicated that ATRAGEN(R)
was generally well tolerated, with headaches and dry skin being the primary
reported adverse events. Aronex Pharmaceuticals is not presently pursuing this
indication, although it may do so in the future.
Annamycin for Refractory Breast Cancer (Phase II completed) and Refractory
Leukemia (Phase I/II completed)
Annamycin is a novel chemical entity belonging to the class of widely
prescribed anti-cancer agents known as anthracyclines. This class of drug, which
includes doxorubicin, daunorubicin and idarubicin, has been shown to be
effective, either alone or in combination, against proliferating cancer cells.
Anthracyclines currently on the market, however, suffer from two primary
limitations:
- Cancer cells often develop a resistance to them, rendering the treatment
ineffective. This resistance, once developed by cancer cells, generally
extends to include resistance to a variety of other chemotherapeutic
agents, a phenomenon commonly referred to as multi-drug resistance. The
best understood mechanism behind multi-drug resistance involves an
increase in the production of
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P-glycoprotein, a trans-cell membrane pump. This pump transports drugs,
including most types of anti-cancer drugs, out of tumor cells.
- Currently available anthracyclines also frequently result in severe toxic
effects, including irreversible cardiotoxicity.
Annamycin was designed to overcome these two major limitations. In contrast
to conventional chemotherapeutic agents, Annamycin is structured so that it
avoids the mechanism of operation of the trans-cell membrane pump believed to be
one of the mechanisms responsible for multi-drug resistance. Aronex
Pharmaceuticals's preclinical studies have shown that Annamycin, which is a
lipid-based formulation of a novel anthracycline, may be active against
multi-drug resistant tumor cells that over-express at least two of the pumps
that are believed to be, at least in part, responsible for tumor cells becoming
resistant to treatment. This over-expression implies that the levels of the
enzymes present in a particular person exceed the levels found in a healthy or
normal person. Aronex Pharmaceuticals's preclinical studies of Annamycin in
animals bearing human tumors also indicate that Annamycin may be less
cardiotoxic than doxorubicin. A Phase I dose-escalating clinical trial of
Annamycin was completed in August 1997. Data from this trial were presented at
the ASCO meeting in May 1997. Annamycin has been evaluated in Phase II
multi-center clinical trials in breast cancer patients whose tumors are
resistant to conventional therapies. In April 1999, Aronex Pharmaceuticals
initiated a Phase I/II clinical trial in refractory leukemia patients. All of
the Annamycin clinical trials are now completed. Data from the Phase I clinical
trial in relapsed/refactory leukemia patients was presented at the ASCO meeting
in May 2001. Annamycin was infused at a starting dose of 190 mg/m(2) every day
for three days with escalation to 230, 280 and 350 mg/m(2), as appropriate. The
maximum tolerated dose was determined at 280 mg/m(2). Of the 21 patients
enrolled, two achieved complete remission: one AML patient at 280 mg/m(2) who
had failed induction therapy with a chemotherapy combination regimen and one ALL
patient at 350 mg/m(2) who relapsed after allogeneic bone marrow transplant. The
physicians reported that Annamycin was generally well tolerated with no observed
cardiotoxicity, which is frequently associated with anthracyclines. Aronex
Pharmaceuticals is currently evaluating the Annamycin clinical development
program.
Aronex Pharmaceuticals believes that there is a substantial market for an
agent which is active against multi-drug resistance and exhibits an improved
safety profile over doxorubicin. The American Cancer Society estimates that each
year there are approximately 183,000 new cases of breast cancer in the United
States. Annamycin also may be useful in treating other varieties of solid
tumors, leukemias and lymphomas.
While there are a range of chemotherapeutic agents used alone and in
combination to treat breast cancer and other solid tumors, including
doxorubicin, daunorubicin, liposomal formulations of doxorubicin and
daunorubicin, taxol, platinum and cyclophosphamide, Aronex Pharmaceuticals does
not believe that there are any medicines available that are active against
multi-drug resistant tumors. Aronex Pharmaceuticals is aware of some agents
currently in Phase II clinical trials that are designed to modify multi-drug
resistance, but for which no efficacy data are yet available. These agents would
potentially be used in combination with chemotherapeutic agents.
Aronex Pharmaceuticals's liposomal formulation of Annamycin is the subject
of an issued United States patent, licensed exclusively to Aronex
Pharmaceuticals by The University of Texas M.D. Anderson Cancer Center. In
addition, a patent has issued in the United States with respect to an improved
process for preparing Annamycin. This patent is exclusively licensed to Aronex
Pharmaceuticals under its agreements with M.D. Anderson and the Regents of The
University of Texas. The drug, Annamycin, is the subject of a patent that has
been non-exclusively sublicensed to Aronex Pharmaceuticals by M.D. Anderson,
which M.D. Anderson licensed from Ohio State University. See "Business of Aronex
Pharmaceuticals -- Patents and Proprietary Rights" on page 69.
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Aroplatin(TM) for Lung Cancer (Phase II completed) and Renal Cell Carcinoma
(Phase II completed)
Aronex Pharmaceuticals is developing a novel liposomal platinum analogue,
Aroplatin(TM), for the treatment of solid tumors. Aroplatin(TM) has been
designed to overcome the toxicity and resistance that currently limits the
usefulness of platinum, a chemotherapeutic agent widely used in the treatment of
solid tumors. Phase I clinical trials have been conducted under a physician's
IND at M.D. Anderson.
Aroplatin(TM) has been evaluated in two Phase II clinical trials, under
institutional INDs at M.D. Anderson:
- a trial for the treatment of mesothelioma, a type of lung cancer, funded
by the Office of Orphan Drug Products at the FDA; and
- a trial for the treatment of metastatic renal cell carcinoma funded by
Aronex Pharmaceuticals.
In November 1999, Aronex Pharmaceuticals assumed ownership of the
institutional INDs for Aroplatin(TM) and began conducting Aronex
Pharmaceuticals's own clinical development programs for this product.
Aroplatin(TM) has been designated an orphan drug for the treatment of malignant
mesothelioma by the FDA.
In September 2000, Aronex Pharmaceuticals presented preliminary Phase II
data at the 9th World Conference on Lung Cancer. The presented data represented
34 patients with malignant pleural mesothelioma. Among 23 patients who had both
pre- and post-treatment tissue biopsies, 56% showed no evidence of tumor on
biopsy after treatment. Among 18 patients at baseline who had both pre- and
post-treatment cytology samples, 83% revealed no evidence of tumors in cytologic
specimens. Investigators concluded that Aroplatin(TM) treatment produced a high
rate of pathologic response and appeared to be a promising therapeutic approach
in patients with malignant pleural mesothelioma.
Aronex Pharmaceuticals has obtained multiple patents drawn to aspects of
Aroplatin(TM). Claims of issued United States patents cover a method of treating
subjects with Aroplatin(TM) together with claims concerning liposome
manufacturing methods. These patents are exclusively licensed under Aronex
Pharmaceuticals's agreement with M.D. Anderson and the Regents of the University
of Texas. Aroplatin(TM) patent claims are allowed in Europe.
A patent application filed in the United States by Sumitomo Pharmaceuticals
Co. Ltd. overlapped claims included in the United States patents licensed to
Aronex Pharmaceuticals and was the subject of an interference proceeding in the
United States Patent and Trademark Office. In December 2000, Aronex
Pharmaceuticals resolved this interference by signing a license agreement with
Sumitomo Pharmaceuticals that gives Aronex Pharmaceuticals exclusive rights in
the United States to a particular class of DACH platinum compounds that was the
basis for the interference. See "Business of Aronex Pharmaceuticals --
Collaborative Agreements" on page 67.
INFECTIOUS DISEASES
Aronex Pharmaceuticals's infectious diseases program centers on the
development of new agents for the treatment of infectious diseases, including
those that occur in patients with weakened immune systems. The clinical program
presently focuses on two products: the development of Nyotran(R) for
life-threatening systemic, or internal, fungal infections, and ATRAGEN(R) for
hepatitis.
Nyotran(R) for Presumed Fungal Infections (Phase III completed), Cryptococcal
Meningitis (Phase III completed), Candidemia (Phase II completed) and
Aspergillus Salvage (Phase II)
Systemic fungal infections are generally serious and may result in death.
Most systemic fungal infections are caused by Candida, or yeasts, and
Aspergillus, or molds, species. These life-threatening infections occur most
often in patients with impaired immune defense mechanisms as a result of an
underlying disease, such as HIV or diabetes, or the effects of treatments for
other medical conditions, such as chemotherapy in cancer patients or
anti-rejection therapy in patients receiving organ transplants. The population
of patients who become candidates for anti-fungal treatment is increasing
because of a number
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of factors, including more aggressive use of chemotherapy in cancer patients,
increases in organ and bone marrow transplants, increased use of in-dwelling
catheters for prolonged periods and the spread of HIV.
Aronex Pharmaceuticals believes that the drugs that are currently used to
treat systemic fungal infections, including fluconazole, itraconazole,
amphotericin B and liposomal formulations of amphotericin B, have limitations
that present a need for new therapies. Data from recent in vitro, or test tube,
studies as well as clinical trial data indicate that a number of fungal strains
are becoming increasingly resistant to known therapies. Fluconazole and
itraconazole are relatively safe and effective in inhibiting fungal growth in
Candida, but are not effective in inhibiting fungal growth in Aspergillus and
are generally not effective in treating fungal infections in patients who are
seriously ill and whose immune systems are compromised and not functioning
properly. Amphotericin B is very active against both Candida and Aspergillus but
is highly toxic. Several companies have developed liposomal versions of
amphotericin B that are designed to reduce the potential toxicity of
amphotericin B.
Nyotran(R) is a lipid-based, intravenous formulation of the drug nystatin,
an established, widely-used topical anti-fungal agent. Although nystatin has
proven to be a potent anti-fungal against a broad spectrum of fungi, including
Candida, Cryptococcus, Histoplasma, Blastomyces and Aspergillus, its poor
solubility and toxicity have previously precluded its systemic administration as
a therapy for these fungal infections. Aronex Pharmaceuticals's proprietary
formulation, Nyotran(R), reduces the toxicity of nystatin. In addition, Aronex
Pharmaceuticals believes that the lipid-based formulation of Nyotran(R)
addresses the solubility problem of nystatin. Aronex Pharmaceuticals believes
Nyotran(R) offers potential advantages over current systemic anti-fungal
therapies. Aronex Pharmaceuticals's in vitro studies indicate that it is active
against a range of fungal strains, including Candida, Aspergillus, Cryptococcus
and Fusarium species, some of which are resistant to currently available
anti-fungal therapies. Aronex Pharmaceuticals believes that its clinical trials
suggest that Nyotran(R) can be administered at doses that are effective in
treating Aspergillus, Candida and Cryptococcus infections.
The strategy for the development of Nyotran(R) has involved several stages.
Aronex Pharmaceuticals has conducted three Phase I clinical studies which
demonstrated a favorable safety profile. Aronex Pharmaceuticals completed a
Phase II open label study in patients with Candidemia evaluating Nyotran(R) at
multiple doses. Results from this study indicate that a dose of one-third of the
maximum tolerated dose established in Phase I appears to be efficacious. Based
upon data from this study, Aronex Pharmaceuticals initiated Phase III
comparative multicenter trials in the United States, Australia and Europe of
Nyotran(R) against amphotericin B in patients with presumed fungal infections.
Most frequently, in a hospital environment, a patient with a fever of unknown
origin will be treated with an antibiotic. When this treatment proves
ineffective, the physician then presumes that the patient has a fungal
infection, and begins treatment with an anti-fungal agent. The diagnosis of a
confirmed fungal infection may occur several days after anti-fungal therapy has
begun. Aronex Pharmaceuticals completed the clinical trials for presumed fungal
infections in late 1998. Data from these trials comparing Nyotran(R) and
amphotericin B in treating presumed fungal infections were presented at the
September 1999 39th Interscience Conference on Antimicrobial Agents and
Chemotherapy meeting.
To expand the potential indications for Nyotran(R), Aronex Pharmaceuticals
commenced Phase III trials for patients with cryptococcal meningitis and Phase
II Aspergillus salvage. The Aspergillus salvage trials are designed to treat
patients with Aspergillus who have failed treatment with current products. In
late 1999, Aronex Pharmaceuticals completed the Phase III trials designed to
show the equivalency of Nyotran(R) versus amphotericin B in the treatment of
confirmed cryptococcal meningitis. In February 2000, Aronex Pharmaceuticals
announced its preliminary findings from this trial. The data demonstrated that
Nyotran(R) was not equivalent to amphotericin B with respect to the primary
efficacy endpoint but there was no difference with respect to survival, a
secondary endpoint. The data also indicated a favorable renal toxicity profile
when compared to amphotericin B. Having gathered data from four clinical trials,
Aronex Pharmaceuticals met with the FDA in April 2000 to discuss Aronex
Pharmaceuticals's strategy for submission of Aronex Pharmaceuticals's NDA in the
United States. Based on these discussions, Aronex Pharmaceuticals is now
conducting an historical comparative trial in refractory invasive Aspergillus.
Following submission of Aronex Pharmaceuticals's NDA in the United States,
Aronex Pharmaceuticals
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will review the strategy for filings in Europe and other parts of the world that
will be accomplished by Abbott Laboratories.
In November 1998, Aronex Pharmaceuticals entered into a license agreement
with Abbott Laboratories for Nyotran(R). The license agreement provides Abbott
with exclusive worldwide rights to market and sell Nyotran(R), subject to rights
previously granted to Grupo Ferrer Internacional, S.A. in Spain and Portugal and
certain co-promotion rights retained by Aronex Pharmaceuticals in the United
States and Canada. Abbott has paid Aronex Pharmaceuticals milestone and up-front
payments of $14.7 million under the license agreement and purchased common stock
for $3.0 million under a related stock purchase agreement. Abbott has provided
funding for the clinical development of Nyotran(R) and will make subsequent
milestone payments if specified sales targets are achieved. Abbott has agreed to
pay Aronex Pharmaceuticals royalties which increase in amount based upon the
level of product sales of Nyotran(R) in each year. See "Business of Aronex
Pharmaceuticals -- Collaborative Agreements -- Collaborative Agreement with
Abbott Laboratories" on page 67.
The active ingredient of Nyotran(R), nystatin, is available commercially.
Aronex Pharmaceuticals has utilized a contract manufacturer for Aronex
Pharmaceuticals's clinical requirements of Nyotran(R), who Aronex
Pharmaceuticals believes to be capable of satisfying the quantities required for
clinical trials and anticipated quantities for initial commercial sales.
However, Aronex Pharmaceuticals expects Abbott to manufacture the quantities of
Nyotran(R) necessary to conduct any remaining clinical trials and, following
regulatory approval, to manufacture Nyotran(R)for commercial sale.
Current treatment for systemic fungal infection is largely limited to
amphotericin B, several liposomal formulations of amphotericin B and
fluconazole. Amphotericin B has been a common choice for the treatment of
systemic fungal infections. The clinical usefulness of amphotericin B is
limited, however, because serious toxicity can occur at doses that are only
marginally effective. Liposomal formulations of amphotericin B have been
developed by several companies, including Elan Corp., Gilead Sciences and ALZA
Corporation. Each of these companies' products have regulatory approval in the
United States and other countries. Each of these liposomal formulations shows a
reduction in toxicity as compared to amphotericin B. Pfizer Inc.'s fluconazole,
the world's largest selling anti-fungal product, is an oral formulation used for
a wide range of less serious Candida indications. The FDA recently approved
Cancidas(R) for resistant and refractory invasive Aspergillus. Cancidas(R) is
marketed by Merck & Co., Inc. Aronex Pharmaceuticals is aware of other
anti-fungal agents currently in clinical development.
M.D. Anderson has granted Aronex Pharmaceuticals the worldwide exclusive
license under an issued patent to the use of a liposomal formulation of nystatin
in the treatment of systemic fungal infections. Another issued patent protects a
process of pharmaceutical utility in making Nyotran(R). A continuation of this
process patent is currently being prosecuted seeking additional claims in this
area. See "Business of Aronex Pharmaceuticals -- Patents and Proprietary Rights"
on page 69.
ATRAGEN(R) for Hepatitis (Preclinical)
Aronex Pharmaceuticals has been evaluating ATRAGEN(R), Aronex
Pharmaceuticals's lipid-based, intravenous formulation of ATRA, for
hematological malignancies and solid tumors. See "Business of Aronex
Pharmaceuticals -- Cancer -- ATRAGEN(R)" on page 60.
In late 2000, some patients being treated with ATRAGEN(R) for APL were
noted to have become coincidentally infected with viral hepatitis (types B and
C) unrelated to ATRAGEN(R) . The clinicians were concerned that the addition of
cytotoxic chemotherapy to the anti-leukemia regimen would make the viral
hepatitis worse, and elected to continue treating APL with ATRAGEN(R) alone,
which was successful in inducing complete remission. The viral hepatitis also
improved while the patient was receiving ATRAGEN(R) therapy, with viral loads
dropping in a precipitous fashion. After consultation with experts in the field
of viral hepatitis and based on knowledge gathered from scientific literature of
the potential effects of high dose retinoids, Aronex Pharmaceuticals has
initiated a preclinical program to evaluate the efficacy of ATRAGEN(R) in an
animal model of this disease.
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A United States patent application is pending for this indication. See
"Business of Aronex Pharmaceuticals -- Patents and Proprietary Rights" on page
69.
COLLABORATIVE AGREEMENTS
Aronex Pharmaceuticals's development strategy involves entering into
selected development and licensing agreements with corporate partners to provide
working capital as well as assist in the efficient development and marketing of
certain of Aronex Pharmaceuticals's products.
Collaborative Agreement with Abbott Laboratories
In November 1998, Aronex Pharmaceuticals entered into a stock purchase
agreement and a license agreement with Abbott for Nyotran(R). The license
agreement provides Abbott with exclusive worldwide rights to market and sell
Nyotran(R), subject to rights previously granted to Grupo Ferrer Internacional,
S.A. in Spain and Portugal and co-promotion rights retained by Aronex
Pharmaceuticals in the United States and Canada for an initial two-year period.
These co-promotion rights will renew annually thereafter for successive one-year
periods unless canceled by either party. To date, Abbott has purchased $3.0
million of Aronex Pharmaceuticals's common stock and paid Aronex Pharmaceuticals
up-front and milestone payments of $14.7 million under the license agreement.
Abbott's payments to Aronex Pharmaceuticals provided funding for the clinical
development of Nyotran(R), and subsequent milestones are due if specified sales
targets are achieved. However, there can be no assurance that these milestone
payments will be made. Once paid, all payments are non-refundable. Abbott will
also pay Aronex Pharmaceuticals royalties that increase in amount based upon the
level of product sales of Nyotran(R) in each year.
The licenses granted under the Nyotran(R) agreement terminate on a
country-by-country basis on the expiration of the last patent relating to that
product in that country. The agreement is terminable by Abbott in the event
certain regulatory approvals are not obtained or other specified events occur,
such as adverse safety and efficacy issues, and are terminable by either party
on the occurrence of a breach that is not cured by the breaching party within a
certain time period after notice has been given to that breaching party.
Relationship with Grupo Ferrer Internacional, S.A.
In 1997, Aronex Pharmaceuticals entered into a supply and distribution
agreement with Grupo Ferrer Internacional, S.A. to commercialize and market
Nyotran(R), under which Grupo Ferrer received the exclusive right to distribute
and sell Nyotran(R) in Spain and Portugal.
Relationship with The University of Texas M.D. Anderson Cancer Center
Aronex Pharmaceuticals has two license agreements with M.D. Anderson which
grant Aronex Pharmaceuticals exclusive rights to manufacture, use, market and
sell products based upon certain technology developed at M.D. Anderson relating
to the development of human monocyte or murine macrophage-derived cytotoxins
which inhibit or destroy the proliferation of tumor cells, liposomal-
encapsulated polyene antibiotics, except amphotericin B, liposomal-encapsulated
anthracyclines, liposomal-encapsulated platinum derivatives and
liposomal-encapsulated retinoids. Human monocyte or murine macrophage-derived
cytotoxins refers to the source of the cytotoxins, which is either human or
mouse-based. Nyotran(R), ATRAGEN(R), Annamycin and Aroplatin(TM) are products
derived from Aronex Pharmaceuticals's relationship with M.D. Anderson.
The license agreements with M.D. Anderson require Aronex Pharmaceuticals to
pay royalties for licensed technology based on specified percentages of
cumulative net sales and royalties from sublicensees. Aronex Pharmaceuticals is
also obligated to pay a milestone payment of $200,000 upon the approval of an
NDA for each licensed product. Because Aronex Pharmaceuticals has not sold any
products or processes to date, Aronex Pharmaceuticals has not paid any royalties
under the license agreements. M.D. Anderson is responsible for the preparation,
filing and prosecution of all patent applications, foreign and domestic,
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relating to technology developed at M.D. Anderson, and Aronex Pharmaceuticals
reimburses M.D. Anderson for expenses incurred for these activities.
The license agreements generally remain in force until the expiration of
the last patent subject to the agreements. Either party may terminate the
license agreements after 60 days notice to the other party in the event of a
material breach of the terms of that agreement. M.D. Anderson has the right to
terminate either license agreement with 90 days notice for failure to convert
the licensed subject matter to a commercial form; however, Aronex
Pharmaceuticals believes its ongoing and active development efforts directed at
commercial marketing of the licensed products currently satisfy this obligation.
From Aronex Pharmaceuticals's inception in 1986 through 1999, it contracted
with M.D. Anderson in conjunction with the license agreements through which
Aronex Pharmaceuticals funded research and development expenses incurred by the
M.D. Anderson scientists that relate to the technology licensed to Aronex
Pharmaceuticals. Funding for these research and development contracts ended with
a final payment early in 2000.
Relationship with Sumitomo Pharmaceuticals Co., Ltd.
In December 2000, Aronex Pharmaceuticals entered into a license agreement
with Sumitomo Pharmaceuticals that gives Aronex Pharmaceuticals the exclusive
right in the United States to a particular class of DACH platinum compounds.
Aroplatin(TM), one of Aronex Pharmaceuticals's products in clinical development,
is a liposomal formulation of a novel platinum compound from this class of
drugs. Under this agreement, Sumitomo Pharmaceuticals received a $500,000
up-front payment from Aronex Pharmaceuticals in 2001, and will receive
subsequent milestone payments based on regulatory filings, approval and sales of
Aroplatin(TM), and royalties on the sales of Aroplatin(TM) in the United States.
Except for the treatment of hepatoma, the license agreement gives Aronex
Pharmaceuticals the exclusive right to make, use, develop, import and sell
Aroplatin(TM) in the United States.
MANUFACTURING
Aronex Pharmaceuticals does not have the facilities necessary to
manufacture its products in accordance with cGMP, but can develop formulations,
analytical methods, process controls and manufacturing technology for its
products. Aronex Pharmaceuticals generally uses contract manufacturers to
produce batches of its products for clinical testing, although Aronex
Pharmaceuticals expects Abbott to supply the quantities of Nyotran(R) necessary
to conduct Aronex Pharmaceuticals's remaining clinical trials of that product.
Aronex Pharmaceuticals and the manufacturers of its products, other than Abbott,
have not entered into any written agreements other than periodic purchase orders
for the supply of the products they manufacture on Aronex Pharmaceuticals's
behalf. Contract manufacturers are closely supervised to ensure adherence to
established production methods and compliance with Aronex Pharmaceuticals's
rigorous quality control and quality assurance standards. Aronex Pharmaceuticals
does not expect to establish any significant manufacturing capacity in the near
future. Aronex Pharmaceuticals does not operate, and does not currently plan to
operate, manufacturing facilities for the production of its products in
commercial quantities, and intends to contract with third parties for the
manufacture and supply of its products. There can be no assurance that Aronex
Pharmaceuticals will be able to obtain supplies of products from third-party
suppliers on terms or in quantities acceptable to Aronex Pharmaceuticals. Aronex
Pharmaceuticals depends on third parties for the manufacture of its products.
This may adversely affect Aronex Pharmaceuticals's product profit margins and
ability to develop and deliver products on a timely basis. Any third-party
suppliers of this kind or any manufacturing facility Aronex Pharmaceuticals
establishes will be required to meet cGMP requirements. FDA inspection and
approval of manufacturing facilities and quality procedures for a drug are a
prerequisite to approval of an NDA for that drug. Aronex Pharmaceuticals may
encounter significant delays in obtaining supplies from third-party
manufacturers or experience interruptions in its supplies. If Aronex
Pharmaceuticals is unable to obtain adequate supplies, its business would be
materially adversely affected.
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The raw materials required for the majority of Aronex Pharmaceuticals's
products are currently available in quantities sufficient to conduct Aronex
Pharmaceuticals's research, development, preclinical safety and clinical
development activities. Certain of Aronex Pharmaceuticals's products, such as
Annamycin and Aroplatin(TM), are new syntheses and, therefore, are not yet
available in commercial quantities. Aronex Pharmaceuticals cannot give any
assurance that the raw materials necessary for the manufacture of its products
will be available in sufficient quantities or at a reasonable cost.
Complications or delays in obtaining raw materials or in product manufacturing
could delay the submission of products for regulatory approval and the
initiation of new development programs, which could materially impair Aronex
Pharmaceuticals's competitive position and potential profitability.
SALES AND MARKETING
Aronex Pharmaceuticals does not have any experience in sales, marketing or
distribution. To market any of Aronex Pharmaceuticals's products, Aronex
Pharmaceuticals must develop a sales and marketing force with supporting
distribution capability or enter into marketing and distribution arrangements
with a company that has an established capability. Significant additional
expenditures will be required for Aronex Pharmaceuticals to develop these
capabilities. Aronex Pharmaceuticals has entered into agreements with Abbott and
Grupo Ferrer with respect to the marketing and sale of Nyotran(R). In addition,
Aronex Pharmaceuticals may enter into marketing agreements with one or more
pharmaceutical companies to market other products that Aronex Pharmaceuticals
may develop. To the extent Aronex Pharmaceuticals relies upon licensing,
marketing or distribution arrangements with others, any revenues Aronex
Pharmaceuticals receives will depend upon the efforts of third parties. Aronex
Pharmaceuticals cannot assure that any third party will market its products
successfully or that any third-party collaboration will be on terms favorable to
Aronex Pharmaceuticals. If any marketing partner does not market a product
successfully, Aronex Pharmaceuticals's business would be materially adversely
affected. Aronex Pharmaceuticals cannot give assurance that it will be able to
establish sales, marketing and distribution capabilities or that Aronex
Pharmaceuticals or its collaborators will be successful in gaining market
acceptance for any products that Aronex Pharmaceuticals may develop. Aronex
Pharmaceuticals's failure to establish marketing capabilities or to enter into
marketing arrangements with third parties would have a material adverse effect
on Aronex Pharmaceuticals.
PATENTS AND PROPRIETARY RIGHTS
Aronex Pharmaceuticals's ability to commercialize any products will depend,
in part, upon its ability or the ability of its licensors to obtain patents,
enforce those patents, preserve trade secrets, and operate without infringing
upon the proprietary rights of third parties. The patent positions of
biotechnology and pharmaceutical companies are highly uncertain and involve
complex legal and factual questions. Some of the United States patents and
patent applications owned by or licensed to Aronex Pharmaceuticals are
method-of-use patents that cover the use of certain compounds to treat specified
conditions, and composition-of-matter patents are not available for some of
Aronex Pharmaceuticals's product candidates. Aronex Pharmaceuticals cannot
assure that:
- the patent applications licensed to or owned by Aronex Pharmaceuticals
will result in issued patents;
- patent protection will be secured for any particular technology;
- any patents that have been or may be issued to Aronex Pharmaceuticals or
its licensors will be valid or enforceable;
- any patents will provide meaningful protection to Aronex Pharmaceuticals;
- others will not be able to design around the patents; or
- Aronex Pharmaceuticals's patents will provide a competitive advantage or
have commercial application.
Aronex Pharmaceuticals cannot give any assurance that patents owned by or
licensed to it will not be challenged by others. Aronex Pharmaceuticals could
incur substantial costs in proceedings before the
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United States Patent and Trademark Office and other regulatory authorities,
including interference proceedings. These proceedings could result in adverse
decisions about the patentability of Aronex Pharmaceuticals's inventions and
products as well as about the enforceability, validity or scope of protection
afforded by the patents.
Aronex Pharmaceuticals cannot give any assurance that the manufacture, use
or sale of Aronex Pharmaceuticals's product candidates will not infringe patent
rights of others. Aronex Pharmaceuticals may be unable to avoid infringement of
those patents and may be required to seek a license, defend an infringement
action, or challenge the validity of the patents in court. Aronex
Pharmaceuticals cannot give any assurance that a license will be available to
it, if at all, upon terms and conditions acceptable to Aronex Pharmaceuticals or
that it will prevail in any patent litigation. Patent litigation is costly and
time consuming, and Aronex Pharmaceuticals cannot assure that it will have
sufficient resources to bring the litigation to a successful conclusion. If
Aronex Pharmaceuticals does not obtain a license under such patents, is found
liable for infringement, or is not able to have infringing patents declared
invalid or unenforceable, it may be liable for significant money damages, may
encounter significant delays in bringing products to market, or may be precluded
from participating in the manufacture, use or sale of products or methods of
treatment requiring these licenses. While no specific study has been conducted,
Aronex Pharmaceuticals does not believe that the commercialization of its
products pursuant to its license agreements will infringe upon the patent rights
of others. However, Aronex Pharmaceuticals cannot assure that it has identified
all or any United States and foreign patents that pose a risk of infringement.
Aronex Pharmaceuticals also relies upon trade secrets and other unpatented
proprietary information in its product development activities. To the extent
Aronex Pharmaceuticals relies on trade secrets and unpatented know-how to
maintain its competitive technological position, Aronex Pharmaceuticals cannot
assure that others may not independently develop the same or similar
technologies. Aronex Pharmaceuticals seeks to protect trade secrets and
proprietary knowledge, in part through confidentiality agreements with Aronex
Pharmaceuticals's employees, consultants, advisors and collaborators.
Nevertheless, these agreements may not effectively prevent disclosure of Aronex
Pharmaceuticals's confidential information and may not provide Aronex
Pharmaceuticals with an adequate remedy in the event of unauthorized disclosure
of such information. If Aronex Pharmaceuticals's employees, scientific
consultants or collaborators develop inventions or processes independently that
may be applicable to Aronex Pharmaceuticals's products, disputes may arise about
ownership of proprietary rights to those inventions and processes. These
inventions and processes will not necessarily become Aronex Pharmaceuticals's
property, but may remain the property of those persons or their employers.
Protracted and costly litigation could be necessary to enforce and determine the
scope of Aronex Pharmaceuticals's proprietary rights. Failure to obtain or
maintain patent and trade secret protection, for any reason, would have a
material adverse effect on Aronex Pharmaceuticals.
Aronex Pharmaceuticals engages in collaborations, sponsored research
agreements, licensing and other arrangements with academic researchers and
institutions that have received and may receive funding from United States
government agencies. As a result of these arrangements, the United States
government or certain third parties have rights in certain inventions developed
during the course of the performance of these collaborations and agreements as
required by law or the agreements. These rights typically allow the government
to use the invention for free on an internal basis and for research and
development purposes.
The patent laws of the United States have recently been modified.
Modifications include, but are not limited to, publication of patent
applications under certain circumstances, patent term extension, and modified
patent reexamination procedures. The effect of these legislative changes on
Aronex Pharmaceuticals's intellectual property estate is uncertain.
GOVERNMENT REGULATION
Aronex Pharmaceuticals's research and development activities, preclinical
studies and clinical trials, and ultimately the manufacturing, marketing and
labeling of products, are subject to extensive regulation by the FDA and other
regulatory authorities in the United States and other countries. The United
States
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Federal Food, Drug and Cosmetic Act and the associated regulations and other
federal and state statutes and regulations govern, among other things, the
testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising and promotion of Aronex Pharmaceuticals's products.
Preclinical study and clinical trial requirements and the regulatory approval
process take years and require the expenditure of substantial resources.
Additional government regulation may be established that could prevent or delay
regulatory approval of Aronex Pharmaceuticals's products. Delays or rejections
in obtaining regulatory approvals would adversely affect Aronex
Pharmaceuticals's ability to commercialize any product it develops and Aronex
Pharmaceuticals's ability to receive product revenues or royalties. If
regulatory approval of a product is granted, the approval may include
significant limitations on the indicated uses for which the product may be
marketed.
The FDA and other regulatory authorities require that the safety and
efficacy of Aronex Pharmaceuticals's therapeutic products must be supported
through adequate and well-controlled clinical trials. If the results of these
clinical trials do not establish the safety and efficacy of Aronex
Pharmaceuticals's products to the satisfaction of the FDA and other regulatory
authorities, Aronex Pharmaceuticals will not receive the approvals necessary to
market Aronex Pharmaceuticals's products, which would have a material adverse
effect on Aronex Pharmaceuticals.
Even if regulatory approvals for Aronex Pharmaceuticals's products are
obtained, Aronex Pharmaceuticals's products and the facilities manufacturing
Aronex Pharmaceuticals's products are subject to continual review and periodic
inspection. The FDA will require post-marketing reporting to monitor the safety
of Aronex Pharmaceuticals's products. Each drug manufacturing establishment must
be inspected and approved by the FDA. All manufacturing establishments are
subject to biennial inspections by the FDA and must comply with the FDA's good
manufacturing practices. To supply drug products for use in the United States,
foreign manufacturing establishments must comply with the FDA's good
manufacturing practices and are subject to periodic inspection by the FDA or by
regulatory authorities in those countries under reciprocal agreements with the
FDA. In complying with good manufacturing practices, manufacturers must expend
funds, time and effort in the area of production and quality control to ensure
full technical compliance. Aronex Pharmaceuticals does not have any drug
manufacturing capability and must rely on outside firms for this capability. See
"Business of Aronex Pharmaceuticals -- Manufacturing" on pages 68-69. The FDA
stringently applies regulatory standards for manufacturing. Identification of
previously unknown problems with respect to a product, manufacturer or facility
may result in restrictions on the product, manufacturer or facility, including
warning letters, suspensions of regulatory approvals, operating restrictions,
delays in obtaining new product approvals, withdrawal of the product from the
market, product recalls, fines, injunctions and criminal prosecution.
Before Aronex Pharmaceuticals's products can be marketed outside of the
United States, they are subject to regulatory approval similar to FDA
requirements in the United States, although the requirements governing the
conduct of clinical trials, product licensing, pricing, and reimbursement vary
widely from country to country. No action can be taken to market any drug
product in a country until an appropriate application has been approved by the
regulatory authorities in that country. FDA approval does not assure approval by
other regulatory authorities. The current approval process varies from country
to country and the time spent in gaining approval varies from that required for
FDA approval. In some countries, the sale price of a drug product must also be
approved. The pricing review period often begins after market approval is
granted. Even if a foreign regulatory authority approves any of Aronex
Pharmaceuticals's products, no assurance can be given that it will approve
satisfactory prices for the products.
Aronex Pharmaceuticals's research and development involves the controlled
use of hazardous materials, chemicals, viruses and various radioactive
compounds. Although Aronex Pharmaceuticals believes that Aronex
Pharmaceuticals's procedures for handling and disposing of those materials
comply with state and federal regulations, the risk of accidental contamination
or injury from these materials cannot be eliminated. If an accident of this type
occurs, Aronex Pharmaceuticals could be held liable for resulting damages, which
could be material to Aronex Pharmaceuticals's financial condition and business.
Aronex Pharmaceuticals is also subject to numerous environmental, health and
workplace safety laws and
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regulations, including those governing laboratory procedures, exposure to
blood-borne pathogens and the handling of biohazardous materials. Additional
federal, state and local laws and regulations affecting Aronex Pharmaceuticals
may be adopted in the future. Any violation of these laws and regulations, and
the cost of compliance, could materially and adversely affect us.
Under the Orphan Drug Act, the FDA may grant "orphan drug" status to
therapeutic agents intended to treat a "rare disease or condition," defined as a
disease or condition that affects less than 200,000 persons in the United
States. Orphan drug status grants the sponsor tax credits for the amounts
expended on clinical trials, provided that certain conditions are met, as well
as potential marketing exclusivity for four to seven years following approval of
the pertinent NDA. Aronex Pharmaceuticals received orphan drug status for
ATRAGEN(R) in 1993 for the treatment of acute and chronic leukemia. Aronex
Pharmaceuticals received orphan drug status for Aroplatin(TM) in 1999 for the
treatment of malignant mesothelioma. Aronex Pharmaceuticals may request this
status for more of Aronex Pharmaceuticals's products as part of Aronex
Pharmaceuticals's overall regulatory strategy. There is no assurance, however,
that any of Aronex Pharmaceuticals's other products will receive orphan drug
status or that the benefits of protection currently afforded by orphan drug
status will remain in effect. In addition, any party may obtain orphan drug
status with respect to products for which patent protection has expired or is
otherwise unavailable. The first party granted marketing approval could prevent
other persons from commercializing that product during the period for which
exclusivity was granted to that party.
COMPETITION
Aronex Pharmaceuticals believes that its products, because of their unique
pharmacologic profiles, will become useful new treatments for cancers and
infectious diseases, either as alternatives to or in combination with other
pharmaceuticals. Aronex Pharmaceuticals is engaged in pharmaceutical product
development characterized by rapid technological progress. Many established
biotechnology and pharmaceutical companies, universities and other research
institutions with resources significantly greater than Aronex Pharmaceuticals's
may develop products that directly compete with Aronex Pharmaceuticals's
products. Those entities may succeed in developing products, including liposomes
and liposomal products, that are safer, more effective or less costly than
Aronex Pharmaceuticals's products. Even if Aronex Pharmaceuticals's products
should prove to be more effective than those developed by other companies, other
companies may be more successful than Aronex Pharmaceuticals because of greater
financial resources, greater experience in conducting preclinical and clinical
trials and obtaining regulatory approval, stronger sales and marketing efforts,
earlier receipt of approval for competing products and other factors. If Aronex
Pharmaceuticals commences significant commercial sales of Aronex
Pharmaceuticals's products, Aronex Pharmaceuticals or Aronex Pharmaceuticals's
collaborators will compete in areas in which Aronex Pharmaceuticals has little
or no experience such as manufacturing and marketing. There can be no assurance
that Aronex Pharmaceuticals's products, if commercialized, will be accepted and
prescribed by healthcare professionals.
Some of Aronex Pharmaceuticals's competitors are active in the development
of proprietary liposomes and in liposomal research and product development to
treat cancer and certain fungal infections. Those competitors include Elan Corp,
Gilead Sciences and ALZA Corporation. Each of these companies' products have
regulatory approval in the United States and other countries. Any marketing of
these and other products that treat disease indications targeted by Aronex
Pharmaceuticals could adversely affect the market acceptance of Aronex
Pharmaceuticals's products as a result of the established market recognition and
physician familiarity with the competing product. The presence of directly
competitive products could also result in more intense price competition than
might otherwise exist, which could have a material adverse effect on Aronex
Pharmaceuticals's financial condition and results of operations. Aronex
Pharmaceuticals believes that competition will be intense for all of Aronex
Pharmaceuticals's product candidates.
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EMPLOYEES
As of March 31, 2001, Aronex Pharmaceuticals had 26 full-time employees, 17
of whom were engaged in development, clinical and regulatory affairs and 9 of
whom were engaged in business management and administration. Aronex
Pharmaceuticals has not experienced any work stoppages and considers relations
with its employees to be good. Aronex Pharmaceuticals reduced its number of
full-time employees in January 2001 from 77 full-time employees in order to
reduce the amount of its expenditures in an effort to preserve its cash
reserves. Aronex Pharmaceuticals retained those individuals necessary to
maintain its current business plan.
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ARONEX PHARMACEUTICALS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes contained elsewhere
herein.
OVERVIEW
Since Aronex Pharmaceuticals's inception in 1986, it has primarily devoted
its resources to fund research, drug discovery, and development. Aronex
Pharmaceuticals has been unprofitable to date and expects to incur substantial
operating losses for the next several years as it expends its resources for
product research and development, preclinical and clinical testing and
regulatory compliance. Aronex Pharmaceuticals has sustained losses of $122.5
million through March 31, 2001. Aronex Pharmaceuticals's research and
development activities and operations have been financed primarily through
public and private offerings of securities and, to a lesser extent, from
revenues under research and development agreements and grants. Aronex
Pharmaceuticals's operating results have fluctuated significantly during each
quarter, and Aronex Pharmaceuticals anticipates that these fluctuations, largely
attributable to varying commitments and expenditures for clinical trials and
research and development, will continue for the next several years.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 and 2001
In January 2001, Aronex Pharmaceuticals received a non-approval letter from
the FDA for its NDA amendment for ATRAGEN(R). Following this event, Aronex
Pharmaceuticals reduced expenditures in its development plans and activities.
Additionally, Aronex Pharmaceuticals reduced the number of full-time employees
in January 2001 from 77 to 29. In January 2001, Aronex Pharmaceuticals recorded
severance of approximately $600,000 relating to the employees who were
terminated and substantially reduced its operating activities.
Revenues from research and development grants and contracts decreased 94%
to $92,000 in 2001 from $1.5 million in 2000. This decrease was mainly due to a
decrease in 2001 of $1.1 million in revenue recognized relating to Aronex
Pharmaceuticals's license agreement for Nyotran(R) with Abbott Laboratories
("Abbott") as explained below.
During 2000, Aronex Pharmaceuticals adopted United States Securities and
Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" (SAB 101), which requires up-front, non-refundable license
fees to be deferred and recognized over the performance period. Payments for
services under research and development grants and contracts that are
specifically tied to a separate earnings process are recognized as revenue as
the services are performed. In situations where Aronex Pharmaceuticals receives
payment in advance of the performance of services, such amounts are deferred and
recognized as revenue as the related services are performed. Non-refundable
fees, including payments for up-front licensing fees and milestones
(collectively, "Non-refundable Fees"), are recognized as revenue based on the
percentage of costs incurred to date, estimated costs to complete, and total
Non-refundable Fees received. Prior to January 1, 2000, Aronex Pharmaceuticals
had recognized revenue from Non-refundable Fees when it had no obligations to
return the fees under any circumstances, and there were no additional
contractual services to be provided or costs to be incurred by it in connection
with the Non-refundable Fees.
The cumulative effect of adopting SAB 101 at January 1, 2000 resulted in a
one-time, non-cash charge of $4.5 million, with a corresponding increase to
deferred revenue that will be recognized in future periods. The $4.5 million
represents portions of 1998 and 1999 Non-refundable Fees from Abbott in
consideration for the exclusive worldwide rights to market and sell Nyotran(R).
For the three month periods ended March 31, 2000 and 2001, Aronex
Pharmaceuticals recognized $1.2 million and $92,000,
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respectively, of research and development grants and contracts revenue that was
included in the cumulative effect adjustment as of January 1, 2000. The balance
of the deferred revenue from this adjustment at March 31, 2001, $1.6 million,
will be recognized in the future as Aronex Pharmaceuticals incurs costs relating
to obtaining approval for Nyotran(R) from the FDA.
Interest income decreased 52% to $106,000 in 2001 from $221,000 in 2000.
The decrease in interest income resulted from a decrease in the average amount
of funds available for investment during the first three months of 2001.
Research and development expenses decreased 64% to $2.1 million in 2001
from $5.8 million in 2000. In mid-January 2001, Aronex Pharmaceuticals
substantially reduced the number of employees in research and development. At
the end of the first quarter of 2001, there were 17 employees in research and
development, compared to approximately 63 at the end of the first quarter of
2000. Due to this reduction, general expenses such as travel, postage and office
supplies decreased in addition to the following decreases:
- a decrease of $2.1 million in clinical trial costs relating mainly to
Nyotran(R) and ATRAGEN(R);
- a decrease of $210,000 in clinical and regulatory consultants costs
related to Nyotran(R) and ATRAGEN(R);
- a decrease of $404,000 in salary and payroll costs;
- a decrease of $554,000 in drug manufacturing and materials costs relating
mainly to ATRAGEN(R) and Annamycin; and
- a decrease of $154,000 in laboratory supplies, laboratory equipment
maintenance and outside laboratory testing.
General and administrative expenses increased 44% to $1.0 million in 2001
from $699,000 in 2000. The increase in general and administrative expenses
resulted primarily from severance relating to the termination of the vice
president of business development and an increase in legal expenses as a result
of obtaining assistance relating to the FDA approval process for ATRAGEN(R).
Other income of $2,653,000 in the first quarter of 2000 represents a gain
on the sale of Targeted Genetics common stock, which had a carrying value of
zero.
Years Ended December 31, 1999 and 2000
The cumulative effect of adopting SAB 101 at January 1, 2000 resulted in a
one-time, non-cash charge of $4.5 million, with a corresponding increase to
deferred revenue that will be recognized in future periods. The $4.5 million
represents portions of 1998 and 1999 non-refundable fees from Abbott
Laboratories in consideration for the exclusive worldwide rights to market and
sell Nyotran(R). For the year ended December 31, 2000, Aronex Pharmaceuticals
recognized $2.8 million of research and development grants and contracts revenue
that was included in the cumulative effect adjustment as of January 1, 2000. The
balance of the deferred revenue from this adjustment, $1.7 million, will be
recognized in the future as Aronex Pharmaceuticals incurs costs relating to
obtaining approval for Nyotran(R) from the FDA.
Prior period financial statements have not been restated to apply SAB 101
retroactively; however, the pro forma amounts included in the consolidated
statements of operations show the net loss and per share net loss assuming
Aronex Pharmaceuticals had retroactively applied SAB 101 to all prior periods.
Interest income decreased by 30% to $926,000 in 2000, from $1.3 million in
1999. This decrease resulted from a decrease in the average amount of funds
available for investment in 2000.
Research and development expenses decreased by 23% to $16.6 million in
2000, from $21.5 million in 1999. The decrease in research and development
expenses resulted primarily from:
- a decrease of $4.7 million in clinical trial costs for Nyotran(R) as the
majority of the required clinical trial work was completed by the end of
1999;
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- a decrease of $1.2 million in salary and payroll costs;
- a decrease of $430,000 in pharmacology and toxicology studies relating to
Nyotran(R); and
- a decrease of $245,000 in drug materials and manufacturing costs related
to Aroplatin(TM).
The decreases listed above were offset by:
- an increase of $1.0 million in clinical trial costs for ATRAGEN(R);
- an increase of $661,000 in drug materials and manufacturing costs
relating to Annamycin and ATRAGEN(R);
- an increase of $194,000 in outside pharmaceutical development testing
relating to Nyotran(R); and
- a $500,000 license fee relating to Aroplatin(TM).
Selling, general and administrative expenses decreased 30% to $3.2 million
in 2000, from $4.7 million in 1999. The decrease in selling, general and
administrative expenses resulted from the following:
- a decrease of $315,000 in salary and payroll costs;
- a decrease of $240,000 in business consultant costs;
- a decrease of $471,000 in marketing expenses relating to ATRAGEN(R); and
- a decrease of $548,000 in uncollectible receivables.
Interest expense and other increased 36% to $448,000 in 2000, from $330,000
in 1999. The increase in interest expense was due to the increase in the average
note payable balance in 2000.
Net loss increased by 27% to $18.0 million in 2000, from $14.1 million in
1999. The increase in net loss resulted primarily from a decrease in revenues of
$8.2 million mainly as a result of the reduction in revenues resulting from
Aronex Pharmaceuticals's license agreement for Nyotran(R) and the cumulative
effect of the change in accounting principle of $4.5 million relating to the
recognition of research and development revenue. These items were partially
offset by a reduction in expenses of $6.2 million and the recording of a $2.7
million gain from the sale of investments.
Years Ended December 31, 1998 and 1999
Revenues from research and development grants and contracts increased 66%
to $11.1 million in 1999, from $6.7 million in 1998. This increase resulted from
milestone and development revenue under Aronex Pharmaceuticals's license
agreement for Nyotran(R).
Interest income increased by 5% to $1,330,000 in 1999, from $1,265,000 in
1998. This increase resulted from an increase in the average amount of funds
available for investment in 1999.
Research and development expenses decreased 6% to $21.5 million in 1999,
from $22.8 million in 1998. The decrease in research and development expenses
resulted primarily from decreases of $2.3 million and $729,000 in clinical
investigation costs and manufacturing relating to Nyotran(R). These decreases
were partially offset by increases of $640,000 in payroll costs and $600,000 in
regulatory consultants relating mostly to ATRAGEN(R) and Nyotran(R).
Selling, general and administrative expenses increased 39% to $4.7 million
in 1999, from $3.4 million in 1998. The increase in selling, general and
administrative expenses resulted primarily from an increase of $408,000 in
business consultant expense relating mainly to evaluating the market potential
for Aronex Pharmaceuticals's product candidates and an increase of $286,000 in
marketing expenses relating mainly to ATRAGEN(R).
Interest expense and other increased 284% to $330,000 in 1999, from $86,000
in 1998. The increase in interest expense and other resulted primarily from an
increase in the average amount of capital lease obligations and indebtedness
used to fund the acquisition of laboratory equipment.
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Net loss decreased 23% to $14.1 million in 1999, from $18.2 million in
1998. The decrease in net loss resulted primarily from an increase of $4.3
million in revenues relating to research and development grants and contracts.
LIQUIDITY AND CAPITAL RESOURCES
Since Aronex Pharmaceuticals's inception, its primary source of cash has
been from financing activities, which have consisted primarily of sales of
equity securities, and to a lesser extent, from revenues under research and
development agreements and grants. Aronex Pharmaceuticals has raised an
aggregate of approximately $98.8 million from the sale of equity securities from
inception through December 31, 2000. In July 1992, Aronex Pharmaceuticals raised
net proceeds of approximately $10.7 million in the initial public offering of
its common stock. In September 1993, Aronex Pharmaceuticals entered into a
collaborative agreement with Genzyme Corp. relating to the development and
commercialization of ATRAGEN(R), in which Aronex Pharmaceuticals received net
proceeds of approximately $4.5 million from the sale of common stock to Genzyme.
In November 1993, Aronex Pharmaceuticals raised net proceeds of approximately
$11.5 million and in May 1996, Aronex Pharmaceuticals raised net proceeds of
approximately $32.1 million in public offerings of common stock. From October
1995 through December 31, 1998, Aronex Pharmaceuticals received aggregate net
proceeds of approximately $6.5 million from the exercise of certain warrants
issued in Aronex Pharmaceuticals's 1995 merger with API Acquisition Company,
Inc. (formerly Oncologix, Inc.). In November 1998, Aronex Pharmaceuticals
entered into a license agreement with Abbott relating to Nyotran(R), in which
Abbott purchased 837,989 shares of common stock for $3.0 million. Through
February 29, 2000 Aronex Pharmaceuticals received an additional $14.7 million in
up-front and milestone payments from Abbott, all of which are non-refundable. In
February 1999 and April 2000, Aronex Pharmaceuticals raised net proceeds of
approximately $11.7 million and $7.3 million, respectively, in offerings of
Aronex Pharmaceuticals's common stock. In November 2000, Aronex Pharmaceuticals
entered into an agreement with Acqua Wellington North American Equity Fund Ltd.
for an equity financing agreement covering the sale of up to $24 million of
Aronex Pharmaceuticals's common stock over a 28-month period ending in March
2003. Aronex Pharmaceuticals has not raised any funds under this agreement and
has no current intentions or obligation to do so.
In December 2000, Aronex Pharmaceuticals entered into a license agreement
with Sumitomo Pharmaceuticals Co., Ltd. that gives Aronex Pharmaceuticals the
exclusive right in the United States to a particular class of DACH platinum
compounds. Aroplatin(TM), one of Aronex Pharmaceuticals's products in clinical
development, is a liposomal formulation of a novel platinum compound from this
class of drugs. Under this agreement, Sumitomo Pharmaceuticals received a
$500,000 up-front payment from Aronex Pharmaceuticals in 2001 (such amount was
expensed in the 2000 financial statements), and will receive subsequent
milestone payments based on regulatory filings, approval and sales of
Aroplatin(TM), and royalties on the sales of Aroplatin(TM) in the United States.
Except for the treatment of hepatoma, the license agreement gives Aronex
Pharmaceuticals the exclusive right to make, use, develop, import and sell
Aroplatin(TM) in the United States.
The majority of Aronex Pharmaceuticals's development activities are
committed on a short-term, as-needed basis through contracts and purchase
orders. These arrangements can be changed based on Aronex Pharmaceuticals's
needs and development activities. Aronex Pharmaceuticals has contracted with
certain clinical research and other consulting organizations to assist in
conducting its clinical trials. The agreements provide that Aronex
Pharmaceuticals can terminate them at any time, should either its financial
situation, or the results of the studies, require it. Nonetheless, Aronex
Pharmaceuticals intends to continue to engage such services in the future.
Aronex Pharmaceuticals's primary use of cash to date has been in operating
activities to fund research and development, including preclinical studies and
clinical trials and general and administrative expenses. Cash of $18.3 million
and $13.1 million was used in operating activities during 2000 and 1999,
respectively. Aronex Pharmaceuticals had cash, cash-equivalents and long-term
investments of $5.3 million
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as of March 31, 2001, consisting primarily of cash and money market accounts,
and United States government securities and investment grade commercial paper.
Aronex Pharmaceuticals has experienced negative cash flows from operations
since inception and has funded its activities to date primarily from equity
financings. Aronex Pharmaceuticals has expended, and will continue to require,
substantial funds to continue its development activities, including preclinical
studies and clinical trials of its products, and to commence sales and marketing
efforts if FDA and other regulatory approvals are obtained.
The majority of Aronex Pharmaceuticals's clinical trials have reached the
stage where it has completed patient enrollment at their current phase. At the
current time, Aronex Pharmaceuticals is gathering clinical trial data for
analysis. Aronex Pharmaceuticals anticipates reporting the data at appropriate
scientific meetings. Before Aronex Pharmaceuticals initiates any new clinical
trials, it will analyze each product's likelihood for approval, the cost of the
proposed clinical trial, cash available at such time and the inherent risk
profile. Aronex Pharmaceuticals anticipates these steps will assist it in
maximizing shareholder value. See "Business of Aronex
Pharmaceuticals -- Products in Clinical Development" on page 59.
Aronex Pharmaceuticals will continue to require substantial additional
funds for its operations. At March 31, 2001, Aronex Pharmaceuticals had $5.3
million in cash, cash equivalents and investments. Aronex Pharmaceuticals
believes that it can conserve its existing financial resources to satisfy its
capital and operating requirements into the fourth quarter of 2001. Aronex
Pharmaceuticals's accountants have issued a qualified opinion on Aronex
Pharmaceuticals's consolidated financial statements for the year ended December
31, 2000 indicating substantial doubt about its ability to continue as a going
concern. In the event the merger with Antigenics is not completed, Aronex
Pharmaceuticals will need to immediately raise additional funds, or it will have
to close operations and seek legal protection from its creditors.
Aronex Pharmaceuticals has experienced significant fluctuations in accounts
payable and accrued payroll, primarily as a result of its development
activities. Aronex Pharmaceuticals anticipates that the amounts expended for
these items in the future will continue to correspond with its development
activities. Aronex Pharmaceuticals expects the volume of development activities
to decrease in 2001 and there will be a decrease in outstanding payables and a
decrease in its liquidity position.
Aronex Pharmaceuticals has typically obtained debt financing when necessary
for equipment, furniture and leasehold improvement requirements. In 1998, Aronex
Pharmaceuticals's capital requirements increased with the move into new
facilities. As a result, Aronex Pharmaceuticals borrowed $1.4 million and
$547,000 in 1998 and 1999, respectively, to finance its requirements in this new
facility. Aronex Pharmaceuticals expects that it will continue to incur
additional debt to meet its capital requirements from time to time in the
future, based on its financial resources and needs. Aronex Pharmaceuticals does
not plan to make any significant capital expenditures in 2001.
Aronex Pharmaceuticals's capital requirements will depend on many factors.
These factors include:
- expenses associated with completing the merger;
- problems, delays, expenses and complications frequently encountered by
development stage companies;
- the progress of Aronex Pharmaceuticals's research, development and
clinical trial programs;
- the extent and terms of any future collaborative research, manufacturing,
marketing or other funding arrangements;
- the costs and timing of seeking regulatory approvals of Aronex
Pharmaceuticals's products;
- Aronex Pharmaceuticals's ability to obtain regulatory approvals;
- the success of Aronex Pharmaceuticals's sales and marketing programs;
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- the costs of filing, prosecuting and defending and enforcing any patent
claims and other intellectual property rights; and
- changes in economic, regulatory or competitive conditions of Aronex
Pharmaceuticals's planned business.
Estimates about the adequacy of funding for Aronex Pharmaceuticals's
activities are based on certain assumptions, including the assumption that
testing and regulatory procedures relating to Aronex Pharmaceuticals's products
can be conducted at projected costs. There can be no assurance that changes in
Aronex Pharmaceuticals's development plans, acquisitions, or other events will
not result in accelerated or unexpected expenditures.
MATERIAL CONTRACTS WITH ARONEX PHARMACEUTICALS
In May 2001, Antigenics and Aronex Pharmaceuticals entered into a services
agreement under which Antigenics shall provide assistance relating to regulatory
and other pre-marketing activities for Aronex Pharmaceuticals's products. Under
this agreement, Aronex Pharmaceuticals will pay $10,000 per month to Antigenics
for its services as well as any reasonable out of pocket expenses. This
agreement shall terminate upon the earlier of (1) 30 days after written notice
by either party to the other party of its termination of the agreement, (2)
termination of the merger agreement or (3) consummation of the merger.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements reflect the proposed merger of Antigenics and Aronex Pharmaceuticals
in a transaction to be accounted for as a purchase business combination.
The unaudited pro forma condensed consolidated balance sheet as of March
31, 2001 has been prepared as if the merger occurred on March 31, 2001. The
unaudited pro forma condensed consolidated balance sheet combines the historical
consolidated balance sheets of Antigenics and Aronex Pharmaceuticals at March
31, 2001 incorporated by reference or appearing elsewhere in this proxy
statement/prospectus, and gives effect to the unaudited pro forma adjustments
necessary to account for the merger as a purchase.
The unaudited pro forma condensed consolidated statements of operations
have been prepared as if the merger had occurred on January 1, 2000. These
unaudited pro forma condensed consolidated statements of operations combine
historical consolidated statements of operations of Antigenics for the year
ended December 31, 2000 (adjusted to reflect Antigenics' acquisition of Aquila
Biopharmaceuticals, Inc. as if it had also occurred on January 1, 2000 and
excluding the related acquired in-process research and development write-off)
and the historical consolidated statements of operations of Antigenics for the
three months ended March 31, 2001 with the historical statements of operations
of Aronex Pharmaceuticals for the year ended December 31, 2000 and the three
months ended March 31, 2001, respectively, incorporated by reference or
appearing elsewhere in this proxy statement/prospectus, and gives effect to the
unaudited pro forma adjustments necessary to account for the merger as a
purchase.
The unaudited pro forma adjustments are based on an estimated purchase
price and preliminary purchase price allocations made by Antigenics based on
available information and assumptions that Antigenics believes to be reasonable.
Therefore, the amounts in the unaudited pro forma condensed consolidated
financial statements are subject to change. The unaudited pro forma condensed
consolidated financial statements are provided for illustrative purposes only
and do not purport to represent what Antigenics' results of operations or
financial position would actually have been, had the merger in fact occurred on
such dates, nor do they purport to project the results of operations or
financial position of Antigenics for any future period or date.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the audited and unaudited financial statements and
accompanying notes of Antigenics and Aronex Pharmaceuticals which are
incorporated by reference or included elsewhere in this proxy
statement/prospectus.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
MARCH 31, 2001
--------------------------------------------------------------
HISTORICAL
ARONEX HISTORICAL ADJUSTMENTS FOR
PHARMACEUTICALS ANTIGENICS MERGER PRO FORMA
--------------- ---------- --------------- ---------
ASSETS
Current assets:
Cash and cash equivalents............ $ 4,485 $ 90,078 $ 94,563
Accounts receivable.................. -- 865 865
Inventories.......................... -- 1,043 1,043
Prepaid expenses and other assets.... 246 1,095 1,341
--------- -------- --------
Total current assets.............. 4,731 93,081 97,812
Long-term assets....................... 773 2,436 3,209
Furniture, equipment, and leasehold
improvements, net.................... 1,679 14,399 $ (828)A 15,250
Intangibles, net....................... -- 6,372 4,391A 10,763
Goodwill, net.......................... -- 2,962 2,962
--------- -------- --------
Total assets...................... $ 7,183 $119,250 $129,996
========= ======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY
Current liabilities:
Accounts payable and accrued
expenses.......................... $ 2,516 $ 4,602 $ 4,493A $ 11,611
Current portion of debt.............. 424 2,217 2,641
Current portion deferred revenue..... 1,196 -- (1,196)C --
--------- -------- --------
Total current liabilities......... 4,136 6,819 14,252
Notes payable.......................... 3,071 2,264 5,335
Deferred revenue....................... 374 -- (374)C --
Stockholders' (deficit) equity:
Common stock......................... 26 274 17B 291
(26)B
Additional paid-in capital........... 118,697 203,014 30,792B 233,806
(118,697)B
Common stock warrants................ 3,439 -- (3,439)B --
Treasury stock....................... (11) -- 11B --
Accumulated other comprehensive
loss.............................. -- (312) (312)
Deferred compensation................ -- (1,156) (1,156)
Accumulated deficit.................. (122,549) (91,653) 122,549B (122,220)
(30,567)A
--------- -------- --------
Total stockholders' (deficit) equity... (398) 110,167 110,409
--------- -------- --------
Total liabilities and stockholders'
(deficit) equity..................... $ 7,183 $119,250 $129,996
========= ======== ========
See accompanying notes to unaudited pro forma condensed consolidated financial
data.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 2000
-------------------------------------------------------------
HISTORICAL
ARONEX ADJUSTED ADJUSTMENTS FOR
PHARMACEUTICALS ANTIGENICS(H) MERGER PRO FORMA
--------------- ------------- --------------- ---------
Revenues.................................... $ 3,219 $ 4,543 $ 7,762
Costs and expenses:
Cost of sales............................. -- 1,614 1,614
Research and development.................. 16,611 22,928 $ 427D 39,966
General and administrative................ 3,241 13,088 43D 16,284
(88)E
-------- -------- --------
Operating loss.............................. (16,633) (33,087) (50,102)
Other income (expense):
Interest income........................... 926 6,214 7,140
Interest expense.......................... (448) (825) (1,273)
Other non-operating income................ 2,653 -- 2,653
-------- -------- --------
Loss before nonrecurring charges directly
attributable to the Aquila
Biopharmaceuticals, Inc. and Aronex
Pharmaceuticals, Inc. acquisitions and
change in accounting principle............ $(13,502) $(27,698) F $(41,582)
======== ======== ========
Loss before nonrecurring charges directly
attributable to the Aquila
Biopharmaceuticals, Inc. and Aronex
Pharmaceuticals, Inc. acquisitions and
change in accounting principle per common
share, basic and diluted.................. $ (1.12) $ (1.58)
======== ========
Weighted average number of common shares
outstanding, basic and diluted............ 24,659 1,676G 26,335
======== ========
THREE MONTHS ENDED MARCH 31, 2001
----------------------------------------------------------
HISTORICAL
ARONEX HISTORICAL ADJUSTMENTS FOR
PHARMACEUTICALS ANTIGENICS MERGER PRO FORMA
--------------- ---------- --------------- ---------
Revenues...................................... $ 92 $ 884 $ 976
Cost and expenses:
Cost of sales............................... -- 226 226
Research and development.................... 2,090 6,168 $ 107D 8,365
General and administrative.................. 1,009 2,949 11D 3,947
(22)E
-------- -------- --------
Operating loss................................ (3,007) (8,459) (11,562)
Other income (expense):
Interest income............................. 106 1,314 1,420
Interest expense............................ (162) (162) (324)
-------- -------- --------
Loss before nonrecurring charges directly
attributable to the Aronex Pharmaceuticals,
Inc. acquisition and change in accounting
principle................................... $ (3,063) $ (7,307) F $(10,466)
======== ======== ========
Loss before nonrecurring charges directly
attributable to the Aronex Pharmaceuticals,
Inc. acquisition and change in accounting
principle per common share, basic and
diluted..................................... $ (0.27) $ (0.36)
======== ========
Weighted average number of common shares
outstanding, basic and diluted.............. 27,341 1,676G 29,017
======== ========
See accompanying notes to unaudited pro forma condensed consolidated financial
data.
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A.
Reflects the allocation of the purchase price to the net assets of Aronex
Pharmaceuticals. Under purchase accounting, the assets and liabilities of Aronex
Pharmaceuticals are required to be adjusted to their fair values. The estimated
purchase price of $33,514 is the sum of (i) $28,571 representing the assumed
issuance of 1,676 shares of Antigenics common stock valued at $17.051 per share,
which represents the average closing price per share of Antigenics common stock
for the ten trading days ending the second trading day before May 18, 2001, to
be issued at an exchange ratio of 0.0645 shares of Antigenics common stock for
each of the 25,974 outstanding shares of Aronex Pharmaceuticals common stock as
of March 31, 2001, (ii) $2,232 representing the fair value of Aronex
Pharmaceuticals options and warrants to acquire Aronex Pharmaceuticals common
stock which will be vested upon the consummation of the merger and exchanged for
options and warrants to purchase 308 shares of Antigenics common stock and (iii)
an estimated $2,705 of Antigenics's costs of the merger, costs to sever the
employment of certain Aronex Pharmaceuticals employees, and costs associated
with the closing of Aronex Pharmaceuticals's facility. The fair value of the
Aronex Pharmaceuticals options and warrants has been calculated using an option
pricing model with the following weighted average assumptions: life of the
option or warrant -- employees and directors options -- 4 years and non-employee
options and warrants -- remaining contractual life of 6 years; dividend
yield -- nil; risk-free interest rate -- 5.50%; price volatility -- 74.0%. The
final purchase price will be dependent upon the number of shares of Antigenics
common stock actually exchanged in the transaction, which is subject to a
minimum and maximum exchange ratio of 0.0550 and 0.0917 shares of Antigenics
common stock for each share of Aronex Pharmaceuticals common stock (1,429 shares
and 2,382 shares of Antigenics common stock, respectively), and the average
closing price of Antigenics common stock for the ten trading days prior to the
second trading day before the consummation date of the merger.
The estimated purchase price does not include any effect of the issuance of
the contingent value rights issued to Aronex Pharmaceuticals stockholders and
option and warrant holders. The issuance of additional consideration is
dependent upon Aronex Pharmaceuticals receiving FDA approval for ATRAGEN on or
before July 6, 2002. If the approval is received within the required time period
and certain merger transaction expenses are less than $4,500,000, the value of
the contingent value rights at such time will be recorded as additional purchase
price.
The following are the pro forma adjustments made to reflect the preliminary
allocation of the purchase price to the estimated fair value of the net assets
acquired based upon available information. These adjustments are subject to the
determination of the final purchase price as described above and the completion
of valuations as of the date of consummation of the merger. Valuations of
specifically identifiable intangible assets and acquired in-process research and
development are in progress. Consequently, the actual allocation of the purchase
price could differ from that presented below. The preliminary valuation of
acquired in-process research and development below represents the estimated fair
value of products under development at Aronex Pharmaceuticals calculated using
an income approach. This involves estimating the fair value of the acquired
in-process research and development using the present value of the estimated
after-tax cash flows expected to be generated by the purchased in-process
research and development projects. The risk adjusted discount rates range from
45% to 55%, depending on the risks associated with each specific project. Cash
inflows from projects begin primarily in 2005 and 2006, the expected dates of
product approvals. Gross margins on products are estimated at levels consistent
with industry expectations. The preliminary fair values of the acquired
non-current assets and acquired in-process research and development have been
proportionately reduced by the amount that the estimated fair value of the net
assets acquired exceeds the estimated purchase price (negative goodwill).
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Purchase price.............................................. $33,514
Net assets of Aronex Pharmaceuticals(1)..................... 1,172
-------
Subtotal.................................................. 32,342
Fair value adjustments:
Core developed technology................................. 1,674
Assembled workforce....................................... 130
Acquired in-process research and development(2)........... 30,567
Developed technology and patents.......................... 2,587
Fixed assets.............................................. (828)
Liabilities assumed(3).................................... (1,788)
-------
$ --
=======
- ---------------
(1) Reflects the historical Aronex Pharmaceuticals net assets as of March 31,
2001 adjusted to eliminate deferred revenue of $1,570.
(2) Antigenics will record an immediate write-off of acquired in-process
research and development costs at the consummation of the merger. The
write-off is not reflected in the unaudited pro forma condensed consolidated
statements of operations because it is nonrecurring in nature. This
nonrecurring charge is reflected in the unaudited pro forma condensed
consolidated balance sheet as of March 31, 2001 as an increase to
accumulated deficit.
(3) Reflects the estimated additional transaction-related expenses to be
incurred and recognized by Aronex Pharmaceuticals between March 31, 2001 and
the date of the merger. Such expenses have not been reflected in the
unaudited pro forma condensed consolidated statements of operations because
they are nonrecurring in nature.
NOTE B.
Reflects the elimination of the historical Aronex Pharmaceuticals equity
balances and the issuance of Antigenics's common stock, options and warrants as
consideration for the merger.
NOTE C.
Reflects the elimination of Aronex Pharmaceuticals's historical deferred
revenue.
NOTE D.
Reflects the amortization of intangible assets resulting from the merger on
a straight-line basis over 10 years for developed technology and patents and 3
years for assembled workforce.
NOTE E.
Reflects the reduction in amortization of leasehold improvements that will
be abandoned with the closing of Aronex Pharmaceuticals's facility.
NOTE F.
No pro forma income tax provision (benefit) is recognized because of a loss
before income taxes in each period and the need to recognize a valuation
allowance on deferred tax assets. Given the history of incurring losses,
Antigenics believes that it is more likely than not that any deferred tax assets
will not be realized.
NOTE G.
The weighted average number of outstanding common shares outstanding
assumes that the shares issued in the merger (1,676 shares of Antigenics common
stock) are outstanding throughout each period.
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Options and warrants to purchase Aronex Pharmaceuticals common stock will become
options and warrants to purchase Antigenics common stock. The convertible note
will become convertible into Antigenics common stock. The pro forma loss before
nonrecurring charges directly attributable to the acquisition and change in
accounting principle and weighted average number of common shares outstanding
used for computing diluted loss before nonrecurring charges directly
attributable to the acquisition and change in accounting principle per common
share are the same as that used for computing basic loss before nonrecurring
charges directly attributable to the acquisition and change in accounting
principle per common share for each period because inclusion of the options and
warrants in the calculation would be antidilutive (i.e., would reduce the loss
per common share).
NOTE H.
The Adjusted Antigenics statement of operations for the year ended December
31, 2000 has been prepared to reflect Antigenics's acquisition of Aquila
Biopharmaceuticals, Inc. on November 16, 2000 as if it had also occurred on
January 1, 2000.
HISTORICAL ANTIGENICS
FOR THE YEAR ENDED PRO FORMA ADJUSTED
DECEMBER 31, 2000 ADJUSTMENTS ANTIGENICS
--------------------- ----------- ----------
Revenues.......................................... $ 443 4,100(1) $ 4,543
Costs and expenses:
Cost of sales................................... 363 1,251(1) 1,614
Research and development........................ 17,575 5,353(2) 22,928
General and administrative...................... 9,190 3,898(2) 13,088
Acquired in-process research and development.... 25,800 (25,800)(3) --
---------- ----------
Operating loss.................................... (52,485) (33,087)
Other income (expense):
Interest income................................. 6,180 34(4) 6,214
Interest expense................................ (424) (401)(4) (825)
---------- ----------
Net loss before nonrecurring charges directly
attributable to the Aquila Biopharmaceuticals,
Inc. and Aronex Pharmaceuticals, Inc.
acquisitions and the change in accounting
principle....................................... $ (46,729) $ (27,698)
========== ==========
Net loss before nonrecurring charges directly
attributable to the Aquila Biopharmaceuticals,
Inc. and Aronex Pharmaceuticals, Inc.
acquisitions and the change in accounting
principle per share, basic and diluted.......... $ (1.90) $ (1.12)
========== ==========
Weighted average number of shares outstanding,
basic and diluted............................... 24,659 24,659
========== ==========
- ---------------
(1) To reflect the revenue and related cost of sales based upon Aquila's results
of operations from January 1, 2000 to November 15, 2000.
(2) To record the excess amortization on the acquired intangible assets over the
historical amortization of Aquila's intangible assets and to record Aquila's
research and development and general and administrative expenses from
January 1, 2000 to November 15, 2000.
(3) To eliminate the immediate write-off of acquired in-process research and
development costs acquired in the Aquila merger because the charge is
nonrecurring in nature.
(4) To reflect interest expense and income based upon Aquila's results of
operations from January 1, 2000 to November 15, 2000.
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MANAGEMENT AFTER THE MERGER
BOARD OF DIRECTORS
Antigenics's board of directors will not change as a result of the merger.
Information regarding Antigenics's directors can be found in its proxy statement
for its 2001 annual meeting of stockholders and its annual report on Form 10-K
for the fiscal year ended December 31, 2000.
MANAGEMENT
The composition of Antigenics's management will not change as a result of
the merger. Key staff positions within the surviving corporation have not yet
been finally determined. From time to time before the merger, decisions may be
made with respect to the management and operations of Aronex Pharmaceuticals
after the merger, including its officers and managers.
Information about Antigenics's directors and executive officers, including
biographical information, executive compensation and relationships and related
transactions between management and the company, can be found in Antigenics's
most recent annual meeting proxy statement and annual report on Form 10-K for
the fiscal year ended December 31, 2000, which are incorporated by reference
into this proxy statement/prospectus. For more details about how you can obtain
copies of Antigenics's annual meeting proxy statement and Form 10-K, you should
read the section of this proxy statement/prospectus entitled "Where You Can Find
More Information" beginning on page 95.
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STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
OWNERSHIP OF ANTIGENICS CAPITAL STOCK
Information concerning the current directors and officers of Antigenics,
executive compensation and ownership of Antigenics capital stock by management
and principal stockholders is contained in Antigenics's proxy statement for the
2001 annual meeting of shareholders filed with the SEC on April 30, 2001 and is
incorporated by reference into this proxy statement/prospectus. See "Where You
Can Find More Information" on page 95.
OWNERSHIP OF ARONEX PHARMACEUTICALS CAPITAL STOCK
Information concerning the current directors and officers of Aronex
Pharmaceuticals, executive compensation and ownership of Aronex Pharmaceuticals
capital stock by management and principal stockholders is contained in Aronex
Pharmaceuticals's annual report on Form 10-K for the year ended December 31,
2000, as amended, which is incorporated by reference into this proxy
statement/prospectus. For more details about how you can obtain copies of Aronex
Pharmaceuticals's Form 10-K (including its Form 10-K/A), you should read the
section of this proxy statement/prospectus entitled "Where You Can Find More
Information" beginning on page 95.
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COMPARATIVE STOCK PRICES AND DIVIDENDS
Antigenics common stock has been quoted on the Nasdaq National Market under
the trading symbol "AGEN" since February 4, 2000; prior to that date there was
no public trading market for the stock. Aronex Pharmaceuticals stock is quoted
on the Nasdaq National Market under the trading symbol "ARNX." The following
table sets forth, for the periods indicated, the high and low closing prices per
share of Antigenics common stock and Aronex Pharmaceuticals stock as reported on
the Nasdaq National Market.
ARONEX
ANTIGENICS COMMON PHARMACEUTICALS
STOCK COMMON STOCK
------------------ ----------------
HIGH LOW HIGH LOW
------- ------- ------ ------
CALENDAR QUARTER 1999
First Quarter....................................... $ * $ * $3.125 $ 1.938
Second Quarter...................................... $ * $ * $7.125 $ 2.688
Third Quarter....................................... $ * $ * $7.063 $ 3.375
Fourth Quarter...................................... $ * $ * $4.00 $ 2.563
CALENDAR QUARTER 2000
First Quarter....................................... $71.500 $18.250 $5.25 $ 2.75
Second Quarter...................................... $22.500 $10.000 $3.625 $ 2.5
Third Quarter....................................... $21.750 $12.563 $5.00 $ 2.667
Fourth Quarter...................................... $16.500 $10.250 $5.444 $ 3.125
CALENDAR QUARTER 2001
First Quarter....................................... 18.188 10.5 4.563 0.688
Second Quarter (through May 18, 2001)............... 19.703 12.50 1.094 0.50
RECENT CLOSING PRICES
The following table sets forth the high, low and closing sales prices per
share of Antigenics common stock and Aronex Pharmaceuticals stock as reported on
the Nasdaq National Market on April 23, 2001, the last trading day before the
public announcement of the merger agreement, and on June 1, 2001, the last
practicable trading day before the date of this document.
ARONEX PHARMACEUTICALS
ANTIGENICS COMMON STOCK COMMON STOCK
---------------------------- ---------------------------
HIGH LOW CLOSING HIGH LOW CLOSING
------ ------- ------- ------ ------ -------
April 23, 2001...................... $16.50 $14.720 $15.50 $0.880 $0.800 $0.850
June 1, 2001........................ $20.50 $ 18.61 $19.01 $ 1.09 $ 1.05 $ 1.06
The market price of Antigenics common stock is likely to fluctuate prior to
the merger. You should obtain current market quotations. Antigenics cannot
predict the future prices for Antigenics common stock, or on which markets it
will be traded in the future.
DIVIDEND INFORMATION
No cash dividends have ever been paid or declared on the shares of
Antigenics common stock or on the Aronex Pharmaceuticals stock. Antigenics does
not intend to pay cash dividends on its common stock in the foreseeable future.
Antigenics's present intention is to retain its earnings to finance the growth
and development of its business. Any future payment of dividends on Antigenics
common stock will be at the board's discretion and will depend upon, among other
things, Antigenics's earnings, financial condition, capital requirements, level
of indebtedness and other factors that Antigenics's board deems relevant.
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STOCKHOLDER RIGHTS PLAN
On October 6, 1999, Aronex Pharmaceuticals adopted a rights agreement,
which was amended on April 24, 2001. The rights agreement, as amended, is
referred to in this proxy statement/prospectus as the rights plan. Under the
rights plan, Aronex Pharmaceuticals distributed a dividend consisting of one
preferred stock purchase right, or a right, for each share of its common stock
held of record as the close of business on October 18, 1999. Aronex
Pharmaceuticals also distributed and continues to distribute a right for each
share issued thereafter until the earlier of the distribution date (as defined
in the rights plan), redemption of the rights or expiration of the rights. The
rights plan is designed to deter coercive tactics and to prevent an acquirer
from gaining control of Aronex Pharmaceuticals without offering fair value. The
rights will expire upon the earlier of the time immediately prior to completion
of the merger with Antigenics or October 18, 2009, subject to earlier redemption
or exchange. Each right entitles its holder to purchase from Aronex
Pharmaceuticals one one-hundredth of a share of Series One Junior Participating
Preferred Stock at $32.00 per one one-hundredth of a share, subject to standard
anti-dilution adjustments. Generally, the rights become exercisable only if a
person (as defined) acquires beneficial ownership of 20% or more of Aronex
Pharmaceuticals's outstanding common stock. Under the April 2001 amendment,
Antigenics and its merger subsidiary were excluded as acquiring persons under
the rights plan but only with respect to the merger contemplated by this proxy
statement/prospectus, and the execution of the merger agreement as well as
completion of the merger were excluded as events that could cause a distribution
date under the rights plan.
A complete description of the rights, the rights plan between Aronex
Pharmaceuticals and American Stock Transfer and Trust Company, as rights agent,
and the Series One Junior Participating Preferred Stock is hereby incorporated
by reference from the information appearing under Item 5 of Aronex
Pharmaceuticals's current report on Form 8-K dated October 7, 1999, as amended
on April 24, 2001.
NUMBER OF STOCKHOLDERS AND NUMBER OF SHARES OUTSTANDING
As of June 1, 2001 there were approximately 1,465 stockholders of
Antigenics of record who held an aggregate of 27,419,133 shares of Antigenics
common stock.
As of June 1, 2001, there were approximately 270 holders of Aronex
Pharmaceuticals of record who held an aggregate of 26,020,191 shares of Aronex
Pharmaceuticals common stock.
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COMPARISON OF RIGHTS OF ANTIGENICS AND ARONEX PHARMACEUTICALS STOCKHOLDERS
Both Antigenics and Aronex Pharmaceuticals are incorporated in the State of
Delaware. If the merger is completed, holders of Aronex Pharmaceuticals's common
stock will become holders of Antigenics's common stock and the rights of former
Aronex Pharmaceuticals stockholders will be governed by Delaware law and
Antigenics's certificate of incorporation and by-laws. The rights of Aronex
Pharmaceuticals stockholders under Aronex Pharmaceuticals's restated certificate
of incorporation, as amended, and restated by-laws differ in limited respects
from the rights of Antigenics's stockholders under Antigenics's certificate of
incorporation and by-laws. The material differences, among other things, are
summarized in the table below. The summary does not purport to be a complete
discussion of, and is qualified in its entirety by reference to, the Delaware
General Corporation Law as well as to the Antigenics certificate of
incorporation, the Antigenics by-laws, the Aronex Pharmaceuticals restated
certificate of incorporation, as amended, and the Aronex Pharmaceuticals
restated by-laws, copies of which are on file with the SEC.
ARONEX PHARMACEUTICALS
ANTIGENICS STOCKHOLDER RIGHTS STOCKHOLDER RIGHTS
----------------------------- ----------------------
Corporate Governance: The rights of Antigenics common The rights of Aronex
stockholders are currently Pharmaceuticals stockholders are
governed by Delaware law and the currently governed by Delaware law
certificate of incorporation and and the restated certificate of
by-laws of Antigenics. Upon incorporation, as amended, and
consummation of the merger, the restated by-laws of Aronex
rights of Antigenics common Pharmaceuticals. Upon consummation
stockholders will remain governed of the merger, the rights of
by Delaware law and the Aronex Pharmaceuticals
certificate of incorporation and stockholders will be governed by
by-laws of Antigenics. Delaware law and the certificate
of incorporation and by-laws of
Antigenics.
Authorized Capital The authorized capital stock of The authorized capital stock of
Stock: Antigenics consists of 100 million Aronex Pharmaceuticals consists of
shares of common stock and 1 40 million shares of common stock
million shares of preferred stock. and 5 million shares of preferred
stock, of which 750,000 shares are
designated as "Series One Junior
Participating Preferred Stock."
Number of Directors: Antigenics's certificate of Aronex Pharmaceuticals's restated
incorporation provides that the certificate of incorporation, as
number of directors will be amended, and restated by-laws
determined by the Board of provide that the authorized number
Directors, but that the number of directors will be between three
will be no less than one. The and fifteen and will be determined
Antigenics Board currently by the Board of Directors. The
consists of eight directors. Aronex Pharmaceuticals Board
currently consists of eight
directors.
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ARONEX PHARMACEUTICALS
ANTIGENICS STOCKHOLDER RIGHTS STOCKHOLDER RIGHTS
----------------------------- ----------------------
Stockholder Antigenics's by-laws provide that Aronex Pharmaceuticals's restated
Nomination of a stockholder's notice to the by-laws provide that a
Directors: chairman of the Board of Directors stockholder's notice to Aronex
nominating a person for election Pharmaceuticals's Secretary
as a director must be received not nominating a person for election
more than 75 days prior to the as a director must be received not
stockholders meeting held for the less than fifty days nor more than
purpose of electing directors if 75 days prior to the stockholders
there was an annual meeting in the meeting held for the purpose of
prior year and the date of the electing directors. However, if
current annual meeting is within less than 65 days' notice of such
30 days of the anniversary date of stockholders meeting is given to
the prior year's meeting. If the Aronex Pharmaceuticals
above does not apply and public stockholders, any notice to Aronex
disclosure of the current annual Pharmaceuticals nominating a
meeting date is given at least 60 person for election as a director
days prior to such meeting, then will be considered timely so long
the notice must be given at least as it was received by Aronex
45 days prior to the annual Pharmaceuticals not later than the
meeting. If neither of the above close of business on the 15th day
applies, then notice must be given following the day the notice of
at least 15 days after notice of the stockholders meeting was
the current annual meeting is mailed to Aronex Pharmaceuticals
given. stockholders.
Election of Under the Antigenics certificate Under the Aronex Pharmaceuticals
Directors: of incorporation, holders of restated certificate of
Antigenics common stock elect the incorporation, as amended, holders
Board of Directors as a class. of Aronex Pharmaceuticals common
stock elect the Board of Directors
as a class.
Classification of Antigenics's certificate of Aronex Pharmaceuticals's restated
Board of Directors: incorporation provides that the certificate of incorporation, as
Board of Directors shall be amended, provides that the Board
divided into three classes as of Directors shall be divided into
nearly equal in number as three classes as nearly equal in
possible, with each class serving number as possible, with each
a staggered three-year term. class serving a staggered
three-year term.
Removal of Directors: Under Antigenics's certificate of Under Aronex Pharmaceuticals's
incorporation, a director may be restated certificate of
removed for cause by a vote of the incorporation, as amended, a
holders of a majority of shares director may be removed for cause
entitled to vote for the election by a vote of the holders of at
of directors. least 80% of the shares entitled
to vote for the election of
directors.
Stockholder Action by According to Antigenics's According to Aronex
Written Consent: certificate of incorporation, the Pharmaceuticals's restated
power of stockholders to act by certificate of incorporation, as
consenting in writing without a amended, the power of stockholders
meeting is specifically denied. to act by consenting in writing
without a meeting is specifically
denied.
Notice of Business at Under Antigenics's by-laws, Under Aronex Pharmaceuticals's
Annual Meetings: written notice of all meetings restated by-laws, written notice
must include the date, time, place of the date, time and place of any
and purposes and must be given not meeting must be given not less
less than 10 nor more than 60 days than 10 nor more than 60 days
prior to such meeting. prior to such meeting, and in the
case of special meetings, the
purposes of the meeting must be
included in such notice.
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ARONEX PHARMACEUTICALS
ANTIGENICS STOCKHOLDER RIGHTS STOCKHOLDER RIGHTS
----------------------------- ----------------------
Special Meetings of Antigenics's by-laws provide that Aronex Pharmaceuticals's restated
Stockholders: a special meeting of stockholders bylaws provide that a special
may be called by the President or meeting of stockholders may be
a majority of the board. called by (1) a majority of the
board, (2) the Chairman of the
Board, (3) the President or (4) by
stockholders owning at least 30%
of the shares that would be
entitled to vote at such a
meeting.
Amendment of Generally, Antigenics's Aronex Pharmaceuticals's restated
Certificate of certificate of incorporation may certificate of incorporation, as
Incorporation and be amended by the affirmative vote amended, does not have a specific
By-Laws: of the majority of its outstanding provision regarding its amendment;
stock entitled to vote on such therefore, the provisions of the
amendment; provided, however, that Delaware General Corporation Law,
the affirmative vote of 80% of the or the DGCL, govern. Section 242
shares entitled to vote is of the DGCL requires the vote of a
required for amendment of the majority of the outstanding shares
provisions relating to (a) entitled to vote thereon in order
classification of the board, (b) to amend the certificate of
removal of directors by incorporation; provided that, the
Antigenics's stockholders and (c) amended certificate of
denial to stockholders of the incorporation does not allow the
right to act by written consent. amendment of rights already
Antigenics's by-laws may be conferred under the certificate to
amended by (1) a majority of the be amended retroactively. Aronex
board or (2) affirmative vote of a Pharmaceuticals's restated by-laws
majority of stockholders present and Section 109 of the DGCL
at any meeting duly called. provide that either the board or
Aronex Pharmaceuticals's
stockholders entitled to vote at
any meeting may amend the restated
bylaws.
Voting Stock: The outstanding voting securities The outstanding voting securities
of Antigenics are the shares of of Aronex Pharmaceuticals are the
Antigenics common stock. Holders shares of Aronex Pharmaceuticals
of Antigenics common stock have common stock. Holders of Aronex
one vote per share held by them. Pharmaceuticals common stock have
one vote per share held by them.
Authorization and The Antigenics certificate of The Aronex Pharmaceuticals
Issuance of incorporation does not require any restated certificate of
Additional Classes of approval from its stockholders for incorporation, as amended, does
Capital Stock: the issuance of any equity not require any approval from its
securities, but it does provide stockholders for the issuance of
for the issuance of preferred any equity securities, but it does
stock with those preferences, provide for the issuance of
rights and privileges as the board preferred stock with those
may determine. preferences, rights and privileges
as the board may determine.
Stockholder Rights Antigenics does not have a Aronex Pharmaceuticals has a
Plan: stockholder rights plan. stockholder rights plan. Please
see "Comparative Stock Prices and
Dividends -- Stockholder Rights
Plan" on page 89 for a description
of the rights plan.
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ARONEX PHARMACEUTICALS
ANTIGENICS STOCKHOLDER RIGHTS STOCKHOLDER RIGHTS
----------------------------- ----------------------
Certain Business Under the DGCL, Antigenics is Under the DGCL, Aronex
Combinations: required to obtain the approval of Pharmaceuticals is required to
a majority of its shares entitled obtain the approval of a majority
to vote thereon for any merger or of its shares entitled to vote
consolidation or sale of all or thereon for any merger or
substantially all of its assets. consolidation or sale of all or
In any merger or consolidation substantially all of its assets.
transaction, appraisal rights In any merger or consolidation
shall be available to the transaction, appraisal rights
stockholders. shall be available to the
stockholders.
Liquidation and Under Antigenics's certificate of Under Aronex Pharmaceuticals's
Dividend Rights: incorporation, holders of restated certificate of
Antigenics common stock are incorporation, as amended, holders
treated equally in terms of of Aronex Pharmaceuticals common
liquidation and dividend rights. stock are treated equally in terms
of liquidation and dividend
rights.
Conversion and Holders of Antigenics common stock Holders of Aronex Pharmaceuticals
Redemption Rights: have no conversion or redemption common stock have no conversion or
rights under the Antigenics redemption rights under the Aronex
certificate of incorporation. Pharmaceuticals restated
certificate of incorporation, as
amended.
Appraisal Rights: Antigenics is incorporated under Under sec.262(b) of the Delaware
Delaware law and the Delaware General Corporation Law, Aronex
General Corporation Law governs Pharmaceuticals stockholders are
the availability of appraisal not entitled to appraisal rights
rights with respect to mergers because, as of the record date,
involving Antigenics. Because both Aronex Pharmaceuticals's and
approval by Antigenics's Antigenics's common stock were
stockholders is not required to traded on the Nasdaq National
complete the merger, they are not Market.
entitled to appraisal rights under
the Delaware General Corporation
Law in connection with the merger.
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LEGAL MATTERS
Palmer & Dodge LLP, Boston, Massachusetts will pass upon the validity of
the Antigenics common stock offered by this proxy statement/prospectus and has
passed upon the tax treatment of the merger for Antigenics.
Andrews & Kurth L.L.P., Houston, Texas has passed upon the tax treatment of
the merger for Aronex Pharmaceuticals.
EXPERTS
The consolidated financial statements of Antigenics Inc. and subsidiary as
of December 31, 2000 and 1999 and for each of the years in the three year period
ended December 31, 2000, have been incorporated by reference herein and in the
registration statement on Form S-4 of which this proxy statement/prospectus
forms a part, in reliance upon the report of KPMG LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of Aronex Pharmaceuticals, Inc. as of
December 31, 1999 and 2000 and for each of the three years in the period ended
December 31, 2000 included and incorporated by reference in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report. Reference is made to
said report, which includes an explanatory paragraph with respect to the
uncertainty regarding the Company's ability to continue as a going concern as
discussed in Note 1 to the consolidated financial statements. Reference is also
made to said report, which includes an explanatory paragraph with respect to the
change in method of accounting for revenue recognition as discussed in Note 2 to
the consolidated financial statements.
The financial statements of Aquila Biopharmaceuticals, Inc. as of December
31, 1999 and 1998 and for each of the three years in the period ended December
31, 1999, incorporated by reference in this proxy statement/prospectus by
reference to Antigenics's current report on Form 8-K/A dated November 16, 2000
and filed on January 29, 2001 and have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
FUTURE ARONEX PHARMACEUTICALS STOCKHOLDER PROPOSALS
Aronex Pharmaceuticals will hold its 2001 annual meeting of stockholders
only if the merger is not completed. Under Aronex Pharmaceuticals's by-laws, if
Aronex Pharmaceuticals stockholders wish to bring any matter (other than
stockholder nominations of director candidates) before an annual meeting, the
stockholder must notify Aronex Pharmaceuticals's secretary in writing between 50
and 75 days prior to the meeting. If notice or public announcement of the
meeting date comes less than 65 days prior to the meeting, stockholders are
required to submit a notice of nomination or proposal within 15 days after the
meeting date is announced.
Notices regarding each matter must contain:
- a brief description of the business to be brought before the annual
meeting and the reason for conducting the business at the annual meeting;
- the name and address of record of the stockholder proposing the business;
- the class and number of shares of stock that are beneficially owned by
the stockholder; and
- any material interest of the stockholder in the business to be conducted.
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If the Aronex Pharmaceuticals stockholder does not provide the proper
notice by such date, the chairman of the meeting may exclude the matter, and it
will not be acted upon at the meeting.
OTHER MATTERS
Neither Antigenics nor Aronex Pharmaceuticals presently intends to bring
before the Aronex Pharmaceuticals special meeting any matters other than those
specified in the notice accompanying this proxy statement/prospectus, and
neither Antigenics nor Aronex Pharmaceuticals has any knowledge of any other
matters which may be brought up by other persons. However, if any other matters
come before the Aronex Pharmaceuticals special meeting or any adjournments of
the meeting, the persons named in the enclosed form of proxy, including any
substitutes, will use their best judgment to vote the proxies.
WHERE YOU CAN FIND MORE INFORMATION
Antigenics and Aronex Pharmaceuticals file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
that Antigenics and Aronex Pharmaceuticals file with the SEC at the SEC's public
reference room, which is located at Headquarters Office, 450 Fifth Street, N.W.
Room 1200, Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 or (202) 942-8090 for further
information on its public reference room. These SEC filings are also available
to the public from commercial document retrieval services and at the Internet
world wide web site maintained by the SEC at "http://www.sec.gov".
Antigenics filed a registration statement on Form S-4 to register with the
SEC the Antigenics common stock and the contingent value rights to be issued to
Aronex Pharmaceuticals stockholders in the merger. This proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of Antigenics in addition to being a proxy statement of Aronex
Pharmaceuticals. As allowed by SEC rules, this proxy statement/prospectus does
not contain all the information you can find in Antigenics's registration
statement or the exhibits to the registration statement.
The SEC allows Antigenics and Aronex Pharmaceuticals to "incorporate by
reference" information into this proxy statement/prospectus, which means that
the companies can disclose important information to you by referring you to
other documents filed separately with the SEC. The information incorporated by
reference is considered part of this proxy statement/prospectus, except for any
information superseded by information contained directly in this proxy
statement/prospectus or in later-filed documents incorporated by reference in
this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the other
documents set forth below that Antigenics and Aronex Pharmaceuticals have
previously filed with the SEC. These documents contain important business and
financial information about Antigenics and Aronex Pharmaceuticals that is not
included in or delivered with this proxy statement/prospectus.
ANTIGENICS FILINGS (FILE NO. 000-29089) PERIOD AND/OR DATE FILED
- --------------------------------------- ------------------------
Annual Report on Form 10-K Fiscal year ended December 31, 2000 filed on
March 28, 2001
Quarterly Report on Form 10-Q Quarter ended March 31, 2001 filed on May 11,
2001
Current Reports on Form 8-K/A Filed on January 29, 2001
Current Report on Form 8-K Filed on April 24, 2001
Proxy Statement on Schedule 14A Filed on April 30, 2001
The description of Antigenics common stock Filed on January 24, 2000
contained in Antigenics's Registration
Statement on Form 8-A
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ARONEX FILINGS (FILE NO. 000-20111) PERIOD AND/OR DATE FILED
- ----------------------------------- ------------------------
Annual Report on Form 10-K, as amended Fiscal year ended December 31, 2000 filed on
April 2, 2001, amended on April 30, 2001
Quarterly Report on Form 10-Q Quarter ended March 31, 2001 filed May 15,
2001
Current Report on Form 8-K Filed on April 24, 2001
Schedule 14A Filed on April 24, 2001
The description of Aronex Pharmaceuticals Filed on April 23, 1992
stock contained in Aronex Pharmaceuticals's
Registration Statement on Form 8-A
Antigenics and Aronex Pharmaceuticals also incorporate by reference
additional documents that may be filed with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act between the date of this proxy
statement/prospectus and the date of the Aronex Pharmaceuticals special meeting
including any adjournments or postponements. These include periodic reports,
such as annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, as well as proxy statements.
Antigenics has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to Antigenics, and Aronex
Pharmaceuticals has supplied all information relating to Aronex Pharmaceuticals.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. Antigenics has not authorized
anyone to provide you with information that is different from what is contained
in this proxy statement/prospectus. This proxy statement/prospectus is dated
June 4, 2001. You should not assume that the information contained in this proxy
statement/prospectus is accurate as of any date other than that date. Neither
the mailing of this proxy statement/prospectus to stockholders nor the issuance
of Antigenics common stock in the merger creates any implication to the
contrary.
96
103
INDEX TO ARONEX PHARMACEUTICALS, INC. CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
2000...................................................... F-3
Consolidated Statements of Operations for the Years ended
December 31, 1998, 1999 and 2000, and the Period from
Inception (June 13, 1986) through December 31, 2000....... F-4
Consolidated Statements of Comprehensive Loss for the Years
ended December 31, 1998, 1999 and 2000.................... F-5
Consolidated Statements of Stockholders' Equity for the
Period from Inception (June 13, 1986) through December 31,
2000...................................................... F-6
Consolidated Statements of Cash Flows for the Years ended
December 31, 1998, 1999 and 2000, and the Period from
Inception (June 13, 1986) through December 31, 2000....... F-11
Notes to Consolidated Financial Statements.................. F-12
Consolidated Balance Sheets -- December 31, 2000 and March
31, 2001 (unaudited)...................................... F-25
Consolidated Statements of Operations:
Three Months Ended March 31, 2000 and March 31, 2001
(unaudited) and for the Period from Inception (June 13,
1986) through March 31, 2001 (unaudited)............... F-26
Consolidated Statements of Comprehensive Income:
Three Months Ended March 31, 2000 and March 31, 2001
(unaudited)............................................ F-27
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 2000 and March 31, 2001
(unaudited) and for the Period from Inception (June 13,
1986) through March 31, 2001 (unaudited)............... F-28
Consolidated Statements of Stockholders' Equity for the
Three Months Ended March 31, 2001 (unaudited)............. F-29
Notes to Consolidated Financial Statements -- March 31, 2001
(unaudited)............................................... F-30
F-1
104
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Aronex Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Aronex
Pharmaceuticals, Inc. and subsidiaries (a Delaware corporation in the
development stage), as of December 31, 1999 and 2000, and the related
consolidated statements of operations, comprehensive loss, stockholders' equity
and cash flows for each of the three years in the period ended December 31, 2000
and for the period from inception (June 13, 1986) through December 31, 2000.
These consolidated financial statements are the responsibility of Aronex
Pharmaceuticals' management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Aronex Pharmaceuticals, Inc. as of December 31, 1999 and 2000, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2000 and for the period from inception (June 13, 1986)
through December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
As explained in Note 2 to the consolidated financial statements, effective
January 1, 2000, the Company changed its method of accounting for revenue
recognition.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has operated as a development stage enterprise
since its inception by devoting substantially all of its efforts to raising
capital and performing research and development. In January 2001, the Company
received a non-approval letter from the United States Food and Drug
Administration (FDA) for its New Drug Application (NDA) amendment for
ATRAGEN(R). In order to complete the research and development and other
activities necessary to commercialize its products, additional financing will be
required. The Company has not secured any commitments for any such additional
financing. These events raise substantial doubt as to the Company's ability to
continue as a going concern. Management's plans with regard to these matters are
also described in Note 1. The accompanying financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Houston, Texas
February 9, 2001
F-2
105
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
----------------------
1999 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 11,528 $ 8,254
Short-term investments.................................... 7,804 --
Prepaid expenses and other assets......................... 453 116
--------- ---------
Total current assets.............................. 19,785 8,370
Long-term investments....................................... 920 821
Furniture, equipment and leasehold improvements, net of
accumulated depreciation of $3,450 and $3,914,
respectively.............................................. 2,029 1,851
--------- ---------
Total assets...................................... $ 22,734 $ 11,042
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 3,502 $ 2,789
Accrued payroll........................................... 644 313
Current portion of notes payable.......................... 340 459
Current portion of deferred revenue....................... -- 1,196
--------- ---------
Total current liabilities......................... 4,486 4,757
Long-term liabilities:
Notes payable, net of current portion..................... 3,517 3,154
Deferred revenue, net of current portion.................. -- 466
--------- ---------
Total long-term liabilities....................... 3,517 3,620
Commitments and contingencies
Stockholders' equity:
Preferred stock $.001 par value, 5,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock $.001 par value, 40,000,000 shares
authorized, 22,853,782 and 25,973,674 shares issued and
outstanding, respectively.............................. 23 26
Additional paid-in capital................................ 113,262 118,697
Common stock warrants..................................... 908 3,439
Treasury stock............................................ (11) (11)
Deferred compensation..................................... (69) --
Unrealized gain on securities available-for-sale.......... 2,147 --
Deficit accumulated during development stage.............. (101,529) (119,486)
--------- ---------
Total stockholders' equity........................ 14,731 2,665
--------- ---------
Total liabilities and stockholders' equity........ $ 22,734 $ 11,042
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
106
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
PERIOD FROM INCEPTION
YEARS ENDED DECEMBER 31, (JUNE 13, 1986)
-------------------------------- THROUGH
1998 1999 2000 DECEMBER 31, 2000
-------- -------- -------- ---------------------
Revenues:
Research and development grants and
contracts.......................... $ 6,737 $ 11,052 $ 3,219 $ 26,058
-------- -------- -------- ---------
Total revenues................ 6,737 11,052 3,219 26,058
-------- -------- -------- ---------
Expenses:
Research and development.............. 22,793 21,494 16,611 114,033
Purchase of in-process research and
development........................ -- -- -- 11,625
General and administrative............ 3,354 4,652 3,241 25,051
-------- -------- -------- ---------
Total expenses................ 26,147 26,146 19,852 150,709
-------- -------- -------- ---------
Operating loss.......................... (19,410) (15,094) (16,633) (124,651)
Other income (expense):
Interest income....................... 1,265 1,330 926 9,102
Gain on sale of investments........... -- -- 2,653 2,653
Interest expense and other............ (86) (330) (448) (2,135)
-------- -------- -------- ---------
Other income, net....................... 1,179 1,000 3,131 9,620
Net loss before cumulative effect of
change in accounting principle........ (18,231) (14,094) (13,502) (115,031)
Cumulative effect of change in
accounting principle.................. -- -- (4,455) (4,455)
-------- -------- -------- ---------
Net loss................................ $(18,231) $(14,094) $(17,957) $(119,486)
======== ======== ======== =========
Net loss per share before cumulative
effect of change in accounting
principle............................. $ (1.17) $ (0.65) $ (0.54)
Cumulative effect of change in
accounting principle.................. -- -- (0.18)
-------- -------- --------
Basic and diluted net loss per share.... $ (1.17) $ (0.65) $ (0.72)
======== ======== ========
Weighted average shares used in
computing basic and diluted loss per
share................................. 15,571 21,727 24,847
======== ======== ========
Pro forma amounts assuming the
accounting change is applied
retroactively:
Net loss.............................. $(23,104) $(13,676)
======== ========
Net loss per share.................... $ (1.48) $ (0.63)
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
107
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(ALL AMOUNTS IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
PERIOD FROM INCEPTION
YEARS ENDED DECEMBER 31, (JUNE 13, 1986)
-------------------------------- THROUGH
1998 1999 2000 DECEMBER 31, 2000
-------- -------- -------- ---------------------
Comprehensive loss:
Net loss.............................. $(18,231) $(14,094) $(17,957) $(119,486)
Unrealized gain (loss) on securities
available for sale:
Unrealized gain....................... 803 1,431 506 2,653
Realized gain......................... -- -- (2,653) (2,653)
Net unrealized gain (loss) on
securities available for sale.... 803 1,431 (2,147) --
-------- -------- -------- ---------
Comprehensive loss...................... $(17,428) $(12,663) $(20,104) $(119,486)
======== ======== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
108
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JUNE 13, 1986) THROUGH DECEMBER 31, 2000
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL COMMON
-------------------- PAID-IN STOCK TREASURY DEFERRED
SHARES AMOUNT CAPITAL WARRANTS STOCK COMPENSATION
---------- ------ ---------- -------- -------- ------------
Sale of common stock for cash, August
through December 1986 ($1.6396 per
share).................................... 183,334 $-- $ 301 $ -- $ -- $ --
Issuance of common stock for license
agreement rights, October 1986 ($.006 per
share).................................... 60,606 -- 1 -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1986................ 243,940 -- 302 -- -- --
Issuance of common stock in exchange for 8%
convertible notes, May 1987 ($3.30 per
share).................................... 90,909 1 299 -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1987................ 334,849 1 601 -- -- --
Issuance of common stock for cash, September
and December 1988 ($.066 per share)....... 130,303 -- 8 -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1988................ 465,152 1 609 -- -- --
Issuance of common stock for cash, July and
August 1989 ($.066 per share)............. 158,182 -- 10 -- -- --
Issuance of common stock for cash, August
1989 ($3.63 per share).................... 1,220,386 1 4,429 -- -- --
Issuance of common stock for key man life
insurance policies, December 1989
($3.63)................................... 3,862 -- 14 -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1989................ 1,847,582 $ 2 $ 5,062 $ -- $ -- $ --
Stock options exercised January 1990 ($.66
per share)................................ 30 -- -- -- -- --
Warrants issued to purchase 9,914 shares of
common stock.............................. -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1990................ 1,847,612 2 5,062 -- -- --
Stock options exercised, May 1991 ($.66 per
share).................................... 75 -- -- -- -- --
UNREALIZED DEFICIT
GAIN (LOSS) ACCUMULATED
ON SECURITIES DURING TOTAL
AVAILABLE DEVELOPMENT STOCKHOLDERS'
FOR SALE STAGE EQUITY
------------- ----------- -------------
Sale of common stock for cash, August
through December 1986 ($1.6396 per
share).................................... $ -- $ -- $ 301
Issuance of common stock for license
agreement rights, October 1986 ($.006 per
share).................................... -- -- 1
Net loss.................................... -- (40) (40)
------- --------- --------
Balance at December 31, 1986................ -- (40) 262
Issuance of common stock in exchange for 8%
convertible notes, May 1987 ($3.30 per
share).................................... -- -- 300
Net loss.................................... -- (216) (216)
------- --------- --------
Balance at December 31, 1987................ -- (256) 346
Issuance of common stock for cash, September
and December 1988 ($.066 per share)....... -- -- 8
Net loss.................................... -- (832) (832)
------- --------- --------
Balance at December 31, 1988................ -- (1,088) (478)
Issuance of common stock for cash, July and
August 1989 ($.066 per share)............. -- -- 10
Issuance of common stock for cash, August
1989 ($3.63 per share).................... -- -- 4,430
Issuance of common stock for key man life
insurance policies, December 1989
($3.63)................................... -- -- 14
Net loss.................................... -- (942) (942)
------- --------- --------
Balance at December 31, 1989................ $ -- $ (2,030) $ 3,034
Stock options exercised January 1990 ($.66
per share)................................ -- -- --
Warrants issued to purchase 9,914 shares of
common stock.............................. -- -- --
Net loss.................................... -- (1,825) (1,825)
------- --------- --------
Balance at December 31, 1990................ -- (3,855) 1,209
Stock options exercised, May 1991 ($.66 per
share).................................... -- -- --
F-6
109
COMMON STOCK ADDITIONAL COMMON
-------------------- PAID-IN STOCK TREASURY DEFERRED
SHARES AMOUNT CAPITAL WARRANTS STOCK COMPENSATION
---------- ------ ---------- -------- -------- ------------
Issuance of common stock for cash and notes
payable including accrued interest of
$96,505, October 1991 ($7.26 per share)... 596,095 -- 4,328 -- -- --
Deferred compensation relating to certain
stock options............................. -- -- 326 -- -- (326)
Compensation expense related to stock
options................................... -- -- -- -- -- 138
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1991................ 2,443,782 2 9,716 -- -- (188)
Stock options exercised, January, April,
May, October and December 1992 ($.66 per
share).................................... 37,198 -- 24 -- -- --
Stock warrants exercised April, May and
August 1992 ($3.63 per share)............. 11,364 -- 41 -- -- --
Issuance of common stock for cash in initial
public offering, July 1992 ($14.00 per
share).................................... 850,000 1 10,659 -- -- --
Deferred compensation relating to certain
stock options............................. -- -- 1,644 -- -- (1,644)
Compensation expense related to stock
options................................... -- -- -- -- -- 460
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1992................ 3,342,344 $ 3 $ 22,084 $ -- $ -- $(1,372)
Issuance of common stock for compensation... 5,000 -- 51 -- -- --
Warrants issued to purchase 50,172 shares of
common stock.............................. -- -- -- -- -- --
Stock options exercised, February and
November 1993 ($.66) per share............ 14,465 -- 9 -- -- --
Issuance of common stock for cash, September
1993 ($14.00 per share)................... 357,143 -- 4,538 -- -- --
Issuance of common stock for cash in
secondary public offering November &
December 1993 ($9.00 per share)........... 1,402,250 2 11,462 -- -- --
Compensation expense related to stock
options................................... -- -- -- -- -- 396
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1993................ 5,121,202 5 38,144 -- -- (976)
UNREALIZED DEFICIT
GAIN (LOSS) ACCUMULATED
ON SECURITIES DURING TOTAL
AVAILABLE DEVELOPMENT STOCKHOLDERS'
FOR SALE STAGE EQUITY
------------- ----------- -------------
Issuance of common stock for cash and notes
payable including accrued interest of
$96,505, October 1991 ($7.26 per share)... -- -- 4,328
Deferred compensation relating to certain
stock options............................. -- -- --
Compensation expense related to stock
options................................... -- -- 138
Net loss.................................... -- (2,914) (2,914)
------- --------- --------
Balance at December 31, 1991................ -- (6,769) 2,761
Stock options exercised, January, April,
May, October and December 1992 ($.66 per
share).................................... -- -- 24
Stock warrants exercised April, May and
August 1992 ($3.63 per share)............. -- -- 41
Issuance of common stock for cash in initial
public offering, July 1992 ($14.00 per
share).................................... -- -- 10,660
Deferred compensation relating to certain
stock options............................. -- -- --
Compensation expense related to stock
options................................... -- -- 460
Net loss.................................... -- (4,708) (4,708)
------- --------- --------
Balance at December 31, 1992................ $ -- $ (11,477) $ 9,238
Issuance of common stock for compensation... -- -- 51
Warrants issued to purchase 50,172 shares of
common stock.............................. -- -- --
Stock options exercised, February and
November 1993 ($.66) per share............ -- -- 9
Issuance of common stock for cash, September
1993 ($14.00 per share)................... -- -- 4,538
Issuance of common stock for cash in
secondary public offering November &
December 1993 ($9.00 per share)........... -- -- 11,464
Compensation expense related to stock
options................................... -- -- 396
Net loss.................................... -- (6,225) (6,225)
------- --------- --------
Balance at December 31, 1993................ -- (17,702) 19,471
F-7
110
COMMON STOCK ADDITIONAL COMMON
-------------------- PAID-IN STOCK TREASURY DEFERRED
SHARES AMOUNT CAPITAL WARRANTS STOCK COMPENSATION
---------- ------ ---------- -------- -------- ------------
Deferred compensation relating to certain
stock options............................. -- -- 66 -- -- (66)
Stock options exercised, January through
October 1994 ($.66 per share)............. 15,111 -- 10 -- -- --
Warrants issued to purchase 537 shares of
common stock.............................. -- -- -- -- -- --
Issuance of additional shares of common
stock pursuant to collaborative
agreement................................. 66,163 -- -- -- -- --
Compensation expense related to stock
options................................... -- -- -- -- -- 546
Unrealized loss on available-for-sale
securities................................ -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1994................ 5,202,476 $ 5 $ 38,220 $ -- $ -- $ (496)
Deferred compensation relating to certain
stock options............................. -- -- 1,380 -- -- (1,380)
Stock options exercised, January through
December 1995 ($.66 per share)............ 36,958 -- 24 -- -- --
Issuance of common stock and warrants
pursuant to merger agreements )........... 3,868,436 4 11,111 2,844 -- --
Warrants exercised ($4.50 per share)........ 705,614 1 3,402 (226) -- --
Issuance of common stock pursuant to
settlement agreement...................... 531,552 -- 2,046 (1,130) -- --
Issuance of common stock for services
rendered.................................. 37,500 -- 159 -- -- --
Treasury stock purchased ($4.42 per
share).................................... (2,480) -- -- -- (11) --
Compensation expense related to stock
options................................... -- -- -- -- -- 340
Unrealized gain on available-for-sale
securities................................ -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1995................ 10,380,056 $10 $ 56,342 $ 1,488 $ (11) $(1,536)
Warrants redeemed January 1996.............. -- -- 269 (269) -- --
Deferred compensation relating to certain
stock options............................. -- -- 966 -- -- (966)
Issuance of common stock for cash in
secondary public offering, March & April
1996 ($10.00 per share)................... 3,450,000 4 32,073 -- -- --
Stock options exercised, January through
December 1996 ($0.04-$9.50 per share)..... 106,041 -- 343 -- -- --
Warrants exercised January through December
1996 ($4.50-$12.00 per share)............. 622,428 1 3,528 (194) -- --
Issuance of common stock pursuant to
settlement agreements..................... 38,722 -- 221 (57) -- --
UNREALIZED DEFICIT
GAIN (LOSS) ACCUMULATED
ON SECURITIES DURING TOTAL
AVAILABLE DEVELOPMENT STOCKHOLDERS'
FOR SALE STAGE EQUITY
------------- ----------- -------------
Deferred compensation relating to certain
stock options............................. -- -- --
Stock options exercised, January through
October 1994 ($.66 per share)............. -- -- 10
Warrants issued to purchase 537 shares of
common stock.............................. -- -- --
Issuance of additional shares of common
stock pursuant to collaborative
agreement................................. -- -- --
Compensation expense related to stock
options................................... -- -- 546
Unrealized loss on available-for-sale
securities................................ (315) -- (315)
Net loss.................................... -- (9,052) (9,052)
------- --------- --------
Balance at December 31, 1994................ $ (315) $ (26,754) $ 10,660
Deferred compensation relating to certain
stock options............................. -- -- --
Stock options exercised, January through
December 1995 ($.66 per share)............ -- -- 24
Issuance of common stock and warrants
pursuant to merger agreements )........... -- -- 13,959
Warrants exercised ($4.50 per share)........ -- -- 3,177
Issuance of common stock pursuant to
settlement agreement...................... -- -- 916
Issuance of common stock for services
rendered.................................. -- -- 159
Treasury stock purchased ($4.42 per
share).................................... -- -- (11)
Compensation expense related to stock
options................................... -- -- 340
Unrealized gain on available-for-sale
securities................................ 199 -- 199
Net loss.................................... -- (17,429) (17,429)
------- --------- --------
Balance at December 31, 1995................ $ (116) $ (44,183) $ 11,994
Warrants redeemed January 1996.............. -- --
Deferred compensation relating to certain
stock options............................. -- -- --
Issuance of common stock for cash in
secondary public offering, March & April
1996 ($10.00 per share)................... -- -- 32,077
Stock options exercised, January through
December 1996 ($0.04-$9.50 per share)..... -- -- 343
Warrants exercised January through December
1996 ($4.50-$12.00 per share)............. -- -- 3,335
Issuance of common stock pursuant to
settlement agreements..................... -- -- 164
F-8
111
COMMON STOCK ADDITIONAL COMMON
-------------------- PAID-IN STOCK TREASURY DEFERRED
SHARES AMOUNT CAPITAL WARRANTS STOCK COMPENSATION
---------- ------ ---------- -------- -------- ------------
Compensation expense related to stock
options................................... -- -- -- -- -- 553
Unrealized gain on available-for-sale
securities................................ -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1996................ 14,597,247 15 93,742 968 (11) (1,949)
Warrants exercised February and March 1997
($8.00 per share)......................... 3,499 -- 28 (1) -- --
Reversal of deferred compensation relating
to forfeited stock options................ -- -- (578) -- -- 578
Issuance of common stock for services....... 22,278 -- 130 -- -- --
Stock options exercised, January through
December 1997 ($0.04-$5.50 per share)..... 128,278 -- 215 -- -- --
Stock purchased-employee stock purchase
plan, June and December 1997 ($3.31 and
$3.19 per share).......................... 21,392 -- 69 -- -- --
Issuance of common stock pursuant to
contingent stock agreement................ 686,472 -- 3,000 -- -- --
Compensation expense related to stock
options................................... -- -- -- -- -- 464
Unrealized loss on securities
available-for-sale........................ -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1997................ 15,459,166 $15 $ 96,606 $ 967 $ (11) $ (907)
Reversal of deferred compensation relating
to forfeited stock options................ -- -- (28) -- -- 28
Issuance of common stock for services....... 23,494 -- 76 -- -- --
Warrants expired June 1998.................. -- -- 917 (917) -- --
Stock options exercised, January through
December 1998 ($0.04 - $0.68 per share)... 19,144 -- 7 -- -- --
Issuance of shares through the employee
stock purchase plan, June and December
1998 ($3.35 and $1.70 per share).......... 39,516 -- 99 -- -- --
Issuance of shares for cash November 1998
($3.58 per share)......................... 837,989 1 2,977 -- -- --
Compensation expense related to stock
options................................... -- -- -- -- -- 499
Unrealized gain on securities
available-for-sale........................ -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1998................ 16,379,309 $16 $100,654 $ 50 $ (11) $ (380)
Reversal of deferred compensation relating
to forfeited stock options................ -- -- (30) -- -- 30
UNREALIZED DEFICIT
GAIN (LOSS) ACCUMULATED
ON SECURITIES DURING TOTAL
AVAILABLE DEVELOPMENT STOCKHOLDERS'
FOR SALE STAGE EQUITY
------------- ----------- -------------
Compensation expense related to stock
options................................... -- -- 553
Unrealized gain on available-for-sale
securities................................ 41 -- 41
Net loss.................................... -- (8,030) (8,030)
------- --------- --------
Balance at December 31, 1996................ (75) (52,213) 40,477
Warrants exercised February and March 1997
($8.00 per share)......................... -- -- 27
Reversal of deferred compensation relating
to forfeited stock options................ -- -- --
Issuance of common stock for services....... -- -- 130
Stock options exercised, January through
December 1997 ($0.04-$5.50 per share)..... -- -- 215
Stock purchased-employee stock purchase
plan, June and December 1997 ($3.31 and
$3.19 per share).......................... -- -- 69
Issuance of common stock pursuant to
contingent stock agreement................ -- -- 3,000
Compensation expense related to stock
options................................... -- -- 464
Unrealized loss on securities
available-for-sale........................ (12) -- (12)
Net loss.................................... -- (16,991) (16,991)
------- --------- --------
Balance at December 31, 1997................ $ (87) $ (69,204) $ 27,379
Reversal of deferred compensation relating
to forfeited stock options................ -- -- --
Issuance of common stock for services....... -- -- 76
Warrants expired June 1998.................. -- -- --
Stock options exercised, January through
December 1998 ($0.04 - $0.68 per share)... -- -- 7
Issuance of shares through the employee
stock purchase plan, June and December
1998 ($3.35 and $1.70 per share).......... -- -- 99
Issuance of shares for cash November 1998
($3.58 per share)......................... -- -- 2,978
Compensation expense related to stock
options................................... -- -- 499
Unrealized gain on securities
available-for-sale........................ 803 -- 803
Net loss.................................... -- (18,231) (18,231)
------- --------- --------
Balance at December 31, 1998................ $ 716 $ (87,435) $ 13,610
Reversal of deferred compensation relating
to forfeited stock options................ -- -- --
F-9
112
COMMON STOCK ADDITIONAL COMMON
-------------------- PAID-IN STOCK TREASURY DEFERRED
SHARES AMOUNT CAPITAL WARRANTS STOCK COMPENSATION
---------- ------ ---------- -------- -------- ------------
Issuance of common stock for cash in
secondary public offering February 1999
($2.1875 per share)....................... 6,000,000 6 11,683 -- -- --
Issuance of common stock for services....... 162,116 -- 475 -- -- --
Issuance of warrants to purchase 600,000
shares of common stock.................... -- -- (758) 758 -- --
Issuance of warrants to purchase 50,000
shares of common stock.................... -- -- -- 150 -- --
Warrants expired December 1999.............. -- -- 50 (50) -- --
Stock options exercised, January through
December 1999 ($0.22 - $4.75 per share)... 241,339 1 869 -- -- --
Issuance of shares through the employee
stock purchase plan, June and December
1999 ($1.65 and $2.66 per share).......... 71,023 -- 141 -- -- --
Compensation expense related to stock
options................................... -- -- 178 -- -- 281
Unrealized gain on securities
available-for-sale........................ -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 1999................ 22,853,782 $23 $113,262 $ 908 $ (11) $ (69)
Issuance of common stock for cash in
secondary offering ($2.75 per share)...... 2,932,574 3 7,303 -- -- --
Issuance of common stock for services....... 60,107 -- 233 -- -- --
Issuance of warrants to purchase 1,127,524
shares of common stock.................... -- -- (2,561) 2,561 -- --
Stock options exercised, January through
December 2000 ($2.00 - $5.06 per share)... 71,620 -- 280 -- -- --
Stock warrants exercised.................... 14,422 -- 73 (30) -- --
Issuance of shares through the employee
stock purchase plan, June and December
2000 ($2.60 per share).................... 41,169 -- 107 -- -- --
Compensation expense related to stock
options................................... -- -- -- -- -- 69
Unrealized gain on securities
available-for-sale........................ -- -- -- -- -- --
Realized gain on securities
available-for-sale........................ -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
---------- --- -------- ------- ----- -------
Balance at December 31, 2000................ 25,973,674 $26 $118,697 $ 3,439 $ (11) $ --
========== === ======== ======= ===== =======
UNREALIZED DEFICIT
GAIN (LOSS) ACCUMULATED
ON SECURITIES DURING TOTAL
AVAILABLE DEVELOPMENT STOCKHOLDERS'
FOR SALE STAGE EQUITY
------------- ----------- -------------
Issuance of common stock for cash in
secondary public offering February 1999
($2.1875 per share)....................... -- -- 11,689
Issuance of common stock for services....... -- -- 475
Issuance of warrants to purchase 600,000
shares of common stock.................... -- -- --
Issuance of warrants to purchase 50,000
shares of common stock.................... -- -- 150
Warrants expired December 1999.............. -- -- --
Stock options exercised, January through
December 1999 ($0.22 - $4.75 per share)... -- -- 870
Issuance of shares through the employee
stock purchase plan, June and December
1999 ($1.65 and $2.66 per share).......... -- -- 141
Compensation expense related to stock
options................................... -- -- 459
Unrealized gain on securities
available-for-sale........................ 1,431 -- 1,431
Net loss.................................... -- (14,094) (14,094)
------- --------- --------
Balance at December 31, 1999................ $ 2,147 $(101,529) $ 14,731
Issuance of common stock for cash in
secondary offering ($2.75 per share)...... -- -- 7,306
Issuance of common stock for services....... -- -- 233
Issuance of warrants to purchase 1,127,524
shares of common stock.................... -- -- --
Stock options exercised, January through
December 2000 ($2.00 - $5.06 per share)... -- -- 280
Stock warrants exercised.................... -- -- 43
Issuance of shares through the employee
stock purchase plan, June and December
2000 ($2.60 per share).................... -- -- 107
Compensation expense related to stock
options................................... -- -- 69
Unrealized gain on securities
available-for-sale........................ 506 -- 506
Realized gain on securities
available-for-sale........................ (2,653) -- (2,653)
Net loss.................................... -- (17,957) (17,957)
------- --------- --------
Balance at December 31, 2000................ $ -- $(119,486) $ 2,665
======= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
113
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
PERIOD FROM
INCEPTION
(JUNE 13,
YEARS ENDED DECEMBER 31, 1986) THROUGH
------------------------------ DECEMBER 31,
1998 1999 2000 2000
-------- -------- -------- -------------
Cash flows from operating activities:
Net loss.................................................. $(18,231) $(14,094) $(17,957) $(119,486)
Adjustments to reconcile net loss to net cash used in
operating activities..................................
Depreciation and amortization........................... 821 611 570 6,028
Loss on disposal of assets.............................. -- -- -- 200
Compensation expense related to stock and stock options... 547 1,084 312 5,179
Charge for purchase of in-process research and
development............................................. -- -- -- 11,547
Unrealized gain on investment............................. 803 1,431 506 2,653
Realized gain on investment............................... -- -- (2,653) (2,653)
Acquisition costs, net of cash received................... -- -- -- (270)
Loss in affiliate......................................... -- -- -- 500
Accrued interest payable converted to stock............... -- -- -- 97
Changes in assets and liabilities:
Increase (decrease) in prepaid expenses and other
assets.................................................. 214 (193) 337 69
Decrease (increase) in accounts receivable................ (32) 132 -- --
Increase (decrease) in accounts payable and accrued
expenses................................................ 3,673 (2,058) (1,044) 3,029
Increase in deferred revenue.............................. -- -- 1,662 1,309
-------- -------- -------- ---------
Net cash used in operating activities..................... (12,205) (13,087) (18,267) (91,798)
Cash flows from investing activities:
Purchases of investments.................................. (42,809) (11,111) (1,567) (262,928)
Sales of investments...................................... 61,682 11,439 9,470 267,842
Purchase of furniture, equipment and leasehold
improvements............................................ (1,958) (377) (401) (6,857)
Proceeds from sale of assets.............................. 9 -- 9 72
Decrease in deposits...................................... 490 -- -- --
Investment in affiliate................................... -- -- -- (500)
-------- -------- -------- ---------
Net cash provided by (used in) investing activities....... 17,414 (49) 7,511 (2,371)
Cash flows from financing activities:
Proceeds from notes payable............................... 1,369 927 182 7,150
Repayment of notes payable and principal payments under
capital lease obligations............................... (353) (301) (426) (3,538)
Purchase of treasury stock................................ -- -- -- (11)
Proceeds from issuance of stock........................... 3,084 12,700 7,726 98,822
-------- -------- -------- ---------
Net cash provided by financing activities................. 4,100 13,326 7,482 102,423
-------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents...... 9,309 190 (3,274) 8,254
Cash and cash equivalents at beginning of period.......... 2,029 11,338 11,528 --
-------- -------- -------- ---------
Cash and cash equivalents at end of period.................. $ 11,338 $ 11,528 $ 8,254 $ 8,254
======== ======== ======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.................. $ 81 $ 273 $ 391 $ 1,530
Supplemental schedule of noncash financing activities:
Conversion of notes payable and accrued interest to Common
Stock................................................... $ -- $ -- $ -- $ 3,043
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
114
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Aronex Pharmaceuticals, Inc. ("the Company", "Aronex Pharmaceuticals",
"we", "us" or "our") was incorporated in Delaware on June 13, 1986 and merged
with Triplex Pharmaceutical Corporation ("Triplex") and API Acquisition Company,
Inc. ("API"), formerly Oncologix, Inc. effective September 11, 1995. In 1998, we
formed a subsidiary, Aronex Europe Limited.
Aronex Pharmaceuticals is a development-stage company that has devoted
substantially all of its efforts to research and product development and has not
yet generated any significant revenues, nor is there any assurance of future
revenues. In addition, we expect to continue to incur losses for the foreseeable
future, and there can be no assurance that we will successfully complete the
transition from a development-stage company to successful operations. The
development activities we engage in involve a high degree of risk and
uncertainty. Our ability to successfully develop, manufacture and market our
proprietary products is dependent upon many factors. These factors include, but
are not limited to, the need for additional financing, attracting and retaining
key personnel and consultants, and successfully developing manufacturing, sales
and marketing operations. Our ability to develop these operations may be
immensely impacted by uncertainties related to patents and proprietary
technologies, technological change and obsolescence, product development,
competition, government regulations and approvals, health care reform,
third-party reimbursement and product liability exposure. Further, during the
period required to develop these products, we will require additional funds
which may not be available to us.
We have operated as a development stage enterprise since our inception by
devoting substantially all of our efforts to raising capital and performing
research and development. In order to complete the development and other
activities necessary to commercialize our products, additional financing will be
required. We have not secured any commitments for any such additional financing.
The majority of our clinical trials have reached the stage where we have
completed patient enrollment in their current phase. At the current time, we are
gathering clinical trial data for analysis. We anticipate reporting the data at
appropriate scientific meetings. Before we initiate any new clinical trials, we
will analyze each product's likelihood for approval, the cost of the proposed
clinical trial, cash available at such time and the inherent risk profile. We
anticipate these steps will assist us in maximizing shareholder value.
In January 2001, we received a non-approval letter from the United States
Food and Drug Administration (FDA) for our New Drug Application (NDA) amendment
for ATRAGEN(R) for acute promyelocytic leukemia (APL). Following this event, we
reduced expenditures in our research and development plans and activities.
Additionally, we reduced the number of full-time employees in January 2001 from
77 to 29.
We will continue to require substantial additional funds for our
operations. At December 31, 2000, we had $9.1 million in cash, cash equivalents
and investments. We believe that we can conserve our existing financial
resources to satisfy our capital and operating requirements into the fourth
quarter of 2001.
The factors discussed above raise substantial doubt about our ability to
continue as a going concern. We will, in all likelihood, need to further reduce
our expenditures if we do not obtain additional financial resources by mid 2001.
We retained Robertson Stephens, a San Francisco-based investment bank, to assist
us in pursuing strategic alliances with companies in our industry. Also, we are
actively pursuing other sources of financing. Sources of financing may not be
available, or if available, will be dilutive or may have other adverse effect to
the value of our shares. We may have to close operations and/or seek legal
protection from our creditors. Accordingly, there can be no assurance of our
future success. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern. See "Business -- General"
and
F-12
115
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Business -- Additional Business Risks" in the Company's Form 10-K for the year
ended December 31, 2000.
2. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Aronex
Pharmaceuticals, Triplex, API and Aronex Europe Limited. All material
intercompany transactions have been eliminated in consolidation.
Cash, Cash Equivalents and Short- and Long-Term Investments
Debt and equity securities that we have the intent and ability to hold to
maturity are classified as "held to maturity" and reported at amortized cost.
Debt and equity securities that are held for current resale are classified as
"trading securities" and reported at fair value with unrealized gains and losses
included in earnings. Debt and equity securities not classified as either
"securities-held-to-maturity" or "trading securities" are classified as
"securities-available-for-sale" and reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate component of
stockholders' equity.
Cash and cash equivalents include money market accounts and investments
with an original maturity of less than three months. Long-term investments at
December 31, 2000 are available for sale securities which are United States
mortgage backed securities with maturity dates over the next 22 years that have
an amortized cost of $821,000 which approximates fair market value and cost. We
currently have no trading securities.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are carried at cost and depreciation is calculated
on the straight-line method using a five-year estimated useful life. Leasehold
improvements are amortized on the straight-line method over the shorter of the
life of the lease or a five-year estimated useful life. Maintenance and repairs
that do not improve or extend the life of assets are expensed as incurred.
Expenditures which improve or extend the life of assets are capitalized.
A summary of furniture, equipment and leasehold improvements is as follows
(in thousands):
DECEMBER 31,
------------------
1999 2000
------- -------
Office furniture and equipment........................... $ 1,136 $ 1,390
Laboratory equipment..................................... 3,460 3,499
Leasehold improvements................................... 883 876
------- -------
5,479 5,765
Less accumulated depreciation and amortization........... (3,450) (3,914)
------- -------
Furniture, equipment and leasehold improvements, net..... $ 2,029 $ 1,851
======= =======
At December 31, 2000, the cost of all furniture, equipment and leasehold
improvements pledged as collateral on notes payable totaled $1,916,000.
F-13
116
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
During 2000, we adopted United States Securities and Exchange Commission
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101), which requires up-front, non-refundable license fees to be deferred
and recognized over the performance period. Payments for services under research
and development grants and contracts that are specifically tied to a separate
earnings process are recognized as revenue as the services are performed. In
situations where we receive payment in advance of the performance of services,
such amounts are deferred and recognized as revenue as the related services are
performed. Non-refundable fees, including payments for up-front licensing fees
and milestones (collectively, "Non-refundable Fees"), are recognized as revenue
based on the percentage of costs incurred to date, estimated costs to complete,
and total Non-refundable Fees received. Prior to January 1, 2000, we had
recognized revenue from Non-refundable Fees when we had no obligations to return
the fees under any circumstances, and there were no additional contractual
services to be provided or costs to be incurred by us in connection with the
Non-refundable Fees.
The cumulative effect of adopting SAB 101 at January 1, 2000 resulted in a
one-time, non-cash charge of $4.5 million, with a corresponding increase to
deferred revenue that will be recognized in future periods. The $4.5 million
represents portions of 1998 and 1999 Non-refundable Fees from Abbott
Laboratories in consideration for the exclusive worldwide rights to market and
sell Nyotran(R). For the year ended December 31, 2000, we recognized $2.8
million of research and development grants and contracts revenue that was
included in the cumulative effect adjustment as of January 1, 2000. The balance
of the deferred revenue from this adjustment, $1.7 million, will be recognized
in the future as we incur costs relating to obtaining approval for Nyotran(R)
from the FDA.
Prior period financial statements have not been restated to apply SAB 101
retroactively; however, the pro forma amounts included in the consolidated
statements of operations show the net loss and per share net loss assuming we
had retroactively applied SAB 101 to all prior periods.
Research and Development
Costs incurred in connection with research and development activities are
expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects as well as fees paid to various entities that
perform certain research on our behalf.
Comprehensive Loss
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
reporting and displaying comprehensive loss and its components in an entity's
financial statements, and is effective for fiscal years beginning after December
15, 1997. Comprehensive loss is the total of net loss and all other non-owner
changes in equity, which for the Company includes unrealized gains and losses on
securities available for sale. A reconciliation of reported net loss to
comprehensive loss is included in the consolidated statements of comprehensive
loss.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-14
117
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassification
Certain reclassifications have been made to the prior year's financial
statements to be consistent with the presentation in the current year.
3. INVESTMENT IN AFFILIATE
In April 1994, we invested in and entered into a drug development agreement
with RGene Therapeutics, Inc. ("RGene"). We purchased $500,000 of RGene's
preferred stock, which was recorded in the financial statements as investment in
affiliate. The original investment was written off as RGene incurred losses.
This resulted in a zero basis when RGene was acquired by Targeted Genetics
Corporation, a publicly traded company, in June 1996.
We received 440,520 shares of Targeted Genetics common stock from the
acquisition of RGene in June 1996 and an additional 104,496 shares upon the
achievement of certain milestones in October 1998. The Company recorded the
shares at zero value in the financial statements until 1998 when they were
recorded at their fair market value of $716,000. As a result, an unrealized gain
of $2,147,000 is reflected on the Company's balance sheet at December 31, 1999.
In January 2000, we sold all of our shares of Targeted Genetics and realized a
gain of $2,653,000.
4. NOTES PAYABLE
In May 1998, we entered into a master loan agreement for the financing of
furniture, office equipment and laboratory equipment acquisitions. Each loan is
collateralized by the furniture and equipment and is payable in 60 monthly
installments. In June 1998 and February 1999, we borrowed $1,369,000 and
$547,000, respectively, through this agreement bearing interest at 12%. In May
1999, a $2.0 million advance from Genzyme Corporation ("Genzyme") and $500,000
in minimum royalties relating to ATRAGEN(R) due to Genzyme were converted into a
$2.5 million convertible note payable to Genzyme. This note bears interest at
10% per annum with interest payable semi-annually, and the principal is due May
21, 2002. This note can be converted into common stock of the Company at $4.35
per share at Genzyme's option (See note 8). Future principal payments under
these loan agreements at December 31, 2000 are as follows:
YEAR ENDING
DECEMBER 31, NOTE PAYABLE
- ------------ ------------
2001.......................................... $ 459,000
2002.......................................... 2,867,000
2003.......................................... 275,000
2004.......................................... 12,000
----------
Total......................................... $3,613,000
==========
5. STOCKHOLDERS' EQUITY
Common Stock Warrants
At December 31, 2000, we had warrants outstanding, relating to a certain
financing transaction to purchase 2,944 shares of common stock at an exercise
price of $12.00 per share. The warrants expired in March 2001.
F-15
118
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2000, we had warrants outstanding, relating to our February
1999 common stock offering to purchase 596,772 shares of common stock at a price
of $3.28 per share. These warrants expire in February 2004.
At December 31, 2000, we had warrants outstanding relating to our 1999
financing with Genzyme to purchase 50,000 shares of common stock at an exercise
price of $4.00 per share. These warrants expire in May 2004.
In connection with our April 2000 common stock offering, we issued warrants
to purchase 977,524 shares of common stock at a price of $3.00 per share. At
December 31, 2000, 965,403 of these warrants are outstanding, and they expire in
April 2005. In addition, we issued to a placement agent warrants to purchase
150,000 shares of common stock at an exercise price of $3.25 per share. At
December 31, 2000, all of these warrants are outstanding, and they expire in
April 2007. The fair value of the warrants issued, $2,561,000, has been recorded
in the accompanying financial statements. This amount has been estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: a risk free interest rate of 5.6% with no expected
dividends, expected lives of five and seven years and expected volatility of
92%.
Financing Agreement
In November 2000, we entered into an agreement with Acqua Wellington North
American Equity Fund Ltd. for an equity financing agreement covering the sale of
up to $24 million of our common stock over a 28-month period ending in March
2003. We have not raised any funds under this agreement. In order to raise any
funds under this agreement, we must maintain a minimum stock price and maximum
market capitalization. At the present time, we do not meet these requirements
and do not expect to meet these requirements in the near future.
6. STOCK OPTION PLANS
In 1989, our stockholders approved the 1989 Stock Option Plan (the "Plan").
The Plan, as amended in 1992 and in May 1997, authorized the issuance of options
through December 31, 1999. The term of each option ranges from five to seven
years from the date of grant. The Plan expired at December 31, 1999 and has not
been extended. Options granted under the Plan continue to be outstanding and
expire at various dates through 2006.
A summary of stock option activity for the Plan follows:
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- ---------------
Balance at December 31, 1997.................... 1,960,717 $0.04 to $14.88
Granted....................................... 336,114 $2.06 to $ 4.63
Exercised..................................... (42,638) $0.04 to $ 0.68
Forfeited..................................... (228,946) $3.88 to $14.88
--------- ---------------
Balance at December 31, 1998.................... 2,025,247 $0.04 to $14.88
Granted....................................... 404,605 $1.94 to $ 5.81
Exercised..................................... (317,433) $0.22 to $ 4.75
Forfeited..................................... (396,944) $0.04 to $14.88
--------- ---------------
Balance at December 31, 1999.................... 1,715,475 $0.16 to $11.50
Exercised..................................... (64,120) $2.38 to $ 5.06
Forfeited..................................... (361,948) $2.38 to $11.50
--------- ---------------
F-16
119
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- ---------------
Balance at December 31, 2000.................... 1,289,407 $0.16 to $11.50
========= ===============
Exercisable at December 31, 2000................ 1,024,783 $0.16 to $11.50
========= ===============
In June 1998, our stockholders approved the 1998 Stock Option Plan (the
"1998 Plan"). This plan authorizes the issuance of options to purchase up to
750,000 shares of common stock. Shares issued under the 1998 Plan expire 10
years from the date of issuance. In 1998, options to purchase 370,000 shares of
common stock were issued to employees, and 320,000 of these shares will vest at
the earlier of various dates based on the achievement of corporate and personal
goals as determined by the Board of Directors' compensation committee and the
achievement of specific common stock price targets or nine years and ten months
from the date of grant. At December 31, 2000, 28,243 shares were available for
future grant under the Plan. In January 2001, the Board of Directors amended and
restated 1998 Plan authorizing the issuance of options covering the greater of
(i) 2,600,000 shares of common stock or (ii) 10% of the shares of common stock
outstanding on the last day of the preceding fiscal quarter, among other
changes.
A summary of stock option activity for the 1998 Plan follows:
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- --------------
Balance at December 31, 1997..................... -- $ --
Granted........................................ 370,000 $2.44 to $3.88
-------- --------------
Balance at December 31, 1998..................... 370,000 $2.44 to $3.88
Granted........................................ 230,000 $ 3.63
Exercised...................................... (58,800) $2.44 to $3.88
Forfeited...................................... (143,200) $ 3.88
-------- --------------
Balance at December 31, 1999..................... 398,000 $3.63 to $3.88
Granted........................................ 281,807 $2.63 to $5.31
Exercised...................................... (60,107)(i) $ --
Forfeited...................................... (16,850) $3.00 to $3.38
-------- --------------
Balance at December 31, 2000..................... 602,850 $2.63 to $4.06
======== ==============
Exercisable at December 31, 2000................. 130,450 $3.63 to $3.88
======== ==============
- ---------------
(i) Represents stock issued at fair market value for services under consulting
agreements.
During 1993, we adopted the 1993 Non-Employee Director Stock Option Plan
(the "Director Plan"). The Director Plan, as amended effective in May 1997,
authorizes the issuance of options to purchase up to 600,000 shares of common
stock. In January 2001, the Board of Directors amended the Director Plan to
increase the number of shares of our common stock underlying options that may be
granted under the Director Plan to 1,200,000 from 600,000. Shares issued under
the Director Plan expire ten years from the date of issuance. The Director Plan
allows for the issuance of two types of grants: Formula Grants and Discretionary
Grants. Formula Grants are fully-vested when issued and are issued at a price
equal to the fair market value of our stock at the date of issuance. The
following Formula Grants are issued under the Director Plan: (1) options to
purchase 25,000 shares of common stock to each Non-Employee Director upon first
being elected to the Board of Directors and (2) options to purchase 7,500 shares
of common stock annually to each Non-Employee Director who has served as a
director for at least six months. The annual Formula Grants for 2000 were not
granted until January 2001 because insufficient shares were
F-17
120
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
available on December 31, 2000. The expense associated with these annual Formula
Grants for 2000 has been recorded in the December 31, 2000 financial statements.
Discretionary Grants may be issued by the compensation committee of the Board of
Directors and may be issued at less than the fair market value of our stock. In
2000, Discretionary Grants to purchase a total of 80,000 shares of common stock
were issued to two Non-Employee Directors. These options vest over four years
and were issued at the fair market value of our common stock at the date of
grant. At December 31, 2000, 7,500 shares were available for future grant under
the Plan.
A summary of stock option activity for the Director Plan follows:
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- ---------------
Balance at December 31, 1997...................... 367,500 $4.25 to $11.00
Granted......................................... 62,500 $2.00 to $ 2.53
------- ---------------
Balance at December 31, 1998...................... 430,000 $2.00 to $11.00
Granted......................................... 102,500 $2.97 to $ 3.13
Forfeited....................................... (32,500) $5.50 to $ 9.38
------- ---------------
Balance at December 31, 1999...................... 500,000 $2.00 to $11.00
Granted......................................... 80,000 $2.81 to $ 4.75
Exercised....................................... (7,500) $ 2.00
------- ---------------
Balance at December 31, 2000...................... 572,500 $2.00 to $11.00
======= ===============
Exercisable at December 31, 2000.................. 513,167 $2.00 to $11.00
======= ===============
We recorded deferred compensation for the difference between the grant
price and the fair market value of the stock for financial statement
presentation purposes related to options. At December 31, 2000, all of this
compensation had been amortized to expense over the vesting periods of the
options. In 1998, 1999 and 2000, $499,000, $281,000 and $69,000, respectively,
in related expense was recorded.
We account for these plans under APB Opinion No. 25, under which
compensation expense is recorded. Had compensation cost for these plans been
determined consistent with FASB Statement No. 123 ("SFAS 123"), our net loss per
share would have been increased to the following pro forma amounts:
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1999 2000
------------ ------------ ------------
Net Loss:
As reported............................ $(18,231,000) $(14,094,000) $(17,957,000)
============ ============ ============
Pro forma.............................. $(19,598,000) $(15,567,000) $(18,812,000)
============ ============ ============
Loss Per Share (basic and diluted):
As reported............................ $ (1.17) $ (0.65) $ (0.72)
============ ============ ============
Pro forma.............................. $ (1.26) $ (0.72) $ (0.75)
============ ============ ============
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation may not
be representative of that to be expected in future years. The fair value of each
option grant is estimated on the date of grant using the Black Scholes options
pricing model with the following weighted-average assumptions used for grants in
1998, 1999 and
F-18
121
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000, respectively: risk-free interest rates of 5.2%, 5.6% and 6.2%, with no
expected dividends, expected lives of five years, 3.5 years and four years and
expected volatility of 113%, 92% and 97%.
A summary of the status of our three stock option plans as of December 31,
1998, 1999 and 2000 and charges during the years ending on those dates is
presented below:
1998 1999 2000
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ------------- --------- --------- --------- --------- --------- ---------
Balance at beginning of year...... 2,328,217 $5.37 2,825,247 $4.96 2,613,475 $4.69
Granted......................... 768,614 $3.52 737,105 $3.30 361,807 $3.35
Exercised....................... (42,638) $0.39 (376,233) $3.27 (131,727) $3.85
Forfeited....................... (228,946) $5.27 (572,644) $5.15 (378,798) $5.95
--------- --------- ---------
Balance at end of year............ 2,825,247 $4.96 2,613,475 $4.69 2,464,757 $4.35
========= ========= =========
Options exercisable at year
end.......................... 1,917,151 $5.40 1,654,649 $5.08 1,668,400 $4.70
========= ========= =========
Weighted-average fair value of
options granted during the
year......................... $2.68 $2.24 $2.36
The following table summarizes information about stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ----------------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICES DECEMBER 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 2000 EXERCISE PRICE
- --------------- ----------------- ---------------- -------------- ----------------- --------------
$0.16 - $ 3.00 395,253 5.5 $2.62 158,870 $2.39
$3.01 - $ 7.00 1,878,710 4.4 $4.31 1,318,845 $4.46
$7.01 - $11.50 190,794 3.8 $8.30 190,685 $8.30
--------- ---------
2,464,757 1,668,400
========= =========
In addition to the stock option plans in 1997, we issued 100,000 stock
options to a former consultant. These options are vested, have an exercise price
of $7.00 per share and expire in May 2002.
7. FEDERAL INCOME TAXES
We recognize deferred tax liabilities and assets for the expected future
tax consequences of events that have been recognized differently in the
financial statements and tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates and laws in effect in the years in which the differences
are expected to reverse. Deferred tax assets are evaluated for realization based
on a more-likely-than-not criteria in determining if a valuation allowance
should be provided.
F-19
122
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to our effective
income tax rate for the periods ended December 31, 1998, 1999 and 2000 is as
follows:
1998 1999 2000
----- ----- -----
Statutory rate.............................................. (34.0)% (34.0)% (34.0)%
Cumulative effect of accounting change not deductible....... 0.0% 0.0% 3.1%
Equity in loss of foreign subsidiary not deductible......... 0.0% 2.2% 0.8%
Deductible stock option compensation........................ 0.0% (0.4)% 0.0%
Other....................................................... 0.9% 0.1% 0.2%
Adjustment due to deferred tax valuation allowance.......... 33.1% 32.1% 29.9%
===== ===== =====
0.0% 0.0% 0.0%
===== ===== =====
Significant components of our net deferred tax asset at December 31, 1999
and 2000 are as follows:
1999 2000
----------- -----------
Deferred tax assets relating to:
Federal net operating loss carryforwards........ $39,023,000 $44,386,000
Financial statement depreciation and
amortization in excess of amount deductible
for income tax purposes...................... 240,400 241,300
Accrued liabilities not currently deductible for
income tax purposes.......................... 748,000 748,000
Equity in loss of affiliate not currently
deductible for income tax purposes........... 170,000 170,000
Other items, net................................ (34,300) (37,600)
----------- -----------
Total deferred items, net......................... 40,147,100 45,507,700
Deferred tax valuation allowance.................. (40,147,100) (45,507,700)
----------- -----------
Net deferred tax asset............................ $ -- $ --
=========== ===========
At December 31, 2000, we had net operating loss ("NOL") carryforwards for
federal income tax purposes of approximately $130.6 million. The Tax Reform Act
of 1986 provided a limitation on the use of NOL and tax credit carryforwards
following certain ownership changes that could limit our ability to utilize
these NOLs and tax credits. Accordingly, our ability to utilize the above NOL
and tax credit carryforwards to reduce future taxable income and tax liabilities
may be limited. As a result of the merger with Triplex and API in 1995, a change
in control as defined by federal income tax law occurred, causing the use of
these carryforwards to be limited and possibly eliminated. Additionally, because
United States tax laws limit the time during which NOLs and the tax credit
carryforwards may be applied against future taxable income and tax liabilities,
we may not be able to take full advantage of our NOLs and tax credit
carryforwards for federal income tax purposes. The carryforwards will begin to
expire in 2001 if not otherwise used. Due to the possibility of not reaching a
level of profitability that will allow for the utilization of our deferred tax
assets, a valuation allowance has been established to offset these tax assets.
The valuation allowance increased $8,108,400, $3,401,700 and $5,360,600 for the
years ended December 31, 1998, 1999 and 2000, respectively. These increases were
primarily due to our losses from operations for such periods and the valuation
allowance for the net operating loss carryforwards acquired in the 1995 mergers
with Triplex and API. We have not made any federal income tax payments since
inception.
F-20
123
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LICENSE, RESEARCH AND DEVELOPMENT AGREEMENTS
We have two exclusive license agreements with The University of Texas M.D.
Anderson Cancer Center ("M.D. Anderson") that may be terminated in the event of
a material breach of the terms of the agreement or for failure to convert the
licensed subject matter to a commercial form. However, management believes our
ongoing development efforts currently satisfy this obligation to commercialize.
The license agreements require us to pay royalties for licensed patent
products or processes based on net sales percentages. We must also pay M.D.
Anderson $200,000 for each FDA-approved product resulting from certain licensed
research tasks. No royalties have been paid to date since we have had no sales.
For the years ended December 31, 1998, 1999 and 2000, we paid M.D. Anderson
$23,000, $157,000 and $23,000, respectively, for research performed on our
behalf.
In 1993, we entered into a non-exclusive license agreement with a
pharmaceutical company to use a patented process in the manufacture, use and
sale of certain of our products with an initial fee of $30,000. Annual royalty
payments by us are to be computed as a percentage of sales, as defined in the
agreement. The royalty payments shall not exceed $1 million in a calendar year
and expire upon expiration of the licensed patents.
In 1993, we entered into a license and development agreement with Genzyme
to develop and commercialize ATRAGEN(R). In September 1996, Genzyme advanced us
$2.0 million. Early in 1997, the Company amended the agreement through which (1)
we released Genzyme from any further obligation to perform development work for
ATRAGEN(R) and (2) the license granted to Genzyme under the agreement was
converted to an option to acquire the right to market and sell ATRAGEN(R)
worldwide.
In March 1999, Genzyme notified us that they did not intend to exercise
their option to acquire the right to market and sell ATRAGEN(R) worldwide. As a
result of the election, we have regained full marketing rights to ATRAGEN(R) on
a worldwide basis and we were obligated to repay Genzyme the $2.0 million
advance by May 21, 1999 and pay product royalties, including $500,000 in minimum
royalties by April 24, 2000. In May 1999, the $2.0 million advance from Genzyme
and the $500,000 in minimum royalties were converted into a $2.5 million
convertible note payable to Genzyme, which has a maturity date in May 2002. This
note can be converted into our common stock at $4.35 per share at Genzyme's
option. In connection with this financing, we issued Genzyme warrants to
purchase 50,000 shares of common stock at an exercise price of $4.00 per share.
These warrants are exercisable until May 21, 2004. The fair value of the
warrants, $150,000, has been recorded in the accompanying financial statements.
This amount has been estimated on the date of grant using the Black Scholes
option pricing model with the following weighted-average assumptions: a risk
free interest rate of 5.2% with an expected life of five years and expected
volatility of 114%.
In 1996, we entered into a license agreement with Boehringer Mannheim GmbH
(subsequently acquired by F. Hoffman-LaRoche Ltd. ("Roche")) to develop and
commercialize one of our products, AR209. Under the agreement, Roche was
responsible for funding the costs of all remaining preclinical and clinical
development of AR209 and for manufacturing the product. Roche paid us $150,000
in license fees in connection with this agreement in 1997 and agreed to pay
minimum annual license fees of $100,000 during the term of the agreement. The
agreement was terminated without cause by Roche in September 1998, as a result
of which all rights to AR209 have reverted to us.
On November 12, 1998, we entered into a license agreement with Abbott for
Nyotran(R). The license agreement provides Abbott with exclusive worldwide
rights to market and sell Nyotran(R), subject to rights previously granted to
Grupo Ferrer Internacional, S.A. in Spain and Portugal and certain co-promotion
F-21
124
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rights retained by us in the United States and Canada. Under the license
agreement, Abbott has paid us up-front payments, development milestones and
development payments. Abbott purchased 837,989 shares of our common stock for
$3.0 million under a related stock purchase agreement on November 30, 1998.
Abbott has provided funding for the clinical development of Nyotran(R) and will
make subsequent milestone payments if specified sales targets are achieved.
Abbott will also pay to us escalating royalties on all product sales of
Nyotran(R).
In December 2000, we entered into a license agreement with Sumitomo
Pharmaceuticals Co., Ltd. that gives us the exclusive right in the United States
to a particular class of DACH platinum compounds. Aroplatin(TM), one of our
products in clinical development, is a liposomal formulation of a novel platinum
compound from this class of drugs. Under this agreement, Sumitomo
Pharmaceuticals received a $500,000 up-front payment from us in 2001, (such
amount was expensed in the 2000 financial statements) and will receive
subsequent milestone payments based on regulatory filings, approval and sales of
Aroplatin(TM), and royalties on the sales of Aroplatin(TM) in the United States.
Except for the treatment of hepatoma, the license agreement gives us the
exclusive right to make, use, develop, import and sell Aroplatin(TM) in the
United States.
9. COMMITMENTS AND CONTINGENCIES
We lease laboratory and office space under operating leases and certain
office equipment on a short-term basis. Under a current building lease, we have
committed to lease 30,000 square feet for ten years beginning in January 1998.
Rental expense relating to these leases was approximately $667,000, $756,000,
and $713,000 for the years ended December 31, 1998, 1999 and 2000, respectively.
Future minimum noncancellable payments under operating leases at December
31, 2000 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ ----------
2001............................................. $ 713,000
2002............................................. 710,000
2003............................................. 707,000
2004............................................. 692,000
2005............................................. 676,000
Thereafter....................................... 1,379,000
----------
Total............................................ $4,877,000
==========
We are subject to numerous risks and uncertainties because of the nature of
and status of our operations. We maintain insurance coverage for events and in
amounts that we deem appropriate. Management believes that uninsured losses, if
any, will not be materially adverse to our financial position or results of
operations.
Litigation
In the normal course of doing business, we occasionally become a party to
litigation. It the opinion of management, pending or threatened litigation
involving the Company will not have a material adverse material effect on our
financial condition.
F-22
125
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS AND EMPLOYMENT AGREEMENTS
We entered into employment agreements with our chief executive officer and
key employees that have initial termination dates ranging from 2001 to 2002.
These agreements are thereafter automatically renewed for successive periods of
12 to 18 months unless terminated by either party. Such agreements provide that
in the case of termination without cause by the Company or termination by the
employee for good reason, the officers are entitled to payments ranging from 100
to 250% of their annual salaries. Additionally, one officer has an outstanding
loan with Aronex Pharmaceuticals with a balance of approximately $10,000 at
December 31, 2000. This loan will be repaid over the next two years. Current
annual salaries relating to these agreements total $1.2 million at December 31,
2000.
In February 1998, we amended a consulting agreement with our chief
scientific advisor for a three-year period ending December 31, 2000, whereby we
were committed to pay consulting fees of $156,000 per year through December 31,
2000. One-half of the amount was paid in cash and one-half was paid in our
common stock. We paid cash of $78,000 for the years ended December 31, 1998,
1999 and 2000, respectively, and issued 18,352, 40,248 and 21,584 shares of our
common stock in 1998, 1999 and 2000, respectively, pursuant to this agreement.
In December 2000, this agreement was renewed for an additional 12-month period.
11. 401(k) PLAN
We maintain a retirement savings plan, effective as amended on January 1,
1991, in which any of our employees who has completed one month of employment
may elect to participate. The plan is an individual account plan providing for
deferred compensation as described in Section 401(k) of the United States
Internal Revenue Service Code and is subject to, and intended to comply with,
the Employee Retirement Income Security Act of 1974, as amended. Each eligible
employee is permitted to contribute up to 20% of his/her annual salary up to the
applicable statutory maximum prescribed in the Code. We may, in our discretion,
contribute an amount equal to the employee's contribution, but our contribution
may not exceed an amount equal to 6% of the employee's compensation. A
participant is 50% vested in the accrued benefits derived from our contributions
after completion of one year of employment following his/her election to
participate in the plan, and 100% vested in such contributions after completion
of two years of employment following such election. Participants may receive
hardship loans under the terms of the plan. The plan provides for distributions
in the event a participant dies, reaches the age of 65, becomes disabled or
terminates his/her employment prior to the age of 65. Aronex Pharmaceuticals
made contributions of approximately $56,500, $65,200 and $64,300 under the
401(k) plan for the years ended December 31, 1998, 1999 and 2000, respectively.
12. EMPLOYEE STOCK PURCHASE PLAN
In December 1996, the Board of Directors adopted the 1997 Employee Stock
Purchase Plan and reserved 250,000 shares of common stock for issuance
thereunder. The plan permits employees to purchase common stock through payroll
deductions of up to 15% of their compensation subject to limitations as defined
by the Internal Revenue Service. Purchases of common stock are made at the lower
of 85% of fair market value at the beginning or end of each six-month offering
period. In 1998, 39,516 shares were purchased by employees at $3.35 and $1.70
per share. In 1999, 71,023 shares were purchases by employees at $1.65 and $2.66
per share. In 2000, 41,169 shares were purchased by employees at $2.60 per
share.
13. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Effective January 1, 2000, we changed our method of accounting for revenue
recognition to conform with the guidance provided by SAB 101 (See Note 2). The
cumulative effect of adopting SAB 101 at
F-23
126
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
January 1, 2000 resulted in a one-time, non-cash charge of $4.5 million, with a
corresponding increase to deferred revenue that will be recognized in future
periods. The $4.5 million represents portions of 1998 and 1999 payments received
from Abbott Laboratories in consideration for the exclusive worldwide rights to
market and sell Nyotran(R). For the year ended December 31, 2000, we recognized
$2.8 million of research and development grants and contracts revenue that was
included in the cumulative effect adjustment as of January 1, 2000.
Summarized quarterly financial data for the years ended December 31, 2000
and 1999 are displayed in the following tables:
FIRST QUARTER ENDED
MARCH 31, 2000
----------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
(UNAUDITED)
Total revenues.............................................. $ 300 $ 1,451
======= =======
Operating loss.............................................. $(6,199) $(5,048)
======= =======
Other income, net........................................... $ 2,747 $ 2,747
======= =======
Net loss before cumulative effect of change in accounting
principle................................................. $(3,452) $(2,301)
Cumulative effect of change in accounting principle......... -- (4,455)
------- -------
Net loss.................................................... $(3,452) $(6,756)
======= =======
Net loss per share, basic and diluted:
Net loss before cumulative effect of change in accounting
principle................................................. $ (0.15) $ (0.10)
Cumulative effect of change in accounting principle......... -- (0.19)
------- -------
Net loss per share.......................................... $ (0.15) $ (0.29)
======= =======
SECOND QUARTER ENDED THIRD QUARTER ENDED
JUNE 30, 2000 SEPTEMBER 30, 2000
--------------------------- ---------------------------
AS PREVIOUSLY AS PREVIOUSLY FOURTH QUARTER ENDED
REPORTED AS RESTATED REPORTED AS RESTATED DECEMBER 31, 2000
------------- ----------- ------------- ----------- --------------------
(UNAUDITED)
Total revenues.................. $ -- $ 587 $ 26 $ 711 $ 470
Operating loss.................. $(4,636) $(4,049) $(4,270) $(3,585) $(3,951)
Other income, net............... $ 170 $ 170 $ 139 $ 139 $ 75
Net loss........................ $(4,466) $(3,879) $(4,131) $(3,446) $(3,876)
Net loss per share, basic and
diluted....................... $ (0.18) $ (0.16) $ (0.16) $ (0.13) $ (0.15)
FIRST QUARTER ENDED SECOND QUARTER ENDED THIRD QUARTER ENDED FOURTH QUARTER ENDED
MARCH 31, 1999 JUNE 30, 1999 SEPTEMBER 30, 1999 DECEMBER 31, 1999
------------------- -------------------- ------------------- --------------------
(UNAUDITED)
Total revenues............. $ 3,282 $ 6,591 $ 854 $ 325
Operating income (loss).... $(3,437) $ 954 $(5,595) $(7,016)
Other income, net.......... $ 262 $ 315 $ 196 $ 227
Net income (loss).......... $(3,175) $ 1,269 $(5,399) $(6,789)
Net income (loss) per
share, basic and
diluted.................. $ (0.17) $ 0.06 $ (0.24) $ (0.30)
Pro forma amounts assuming
the accounting change is
applied retroactively:
Net loss................... $(4,353) $(1,205) $(3,757) $(4,361)
Net loss per share,basic
and diluted.............. $ (0.23) $ (0.05) $ (0.17) $ (0.19)
F-24
127
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31,
DECEMBER 31, 2001
2000 (UNAUDITED)
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,254 $ 4,485
Prepaid expenses and other assets......................... 116 246
--------- ---------
Total current assets.............................. 8,370 4,731
Long-term investments....................................... 821 773
Furniture, equipment and leasehold improvements, net of
accumulated depreciation of $3,914 and $4,020,
respectively.............................................. 1,851 1,679
--------- ---------
Total assets...................................... $ 11,042 $ 7,183
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 2,789 $ 2,011
Accrued payroll........................................... 313 505
Current portion of notes payable.......................... 459 424
Current portion of deferred revenue....................... 1,196 1,196
--------- ---------
Total current liabilities......................... 4,757 4,136
Long-term liabilities:
Notes payable, net of current portion..................... 3,154 3,071
Deferred revenue, net of current portion.................. 466 374
--------- ---------
Total long-term liabilities....................... 3,620 3,445
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock $.001 par value, 5,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock $.001 par value, 40,000,000 shares
authorized, 25,973,674 and 25,973,843 shares issued and
outstanding, respectively.............................. 26 26
Additional paid-in capital................................ 118,697 118,697
Common Stock warrants..................................... 3,439 3,439
Treasury stock............................................ (11) (11)
Deficit accumulated during development stage.............. (119,486) (122,549)
--------- ---------
Total stockholders' equity (deficit).............. 2,665 (398)
--------- ---------
Total liabilities and stockholders' equity
(deficit)....................................... $ 11,042 $ 7,183
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
128
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
(UNAUDITED)
PERIOD FROM
INCEPTION
THREE MONTHS ENDED (JUNE 13,
MARCH 31, 1986) THROUGH
------------------ MARCH 31,
2000 2001 2001
------- ------- -------------
Revenues:
Research and development grants and contracts............ $ 1,451 $ 92 $ 26,150
------- ------- ---------
Total revenues................................... 1,451 92 26,150
------- ------- ---------
Expenses:
Research and development................................. 5,800 2,090 116,123
Purchase of in-process research and development.......... -- -- 11,625
General and administrative............................... 699 1,009 26,060
------- ------- ---------
Total expenses................................... 6,499 3,099 153,808
------- ------- ---------
Operating loss............................................. (5,048) (3,007) (127,658)
------- ------- ---------
Other income (expense):
Interest income.......................................... 221 106 9,208
Gain on sale of investments.............................. 2,653 -- 2,653
Interest expense and other............................... (127) (162) (2,297)
------- ------- ---------
Other income (expense), net................................ 2,747 (56) 9,564
Net loss before cumulative effect of change in accounting
principle................................................ (2,301) (3,063) (118,094)
Cumulative effect of change in accounting principle...... (4,455) -- (4,455)
------- ------- ---------
Net loss................................................... $(6,756) $(3,063) $(122,549)
======= ======= =========
Net loss per share before cumulative effect of change in
accounting principle..................................... $ (0.10) $ (0.12)
Cumulative effect of change in accounting principle...... (0.19) --
------- -------
Basic and diluted loss per share........................... $ (0.29) $ (0.12)
======= =======
Weighted average shares used in computing basic and diluted
loss per share........................................... 22,881 25,974
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
129
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(ALL AMOUNTS IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2000 2001
------- -------
Comprehensive income:
Net loss.................................................. $(6,756) $(3,063)
Unrealized gain........................................... 2,147 --
Realized gain............................................. (2,653) --
------- -------
Comprehensive income.............................. $(7,262) $(3,063)
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
130
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
PERIOD FROM
INCEPTION
THREE MONTHS ENDED (JUNE 13, 1986)
MARCH 31, THROUGH
------------------ MARCH 31,
2000 2001 2001
-------- ------- ---------------
Cash flows from operating activities:
Net loss.................................................. $ (6,756) $(3,063) $(122,549)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 149 132 6,160
Loss on disposal of assets............................. -- 40 240
Compensation expense related to stock and stock
options.............................................. 171 -- 5,179
Technology purchased through acquisition............... -- -- 11,547
Unrealized gain (loss) on investment................... (2,147) -- 2,653
Realized gain on sale of investments................... (2,653) -- (2,653)
Acquisition costs, net of cash received................ -- -- (270)
Accrued interest payable converted to stock............ -- -- 97
Loss in affiliate...................................... -- -- 500
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses and other
assets, net.......................................... 49 (130) (61)
Increase (decrease) in accounts payable and accrued
expenses............................................. (942) (586) 2,443
(Increase) decrease in deferred revenue................ 3,304 (92) 1,217
-------- ------- ---------
Net cash used in operating activities................ (8,825) (3,699) (95,497)
Cash flows from investing activities:
Purchases of investments.................................. -- -- (262,928)
Sales of investments...................................... 10,461 48 267,890
Purchase of furniture, equipment and leasehold
improvements........................................... (68) -- (6,857)
Proceeds from sale of assets.............................. -- -- 72
Investment in affiliate................................... -- -- (500)
-------- ------- ---------
Net cash provided by (used in) investing
activities........................................ 10,393 48 (2,323)
Cash flows from financing activities:
Proceeds from notes payable............................... 12 12 7,162
Repayment of notes payable and principal payments under
capital lease obligations.............................. (72) (130) (3,668)
Purchase of treasury stock................................ -- -- (11)
Proceeds from issuance of stock........................... 122 -- 98,822
-------- ------- ---------
Net cash provided by (used in) financing
activities........................................ 62 (118) 102,305
-------- ------- ---------
Net increase (decrease) in cash and cash equivalents........ 1,630 (3,769) 4,485
Cash and cash equivalents at beginning of period............ 11,528 8,254 --
-------- ------- ---------
Cash and cash equivalents at end of period.................. $ 13,158 $ 4,485 $ 4,485
======== ======= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.................. $ 177 $ 155 $ 1,685
Supplemental schedule of noncash financing activities:
Conversion of notes payable and accrued interest to common
stock.................................................. $ -- $ -- $ 3,043
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
131
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL COMMON DURING TOTAL
------------------- PAID-IN STOCK TREASURY DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL WARRANTS STOCK STAGE EQUITY (DEFICIT)
---------- ------ ---------- -------- -------- ----------- ----------------
Balance at December 31,
2000....................... 25,973,674 $26 $118,697 $3,439 $(11) $(119,486) $ 2,665
Stock options exercised
January 2001 ($0.16 per
share)..................... 169 -- -- -- -- -- --
Net loss..................... -- (3,063) (3,063)
---------- --- -------- ------ ---- --------- -------
Balance at March 31, 2001.... 25,973,843 $26 $118,697 $3,439 $(11) $(122,549) $ (398)
========== === ======== ====== ==== ========= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
132
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
1. ORGANIZATION
Aronex Pharmaceuticals, Inc. ("the Company", "Aronex Pharmaceuticals",
"we", "us" or "our") was incorporated in Delaware on June 13, 1986 and merged
with Triplex Pharmaceutical Corporation ("Triplex") and API Acquisition Company,
Inc. ("API"), formerly Oncologix, Inc. effective September 11, 1995. In 1998, we
formed a subsidiary, Aronex Europe Limited.
In order to address our lack of capital, among other things, we entered
into an agreement and plan of merger dated as of April 23, 2001 (the "Merger")
with Antigenics Inc. ("Antigenics") and Nasa Merger Corp., a newly-formed,
wholly-owned subsidiary of Antigenics. The proposed Merger is subject to
approval of our stockholders. The Merger is expected to be completed in the
third quarter of 2001. Upon closing of the Merger, we will become a wholly-owned
subsidiary of Antigenics.
Aronex Pharmaceuticals is a development stage company that has devoted
substantially all of its efforts to research and product development and has not
yet generated any significant revenues, nor is there any assurance of future
revenues. In addition, we expect to continue to incur losses for the foreseeable
future, and there can be no assurance that we will successfully complete the
transition from a development-stage company to successful operations. The
development activities we engage in involve a high degree of risk and
uncertainty. Our ability to successfully develop, manufacture and market our
proprietary products is dependent upon many factors. These factors include, but
are not limited to, our ability to consummate the Merger, the need for
additional financing in the event the Merger is not completed on a timely basis
or at all, attracting and retaining key personnel and consultants, and
successfully developing manufacturing, sales and marketing operations. Our
ability to develop these operations may be immensely impacted by uncertainties
related to patents and proprietary technologies, technological change and
obsolescence, product development, competition, government regulations and
approvals, health care reform, third-party reimbursement and product liability
exposure. Further, during the period required to develop these products, we will
require additional funds which may not be available to us.
We have operated as a development stage enterprise since our inception by
devoting substantially all of our efforts to raising capital and performing
research and development. In order to complete the development and other
activities necessary to commercialize our products, additional financing will be
required. If we are not able to consummate the Merger, such financing may not be
available.
The majority of our clinical trials have reached the stage where we have
completed patient enrollment in their current phase. At the current time, we are
gathering clinical trial data for analysis. We anticipate reporting the data at
appropriate scientific meetings. Before we initiate any new clinical trials, we
will analyze each product's likelihood for approval, the cost of the proposed
clinical trial, cash available at such time and the inherent risk profile. We
anticipate these steps will assist us in maximizing shareholder value.
In January 2001, we received a non-approval letter from the United States
Food and Drug Administration (FDA) for our New Drug Application (NDA) amendment
for ATRAGEN(R) for acute promyelocytic leukemia (APL). Following this event, we
reduced expenditures in our research and development plans and activities.
Additionally, we reduced the number of full-time employees in January 2001 from
77 to 29.
We will continue to require substantial additional funds for our
operations. At March 31, 2001, we had $5.3 million in cash, cash equivalents and
investments. We believe that we can conserve our existing financial resources to
satisfy our capital and operating requirements until consummation of the Merger.
F-30
133
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
The factors discussed above raise substantial doubt about our ability to
continue as a going concern. If the Merger is not completed, we will have to
pursue other sources of financing. Sources of financing may not be available, or
if available, will be dilutive or may have other adverse effects to the value of
our shares. If we are not able to secure such financing, we may have to close
operations and/or seek legal protection from our creditors. Accordingly, there
can be no assurance of our future success. The accompanying financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern. See
"Business -- General" and "Business -- Additional Business Risks" in the
Company's Form 10-K for the year ended December 31, 2000.
The consolidated balance sheet at March 31, 2001 and the related
consolidated statements of operations and cash flows for the three month periods
ending March 31, 2001 and 2000 and the period from inception (June 13, 1986)
through March 31, 2001 are unaudited. These interim financial statements should
be read in conjunction with the audited financial statements and related notes
included in our 2000 Form 10-K. The financial statements included in our 2000
Form 10-K have been audited by Arthur Andersen LLP, independent public
accountants. In order to complete the development and other activities to
commercialize our products, additional financing will be required. Accordingly,
our independent public accountants' report on the financial statements for the
year ended December 31, 2000 includes an explanatory fourth paragraph expressing
substantial doubt about our ability to continue as a going concern. The
unaudited interim consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods presented and all such adjustments are of a
normal recurring nature. Interim results are not necessarily indicative of
results for a full year.
2. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Aronex
Pharmaceuticals, Triplex, API and Aronex Europe Limited. All material
intercompany transactions have been eliminated in consolidation.
Cash, Cash Equivalents and Short- and Long-Term Investments
Cash and cash equivalents include money market accounts and investments
with an original maturity of less than three months. Long-term investments at
March 31, 2001 are available for sale securities which are United States
mortgage-backed securities with maturity dates over the next 23 years that have
an amortized cost of $773,000, which approximates fair market value and cost.
Aronex Pharmaceuticals currently has no trading securities.
Revenue Recognition
During 2000, United States Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101) which requires up-front, non-refundable license fees to be deferred and
recognized over the performance period. We adopted SAB 101 which required us to
recognize payments for services under research and development grants and
contracts that are specifically tied to a separate earnings process as revenue
as the services are performed. In situations where we receive payment in advance
of the performance of services, such amounts are deferred and recognized as
revenue as the related services are performed. Non-refundable fees, including
payments for up-front licensing fees and milestones (collectively,
"Non-refundable Fees"), are recognized as revenue based on the percentage of
costs incurred to date, estimated costs to complete, and total Non-refundable
Fees received. Prior to January 1, 2000, we had recognized revenue from
Non-refundable Fees when we
F-31
134
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
had no obligations to return the fees under any circumstances, and there were no
additional contractual services to be provided or costs to be incurred by us in
connection with the Non-refundable Fees.
The cumulative effect of adopting SAB 101 at January 1, 2000 resulted in a
one-time, non-cash charge of $4.5 million, with a corresponding increase to
deferred revenue that will be recognized in future periods. The $4.5 million
represents portions of 1998 and 1999 Non-refundable Fees received from Abbott
Laboratories in consideration for the exclusive worldwide rights to market and
sell Nyotran(R). For the quarters ended March 31, 2000 and 2001, we recognized
$1.2 million and $92,000, respectively, of research and development grants and
contracts revenue that was included in the cumulative effect adjustment as of
January 1, 2000. The balance of the deferred revenue from this adjustment, $1.6
million, will be recognized in the future as we incur costs relating to
obtaining approval for Nyotran(R) from the FDA.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassification
Certain reclassifications have been made to the prior year's financial
statements to be consistent with the presentation in the current year.
3. FEDERAL INCOME TAXES
At December 31, 2000, we had net operating loss ("NOL") carryforwards for
federal income tax purposes of approximately $130.6 million. The Tax Reform Act
of 1986 provided a limitation on the use of NOL and tax credit carryforwards
following certain ownership changes that could limit our ability to utilize
these NOLs and tax credits. Accordingly, our ability to utilize the above NOL
and tax credit carryforwards to reduce future taxable income and tax liabilities
may be limited. As a result of the merger with Triplex and API, a change in
control as defined by federal income tax law occurred, causing the use of these
carryforwards to be limited and possibly eliminated. Additionally, because
United States tax laws limit the time during which NOLs and the tax credit
carryforwards may be applied against future taxable income and tax liabilities,
we may not be able to take full advantage of our NOLs and tax credit
carryforwards for federal income tax purposes. The carryforwards will begin to
expire in 2001 if not otherwise used. Due to the possibility of not reaching a
level of profitability that will allow for the utilization of our deferred tax
assets, a valuation allowance has been established to offset these tax assets.
We have not made any federal income tax payments since inception.
4. SEVERANCE AGREEMENTS
In January 2001, we entered into severance agreements with all employees
who do not have employment contracts with us. Under such agreements, all
employees are entitled to at least three months severance if they are terminated
as a result of a reduction in staff, merger or acquisition or sale of the
Company, including the Merger with Antigenics. At March 31, 2001, there are
employment and severance agreements which could require severance payments of
$2.3 million relating to the salaries of current employees.
F-32
135
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
ANTIGENICS INC., NASA MERGER CORP.,
AND ARONEX PHARMACEUTICALS, INC.
DATED AS OF APRIL 23, 2001
A-1
136
TABLE OF CONTENTS
PAGE
----
SECTION 1 -- THE MERGER............................................. A-5
1.1 The Merger.................................................. A-5
1.2 Effective Time.............................................. A-5
1.3 Effects of the Merger....................................... A-5
1.4 Certificate of Incorporation and By-Laws.................... A-5
1.5 Directors and Officers...................................... A-6
1.6 Conversion of Common Stock.................................. A-6
1.7 Company Options, Warrants, Convertible Note, and Purchase A-6
Rights......................................................
1.8 Closing of Company Transfer Books........................... A-8
1.9 Exchange of Certificates.................................... A-8
1.10 No Liability................................................ A-9
1.11 Lost Certificates........................................... A-9
1.12 Withholding Rights.......................................... A-9
1.13 Distributions with Respect to Unexchanged Shares............ A-9
1.14 Further Assurances.......................................... A-9
SECTION 2 -- REPRESENTATIONS AND WARRANTIES OF COMPANY.............. A-9
2.1 Organization and Qualification.............................. A-9
2.2 Authority to Execute and Perform Agreements................. A-10
2.3 Capitalization and Title to Shares.......................... A-10
2.4 Company Subsidiaries and Company Joint Ventures............. A-11
2.5 SEC Reports................................................. A-12
2.6 Financial Statements........................................ A-12
2.7 Absence of Undisclosed Liabilities.......................... A-12
2.8 Absence of Adverse Changes.................................. A-13
2.9 Compliance with Laws........................................ A-13
2.10 Actions and Proceedings..................................... A-13
2.11 Contracts and Other Agreements.............................. A-14
2.12 Intellectual Property....................................... A-15
2.13 Insurance................................................... A-15
2.14 Commercial Relationships.................................... A-15
2.15 Tax Matters................................................. A-16
2.16 Employee Benefit Plans...................................... A-17
2.17 Employee Relations.......................................... A-19
2.18 Environmental Matters....................................... A-19
2.19 No Breach................................................... A-21
2.20 Board Approvals............................................. A-21
2.21 Financial Advisor........................................... A-22
2.22 Proxy Statement and Registration Statement.................. A-22
A-2
137
PAGE
----
SECTION 3 -- REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB................................................................. A-22
3.1 Organization and Qualification.............................. A-22
3.2 Authority to Execute and Perform Agreement.................. A-22
3.3 Capitalization.............................................. A-23
3.4 SEC Reports................................................. A-23
3.5 Financial Statements........................................ A-23
3.6 Absence of Undisclosed Liabilities.......................... A-23
3.7 Absence of Adverse Changes.................................. A-23
3.8 Actions and Proceedings..................................... A-23
3.9 No Breach................................................... A-24
3.10 Compliance with Laws........................................ A-24
3.11 Intellectual Property....................................... A-24
3.12 Commercial Relationships.................................... A-24
3.13 Proxy Statement and Registration Statement.................. A-24
3.14 Interim Operations of Merger Sub............................ A-25
SECTION 4 -- COVENANTS AND AGREEMENTS............................... A-25
4.1 Conduct of Business......................................... A-25
4.2 Corporate Examinations and Investigations................... A-27
4.3 Expenses.................................................... A-27
4.4 Authorization from Others................................... A-27
4.5 Further Assurances.......................................... A-27
4.6 Preparation of Disclosure Documents......................... A-28
4.7 Public Announcements........................................ A-28
4.8 Affiliate Letters........................................... A-29
4.9 Nasdaq Listings............................................. A-29
4.10 No Solicitation............................................. A-29
4.11 Regulatory Filings.......................................... A-30
4.12 Termination of 401(k) Plan.................................. A-30
4.13 Termination of Severance and Salary Continuation Plans...... A-30
4.14 Notification of Certain Matters............................. A-30
4.15 Registration of Certain Shares.............................. A-30
4.16 Employee Matters............................................ A-30
4.17 Indemnification............................................. A-31
4.18 Participation in Certain Actions and Proceedings............ A-31
SECTION 5 -- CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH PARTY
TO CONSUMMATE THE MERGER................................ A-31
5.1 Stockholder Approval........................................ A-31
5.2 Registration Statement...................................... A-31
5.3 Absence of Order............................................ A-31
5.4 Regulatory Approvals........................................ A-32
5.5 HSR Act..................................................... A-32
A-3
138
PAGE
----
SECTION 6 -- CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT AND
MERGER SUB TO CONSUMMATE THE MERGER..................... A-32
6.1 Representations, Warranties and Covenants................... A-32
6.2 Corporate Certificates...................................... A-32
6.3 Secretary's Certificate..................................... A-32
6.4 Affiliate Letters........................................... A-32
6.5 Tax Opinion................................................. A-32
6.6 Consents.................................................... A-32
SECTION 7 -- CONDITIONS PRECEDENT TO THE OBLIGATION OF COMPANY TO
CONSUMMATE THE MERGER................................... A-33
7.1 Representations, Warranties and Covenants................... A-33
7.2 Tax Opinion................................................. A-33
SECTION 8 -- TERMINATION, AMENDMENT AND WAIVER...................... A-33
8.1 Termination................................................. A-33
8.2 Effect of Termination....................................... A-34
8.3 Termination Fee............................................. A-34
8.4 Amendment................................................... A-35
8.5 Waiver...................................................... A-35
SECTION 9 -- MISCELLANEOUS.......................................... A-35
9.1 No Survival................................................. A-35
9.2 Notices..................................................... A-35
9.3 Entire Agreement............................................ A-36
9.4 Governing Law............................................... A-36
9.5 Binding Effect; No Assignment; No Third-Party A-36
Beneficiaries...............................................
9.6 Section Headings, Construction.............................. A-36
9.7 Counterparts................................................ A-36
9.8 Severability................................................ A-36
9.9 Submission to Jurisdiction; Waiver.......................... A-37
9.10 Enforcement................................................. A-37
9.11 Rules of Construction....................................... A-37
9.12 Waiver of Jury Trial........................................ A-37
A-4
139
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of April 23,
2001 is among Antigenics Inc. ("Parent"), a Delaware corporation, Nasa Merger
Corp. ("Merger Sub"), a Delaware corporation and Aronex Pharmaceuticals, Inc.
(the "Company"), a Delaware corporation. The parties wish to effect the
acquisition of the Company by Parent through a merger (the "Merger") of Merger
Sub with and into the Company on the terms and conditions set forth herein.
R E C I T A L S
A. For United States Federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement constitutes a plan of reorganization within the meaning of Section
1.368-2(g) of the income tax regulations promulgated under the Code. For
financial accounting purposes, it is intended that the Merger will be accounted
for using the purchase method of accounting.
B. As a condition to, and concurrently with the execution of, this
Agreement, Essex Woodlands Health Ventures IV, L.L.C., executive officers, and
directors have executed and delivered to Parent an irrevocable agreement to vote
all shares of voting stock held by them in favor of adoption of this Agreement.
In consideration of the mutual representations, warranties and covenants
contained herein, the parties hereto agree as follows:
SECTION 1
THE MERGER
1.1 The Merger.
(a) Upon the terms and subject to the conditions hereof, and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), Merger Sub shall be merged with and into the Company. The Merger
shall occur at the Effective Time (as defined herein). Following the
Merger, the Company shall continue as the surviving corporation (sometimes
referred herein as the "Surviving Corporation") and the separate corporate
existence of Merger Sub shall cease.
(b) The name of the Surviving Corporation shall be Aronex
Pharmaceuticals, Inc.
1.2 Effective Time. As soon as practicable after satisfaction or waiver of
all conditions to the Merger, the parties shall cause a certificate of merger
(the "Certificate of Merger") with respect to the Merger to be filed and
recorded in accordance with the DGCL and shall take all such further actions as
may be required by law to make the Merger effective. The Merger shall be
effective at such time as the Certificate of Merger is duly filed with the
Secretary of State of Delaware in accordance with the DGCL or at such later time
as is specified in the Certificate of Merger (the "Effective Time"). Immediately
prior to the filing of the Certificate of Merger, a closing (the "Closing") will
be held at the offices of Palmer & Dodge LLP, One Beacon Street, Boston,
Massachusetts (or such other place as the parties may agree) for the purpose of
confirming the foregoing. The date on which the Closing occurs is referred to
herein as the "Closing Date," and, unless the parties otherwise agree, shall be
no later than the fifth business day after the satisfaction or waiver of the
conditions set forth in Sections 5, 6 and 7 (other than delivery of items to be
delivered at the Closing).
1.3 Effects of the Merger. The Merger shall have the effects set forth in
Sections 259, 260 and 261 of the DGCL.
1.4 Certificate of Incorporation and By-Laws. The Certificate of
Incorporation and By-Laws of Merger Sub, in each case as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation and
By-Laws of the Surviving Corporation until thereafter changed as provided
therein or by applicable law.
A-5
140
1.5 Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, in each case, until the earlier of his or her
resignation or removal or otherwise ceasing to be a director or officer, as the
case may be, or until his or her respective successor is duly elected and
qualified. Each current director of the Company shall submit his or her
resignation at the Closing to be effective at the Effective Time.
1.6 Conversion of Common Stock.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of Parent or the Company:
(i) Subject to payment of cash in lieu of fractional shares as
provided in Section 1.6(a)(ii), each share of Company common stock,
$0.001 par value per share (together with the associated Rights, as
defined in Section 2.20(c), the "Company Common Stock"), outstanding
immediately prior to the Effective Time, other than shares held by the
Company as treasury stock or shares held by any Company Subsidiary (as
defined in Section 2.4(a)), shall be cancelled and extinguished and
automatically converted into and become the right to receive (a) a
fraction of a share of Parent common stock, $0.01 par value per share
("Parent Common Stock") equal to the Exchange Ratio and (b) one
contingent value right (a "Contingent Value Right") to be issued
pursuant to the Contingent Value Rights Agreement (the "CVR Agreement")
in the form of Exhibit A hereto entered into between Parent and a bank
or financial or similar institution. The Exchange Ratio shall equal
$1.10 divided by the Closing Parent Price, provided, however, in no
event shall the Exchange Ratio exceed .0917 or be less than .0550. The
"Closing Parent Price" shall equal the average of the per share closing
prices of Parent Common Stock as reported by the Nasdaq National Market
for the ten trading days ending two trading days prior to the Closing
Date, rounded to the fourth decimal place. Notwithstanding the
foregoing, if prior to the Effective Time there is a change in the
number of issued and outstanding shares of Parent Common Stock as the
result of reclassification, subdivision, recapitalization, stock split
(including reverse stock split) or stock dividend, the number of shares
of Parent Common Stock issued in the Merger shall be equitably adjusted
to give effect to such event. The shares of Parent Common Stock payable
pursuant to this Section 1.6(a)(i), together with cash payments in lieu
of fractional shares pursuant to Section 1.6(a)(ii) and any cash paid or
additional shares of Parent Common Stock issued in connection with the
Contingent Value Rights, are referred to collectively as the "Merger
Consideration."
(ii) No fractional shares of Parent Common Stock shall be issued
pursuant to this Agreement. In lieu of fractional shares, each
stockholder who would otherwise have been entitled to a fraction of a
share of Parent Common Stock hereunder (after aggregating all fractional
shares to be received by such stockholder), shall receive, without
interest, an amount in cash (rounded to the nearest whole cent)
determined by multiplying such fraction by the per share closing price
of Parent Common Stock as reported by the Nasdaq on the trading day on
which the Effective Time occurs (or, if the Effective Time occurs on a
date that is not a trading day, on the immediately preceding trading
day).
(b) All shares of Company Common Stock held at the Effective Time by
the Company as treasury stock or by a Company Subsidiary shall be cancelled
and extinguished and no payment shall be made with respect thereto.
(c) Each issued and outstanding share of the capital stock of Merger
Sub shall be converted into and become one fully paid and nonassessable
share of common stock, par value $0.01 per share, of the Surviving
Corporation.
1.7 Company Options, Warrants, Convertible Note, and Purchase Rights.
(a) At the Effective Time, each outstanding option to purchase shares
of Company Common Stock (the "Company Options") under the Company's Amended
and Restated 1989 Stock Option Plan, the Company's Amended and Restated
1998 Stock Option Plan, and the Company's Amended
A-6
141
and Restated 1993 Non-Employee Director Stock Option Plan, as amended (the
"Company Stock Option Plans"), whether or not then exercisable, shall be
assumed by Parent. Each Company Option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the applicable Company Stock Option Plan
immediately prior to the Effective Time (including, without limitation, any
repurchase rights), except that (i) each Company Option shall be
exercisable (or shall become exercisable in accordance with its terms) for
(a) that number of shares of Parent Common Stock equal to the product of
the number of shares of Company Common Stock that were issuable upon
exercise of such Company Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded down to the nearest whole number
of shares of Parent Common Stock, and (b) either (A) if the Company Option
is exercised prior to the Milestone Date as such term is defined in the CVR
Agreement, that number of Contingent Value Rights equal to the number of
shares of Company Common Stock subject to such Company Option immediately
prior to the Effective Time (the "Option Contingent Value Rights"), or (B)
if the Company Option is exercised after the Milestone Date as such term is
defined in the CVR Agreement, that number of shares of Parent Common Stock
that would have been issued, if any, had the holder of the Company Option
held such Option Contingent Value Rights on the Milestone Date; and (ii)
the per share exercise price for the shares of Parent Common Stock issuable
upon exercise of such assumed Company Option shall be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock
at which such Company Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
After the Effective Time, Parent shall issue to each holder of an
outstanding Company Option a notice describing the foregoing assumption of
such Company Options by Parent. The adjustments provided herein with
respect to any Company Options that are "incentive stock options" as
defined in Section 422 of the Code shall be and are intended to be effected
in a manner which is consistent with Section 424(a) of the Code so as to
preserve the benefits of such "incentive stock options."
(b) At the Effective Time, each outstanding warrant to purchase shares
of Company Common Stock (the "Company Warrants"), whether or not then
exercisable, shall be assumed by Parent. Each Company Warrant so assumed by
Parent under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in the applicable warrant immediately
prior to the Effective Time (including, without limitation, any repurchase
rights), except that (i) each Company Warrant shall be exercisable (or
shall become exercisable in accordance with its terms) for (a) that number
of shares of Parent Common Stock equal to the product of the number of
shares of Company Common Stock that were issuable upon exercise of such
Company Warrant immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded to the nearest whole number of shares of Parent
Common Stock, and (b) either (A) if the Company Warrant is exercised prior
to the Milestone Date as such date is defined in the CVR Agreement, that
number of Contingent Value Rights equal to the number of shares of Company
Common Stock subject to such Company Warrant immediately prior to the
Effective Time (the "Warrant Contingent Value Rights"), or (B) if the
Company Warrant is exercised after the Milestone Date as such term is
defined in the CVR Agreement, that number of shares of Parent Common Stock
that would have been issued, if any, had the holder of the Company Warrant
held such Warrant Contingent Value Rights on the Milestone Date; and (ii)
the per share exercise price for the shares of Parent Common Stock issuable
upon exercise of such assumed Company Warrant shall be equal to the
quotient determined by dividing the exercise price per share of Company
Common Stock at which such Company Warrant was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded to the nearest
whole cent. After the Effective Time, Parent shall issue to each holder of
an outstanding Company Warrant a notice describing the foregoing assumption
of such Company Warrants by Parent.
(c) At the Effective Time, the Surviving Corporation shall assume all
obligations and duties of the Company under its outstanding $2.5 million
10% Convertible Note dated May 21, 1999 (the "Convertible Note") and the
Convertible Note shall continue to have, and be subject to, the same terms
and conditions set forth in the Convertible Note immediately prior to the
Effective Time, except that the Convertible Note shall be convertible into
whole shares of Parent Common Stock and
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cash in lieu of fractional shares calculated as follows: (A) the Conversion
Price (as defined in the Convertible Note), immediately after the Effective
Time, shall equal the (x) the Conversion Price in effect immediately prior
to the Effective Time divided by (y) the Exchange Ratio, (B) cash in lieu
of fractional shares shall be paid, immediately after the Effective Time,
based upon the Conversion Price in effect immediately after the Effective
Time, and (C) either (i) if the Convertible Note is converted prior to the
Milestone Date as such term is defined in the CVR Agreement, that number of
Contingent Value Rights equal to the number of shares of Company Common
Stock issuable upon conversion of the Convertible Note immediately prior to
the Effective Time (the "Note Contingent Value Rights"), or (ii) if the
Convertible Note is converted after the Milestone Date as such term is
defined in the CVR Agreement, that number of shares of Parent Common Stock
that would have been issued, if any, had the holder of the Convertible Note
held such Note Contingent Value Rights on the Milestone Date.
(d) The Company shall amend its 1997 Employee Stock Purchase Plan (the
"Company Purchase Plan") so that as of the Effective Time (i) the Company
Purchase Plan is terminated and (ii) there are no outstanding rights of
participants under the Company Purchase Plan. Prior to the Effective Time,
the Company shall take all actions (including, if appropriate, amending the
terms of the Company Purchase Plan) that are necessary to give effect to
this Section 1.7(d).
1.8 Closing of Company Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no further registration of
transfers of shares of Company Common Stock shall thereafter be made. On or
after the Effective Time, any Certificates presented to the Exchange Agent (as
defined in Section 1.9) or Parent for any reason shall be converted into the
right to receive the Merger Consideration with respect to the shares of Company
Common Stock formerly represented thereby and any dividends or other
distributions to which the holders thereof are entitled pursuant to Section
1.13. For purposes of this Agreement, a "Certificate" is a stock certificate
that immediately prior to the Effective Time represented outstanding shares of
Company Common Stock that were converted into the right to receive the Merger
Consideration.
1.9 Exchange of Certificates. Parent shall authorize one or more persons
to act as Exchange Agent hereunder (the "Exchange Agent"). As soon as
practicable after the Effective Time, Parent shall cause the Exchange Agent to
mail, to all former holders of record of shares of Company Common Stock that
were converted into the right to receive Merger Consideration, instructions for
surrendering their Certificates in exchange for a certificate representing
shares of Parent Common Stock and cash in lieu of fractional shares. Upon
surrender of Certificates for cancellation to the Exchange Agent, together with
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss of, and title to, the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent) and other requested
documents and in accordance with the instructions thereon, the holder of such
Certificates shall be entitled to receive in exchange therefor (a) a certificate
representing that number of whole shares of Parent Common Stock into which the
shares of Company Common Stock theretofore represented by the Certificates so
surrendered shall have been converted pursuant to the provisions of this
Agreement, (b) a certificate representing that number of Contingent Value Rights
to which the holder is entitled under this Agreement, and (c) a check in the
amount of any cash due pursuant to Section 1.6(a)(ii) or Section 1.13. No
interest shall be paid or shall accrue on any such amounts. Until surrendered in
accordance with the provisions of this Section 1.9, each Certificate shall
represent for all purposes only the right to receive Merger Consideration and,
if applicable, amounts under Section 1.13. Shares of Parent Common Stock into
which shares of Company Common Stock shall be converted in the Merger at the
Effective Time shall be deemed to have been issued at the Effective Time. If any
certificates representing shares of Parent Common Stock are to be issued in a
name other than that in which the Certificate surrendered is registered, it
shall be a condition of such exchange that the person requesting such exchange
shall deliver to the Exchange Agent all documents necessary to evidence and
effect such transfer and shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of a certificate representing shares of
Parent Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or establish to the satisfaction of the Exchange Agent
that such tax has been paid
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or is not applicable. Beginning the date which is six months following the
Closing Date, Parent shall act as the Exchange Agent and thereafter any holder
of an unsurrendered Certificate shall look solely to Parent for any amounts to
which such holder may be due, subject to applicable law. Notwithstanding any
other provisions of this Agreement, any portion of the Merger Consideration
remaining unclaimed five years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to, or
become property of, any governmental entity) shall, to the extent permitted by
law, become the property of Parent free and clear of any claims or interest of
any person previously entitled thereto.
1.10 No Liability. None of Parent, the Surviving Corporation or the
Exchange Agent shall be liable to any person in respect of any shares (or
dividends or distributions with respect thereto) or cash payments delivered to a
public official pursuant to any applicable escheat, abandoned property or
similar law.
1.11 Lost Certificates. If 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 Parent, the
posting by such person of a bond in such reasonable amount as Parent may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall deliver in exchange for such lost, stolen
or destroyed Certificate, applicable certificates representing shares of Parent
Common Stock, certificates representing Contingent Value Rights, cash in lieu of
fractional shares and any amounts due pursuant to Section 1.13.
1.12 Withholding Rights. Parent shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of shares of Company Common Stock such amounts as it is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by Parent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Company Common Stock in respect of which such deduction and withholding was
made.
1.13 Distributions with Respect to Unexchanged Shares. No dividend or
other distribution declared with respect to Parent Common Stock with a record
date after the Effective Time shall be paid to holders of unsurrendered
Certificates until such holders surrender such Certificates. Upon the surrender
of such Certificates in accordance with Section 1.9, there shall be paid to such
holders, promptly after such surrender, the amount of dividends or other
distributions, without interest, declared with a record date after the Effective
Time and not paid because of the failure to surrender such Certificates for
exchange.
1.14 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of the Company, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of the
Company, any other actions and things to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title and interest in,
to and under any of the rights, properties or assets acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as set forth on the disclosure schedule delivered by the Company to
Parent on the date hereof (the "Company Disclosure Schedule"), the section
numbers of which are numbered to correspond to the section numbers of this
Agreement to which they refer, the Company hereby makes the following
representations and warranties to Parent and Merger Sub:
2.1 Organization and Qualification.
(a) Each of Company, each Company Subsidiary (as defined in Section
2.4(a)) and each Company Joint Venture (as defined in Section 2.4(c)) is a
corporation or other legal entity duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization and
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has corporate or similar power and authority to own, lease and operate its
assets and to carry on its business as now being and as heretofore
conducted. Each of Company, each Company Subsidiary and each Company Joint
Venture is qualified or otherwise authorized to transact business as a
foreign corporation or other organization in all jurisdictions in which
such qualification or authorization is required by law, except for
jurisdictions in which the failure to be so qualified or authorized could
not reasonably be expected to have a material adverse effect on the assets,
properties, business, results of operations or financial condition of the
Company and the Company Subsidiaries, taken as a whole (a "Company Material
Adverse Effect").
(b) The Company has previously provided to Parent true and complete
copies of the charter and bylaws or other organizational documents of the
Company, each Company Subsidiary and each Company Joint Venture as
presently in effect, and none of Company, any Company Subsidiary, or any
Company Joint Venture is in default in the performance, observation or
fulfillment of such documents, except, in the case of Company Subsidiaries
and Company Joint Ventures, such defaults that, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect.
2.2 Authority to Execute and Perform Agreements. The Company has the
corporate power and authority to enter into, execute and deliver this Agreement
and, in the case of consummation of the Merger, subject to the adoption of this
Agreement by the holders of Company Common Stock, to perform fully its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of the Company. No other action on the part of the
Company is necessary to consummate the transactions contemplated hereby (other
than adoption of this Agreement by the holders of Company Common Stock). This
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable in accordance with its
terms. The only vote of Company stockholders required in connection with this
Agreement is the affirmative vote of a majority of the outstanding shares to
adopt this Agreement.
2.3 Capitalization and Title to Shares.
(a) The Company is authorized to issue 40,000,000 shares of Company
Common Stock, of which 26,020,191 shares were issued and outstanding as of
April 20, 2001. All of the issued and outstanding shares of Company's
Common Stock are duly authorized, validly issued, fully paid, nonassessable
and free of pre-emptive rights.
(b) The Company has reserved 4,726,108 shares of Company Common Stock
for issuance pursuant to all of the Company Options. Company Options to
purchase 3,032,114 shares of Company Common Stock were outstanding as of
April 20, 2001. Section 2.3(b) of the Company Disclosure Schedule includes
a true and complete list of all Company Options with vesting schedules and
exercise prices. True and complete copies of all instruments (or the forms
of such instruments) referred to in this section have been furnished
previously to Parent. Except as indicated in Section 2.3(b) of the Company
Disclosure Schedule, the Company is not obligated to accelerate the vesting
of any Company Options as a result of the Merger.
(c) The Company has reserved 1,762,175 shares of Company Common Stock
for issuance pursuant to all of the Company Warrants. Company Warrants to
purchase 1,762,175 shares of Company Common Stock were outstanding as of
April 20, 2001. Section 2.3(c) of the Company Disclosure Schedule includes
a true and complete list of all outstanding warrants with vesting schedules
and exercise prices. True and complete copies of all instruments (or the
forms of such instruments) referred to in this section have been furnished
previously to Parent.
(d) The Company has reserved 574,713 shares of Company Common Stock
for issuance upon conversion of the Convertible Note. A true and complete
copy of the Convertible Note has been furnished previously to Parent.
(e) The Company has reserved 76,900 shares of Company Common Stock for
future issuance under the Company Purchase Plan through December 31, 2001.
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(f) The Company is authorized to issue 5,000,000 shares of Preferred
Stock ("Company Preferred Stock"), of which 750,000 shares are currently
designated Series One Junior Participating Preferred Stock, none of which
are issued and outstanding.
(g) Except for (i) shares indicated as issued and outstanding on April
20, 2001 in Section 2.3(a), and (ii) shares issued after April 20, 2001,
upon (A) the exercise of outstanding Company Options listed in Section
2.3(b) of the Company Disclosure Schedule, (B) the exercise of outstanding
Company Warrants listed in Section 2.3(c) of the Company Disclosure
Schedule, (C) conversion of the Convertible Note or (D) the exercise of
purchase rights in accordance with the Company Purchase Plan and in an
amount not in excess of the number indicated as reserved for such purpose
in Section 2.3(e), there are not as of the date hereof, and at the
Effective Time, except as set forth in Section 2.3(g) of the Company
Disclosure Schedule, there will not be, any shares of Company Common Stock
issued and outstanding.
(h) The Company's authorized capital stock consists solely of the
Company Common Stock described in Section 2.3(a) and the Company Preferred
Stock described in Section 2.3(f). Except as set forth in Section 2.3(h) of
the Company Disclosure Schedule, there are not as of the date hereof, and
at the Effective Time there will not be, authorized or outstanding any
subscriptions, options, conversion or exchange rights, warrants, repurchase
or redemption agreements, or other agreements, claims or commitments of any
nature whatsoever obligating the Company to issue, transfer, deliver or
sell, or cause to be issued, transferred, delivered, sold, repurchased or
redeemed, additional shares of the capital stock or other securities of the
Company or obligating the Company to grant, extend or enter into any such
agreement, other than Company Options listed in Section 2.3(b) of the
Company Disclosure Schedule, Company Warrants listed in Section 2.3(c) of
the Company Disclosure Schedule, the Convertible Note and rights to
purchase shares of Company Common Stock pursuant to the Company Purchase
Plan. Except as set forth in Section 2.3(h) of the Company Disclosure
Schedule, to the knowledge of the Company, there are no stockholder
agreements, voting trusts, proxies or other agreements, instruments or
understandings with respect to the voting of the capital stock of the
Company.
(i) Neither the Company nor any Company Subsidiary beneficially owns
any shares of capital stock of Parent.
(j) The Company has no outstanding bonds, debentures, notes or other
indebtedness which have the right to vote on any matters on which
stockholders may vote.
2.4 Company Subsidiaries and Company Joint Ventures.
(a) Section 2.4(a) of the Company Disclosure Schedule sets forth all
of the Company Subsidiaries and the jurisdiction in which each is
incorporated or organized, and each jurisdiction in which it is qualified
to do business. All issued and outstanding shares or other equity interests
of each Company Subsidiary are owned directly by the Company free and clear
of any charges, liens, encumbrances, security interests or adverse claims.
Section 2.4(a) of the Company Disclosure Schedule also sets forth for each
Company Subsidiary the individuals who comprise the board of directors or
comparable body for each such entity. The Company agrees to take, or cause
to be taken, the actions necessary so that those individuals will resign
and be replaced by individuals specified by Parent effective as of the
Effective Time. As used in this Agreement, "Company Subsidiary" means any
corporation, partnership or other organization, whether incorporated or
unincorporated, (i) of which the Company or any Company Subsidiary is a
general partner or (ii) at least 50% of the securities or other interests
having voting power to elect a majority of the board of directors or others
performing similar functions with respect to such corporation, partnership
or other organization are directly or indirectly owned or controlled by the
Company or by any Company Subsidiary, or by the Company and one or more
Company Subsidiaries.
(b) There are not as of the date hereof, and at the Effective Time
there will not be, any subscriptions, options, conversion or exchange
rights, warrants, repurchase or redemption agreements,
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or other agreements, claims or commitments of any nature whatsoever
obligating any Company Subsidiary to issue, transfer, deliver or sell, or
cause to be issued, transferred, delivered, sold, repurchased or redeemed,
shares of the capital stock or other securities of the Company or any
Company Subsidiary or obligating the Company or any Company Subsidiary to
grant, extend or enter into any such agreement. To the knowledge of the
Company, there are no stockholder agreements, voting trusts, proxies or
other agreements,instruments or understandings with respect to the voting
of the capital stock of any Company Subsidiary.
(c) Section 2.4(c) of the Company Disclosure Schedule sets forth, for
each Company Joint Venture, the interest held by the Company and the
jurisdiction in which such Company Joint Venture is organized. Interests in
Company Joint Ventures held by the Company are held directly by the
Company, free and clear of any charges, liens, encumbrances, security
interest or adverse claims. The term "Company Joint Venture" means any
corporation or other entity (including partnerships, limited liability
companies and other business associations) that is not a Company Subsidiary
and in which the Company or one or more Company Subsidiaries owns an equity
interest (other than equity interests held for passive investment purposes
which are less than 10% of any class of the outstanding voting securities
or other equity of any such entity).
2.5 SEC Reports. The Company previously has delivered to Parent its (i)
Annual Report on Form 10-K for the year ended December 31, 2000 (the "Company
10-K"), as amended and as filed with the Securities and Exchange Commission (the
"SEC"), (ii) all proxy statements relating to the Company's meetings of
stockholders held or to be held after December 31, 2000, if any, and (iii) all
other documents filed by the Company with the SEC under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") since March 1, 1998. As of their
respective dates, such documents complied, and all documents filed by the
Company with the SEC under the Exchange Act between the date of this Agreement
and the Closing Date will comply, in all material respects, with applicable SEC
requirements and did not, or in the case of documents filed on or after the date
hereof will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Since March 1, 1998, the Company has filed, and since May 1,
1999 the Company has timely filed, and between the date of this Agreement and
the Closing Date will timely file, with the SEC all reports required to be filed
by it under the Exchange Act. No Company Subsidiary is required to file any
form, report or other document with the SEC.
2.6 Financial Statements. The consolidated financial statements contained
in the Company 10-K have been prepared from, and are in accordance with, the
books and records of the Company and present fairly, in all material respects,
the consolidated financial condition and results of operations of the Company
and the Company Subsidiaries as of and for the periods presented therein, all in
conformity with generally accepted accounting principles applied on a consistent
basis, except as otherwise indicated therein.
2.7 Absence of Undisclosed Liabilities. As of December 31, 2000, the
Company and the Company Subsidiaries had no material liabilities of any nature,
whether accrued, absolute, contingent or otherwise (including without
limitation, liabilities as guarantor or otherwise with respect to obligations of
others or liabilities for taxes due or then accrued or to become due), required
to be reflected or disclosed in the balance sheet dated December 31, 2000 (or
the notes thereto) included in the Company 10-K (the "Company Balance Sheet")
that were not adequately reflected or reserved against on the Company Balance
Sheet. The Company has no material liabilities of any nature, whether accrued,
absolute, contingent or otherwise, other than liabilities (i) adequately
reflected or reserved against on the Company Balance Sheet, (ii) included in
Section 2.7 of the Company Disclosure Schedule or (iii) incurred since December
31, 2000 in the ordinary course of business consistent with past practice.
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2.8 Absence of Adverse Changes.
(a) Since December 31, 2000, except as disclosed in the Company 10-K,
there has not been any change, event or circumstance that has had, or is
reasonably likely to have, a Company Material Adverse Effect.
(b) Except as set forth in Section 2.8 of the Company Disclosure
Schedule, there has not been any action taken by the Company or any Company
Subsidiary during the period after December 31, 2000 through the date of
this Agreement that, if taken during the period from the date of this
Agreement through the Effective Time, would constitute a breach of Section
4.1.
2.9 Compliance with Laws.
(a) The Company and the Company Subsidiaries have all licenses,
permits, franchises, orders or approvals of any federal, state, local or
foreign governmental or regulatory body material to the conduct of their
businesses as presently being conducted (collectively, "Permits"); such
Permits are in full force and effect; and no proceeding is pending or, to
the knowledge of the Company, threatened to revoke or limit any Permit.
(b) The Company and the Company Subsidiaries are not in violation of
and have no liabilities, whether accrued, absolute, contingent or
otherwise, under any federal, state, local or foreign law, ordinance or
regulation or any order, judgment, injunction, decree or other requirement
of any court, arbitrator or governmental or regulatory body, relating to
the operation of clinical testing laboratories, labor and employment
practices, health and safety, zoning, pollution or protection of the
environment, except for violations of or liabilities under any of the
foregoing which could not, in the aggregate, reasonably be expected to have
a Company Material Adverse Effect.
(c) To the Company's knowledge and except as set forth in Section 2.9
of the Company Disclosure Schedule, each product or product candidate
subject to the United States Food and Drug Administration (the "FDA")
jurisdiction under the Federal Food, Drug and Cosmetic Act ("FDCA") that is
manufactured, tested, distributed, held, and/or marketed by the Company or
any Company Subsidiary is being manufactured, tested, distributed, held and
marketed in compliance with all applicable requirements under the FDCA
including, but not limited to, those relating to investigational use,
premarket clearance, good manufacturing practices, labeling, advertising,
record keeping, filing of reports and security.
(d) To the Company's knowledge, the Company has, prior to the
execution of this Agreement, provided to Parent copies of or access to all
documents in its or any Company Subsidiary's possession material to
assessing compliance with the FDCA and its implementing regulations,
including, but not limited to, copies of (i) all warning letters, notices
of adverse findings and similar correspondence received in the last three
years, (ii) all audit reports performed during the last three years, and
(iii) any document concerning any significant oral or written communication
received from the FDA in the last three years.
(e) Neither the Company nor any Company Subsidiary nor, to the
Company's knowledge, any director, officer, agent, employee or other person
acting on behalf of the Company, or any Company Subsidiary, has used any
corporate or other funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures relating to political
activity to government officials or others, or established or maintained
any unlawful or unrecorded funds in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any other domestic or foreign law.
Neither the Company nor any Company Subsidiary nor, to the Company's
knowledge, any director, officer, agent, employee or other person acting on
behalf of the Company or any Company Subsidiary, has accepted or received
any unlawful contributions, payments, gifts or expenditures.
2.10 Actions and Proceedings. There are no outstanding orders, judgments,
injunctions, decrees or other requirements of any court, arbitrator or
governmental or regulatory body against the Company, any Company Subsidiary, any
Company Joint Venture or any of their assets or properties. Except as set forth
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in Section 2.10 of the Company Disclosure Schedule, there are no actions, suits
or claims or legal, administrative or arbitration proceedings pending or, to the
knowledge of the Company, threatened against the Company, any Company
Subsidiary, any Company Joint Venture or any of their securities, assets or
properties. To the knowledge of the Company, there is no fact, event or
circumstance now in existence that reasonably could be expected to give rise to
any action, suit, claim, proceeding or investigation that, individually or in
the aggregate, could be reasonably expected to have a Company Material Adverse
Effect or materially interfere with the Company's ability to consummate the
transactions contemplated hereby.
2.11 Contracts and Other Agreements.
(a) Neither the Company nor any Company Subsidiary is a party to or
bound by, and neither they nor their properties are subject to, any
contract or other agreement required to be disclosed in a Form 10-K, Form
10-Q or Form 8-K of the SEC which is not disclosed in the Company 10-K. All
of such contracts and other agreements and all of the contracts required to
be set forth in Section 2.11 of the Company Disclosure Schedule are valid,
subsisting, in full force and effect, binding upon the Company or the
applicable Company Subsidiary, and, to the knowledge of the Company,
binding upon the other parties thereto in accordance with their terms, and
the Company and the Company Subsidiaries have paid in full or accrued all
amounts now due from them thereunder, and have satisfied in full or
provided for all of their liabilities and obligations thereunder which are
presently required to be satisfied or provided for and are not in default
under any of them, nor, to the knowledge of the Company, is any other party
to any such contract or other agreement in default thereunder, nor does any
condition exist that with notice or lapse of time or both would constitute
a default thereunder. True and complete copies of all of the contracts and
other agreements referred to in this Section 2.11 have been provided
previously to Parent.
(b) Section 2.11 of the Company Disclosure Schedule sets forth a list
of the following contracts and other agreements to which the Company or any
Company Subsidiary is a party or by or to which they or their assets or
properties are bound or subject:
(i) any agreement (A) involving research, development or the
license of Proprietary Rights (as defined in Section 2.12), (B) granting
a right of first refusal, or right of first offer or comparable right
with respect to Proprietary Rights, (C) relating to a joint venture,
partnership or other arrangement involving a sharing of profits, losses,
costs or liabilities with another person or entity, (D) providing for
the payment or receipt by the Company or a Company Subsidiary of
milestone payments or royalties, or (E) that individually requires
aggregate expenditures by the Company and/or any Company Subsidiary in
any one year of more than $50,000;
(ii) any indenture, trust agreement, loan agreement or note that
involves or evidences outstanding indebtedness, obligations or
liabilities for borrowed money in excess of $50,000;
(iii) any agreement of surety, guarantee or indemnification that
involves potential obligations in excess of $50,000;
(iv) any agreement that limits or restricts the Company, any
Company Subsidiary or any of their affiliates or successors in competing
or engaging in any line of business, in any therapeutic area, in any
geographic area or with any person;
(v) any interest rate, equity or other swap or derivative
instrument; or
(vi) any agreement obligating the Company to register securities
under the Securities Act of 1933, as amended (the "Securities Act");
(c) No executive officer or director of the Company has (whether
directly or indirectly through another entity in which such person has a
material interest, other than as the holder of less than 2% of a class of
securities of a publicly traded company) any material interest in any
property or assets of the Company (except as a stockholder) or a Company
Subsidiary, any competitor, customer, supplier or agent of the Company or a
Company Subsidiary or any person that is currently a party to any material
contract or agreement with the Company or a Company Subsidiary.
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(d) The Company and the Company Subsidiaries own no real property.
2.12 Intellectual Property. Except as disclosed in the Company 10-K, the
Company, the Company Subsidiaries and the Company Joint Ventures own, or are
licensed to use, or otherwise have the full right to use all patents,
trademarks, service marks, trade names, trade secrets, franchises, inventions,
copyrights, and all other technology and intellectual property (including,
without limitation, biological materials), all registrations of any of the
foregoing, or applications therefor, and all grants and licenses or other rights
running to or from the Company, a Company Subsidiary or a Company Joint Venture
relating to any of the foregoing that are material to their businesses as
presently conducted or as contemplated to be conducted (collectively, the
"Proprietary Rights"). A list of all registered copyrights and trademarks,
service marks, trade names, patents and patent applications, computer programs
(except off-the-shelf office software for word processing, spreadsheet or
similar applications), databases and biological materials held by or licensed to
the Company or a Company Subsidiary has been delivered previously to Parent and
is included in Section 2.12 of the Company Disclosure Schedule. All patents,
registered trademarks and copyrights set forth on the list referred to above are
valid and subsisting and are not subject to any taxes, maintenance fees or
actions falling due within 90 days of the Closing Date, except as described in
Section 2.12 of the Company Disclosure Schedule. The Company is not aware of any
basis for any claim by any third party that the businesses of the Company, the
Company Subsidiaries or the Company Joint Ventures infringe upon the proprietary
rights of others, nor has the Company, any Company Subsidiary or, to the
knowledge of the Company, any Company Joint Venture received any notice or claim
of infringement from any third party. The Company is not aware of any existing
or threatened infringement by any third party on, or any competing claim of
right to use or own any of, the Proprietary Rights. Except as disclosed in
Section 2.12 of the Company Disclosure Schedule, the Company and the Company
Subsidiaries have the unencumbered right to sell their products and services
(whether now offered for sale or under development) free from any royalty or
other obligations to third parties. To the knowledge of the Company, none of the
activities of the employees of the Company or any Company Subsidiary on behalf
of such entity violates any agreement or arrangement which any such employees
have with former employers. The policies and procedures of the Company and the
Company Subsidiaries designed to establish and protect the Proprietary Rights
are described in Section 2.12 of the Company Disclosure Schedule. All employees
and consultants who contributed to the discovery or development of any of the
Proprietary Rights (other than Proprietary Rights licensed to the Company or a
Company Subsidiary by any party other than a consultant to the Company or
Company Subsidiary) did so either (a) within the scope of his or her employment
such that, in accordance with applicable law, all Proprietary Rights arising
therefrom became the exclusive property of the Company or the Company Subsidiary
or (b) pursuant to written agreements assigning or licensing all Proprietary
Rights arising therefrom to the Company or the Company Subsidiary.
2.13 Insurance. Section 2.13 of the Company Disclosure Schedule sets forth
a true and complete list of all policies or binders of fire, liability, product
liability, workmen's compensation, vehicular, directors' and officers' and other
insurance held by or on behalf of the Company and the Company Subsidiaries. Such
policies and binders are in full force and effect, are reasonably believed to be
adequate for the businesses engaged in by the Company and the Company
Subsidiaries and are in conformity with the requirements of all leases or other
agreements to which the Company or the relevant Company Subsidiary is a party
and, to the knowledge of the Company, are valid and enforceable in accordance
with their terms. Neither the Company nor any Company Subsidiary is in default
with respect to any provision contained in such policy or binder nor has any of
the Company or a Company Subsidiary failed to give any notice or present any
claim under any such policy or binder in due and timely fashion. There are no
outstanding unpaid claims under any such policy or binder. Neither the Company
nor any Company Subsidiary has received notice of cancellation or non-renewal of
any such policy or binder.
2.14 Commercial Relationships. The relationships of the Company, the
Company Subsidiaries and the Company Joint Ventures with their suppliers,
collaborators, licensors and licensees are generally good commercial working
relationships. No such entity has canceled or otherwise terminated its
relationship with the Company, a Company Subsidiary or a Company Joint Venture
or has, during the last twelve
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months, materially altered its relationship with the Company, a Company
Subsidiary or a Company Joint Venture. The Company does not know of any plan or
intention of any such entity, and has not received any written threat or notice
from any such entity, to terminate, cancel or otherwise materially and adversely
modify its relationship with the Company, a Company Subsidiary or a Company
Joint Venture.
2.15 Tax Matters.
(a) For purposes of this Agreement, the term "Tax" (and, with
correlative meaning, "Taxes" and "Taxable") means all United States
federal, state, and local, and all foreign, income, profits, franchise,
gross receipts, payroll, transfer, sales, employment, use, property,
excise, value added, ad valorem, estimated, stamp, alternative or add-on
minimum, recapture, environmental, withholding and any other taxes,
charges, duties, impositions or assessments, together with all interest,
penalties, and additions imposed on or with respect to such amounts,
including any liability for taxes of a predecessor entity. "Tax Return"
means any return, declaration, report, claim for refund, or information
return or statement filed or required to be filed with any taxing authority
in connection with the determination, assessment, collection or imposition
of any Taxes.
(b) All Tax Returns required to be filed on or before the date hereof
by or with respect to the Company and the Company Subsidiaries have been
filed within the time and in the manner prescribed by law. All such Tax
Returns are true, correct and complete in all material respects, and all
Taxes owed by the Company or the Company Subsidiaries, whether or not shown
on any Tax Return, have been paid. The Company and the Company Subsidiaries
file Tax Returns in all jurisdictions where they are required to so file,
and no claim has ever been made by any taxing authority in any other
jurisdiction that the Company or the Company Subsidiaries are or may be
subject to taxation by that jurisdiction.
(c) There are no liens or other encumbrances with respect to Taxes
upon any of the assets or properties of the Company or the Company
Subsidiaries, other than with respect to Taxes not yet due and payable.
(d) No audit is currently pending with respect to any Tax Return of
the Company or the Company Subsidiaries, nor is the Company or its officers
or directors aware of any information which has caused or should cause them
to believe that an audit by any tax authority may be forthcoming. No
deficiency for any Taxes has been proposed in writing against the Company
or the Company Subsidiaries, which deficiency has not been paid in full. No
issue relating to the Company or the Company Subsidiaries or involving any
Tax for which the Company or the Company Subsidiaries might be liable has
been resolved in favor of any taxing authority in any audit or examination
which, by application of the same principles, could reasonably be expected
to result in a deficiency for Taxes of the Company or the Company
Subsidiaries for any subsequent period, and neither the Company nor its
officers or directors knows of any other basis for the assertion of such a
deficiency.
(e) There are no outstanding agreements, waivers or arrangements
extending the statutory period of limitation applicable to any claim for,
or the period for the collection or assessment of, Taxes due from or with
respect to the Company or the Company Subsidiaries for any taxable period,
no power of attorney granted by or with respect to the Company or the
Company Subsidiaries relating to Taxes is currently in force, and no
extension of time for filing any Tax Return required to be filed by or on
behalf of the Company or any Company Subsidiary is in force. The Company
has delivered to Parent complete and correct copies of all income Tax
Returns, audit reports and statements of deficiencies for each of the last
three taxable years filed by or issued to or with respect to the Company or
the Company Subsidiaries.
(f) With respect to any period for which Tax Returns have not yet been
filed, or for which Taxes are not yet due or owing, the Company has, in
accordance with generally accepted accounting principles, made due and
sufficient accruals for such Taxes in the Company's books and records.
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(g) No consent to the application of Section 341(f)(2) of the Code (or
any predecessor provision) has been made or filed by or with respect to the
Company or any Company Subsidiary or any of their assets or properties.
(h) The Company and the Company Subsidiaries have not been and are not
currently in violation (or, with or without notice or lapse of time or
both, would be in violation) of any applicable law or regulation relating
to the payment or withholding of Taxes, and all withholding and payroll Tax
requirements required to be complied with by the Company and the Company
Subsidiaries up to and including the date hereof have been satisfied.
(i) Except as set forth in Section 2.15 of the Company Disclosure
Schedule, the Company and the Company Subsidiaries are not and have never
been a party to or bound by, nor do they have or have they ever had any
obligation under, any Tax sharing agreement or similar contract or
arrangement. Neither the Company nor any Company Subsidiary has any
liability for the Taxes of any other person under Treasury Regulation
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise.
(j) There is no contract or agreement, plan or arrangement obligating
the Company or the Company Subsidiaries to make any payment that would not
be deductible by reason of Section 162(m) or 280G of the Code. Neither the
Company nor any Company Subsidiary has agreed to, or is required to, make
any adjustments under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(k) Neither the Company nor the Company Subsidiaries are, or were
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code, a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code.
2.16 Employee Benefit Plans.
(a) Section 2.16 of the Company Disclosure Schedule sets forth a
complete list of all pension, savings, profit sharing, retirement, deferred
compensation, employment, welfare, fringe benefit, insurance, short and
long term disability, incentive, bonus, stock, vacation pay, severance pay
and similar plans, programs or arrangements (the "Plans"), including
without limitation all employee benefit plans as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
maintained by the Company or the Company Subsidiaries or to which the
Company or any of the Company Subsidiaries are parties or required to
contribute.
(b) The Company has delivered or made available to Parent current,
accurate and complete copies of (i) each Plan that has been reduced to
writing and all amendments thereto, (ii) a summary of the material terms of
each Plan that has not been reduced to writing, including all amendments
thereto, (iii) the summary plan description for each Plan subject to Title
I of ERISA, and in the case of each other Plan, any similar employee
summary (including but not limited to any employee handbook description),
(iv) for each Plan intended to be qualified under Section 401(a) or Section
501(c)(9) of the Code, the most recent determination letter or exemption
determination issued by the Internal Revenue Service ("IRS"), (v) for each
Plan with respect to which a Form 5500 series annual report/return is
required to be filed, the most recently filed such annual report/return and
annual report/return for the two preceding years, together with all
schedules and exhibits, (vi) all insurance contracts, administrative
services contracts, trust agreements, investment management agreements or
similar agreements maintained in connections with any Plan, (vii) copies of
any correspondence from the IRS, Department of Labor ("DOL") or other U.S.
government agency or department relating to an audit or an asserted or
assessed penalty with respect to a Plan or relating to requested relief
from any liability or penalty (including, but not limited to, any
correspondence relating to the IRS's EPCRS, APRSC, VCR, CAP or Walk-in Cap
programs or the DOL's amnesty programs for late filers and non-filers),
(viii) for each Plan that is a defined benefit pension plan, copies of the
most recent actuarial valuation report and actuarial valuation report for
the two preceding years, (ix) for each Plan that is intended to be
qualified under Code Section 401(a),
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copies of compliance testing results (nondiscrimination testing (401(a)(4),
ADP, ACP, multiple use), 402(g), 415 and top-heavy tests) for the most
recent plan year and three preceding plan years, and (x) copies of COBRA
and HIPAA forms and notices used for each Plan that is a group health plan.
No employee benefit handbook or similar employee communication relating to
any Plan nor any written communication of benefits under such Plan
describes the Plan in a manner materially inconsistent with the documents
and summary plan descriptions relating to such Plan that have been
delivered pursuant to the preceding sentence.
(c) There is no entity (other than the Company or any Company
Subsidiary) that together with the Company or any Company Subsidiary would
be treated as a single-employer within the meaning of Section 414(b), (c),
(m) or (o) of the Code or Section 4001(b) of ERISA. Neither the Company nor
any Company Subsidiary has ever maintained, contributed to or incurred any
liability under any "multiemployer plan" as defined in Section 4001(a)(3)
of ERISA or a "multiple employer plan" as defined in Section 413(c) of the
Code. Neither the Company nor any Company Subsidiary has incurred any
liability under Sections 4062, 4063 or 4201 of ERISA.
(d) Each Plan maintained by the Company or a Company Subsidiary which
is intended to be qualified under either Section 401(a) or 501(c)(9) of the
Code ("Qualified Plans") has been determined to be so qualified by the
Internal Revenue Service, and no circumstances exist that could reasonably
be expected to cause the Qualified Plans to lose such qualified status.
Each Plan has been administered in all material respects in accordance with
the terms of such Plan and the provisions of any and all statutes, orders
or governmental rules or regulations, including without limitation ERISA
and the Code, and to the knowledge of the Company, nothing has been done or
not done with respect to any Plan that could result in any liability on the
part of the Company or any Company Subsidiary with respect to a violation
of any requirement of Title I of ERISA or Chapter 43 of the Code. All
reports, forms and notices required to be filed with respect to each Plan,
including without limitation Form 5500 series annual reports/returns and
PBGC Form 1s, have been timely filed. All contributions, premiums and other
amounts due to or in connection with each Plan under the terms of the Plan
or applicable law have been timely made, and provision has been made on the
balance sheet included in the Company 10-K for such contributions, premiums
and other amounts that were due as of the date of the balance sheet but
were attributable to service before such date.
(e) No "reportable event" as defined in Section 4043 of ERISA has
occurred with respect to any Plan subject to Title IV of ERISA. With
respect to each Plan subject to Title IV of ERISA, such Plan has no
unfunded benefit liabilities and such Plan could be terminated in a
"standard termination" under Section 4041(b) of ERISA on or before the
Effective Time without any additional contribution from any contributing
employer (but disregarding any other prerequisites for terminating such
Plan). With respect to each Plan subject to Section 412 of the Code, there
is no accumulated funding deficiency (whether or not waived) under such
Plan.
(f) All claims for benefits incurred by employees on or before the
Closing Date are or will be fully covered by third-party insurance policies
or programs. Except for continuation of health coverage to the extent
required under Section 4980B of the Code or Section 601 et seq. of ERISA,
other applicable law or as otherwise set forth in this Agreement, there are
no obligations under any Plan providing benefits after termination of
employment.
(g) Except as disclosed in Section 2.16 of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary has contracted
with any "leased employee" within the meaning of Section 414 of the Code or
any "independent contractor".
(h) Except for individual employment agreements, each Plan can be
amended, modified or terminated without advanced notice to or consent by
any employee, former employee or beneficiary, except as required by law.
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2.17 Employee Relations.
(a) The Company and the Company Subsidiaries, collectively, have
approximately 26 full-time equivalent employees and generally enjoy good
employer-employee relations. Neither the Company nor any Company Subsidiary
is delinquent in payments to any of its employees or consultants for any
wages, salaries, commissions, bonuses or other direct compensation for any
services performed by them or amounts required to be reimbursed to such
employees. Except as disclosed in Section 2.17 of the Company Disclosure
Schedule, upon termination of the employment of any employees, none of the
Company, the Company Subsidiaries nor Parent shall be liable, by reason of
the Merger or anything done prior to the Effective Time, to any of such
employees for severance pay or any other payments (other than accrued
salary, vacation or sick pay in accordance with normal policies). True and
complete information as to all current directors, officers, employees or
consultants of the Company and the Company Subsidiaries including, in each
case, name, current job title and annual rate of compensation has been made
available previously to Parent.
(b) The Company and each Company Subsidiary (i) is in compliance in
all material respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours, in each case, with
respect to employees, (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
employees, (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing, and (iv) is not
liable for any payment to any trust or other fund or to any governmental
entity, with respect to unemployment compensation benefits, social security
or other benefits or obligations for employees (other than routine payments
to be made in the ordinary course of business and consistent with past
practice).
(c) No work stoppage or labor strike against the Company or any
Company Subsidiary is pending or threatened. Neither the Company nor any
Company Subsidiary is involved in or, to the knowledge of the Company,
threatened with, any labor dispute, grievance, or litigation relating to
labor, safety or discrimination matters involving any employee, including
without limitation charges of unfair labor practices or discrimination
complaints, that, if adversely determined, would result in material
liability to the Company. Neither the Company nor any Company Subsidiary
has engaged in any unfair labor practices within the meaning of the
National Labor Relations Act that would, directly or indirectly result in
material liability to the Company. Neither the Company nor any Company
Subsidiary is presently, nor has it been in the past, a party to or bound
by any collective bargaining agreement or union contract with respect to
employees other than as set forth in Section 2.17 of the Company Disclosure
Schedule and no collective bargaining agreement is being negotiated by the
Company or any Company Subsidiary. No union organizing campaign or activity
with respect to non-union employees of the Company or any Company
Subsidiary is ongoing, pending or, to the knowledge of the Company,
threatened.
2.18 Environmental Matters.
(a) Neither the Company nor any of the Company Subsidiaries has
violated, is in violation of, or has been notified that it is in violation
of, Environmental Laws, and except in full compliance with Environmental
Laws, neither the Company nor any of the Company Subsidiaries has
generated, used, handled, transported or stored any Hazardous Materials or
shipped any Hazardous Materials for treatment, storage or disposal at any
other site or facility. There has been no generation, use, handling,
storage or disposal of any Hazardous Materials in violation of any
Environmental Laws at any site owned or operated by, or premises leased by,
the Company or any of the Company Subsidiaries during the period of the
Company's or such Company Subsidiary's ownership, operation or lease or, to
the Company's knowledge, prior thereto, nor has there been or is there
threatened any Release of any Environmental Contaminants into, on, at or
from any such site or premises, including without limitation into the
ambient air, groundwater, surface water, soils or subsurface strata, during
such period or, to the Company's knowledge, prior thereto in violation of
any Environmental Laws or which created or will create an obligation to
report or respond in any way to such Release. There is
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no underground storage tank or other container at any site owned or
operated by, or premises leased by the Company or any Company Subsidiary
or, to the Company's knowledge, on any site formerly owned or operated by,
or premises formerly leased by, the Company or any Company Subsidiary.
(b) Neither the Company nor any Company Subsidiary has received
notification in any form that, and the Company has no knowledge that, any
site currently or formerly owned or operated by, or premises currently or
formerly leased by, the Company or any Company Subsidiary is the subject of
any federal, state or local civil, criminal or administrative investigation
evaluating whether, or alleging that, any action is necessary to respond to
a Release or a threatened Release of any Environmental Contaminant. No such
site or premises is listed, or to the Company's knowledge, proposed for
listing, on the National Priorities List or the Comprehensive Environmental
Response, Compensation, and Liability Information System, both as provided
under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), or any comparable state or local governmental
lists. Neither the Company nor any Company Subsidiary has received written
notification of, and the Company has no knowledge of, any potential
responsibility of the Company or any Company Subsidiary pursuant to the
provisions of (i) CERCLA, (ii) any similar federal, state, local or other
Environmental Laws, or (iii) any order issued pursuant to the provisions of
any such Environmental Laws with respect to any Environmental Contaminant
used, manufactured, generated, stored, or treated at, transported from, or
disposed of on, any site currently or formerly owned or operated by, or
premises currently or formerly leased by, the Company or any Company
Subsidiary.
(c) The Company and the Company Subsidiaries have obtained all permits
required by Environmental Laws necessary to enable them to conduct their
respective businesses and are in compliance with all material aspects of
said permits.
(d) There is no environmental or health and safety matter that
reasonably could be expected to have a Company Material Adverse Effect. The
Company previously has furnished to Parent copies of any and all
environmental audits or risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials or Release of
Environmental Contaminant, spill control plans and all other material
correspondence, documents or communications with any governmental agency or
other entity regarding the foregoing.
(e) For purposes of this Agreement:
(i) "Environmental Laws" means any Federal, state, local or foreign
laws (including common law), regulations, codes, rules, orders,
ordinances, permits, requirements and final governmental determinations
pertaining to the environment, pollution or protection of human health,
safety or the environment, as adopted or in effect in the jurisdictions
in which the applicable site or premises are located, including without
limitation, the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. Section 9601 et seq.; the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section
11001 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251 et seq.; the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. Section 136 et seq.; the Toxic Substance Control Act, 15
U.S.C. Section 2601 et seq.; the Oil Pollution Act of 1990, 33 U.S.C.
Section 1001 et seq.; the Hazardous Materials Transportation Act, as
amended, 49 U.S.C. Section 1801 et seq.; the Atomic Energy Act, as
amended 42 U.S.C. Section 2011 et seq.; the Occupational Safety and
Health Act, as amended, 29 U.S.C. Section 651 et seq.; the Federal Food,
Drug and Cosmetic Act, as amended 21 U.S.C. Section 301 et seq. (insofar
as it regulates employee exposure to Hazardous Materials), and any state
or local statute of similar effect; and including without limitation any
laws relating to protection of safety, health or the environment which
regulate the use of biological agents or substances including medical or
infectious wastes as any such laws have been amended;
(ii) "Environmental Contaminant" means Hazardous Materials, or any
other pollutants, contaminants, toxic or constituent substances or waste
radioactive substances, materials or special
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wastes, petroleum or petroleum products, polychlorinated biphenyls,
asbestos containing materials, or any other substance or material, in
each case regulated by applicable Environmental Laws;
(iii) "Hazardous Materials" means (A) any chemicals, materials or
substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "hazardous air pollutants," "contaminants," "toxic
chemicals," "toxics," "hazardous chemicals," "extremely hazardous
substances," "pesticides," "oil" or related materials as defined in any
applicable Environmental Law, or (B) any petroleum or petroleum
products, oil, natural or synthetic gas, radioactive materials,
asbestos-containing materials, urea formaldehyde foam insulation, radon,
and any other substance defined or designated as hazardous, toxic or
harmful to human health, safety or the environment under any
Environmental Law; and
(iv) "Release" has the meaning specified in CERCLA.
2.19 No Breach. Except for (a) filings with the SEC under the Exchange
Act, (b) filings with the Secretary of State of Delaware, (c) any filing of a
Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements
Act, as amended (the "HSR Act") and (d) matters listed in Section 2.19 of the
Company Disclosure Schedule, the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) violate any provision of the Certificate of
Incorporation or By-Laws of the Company, (ii) violate, conflict with or result
in the breach of any of the terms or conditions of, result in modification of,
or otherwise give any other contracting party the right to terminate, accelerate
obligations under or receive payment under or constitute (or with notice or
lapse of time or both constitute) a default under, any instrument, contract or
other agreement to which the Company, any Company Subsidiary or any Company
Joint Venture is a party or to which any of them or any of their assets or
properties is bound or subject, (iii) violate any law, ordinance or regulation
or any order, judgment, injunction, decree or other requirement of any court,
arbitrator or governmental or regulatory body applicable to the Company or the
Company Subsidiaries or by which any of the Company's or the Company
Subsidiaries' assets or properties is bound, (iv) violate any Permit, (v)
require any filing with, notice to, or permit, consent or approval of, any
governmental or regulatory body, (vi) result in the creation of any lien or
other encumbrance on the assets or properties of the Company or a Company
Subsidiary, or (vii) cause any of the assets owned by the Company or any Company
Subsidiary to be reassessed or revalued by any taxing authority or other
governmental entity, excluding from the foregoing clauses (ii), (iii), (iv),
(v), (vi) and (vii) violations, breaches and defaults which, and filings,
notices, permits, consents and approvals the absence of which, in the aggregate,
could not reasonably be expected to have a Company Material Adverse Effect or
materially interfere with the ability of the Company to consummate the
transactions contemplated hereby.
2.20 Board Approvals.
(a) The Board of Directors of the Company, as of the date of this
Agreement, has determined (i) that the Merger is fair to, and in the best
interests of, the Company and its stockholders, (ii) to propose this
Agreement for adoption by the Company's stockholders and to declare the
advisability of this Agreement, and (iii) to recommend that the
stockholders of the Company adopt this Agreement.
(b) The Company has taken all action necessary such that no "fair
price," "control share acquisition," "business combination" or similar
statute (including Section 203 of the DGCL) will apply to the execution,
delivery or performance of this Agreement.
(c) The Board of Directors has approved an amendment (the "Rights
Amendment") to the Shareholder Rights Agreement dated as of October 6, 1999
between the Company and American Stock Transfer & Trust Company (the
"Company Rights Plan") so as to provide that (i) Parent will not become an
"Acquiring Person," (ii) no "Stock Acquisition Date" or "Distribution Date"
(as such terms are defined in the Company Rights Plan) will occur as a
result of the approval, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and
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thereby, and (iii) the Rights (as defined in the Company Rights Plan) will
terminate immediately prior to the Effective Time. Promptly following the
execution and delivery of this Agreement, the Company shall take all action
necessary to make the Rights Amendment effective.
2.21 Financial Advisor.
(a) The Company has received the opinion of Robertson Stephens, Inc.,
dated on or about the date of this Agreement, to the effect that, as of
such date, the Merger Consideration is fair, from a financial point of
view, to the holders of Company Common Stock, a copy of which opinion has
been made available to Parent.
(b) Other than Robertson Stephens, Inc., no broker, finder, agent or
similar intermediary has acted on behalf of the Company in connection with
this Agreement or the transactions contemplated hereby, and, other than the
fee payable to Robertson Stephens, Inc., there are no brokerage
commissions, finders' fees or similar fees or commissions payable in
connection herewith based on any agreement, arrangement or understanding
with the Company, or any action taken by the Company. The Company
previously has provided Parent with a copy of Robertson Stephens, Inc.'s
engagement letter.
2.22 Proxy Statement and Registration Statement. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in the registration statement on Form S-4 to be filed with the SEC in
connection with the issuance of shares of Parent Common Stock in the Merger (the
"Registration Statement") will, at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the proxy
statement/prospectus included in the Registration Statement (the "Proxy
Statement/Prospectus") or delivered together with the Proxy
Statement/Prospectus, on the date the Proxy Statement/Prospectus is first mailed
to holders of Company Common Stock or at the time of the Company Stockholders
Meeting (as defined in Section 4.6(b)), will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Exchange Act and the Securities Act and the rules and
regulations of the SEC thereunder.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth on the disclosure schedule delivered by Parent to the
Company on the date hereof (the "Parent Disclosure Schedule"), the section
numbers of which are numbered to correspond to the section numbers of this
Agreement to which they refer, Parent and Merger Sub hereby make the following
representations and warranties to the Company:
3.1 Organization and Qualification. Both Parent and Merger Sub are
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and have corporate or similar power and authority
to own, lease and operate their assets and to carry on their business as now
being and as heretofore conducted. Parent is qualified or otherwise authorized
to transact business as a foreign corporation or other organization in all
jurisdictions in which such qualification or authorization is required by law,
except for jurisdictions in which the failure to be so qualified or authorized
could not reasonably be expected to have a material adverse effect on the
assets, properties, business, results of operations or financial condition of
Parent (a "Parent Material Adverse Effect").
3.2 Authority to Execute and Perform Agreement. Each of Parent and Merger
Sub has the corporate power and authority to enter into, execute and deliver
this Agreement and to perform fully its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the
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transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub. This Agreement has been
duly executed and delivered by each of Parent and Merger Sub and constitutes
their valid and binding obligations, enforceable against each of them in
accordance with its terms.
3.3 Capitalization. The authorized capital stock of Parent consists of
100,000,000 shares of common stock, $0.01 par value per share, and 1,000,000
shares of preferred stock, $0.01 par value per share ("Parent Preferred Stock").
As of March 19, 2001, 27,448,353 shares of Parent Common Stock were issued and
outstanding. As of the date of this Agreement, no shares of Parent Preferred
Stock are outstanding. The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, $0.01 par value per share, all of which, as of the
date hereof, are issued and outstanding and are held by Parent. All issued and
outstanding shares of Parent Common Stock are validly issued, fully paid,
non-assessable and free of any preemptive rights.
3.4 SEC Reports. Parent previously has delivered to the Company (i)
Parent's Annual Report on Form 10-K for the year ended December 31, 2000 (the
"Parent 10-K"), (ii) all proxy statements relating to Parent's meetings of
stockholders held since December 31, 2000 and (iii) all other periodic reports
filed by Parent with the SEC under the Exchange Act since December 31, 2000
(collectively with clauses (i), (ii) and (iii) hereunder and the periodic
reports filed by Parent with the SEC under the Exchange Act prior to the
Effective Time, the "Parent SEC Reports"). As of their respective dates, such
periodic reports complied, and all periodic reports filed by Parent with the SEC
under the Exchange Act between the date of this Agreement and the Closing Date
will comply, in all material respects with applicable SEC requirements and did
not, and in the case of periodic reports filed on or after the date hereof will
not, contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Since
March 1, 2000, Parent has timely filed, and between the date of this Agreement
and the Closing Date will timely file, with the SEC all periodic reports
required to be filed under the Exchange Act.
3.5 Financial Statements. The consolidated financial statements contained
in the Parent 10-K have been prepared from, and are in accordance with, the
books and records of Parent and fairly present the consolidated financial
condition, results of operations and cash flows of Parent and its consolidated
subsidiaries as of and for the periods presented therein, all in accordance with
generally accepted accounting principles applied on a consistent basis, except
as otherwise indicated therein.
3.6 Absence of Undisclosed Liabilities. As of December 31, 2000, Parent
had no material liabilities of any nature, whether accrued, absolute,
contingent, or otherwise (including, without limitation, liabilities as
guarantor or otherwise with respect to obligations of others or liabilities for
taxes due or then accrued or to become due), required to be reflected or
disclosed in the balance sheet dated December 31, 2000 (or the notes thereto),
that were not adequately reflected or reserved against on such balance sheet.
Except as disclosed in the Parent SEC Reports, Parent has no such liabilities,
other than liabilities (i) adequately reflected or reserved against on such
balance sheet, (ii) incurred since December 31, 2000, in the ordinary course of
business, or (iii) that would not, in the aggregate, have a Parent Material
Adverse Effect.
3.7 Absence of Adverse Changes. Since December 31, 2000, except as
disclosed in the Parent SEC Reports, there has not been any event, change or
circumstance which has had a Parent Material Adverse Effect.
3.8 Actions and Proceedings. Except as set forth in the Parent SEC
Reports, there are no actions, suits or claims or legal, administrative or
arbitration proceedings pending or, to the knowledge of Parent, threatened
against Parent that individually or in the aggregate could reasonably be
expected to have a Parent Material Adverse Effect or materially interfere with
Parent's ability to consummate the transactions contemplated hereby. To the
knowledge of Parent, except as disclosed in the Parent SEC Reports, there is no
fact, event or circumstance now in existence that reasonably could be expected
to give rise to any suit, action, claim, investigation or proceeding that,
individually or in the aggregate, could reasonably be
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expected to have a Parent Material Adverse Effect or materially interfere with
Parent's ability to consummate the transactions contemplated hereby.
3.9 No Breach. Except for (a) filings under the Securities Act, (b)
filings under the Exchange Act, (c) filings with the Secretary of State of
Delaware, and (d) any required filing of a Notification and Report form under
the HSR Act, the delivery and performance of this Agreement by Parent and Merger
Sub and consummation by each of them of the transactions contemplated hereby
will not (i) violate any provision of the charter or by-laws of Parent or Merger
Sub, (ii) violate, conflict with or result in the breach of any of the terms or
conditions of, result in modification of the effect of, or otherwise give any
other contracting party the right to terminate or accelerate obligations under,
or constitute (or with notice or lapse of time or both constitute) a default
under, any material instrument, contract or other agreement to which Parent or
Merger Sub is party or to which either of them or any of their assets or
properties is bound or subject, (iii) violate any law, ordinance or regulation
or any order, judgment, injunction, decree or requirement of any court,
arbitrator or governmental or regulatory body applicable to Parent or Merger Sub
or by which any of their assets or properties is bound, (iv) require any filing
with, notice to, or permit, consent or approval of, any governmental or
regulatory body or (v) result in the creation of any lien or other encumbrance
on the assets or properties of Parent or Merger Sub, excluding from the
foregoing clauses (ii), (iii), (iv) and (v) violations, breaches and defaults
which, and filings, notices, permits, consents and approvals the absence of
which, in the aggregate, will not have a Parent Material Adverse Effect or
materially interfere with Parent's ability to consummate the transactions
contemplated hereby.
3.10 Compliance with Laws. Except as disclosed in the Parent SEC Reports,
to Parent's knowledge:
(a) Parent has all Permits material to the conduct of its business as
presently conducted; such Permits are in full force and effect; and no
proceeding is pending or threatened to revoke or limit any Permit.
(b) Parent is not in violation of and has no liabilities, whether
accrued, absolute, contingent, or otherwise, under any federal, state,
local, or foreign law, ordinance, or regulation or any order, judgment,
injunction, decree, or other requirement of any court, arbitrator, or
governmental or regulatory body, relating to the operation of clinical
testing laboratories, labor and employment practices, health and safety,
zoning, pollution, or protection of the environment, except for violations
of or liabilities under any of the foregoing which could not, in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect.
(c) Each product or product candidate subject to the FDA's
jurisdiction under the FDCA that is manufactured, tested, distributed,
held, and/or marketed by Parent is being manufactured, tested, distributed,
held, and marketed in compliance with all applicable requirements under the
FDCA including, but not limited to, those relating to investigational use,
premarket clearance, good manufacturing practices, labeling, advertising,
record keeping, filing of reports, and security.
3.11 Intellectual Property. Except as disclosed in the Parent SEC Reports,
Parent owns, or is licensed to use, or otherwise has the full right to use all
Proprietary Rights that are material to its business; all patents listed on
Section 3.11 of the Parent Disclosure Schedule are valid and subsisting; Parent
is not aware of any basis for any claim by any third party that the business of
Parent infringes upon the proprietary rights of others, nor has Parent received
any notice or claim of infringement from any third party; and Parent is not
aware of any existing or threatened infringement from any third party on, or any
competing claim of right to use or own any of, its Proprietary Rights.
3.12 Commercial Relationships. The relationships of Parent with its
suppliers, collaborators, licensors, and licensees are generally good commercial
working relationships. No such entity has cancelled or otherwise terminated its
relationship with Parent, or has, during the last twelve months, materially
altered its relationship with Parent.
3.13 Proxy Statement and Registration Statement. None of the information
supplied or to be supplied by Parent for inclusion in the Registration Statement
will, at the time it becomes effective under
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the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in the Proxy
Statement/Prospectus will, at the date it is first mailed to holders of Company
Common Stock or at the time of the Company 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 were made, not misleading.
3.14 Interim Operations of Merger Sub. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
SECTION 4
COVENANTS AND AGREEMENTS
4.1 Conduct of Business. Except with the prior written consent of Parent
and except as otherwise contemplated herein or referred to in Section 4.1 of the
Company Disclosure Schedule, during the period from the date hereof to the
Closing Date, the Company shall observe the following covenants:
(a) Affirmative Covenants Pending Closing. The Company shall:
(i) Preservation of Personnel. Use reasonable commercial efforts
to preserve intact and keep available the services of present employees
of the Company and the Company Subsidiaries;
(ii) Insurance. Use reasonable commercial efforts to keep in
effect casualty, public liability, worker's compensation and other
insurance policies in coverage amounts not less than those in effect at
the date of this Agreement;
(iii) Preservation of the Business; Maintenance of Properties,
Contracts. Use reasonable commercial efforts to preserve the business
of the Company, advertise, promote and market the Company's business
activities in accordance with past practices over the last twelve
months, keep the Company's properties intact, preserve its goodwill and
business, maintain all physical properties in such operating condition
as will permit the conduct of the Company's business on a basis
consistent with past practice, and perform and comply in all material
respects with the terms of the contracts referred to in Section 2.11.
(iv) Intellectual Property Rights. Use best efforts to preserve
and protect the Proprietary Rights;
(v) Ordinary Course of Business. Operate the Company's business
solely in the ordinary course consistent with past practices;
(vi) Company Options, Warrants and Convertible Note. Take all
actions necessary with respect to Company Options, Company Warrants and
the Convertible Note to effectuate the terms of this Agreement,
provided, however, that Parent shall have the right to approve any
agreements to modify terms of the underlying instruments; and, to the
extent permitted by the applicable stock option plans and agreements,
suspend exercise of Company Options during the three trading days prior
to the Closing Date; and
(vii) FDA Matters. Notify and consult with Parent immediately (A)
after receipt of any material communication from the FDA and before
giving any material submission to the FDA, and (B) prior to making any
material change to a study protocol, the addition of new trials, or a
material change to the development timeline for any its product
candidates or programs.
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(b) Negative Covenants Pending Closing. The Company shall not:
(i) Disposition of Assets. Sell or transfer, or mortgage, pledge,
lease or otherwise encumber any of its assets, including its Proprietary
Rights, other than sales or transfers in the ordinary course of business
and in amounts not exceeding $50,000;
(ii) Liabilities. Incur any indebtedness for borrowed money,
obligation or liability or enter into any contracts or commitments
involving potential payments to or by the Company or any Company
Subsidiary of $50,000 or more;
(iii) Compensation. Except as required or permitted by this
Agreement, change the compensation payable to any officer, director,
employee, agent or consultant; or enter into any employment, severance
or other agreement with any officer, director, employee, agent or
consultant of the Company or a Company Subsidiary; or adopt, or increase
the benefits under, any employee benefit plan, except as required by
law;
(iv) Capital Stock. Make any change in the number of shares of its
capital stock authorized, issued or outstanding or grant or accelerate
the exercisability of, any option, warrant or other right to purchase,
or convert any obligation into, shares of its capital stock, or declare
or pay any dividend or other distribution with respect to any shares of
its capital stock, or sell or transfer any shares of its capital stock,
or redeem or otherwise repurchase any shares of its capital stock,
except upon the exercise of convertible securities outstanding on the
date of this Agreement and disclosed herein;
(v) Charter and By-Laws. Cause, permit or propose any amendments
to the Certificate of Incorporation or By-laws of the Company;
(vi) Acquisitions. Make, or permit to be made, any material
acquisition of property or assets outside the ordinary course of
business;
(vii) Capital Expenditures. Authorize any single capital
expenditure in excess of $50,000 or capital expenditures which in the
aggregate exceed $100,000;
(viii) Accounting Policies. Except as may be required as a result
of a change in law or in generally accepted accounting principles,
change any of the accounting practices or principles used by it or
restate, or become obligated to restate, the financial statements
included in the Company 10-K;
(ix) Tax Treatment. Take, or permit any of the Company
Subsidiaries to take, any action that would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of
the Code.
(x) Taxes. Make any Tax election or settle or compromise any
material federal, state, local or foreign Tax liability, change its
annual tax accounting period, change any method of Tax accounting, enter
into any closing agreement relating to any Tax, surrender any right to
claim a Tax refund, or consent to any extension or waiver of the
limitations period applicable to any Tax claim or assessment;
(xi) Legal. Settle or compromise any pending or threatened suit,
action or claim which is material or which relates to the transactions
contemplated hereby;
(xii) Extraordinary Transactions. Adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of the
Company Subsidiaries (other than the Merger);
(xiii) Payment of Indebtedness. Pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge
or satisfaction, in the ordinary course of business and consistent with
past
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practice, of liabilities reflected or reserved against in the Company
Balance Sheet or incurred in the ordinary course of business after
December 31, 2000;
(xiv) Rights Plan. Amend, modify or waive any provisions of the
Company Rights Plan, or take any action to redeem the Rights or render
the Rights inapplicable to any transaction other than the Merger;
(xv) New Agreements/Amendments. Enter into or modify, or permit a
Company Subsidiary to enter into or modify, any license, development,
research or collaboration agreement with any other person or entity;
(xvi) Confidentiality Agreements. Modify, amend or terminate, or
waive, release or assign any material rights or claims with respect to
any confidentiality agreement to which the Company is a party; or
(xvii) Obligations. Obligate itself to do any of the foregoing.
(c) Control of the Company's Business. Nothing contained in this
Agreement shall give Parent, directly or indirectly, the right to control
or direct the Company's operations prior to the Effective Time. Prior to
the Effective Time, the Company shall exercise, consistent with the terms
and conditions of this Agreement, complete control and supervision over its
operations.
4.2 Corporate Examinations and Investigations. Prior to the Effective
Time, Parent shall be entitled, through its employees and representatives, to
have such access to the assets, properties, business and operations of the
Company, as is reasonably necessary or appropriate in connection with Parent's
investigation of the Company with respect to the transactions contemplated
hereby. Any such investigation and examination shall be conducted at reasonable
times and under reasonable circumstances so as to minimize any disruption to or
impairment of the Company's business and the Company shall cooperate fully
therein. No investigation by Parent shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Company contained in
this Agreement. In order that Parent may have full opportunity to make such
investigation, the Company shall furnish the representatives of Parent during
such period with all such information and copies of such documents concerning
the affairs of the Company as such representatives may reasonably request and
cause its officers, employees, consultants, agents, accountants and attorneys to
cooperate fully with such representatives in connection with such investigation.
4.3 Expenses. Except as otherwise provided in Section 8, the Company and
Parent shall bear their respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and the transactions
contemplated hereby, including without limitation, all fees and expenses of
agents, representatives, counsel and accountants, except that each of Parent and
the Company shall bear and pay one-half of the costs and expenses incurred in
connection with the filing, printing and mailing of the Registration Statement
and the Prospectus/Proxy Statement.
4.4 Authorization from Others. Prior to the Closing Date, the parties
shall use reasonable commercial efforts to obtain all authorizations, consents
and Permits of others, necessary or desirable to permit the consummation of the
Merger on the terms contemplated by this Agreement.
4.5 Further Assurances. Each of the parties shall execute such documents,
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby, including delivering
customary representation letters contemplated by Sections 6.5 and 7.2. Without
limiting the generality of the foregoing, the Company agrees to duly execute and
deliver, and to use commercially reasonable efforts to cause any individual or
entity listed as a co-owner of, or who otherwise has any power of attorney or
other rights with respect to, any of the Proprietary Rights of the Company, to
duly execute and deliver such further instruments and do and cause to be done
such further actions and things, including, without limitation, the execution of
such additional assignments, agreements, documents and instruments, that Parent
may at any time and from time to time reasonably request to more effectively
transfer ownership,
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control and/or administration of such Proprietary Rights to the Surviving
Corporation. Each party shall use its respective reasonable commercial efforts
to take other such actions to ensure that, to the extent within its control or
capable of influence by it, the transactions contemplated by this Agreement
shall be fully carried out in a timely fashion. Nothing in this Agreement shall
require Parent or Merger Sub to sell, hold separate, license or otherwise
dispose of or conduct their business in a specified manner, or agree to sell,
hold separate, license or otherwise dispose of or conduct their business in a
specified manner, or permit the sale, holding separate, licensing or other
disposition of, any assets of Parent or Merger Sub, whether as a condition to
obtaining any approval from a governmental entity or any other person or for any
other reason.
4.6 Preparation of Disclosure Documents
(a) As soon as practicable following the date of this Agreement, the
Company and Parent shall prepare the Proxy Statement/Prospectus. The
Company shall, in cooperation with Parent, file the Proxy
Statement/Prospectus with the SEC as its preliminary proxy statement and
Parent shall, in cooperation with the Company, prepare and file with the
SEC the Registration Statement, in which the Proxy Statement/Prospectus
will be included. Each of Company and Parent shall use reasonable
commercial efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing and
to keep the Registration Statement effective as long as is necessary to
consummate the Merger. The Company shall mail the Proxy
Statement/Prospectus to its stockholders as promptly as practicable after
the Registration Statement is declared effective under the Securities Act
and, if necessary, after the Proxy Statement/Prospectus shall have been so
mailed, promptly circulate supplemental or amended proxy material, and, if
required in connection therewith, resolicit proxies.
(b) (i) The Company shall, as soon as practicable following the date
of this Agreement and the effectiveness of the Registration Statement, duly
call, give notice of, convene and hold a meeting of its stockholders (the
"Company Stockholders Meeting") for the purpose of obtaining the required
stockholder votes with respect to this Agreement, (ii) the Board of
Directors of the Company, unless otherwise required pursuant to the
applicable fiduciary duties of the Board of Directors of the Company to the
stockholders of the Company (as determined in good faith by the Board of
Directors of the Company after consulting with outside counsel), shall give
its unqualified recommendation that its stockholders adopt this Agreement
and (iii) the Company shall take all lawful action to solicit such
adoption. No withdrawal, modification, change or qualification in the
recommendation of the Board of Directors of the Company shall change the
approval of the Board of Directors of the Company for purposes of causing
any state takeover statute or other state law to be inapplicable to the
transactions contemplated hereby, or change the obligation of the Company
to present the Merger Agreement for adoption at a the Company Stockholders
Meeting. The Company agrees to give Parent written notice at least three
business days prior to publicly indicating any withdrawal, modification,
change or qualification in the recommendation of the Board of Directors of
the Company.
(c) Except as required by law, no amendment or supplement to the Proxy
Statement/Prospectus or the Registration Statement shall be made by Parent
or the Company without the approval of the other party (which shall not be
unreasonably withheld or delayed).
(d) The Company shall use reasonable efforts to cause to be delivered
to Parent a letter from the Company's independent public accountants, dated
the date on which the Registration Statement shall become effective,
addressed to the Company and Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
4.7 Public Announcements. The Company shall consult with Parent to get
Parent's approval (which will not be unreasonably withheld), before issuing any
press release or otherwise making any public statement with respect to the
Merger or this Agreement and shall not issue any such press release or make
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any such public statement prior to such consultation and approval, except as may
be required by law or by regulatory bodies.
4.8 Affiliate Letters. Prior to the Closing Date, the Company shall
identify to Parent all persons who, at the time of the Company Stockholders
Meeting, the Company believes may be "affiliates" of the Company within the
meaning of Rule 145 under the Securities Act. The Company shall use its best
efforts to provide Parent with such information as Parent shall reasonably
request for purposes of making its own determination of persons who may be
deemed to be affiliates of the Company. The Company shall use its best efforts
to deliver to Parent prior to the Closing Date a letter from each of such
affiliates identified by the Company and Parent in substantially the form
attached hereto as Exhibit B (the "Affiliate Letters").
4.9 Nasdaq Listings. Prior to the Closing Date, Parent shall file with
Nasdaq a Notification for Listing of Additional Shares covering the shares of
Parent Common Stock to be issued in the Merger, including the shares of Parent
Common Stock issuable upon exercise of the Company Options and Company Warrants
and upon conversion of the Convertible Note. Prior to the Closing Date, the
Company shall take such actions as are necessary so that trading of Company
Common Stock on the Nasdaq National Market ceases immediately prior to the
Effective Time.
4.10 No Solicitation. The Company shall not, and shall cause each Company
Subsidiary and each director, officer, employee, agent or other representative
(including each financial advisor and attorney) of the Company and each Company
Subsidiary not to, (a) solicit, initiate, facilitate, assist or encourage action
by, or discussions with, any person, other than Parent, relating to the possible
acquisition of the Company or any Company Subsidiary or of all or a material
portion of the assets or capital stock of the Company or any Company Subsidiary
or any merger, reorganization, consolidation, business combination, share
exchange, tender offer, recapitalization, dissolution, liquidation or similar
transaction involving the Company or any Company Subsidiary (an "Alternative
Transaction"), (b) participate in any negotiations regarding, or furnish
information with respect to, any effort or attempt by any person to do or to
seek any Alternative Transaction or (c) grant any waiver or release under any
standstill or similar agreement. Notwithstanding the foregoing, the Company and
the Board of Directors of the Company shall be permitted (i) to comply with Rule
14e-2(a) under the Exchange Act with regard to an Alternative Transaction (to
the extent applicable) and (ii) prior to the date on which the stockholders of
the Company adopt the Merger Agreement, to engage in discussions or negotiations
with, or provide information to, a person who makes an unsolicited bona fide
written proposal for an Alternative Transaction if (and only if) (A) the Company
is not in breach of its obligations under this Section 4.10, (B) the Board of
Directors of the Company concludes in good faith (after consultation with its
financial advisor) that the proposal is reasonably likely to lead to an
Alternative Transaction more favorable for the Company's stockholders than the
Merger (including adjustment to the terms and conditions proposed by Parent in
response to the proposal for the Alternative Transaction), (C) the Board of
Directors of the Company concludes in good faith (after consultation with its
outside legal counsel) that the engaging in such negotiations or discussions or
the provision of such information is required by the directors' fiduciary duties
under Delaware law and (D) prior to providing any information or data, the
recipient delivers to the Company an executed confidentiality agreement with
terms substantially similar to those contained in the confidentiality agreements
(the "Confidentiality Agreements") dated July 24, 2000 and April 18, 2001,
respectively, between Parent and the Company. The Company shall notify Parent
promptly (and, in any case, within 24 hours) of any inquiries, proposals or
offers received by, any information requested from, or any discussions or
negotiations sought to be initiated or continued with, it, any Company
Subsidiary or any of their directors, officers, employees, agents or other
representatives concerning an Alternative Transaction, indicating, in connection
with such notice, the names of the parties and the material terms and conditions
of any proposals or offers and, in the case of written materials, providing
copies of such materials. The Company agrees that it will keep Parent informed,
on a prompt basis (and, in any case, within 24 hours of any significant
development), of the status and terms of any such proposals or offers and the
status of any such discussions or negotiations. The Company agrees that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with respect to any potential Alternative
Transaction or similar transaction or arrangement and request the return or
destruction of all
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confidential information regarding the Company previously provided in connection
with such activities, discussions or negotiations. The Company agrees that it
will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence of this Section 4.10 of the obligations
undertaken in this Section 4.10.
4.11 Regulatory Filings. As soon as is reasonably practicable, if
required, the Company and Parent each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") any Notification and Report Forms relating to the
Merger required by the HSR Act, as well as comparable pre-merger notification
forms required by the merger notification and control laws and regulations of
any other applicable jurisdiction, as agreed to by the parties. The Company and
Parent each shall promptly (a) supply the other with any information which may
be required in order to make such filings and (b) supply any additional
information which may be requested by the FTC, the DOJ or the competition or
merger control authorities of any other jurisdiction and which the parties
reasonably deem appropriate.
4.12 Termination of 401(k) Plan. The Company agrees to terminate its
401(k) Plan immediately prior to the Closing, unless the Parent, in its sole and
absolute discretion, agrees to sponsor and maintain such policy by providing the
Company with written notice of its election at least three (3) days prior to the
Closing Date.
4.13 Termination of Severance and Salary Continuation Plans. The Company
agrees to terminate, to the extent applicable, any and all group severance,
separation or salary continuation plans, programs or arrangements that may be
covered under ERISA immediately prior to the Closing.
4.14 Notification of Certain Matters. Between the date hereof and the
Closing Date, the Company shall give prompt notice to Parent, and Parent and
Merger Sub shall give prompt notice to the Company, of (a) the occurrence or
non-occurrence of any event or circumstance the occurrence or non-occurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate if made at such time and (b) any failure of
the Company, Parent and Merger Sub, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder.
4.15 Registration of Certain Shares. Promptly after the Effective Time but
not later than 60 days following the Closing, Parent shall file registration
statements on Form S-3 and Form S-8 (or any successors or other appropriate
forms), with respect to the shares of Parent Common Stock subject to (i) Company
Options or purchase rights under the Company Purchase Plan, (ii) Company
Warrants, and (iii) the Convertible Note, to the extent required under the
particular instrument governing such securities, and shall use commercially
reasonable efforts to maintain the effectiveness of such registration statement
for so long as such options, purchase rights, warrants, and note remain
outstanding. With respect to the Form S-3 or successor form, Parent shall use
commercially reasonable efforts to obtain its effectiveness within 180 days
following the Closing Date.
4.16 Employee Matters.
(a) Parent shall give individuals who are employed by the Company
immediately prior to the Effective Time and remain as employees of the
Surviving Corporation or Parent ("Affected Employees") full credit for
purposes of eligibility, vesting, benefit accrual (except for purposes of
benefit accrual under any defined benefit pension plans and except as would
result in duplication of benefits) and determination of the level of
benefits under any employee benefit plans or arrangements maintained by
Parent for such Affected Employees' service with the Company to the same
extent recognized by the Company immediately prior to the Effective Time.
(b) Parent shall waive all limitations as to preexisting conditions
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Affected Employees under any medical or
dental benefit plans that such employees may be eligible to participate in
after the Effective Time, other than limitations or waiting periods that
are already in effect with respect to such
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employees and that have not been satisfied as of the Effective Time under
any plan maintained for the Affected Employees immediately prior to the
Effective Time.
(c) As of the Effective Time, Parent shall assume and honor in
accordance with their terms all employment, severance, and other
compensation agreements and arrangements existing prior to the execution of
this Agreement which are between Company and any director, officer, or
employee thereof, each as described in Section 2.17 of the Company
Disclosure Schedule, except as otherwise expressly agreed between Parent
and such person.
4.17 Indemnification.
(a) From and after the Effective Time, Parent shall cause the
Surviving Corporation to fulfill and honor in all respects the obligations,
to the extent legally permissible, of the Company pursuant to the
indemnification agreements between the Company and certain of its directors
and officers (the "Indemnified Parties") that are listed in Section 4.17 of
the Company Disclosure Schedule and any indemnification provisions under
the Company's Certificate of Incorporation or By-laws as in effect on the
date hereof.
(b) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges with any other person and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfers substantially all of its assets to any person
in a single transaction or a series of transactions, then, and in each such
case, Parent shall either guarantee the indemnification obligations
referred to in this Section 4.17 or will make or cause to be made proper
provision so that the successors and assigns of the Surviving Corporation
assume the indemnification obligations described herein for the benefit of
the Indemnified Parties.
(c) Parent understands and agrees that, prior to the Effective Time,
the Company intends to obtain a six-year "tail" insurance policy that
provides coverages substantially similar to the coverage provided under the
Company's directors and officers insurance policy in effect on the date of
this Agreement for the individuals who are directors and officers of the
Company on the date of this Agreement for events occurring prior to the
Effective Time; provided, however, without Parent's prior written consent,
the Company shall not pay more than $250,000 to purchase such policy.
4.18 Participation in Certain Actions and Proceedings. Until this
Agreement is terminated in accordance with Section 8.1, Parent shall have the
right to participate in the defense of any action, suit or proceeding instituted
against the Company (or any of its directors or officers) before any court or
governmental or regulatory body or threatened by any governmental or regulatory
body, to restrain, modify or prevent the consummation of the transactions
contemplated by this Agreement, or to seek damages or a discovery order in
connection with such transactions.
SECTION 5
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH PARTY TO CONSUMMATE THE MERGER
The respective obligations of each party to consummate the Merger shall be
subject to the satisfaction or waiver by mutual consent of the other party, at
or before the Effective Time, of each of the following conditions:
5.1 Stockholder Approval. The Company shall have obtained the vote of
holders of Company Common Stock necessary to adopt this Agreement.
5.2 Registration Statement. The Registration Statement shall have been
declared effective and shall remain effective and shall not be subject to a stop
order at the Effective Time.
5.3 Absence of Order. No temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other governmental
entity of competent jurisdiction shall be in effect and have the effect of
making the Merger illegal or otherwise prohibiting consummation of the Merger.
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5.4 Regulatory Approvals. All approvals from governmental entities shall
have been obtained; provided, however, that the conditions of this Section 5.4
shall not apply to any party whose failure to fulfill its obligations under this
Agreement shall have been the cause of, or shall have resulted in, such failure
to obtain such approval.
5.5 HSR Act. Any waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
SECTION 6
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT AND
MERGER SUB TO CONSUMMATE THE MERGER
The obligations of Parent and Merger Sub to consummate the Merger are
subject, to the fulfillment of the following conditions, any one or more of
which may be waived by Parent:
6.1 Representations, Warranties and Covenants. The representations and
warranties made by the Company in this Agreement shall have been accurate as of
the date of this Agreement and (without giving effect to any materiality
qualifiers) shall be accurate as of the Closing Date as if made on and as of the
Closing Date except (other than representations and warranties set forth in
Section 2.3) to the extent failure to be accurate, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. The
representation and warranties set forth in Section 2.3 shall be true and correct
in all respects (other than de minimis variations) as of the Closing Date as if
made on and as of the Closing Date. The Company shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time. The Company shall have delivered to Parent a certificate from
its chief executive officer, dated the Closing Date, to the foregoing effect.
6.2 Corporate Certificates. The Company shall have delivered a copy of the
Certificate of Incorporation of the Company, as in effect immediately prior to
the Closing Date, certified by the Delaware Secretary of State and a
certificate, as of the most recent practicable date, of the Delaware Secretary
of State as to the Company's corporate good standing.
6.3 Secretary's Certificate. The Company shall have delivered a
certificate of the Secretary of the Company, dated as of the Closing Date,
certifying as to (a) the incumbency of officers of the Company executing
documents executed and delivered in connection herewith, (b) a copy of the
By-Laws of the Company, as in effect from the date this Agreement was approved
by the Board of Directors of the Company until the Closing Date, (c) a copy of
the resolutions of the Board of Directors of the Company authorizing and
approving the applicable matters contemplated hereunder and (iv) a copy of the
resolutions of the stockholders of the Company adopting this Agreement.
6.4 Affiliate Letters. Parent shall have received the Affiliate Letters
referred to in Section 4.8.
6.5 Tax Opinion. Parent shall have received the opinion of Palmer & Dodge
LLP, dated on or prior to the effective date of the Registration Statement, to
the effect that (i) the Merger will constitute a reorganization under Section
368(a) of the Code, and (ii) Parent, the Company and Merger Sub will each be a
party to that reorganization. In rendering such opinion, counsel shall be
entitled to rely on customary representation letters of Parent, the Company and
Merger Sub and others, in form and substance reasonably satisfactory to such
counsel; provided, however, if Palmer & Dodge LLP was unwilling to deliver such
opinion, this condition shall be deemed satisfied if Andrews & Kurth L.L.P.
delivered such opinion.
6.6 Consents. The Company shall have obtained waivers or consents, which
shall remain in full force and effect, with respect to each agreement required
to be disclosed in Section 2.19 of the Company Disclosure Schedule such that
this Agreement and the consummation of the transactions contemplated hereby do
not result in any material modification or termination of, or a payment or
default under, any such agreement.
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SECTION 7
CONDITIONS PRECEDENT TO THE OBLIGATION OF COMPANY TO CONSUMMATE THE MERGER
The obligation of the Company to consummate the Merger is subject to the
fulfillment of the following conditions, any one or more of which may be waived
by it:
7.1 Representations, Warranties and Covenants. The representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate as of the date of this Agreement and (without giving effect to any
materiality qualifiers) shall be accurate as of the Closing Date as if made on
and as of the Closing Date except to the extent failure to be accurate, in the
aggregate, could not reasonably be expected to have a Parent Material Adverse
Effect. Parent and Merger Sub shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Effective Time. Parent and
Merger Sub shall have delivered to the Company a certificate from an executive
officer, dated the Closing Date, to the foregoing effect.
7.2 Tax Opinion. The Company shall have received the opinion of Andrews &
Kurth L.L.P., dated on or prior to the effective date of the Registration
Statement, to the effect that (i) the Merger will constitute a reorganization
under Section 368(a) of the Code, and (ii) Parent, the Company and Merger Sub
will each be a party to that reorganization. In rendering such opinion, counsel
shall be entitled to rely on customary representation letters of Parent, the
Company and Merger Sub and others, in form and substance reasonably satisfactory
to such counsel; provided, however, if Andrews & Kurth L.L.P. was unwilling to
deliver such opinion, this condition shall be deemed satisfied if Palmer & Dodge
LLP delivered such opinion.
SECTION 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether prior to or after the stockholders of the Company adopt
this Agreement:
(a) by either Company or Parent, by written notice to the other, if
the Effective Time shall not have occurred on or before September 30, 2001;
provided, however, that the right to terminate this Agreement under this
Section 8.1(a) shall not be available to any party whose breach of a
representation or warranty or failure to fulfill any covenant or other
agreement under this Agreement has been the cause of, or resulted in the
failure of, the Merger to occur on or before such date;
(b) by the Company (provided that the Company is not then in material
breach of any representation, warranty, covenant or other agreement
contained herein), by written notice to Parent, if a circumstance exists or
circumstances exist such that it is reasonably certain that the conditions
to the Company's obligation to close that are set forth in Section 7.1 will
not be satisfied; provided, however, the Company shall not have a right to
terminate this Agreement pursuant to this Section 8.1(b), (i) if the
circumstance is or the circumstances are susceptible to change through
action or inaction by Parent and (ii) within 20 days after written notice
from the Company, Parent effects a change in the circumstance or
circumstances such that it ceases to be reasonably certain that the
conditions to the Company's obligation to close that are set forth in
Section 7.1 will not be satisfied;
(c) by Parent (provided that Parent is not then in material breach of
any representation, warranty, covenant or other agreement contained
herein), by written notice to the Company, if a circumstance exists or
circumstances exist such that it is reasonably certain that the conditions
to Parent's obligation to close that are set forth in Section 6.1 will not
be satisfied; provided, however, Parent shall not have a right to terminate
this Agreement pursuant to this Section 8.1(c), (i) if the circumstance is
or the circumstances are susceptible to change through action or inaction
by the Company and (ii) within 20 days after written notice from Parent,
the Company effects a change in the circumstance or circumstances such that
it ceases to be reasonably certain that the conditions to the Company's
obligation to close that are set forth in Section 6.1 will not be
satisfied;
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(d) by either Parent or the Company, by written notice to the other,
if any governmental entity shall have issued any injunction or taken any
other action permanently restraining, enjoining or otherwise prohibiting
the consummation of the Merger and such injunction or other action shall
have become final and non-appealable;
(e) by either Parent or the Company, by written notice to the other,
if the stockholders of the Company shall not have adopted this Agreement
within sixty (60) days after the later of (i) the date the Company mails
the Proxy Statement/Prospectus to the Company stockholders or (ii) the date
of the most recent supplemental proxy materials that the Company is legally
required to distribute to its stockholders; provided, however, that the
right to terminate this Agreement under this Section 8.1(e) shall not be
available to any party whose breach of a representations or warranty or
failure to fulfill any covenant or agreement under this Agreement has been
the cause of or resulted in the failure to receive such stockholder votes
on or before such date;
(f) by Parent, by written notice to the Company, if the Board of
Directors of the Company (i) fails to include in the Proxy
Statement/Prospectus its recommendation that the Company's stockholders
vote to adopt this Agreement, (ii) withdraws, modifies or qualifies its
approval of, or its recommendation that its stockholders vote in favor of,
such actions or takes any action or makes any statement inconsistent with
such approval or recommendation, (iii) adopts resolutions approving or
otherwise authorizes or recommends an Alternative Transaction or (iv) fails
to recommend against, or takes a neutral position with respect to, a tender
or exchange offer in any position taken pursuant to Rules 14d-9 and
14e-2(a) under the Exchange Act;
(g) by Parent in the event that the Company or any of its directors or
representatives takes any of the actions described in clause (ii) of the
second sentence of Section 4.10 in response to a proposal for an
Alternative Transaction;
(h) by Parent, if any person or group (as defined in Section 13(d)(3)
of the Exchange Act), other than Parent or any of its affiliates, shall
have become the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of at least 15% of the outstanding shares of Company Common
Stock; or
(i) at any time with the written consent of Parent and the Company.
8.2 Effect of Termination. If this Agreement is terminated as provided in
Section 8.1, this Agreement shall forthwith become void and have no effect,
without liability on the part of Parent, Merger Sub and the Company and their
respective directors, officers or stockholders, except that (a) the provisions
of this Section 8, Section 9, Section 4.3 relating to expenses, and Section 4.7
relating to publicity shall survive, and (b) no such termination shall relieve
any party from liability by reason of any willful breach by such party of any of
its representations, warranties, covenants or other agreements contained in this
Agreement.
8.3 Termination Fee.
(a) Fee. If this Agreement is terminated by the Company pursuant to
Section 8.1(e), or by Parent (i) pursuant to Section 8.1(e) or (f) or (ii)
pursuant to Section 8.1(c), then the Company shall pay to Parent in cash
$1.2 million (the "Fee"); provided, however, that the Fee shall not be owed
if this Agreement is terminated by either party pursuant to 8.1(e) unless
at the time of termination an Alternative Transaction shall have been
announced or the Company has or the Company's stockholders shall have
received a proposal for an Alternative Transaction. The Company shall pay
the Fee to Parent concurrently with the Company terminating this Agreement
and within one business day of Parent terminating this Agreement. In the
event that the Company complies with all of the requirements set forth in
Sections 5 and 6 of this Agreement and is otherwise not in breach of any
other provisions of this Agreement, and the Company terminates this
Agreement pursuant to Section 8.1(b), then Parent shall pay to the Company
in cash the Fee; provided however, that the Fee shall not be owed by Parent
if an Alternative Transaction shall have been announced or the Company has
or the Company's stockholders shall have received a proposal for an
Alternative
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Transaction. The payment of the Fee shall be the Company's sole and
exclusive remedy for any breach of Parent's obligations under the
Agreement. Parent shall pay the Fee to the Company within one business day
after the Termination Date.
(b) Expense Reimbursement. If this Agreement is terminated by Parent
pursuant to Section 8.1(g), then the Company shall pay to Parent an amount
equal to the reasonable out-of-pocket fees and reasonable expenses incurred
by Parent in connection with this Agreement and the transactions
contemplated hereby. Such expense reimbursement, whether pursuant to
Section 8.1(a) or (b) shall be due one business day after receipt of an
invoice indicating the amount of the fees and expenses.
(c) Payments. Any payments required by either party under this
Section 8.3 shall be payable by wire transfer of immediately available
funds to an account designated by the other party. If such party fails to
promptly make any payment required under this Section 8.3 and the other
party commences a suit to collect such payment, the party required to make
such payment shall indemnify the other party for its fees and expenses
(including attorneys fees and expenses) incurred in connection with such
suit and shall pay the other party interest on the amount of the payment at
the prime rate of Fleet National Bank (or its successors or assigns) in
effect on the date the payment was payable pursuant to this Section 8.3.
8.4 Amendment. This Agreement may not be amended except by an instrument
signed by each of the parties hereto; provided, however, that after adoption of
this Agreement by the stockholders of the Company, without the further approval
of the stockholders of the Company, no amendment may be made that (a) alters or
changes the amount or kind of consideration to be received as provided in
Section 1.6, (b) alters or changes any term of the Certificate of Incorporation
of the Surviving Corporation or (c) alters or changes any of the terms and
conditions of this Agreement if such alteration or change would adversely affect
the stockholders of the Company.
8.5 Waiver. At any time prior to the Effective Time, either party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other party hereto or (b) waive compliance with any of the
agreements of the other party or any conditions to its own obligations, in each
case only to the extent such obligations, agreements and conditions are intended
for its benefit; provided that any such extension or waiver shall be binding
upon a party only if such extension or waiver is set forth in a writing executed
by such party.
SECTION 9
MISCELLANEOUS
9.1 No Survival. None of the representations and warranties of the
Company, Parent or Merger Sub contained herein shall survive the Effective Time,
and only those covenants and agreements contained herein that by their terms are
to be performed after the Effective Time shall survive the Effective Time.
9.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given when so delivered in
person, by overnight courier, by facsimile transmission (with receipt confirmed
by telephone or by automatic transmission report) or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), as follows:
(a) if to Parent or Merger Sub, to:
Antigenics Inc.
630 Fifth Avenue, Suite 1200
New York, New York 10111
Attn: Garo H. Armen, Ph.D.
Telephone: (212) 332-4774
Facsimile: (212) 332-4778
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with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attn: Paul M. Kinsella
Telephone: (617) 573-0100
Facsimile: (617) 227-4420
(b) if to the Company, to:
Aronex Pharmaceuticals, Inc.
8707 Technology Forest Place
The Woodlands, TX 77381-1191
Attn: Geoffrey Cox
Telephone: (281) 367-1666
Facsimile: (281) 367-1676
with a copy to:
Andrews & Kurth L.L.P.
2170 Buckthorne Place, Suite 150
The Woodlands, Texas 77380
Attn: Jeffrey R. Harder
Telephone: (713) 220-4312
Facsimile: (713) 220-4815
Any party may by notice given in accordance with this Section 9.2 to the other
parties designate another address or person for receipt of notices hereunder.
9.3 Entire Agreement. This Agreement contains the entire agreement between
the parties with respect to the Merger and supersedes all prior agreements,
written or oral, between the parties with respect thereto, other than the
Confidentiality Agreements between Parent and the Company, which shall survive
execution of this Agreement and any termination of this Agreement.
9.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to conflict of
laws provisions.
9.5 Binding Effect; No Assignment; No Third-Party Beneficiaries.
(a) This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted assigns. This
Agreement is not assignable without the prior written consent of the other
parties hereto.
(b) Nothing in this Agreement, express or implied, is intended to or
shall confer upon any person other than Parent, Merger Sub and the Company
and their respective successors and permitted assigns and right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
9.6 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
9.7 Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original, and both of which together shall
constitute one and the same instrument.
9.8 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement shall remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force
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and effect to the extent not held invalid or unenforceable. The parties further
agree to replace such invalid or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid or unenforceable
provision.
9.9 Submission to Jurisdiction; Waiver. Each of Company, Parent and Merger
Sub irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the courts of the Commonwealth of Massachusetts and each of
the Company, Parent and Merger Sub hereby irrevocably submits with regard to any
action or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of Company, Parent and Merger Sub hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any action
or proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to lawfully serve process, (b) that it or its property is
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise), and (c) to the fullest extent permitted by applicable law, that (i)
the suit, action or proceeding in any such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper and (iii)
this Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
9.10 Enforcement. The parties recognize and agree that if for any reason
any of the provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached, immediate and irreparable harm
or injury would be caused for which money damages would not be an adequate
remedy. Accordingly, each party agrees that in addition to other remedies the
other party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event that any
action shall be brought in equity to enforce the provisions of the Agreement,
neither party will allege, and each party hereby waives the defense, that there
is an adequate remedy at law.
9.11 Rules of Construction.
(a) The parties hereto agree that they have been represented by
counsel during the negotiation and execution of this Agreement and,
therefore, waive the application of any law, regulation, holding or ruling
of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
(b) The phrase "to Company's knowledge" and similar qualifiers shall
mean and be limited to the actual knowledge of the persons identified in
Section 9.11 of the Company Disclosure Schedule after due inquiry of
officers and other employees who may reasonably be expected to have
knowledge of such matters.
9.12 Waiver of Jury Trial. EACH OF PARENT, MERGER SUB AND COMPANY HEREBY
IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENT OR ACTION RELATED HERETO OR
THERETO.
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IN WITNESS WHEREOF, the parties have executed this Agreement and Plan of
Merger as of the date first stated above.
ANTIGENICS INC.
By /s/ GARO ARMEN
------------------------------------
Name: Garo Armen
Title: Chairman and Chief Executive
Officer
NASA MERGER CORP.
By /s/ GARO ARMEN
------------------------------------
Name: Garo Armen
Title: President
ARONEX PHARMACEUTICALS, INC.
By /s/ GEOFFREY COX
------------------------------------
Name: Geoffrey Cox
Title: President and Chief
Executive Officer
[Signature Page to Agreement and Plan of Merger]
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EXHIBIT A
PLEASE REFER TO ANNEX B
OF THIS PROXY STATEMENT/PROSPECTUS
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EXHIBIT B
[FORM OF AFFILIATE LETTER]
, 2001
Antigenics Inc.
630 Fifth Avenue, Suite 1200
New York, New York 10111
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of Aronex Pharmaceuticals, Inc. (the "Company"), a Delaware
corporation, as the term "affiliate" is used in Rule 145 of the rules and
regulations of the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"). Pursuant to the terms
of the Agreement and Plan of Merger (the "Merger Agreement") dated as of April
23, 2001 between Antigenics Inc. ("Parent"), a Delaware corporation, and the
Company, the Company will be merged with and into a wholly owned subsidiary of
Parent (the "Merger").
In connection with the Merger, I am entitled to receive shares of common
stock, $0.01 par value per share, of Parent (including shares of Parent common
stock issuable under Contingent Value Rights granted pursuant to the Merger
Agreement, the "Parent Shares"), in exchange for the shares owned by me of
common stock, $0.001 par value per share, of the Company (the "Company Shares").
I represent, warrant and covenant to Parent that in the event I receive any
Parent Shares as a result of the Merger:
(a) I shall not make any sale, transfer or other disposition of the
Parent Shares in violation of the Securities Act or the rules and
regulations thereunder.
(b) I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Parent Shares, to the extent I felt necessary, with my counsel or counsel
for the Company.
(c) I have been advised that the issuance of the Parent Shares to me
pursuant to the Merger has been or will be registered with the SEC under
the Securities Act on a Registration Statement on Form S-4; however,
because I may be deemed to be an affiliate of the Company and the
distribution of the Parent Shares by me or on my behalf has not been
registered under the Securities Act, dispositions of the Parent Shares by
me or on my behalf may be restricted under the Securities Act and the rules
and regulations thereunder. I will not sell, transfer, hedge, encumber or
otherwise dispose of the Parent Shares issued to me in the Merger unless
the disposition (x) is made in conformity with the volume and other
limitations of Rule 145 under the Securities Act, (y) is made pursuant to
an effective Registration Statement under the Securities Act, or (z) is, in
the opinion of counsel reasonably acceptable to Parent or as described in a
"no-action" or interpretive letter from the staff of the SEC, exempt from
registration under the Securities Act.
(d) I understand that Parent is under no obligation to register under
the Securities Act the disposition of the Parent Shares by me or on my
behalf or to take any other action necessary in order to make compliance
with an exemption from such registration available.
(e) I also understand that there will be placed on the certificates
for the Parent Shares issued to me, or any substitutions therefor, a legend
stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE
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TERMS OF AN AGREEMENT BETWEEN THE REGISTERED HOLDER HEREOF AND
ANTIGENICS INC.
(f) I also understand that unless a sale or transfer is made in
conformity with the provisions of Rule 145 under the Securities Act (and
satisfactory evidence of such conformity is provided to Parent), or
pursuant to an effective registration statement, Parent reserves the right
to put the following legend on the certificates issued to my transferee:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE
SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED.
It is understood and agreed that the legends set forth in paragraphs (e)
and (f) above shall be removed by delivery of substitute certificates without
such legend if the undersigned shall have delivered to Parent a copy of a "no
action" or interpretive letter from the staff of the SEC, or an opinion of
counsel reasonably satisfactory to Parent in form and substance satisfactory to
Parent, to the effect that disposition of the shares by the holder thereof is
not restricted under the Securities Act.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter, or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
Name (print):
Address:
Accepted:
ANTIGENICS INC.
By:
- ------------------------------------------------------
Name (print):
Title:
Dated:
- ---------------------------------------------------
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ANNEX B
FORM OF CONTINGENT VALUE RIGHTS AGREEMENT
CONTINGENT VALUE RIGHTS AGREEMENT, dated 2001, between
Antigenics Inc. ("Parent"), a Delaware corporation, and American Stock Transfer
& Trust Company, as Rights Agent (the "Rights Agent"), in favor of each person
(a "Holder") who from time to time holds one or more Contingent Value Rights
(the "CVRs") to receive a number of shares of Parent common stock, $0.01 par
value per share (the "Parent Common Stock"), in the amounts and subject to the
terms and conditions set forth herein. A registration statement on Form S-4 (No.
333- ) (the "Registration Statement") with respect to, among other
securities, the CVRs, has been prepared and filed by Parent with the Securities
and Exchange Commission (the "Commission") and has become effective in
accordance with the Securities Act of 1933 (the "Act"). This Agreement is
entered into in connection with the Agreement and Plan of Merger (the "Merger
Agreement") dated as of April 23, 2001, by and among Parent, Nasa Merger Corp.
("Merger Sub"), and Aronex Pharmaceuticals, Inc. (the "Company"), which sets
forth the initial allocation of one CVR to each outstanding share of Company
Common Stock (as defined in the Merger Agreement) and each share of Company
Common Stock subject to issuance under the Company Options (as defined in the
Merger Agreement), the Company Warrants (as defined in the Merger Agreement) and
the Convertible Note.
Section 1. Appointment of Rights Agent. Parent hereby appoints the Rights
Agent to act as agent for the Holders in accordance with the instructions set
forth herein, and the Rights Agent hereby accepts such appointment, upon the
terms and conditions hereinafter set forth.
Section 2. Form of CVR Certificate.
2.1 The CVRs shall be evidenced by certificates (the "CVR Certificates").
The CVR Certificates may have such letters, numbers, or other marks of
identification or designation and such legends, summaries, or endorsements
printed, lithographed, or engraved thereon as Parent may deem appropriate and as
are not inconsistent with the provisions of this Agreement, or as may be
required to comply with applicable law or with any rule or regulation made
pursuant thereto.
2.2 The CVR Certificates shall be executed on behalf of Parent by the
manual or facsimile signature of the present or any future President or Vice
President of Parent, under its corporate seal, affixed or in facsimile, attested
by the manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of Parent. CVR Certificates shall be dated as of the date of
the initial issuance thereof or the date of any subsequent transfer, as the case
may be.
Section 3. Registration.
3.1 The Rights Agent shall maintain books for the registration of the CVR
Certificates.
3.2 Prior to transfer of the CVR Certificates as provided for herein,
Parent and the Rights Agent may deem and treat the registered Holder thereof as
the absolute owner of the CVR Certificates (notwithstanding any notation of
ownership or other writing thereon made by anyone other than Parent or the
Rights Agent), for the purpose of the CVR Consideration (as defined herein) and
for all other purposes, and neither Parent nor the Rights Agent shall be
affected by any notice to the contrary.
Section 4. Payment and Exchange of CVRs.
4.1 Milestone and Exchange Ratio. For purposes of this Agreement,
"Milestone" means the granting of final approval by the U.S. Food and Drug
Administration (the "FDA") of the Company's New Drug Application, on or before
July 6, 2002, for ATRAGEN(R) (tretinoin liposome for injection) as a treatment
for patients with acute promyelocytic leukemia in any indication. Unless this
Agreement and the CVRs shall have been earlier terminated as provided herein,
the Holders shall be entitled to the following consideration, to be delivered by
the Rights Agent in accordance with the procedures set forth herein.
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(a) On the date the Milestone occurs (the "Milestone Date"), each CVR
outstanding immediately prior to the Milestone Date shall be cancelled and
extinguished and automatically converted into and become the right to
receive a fraction of a share of Parent Common Stock equal to the Exchange
Ratio, subject to payment of cash in lieu of fractional shares as provided
in Section 4.1(b). The Exchange Ratio shall equal (A) $.15 divided by (B)
the Closing Parent Price (as defined below); provided, however, that the
Exchange Ratio shall not be less than .0075 (the "Floor") nor greater than
.0125 (the "Ceiling"); and provided, further, that the Exchange Ratio
(including the Floor or the Ceiling, if applicable) shall be reduced in 10%
increments for each $50,000 increment above $4,000,000 that the Company
exceeds the Transaction Expenses (as defined below), such that the Exchange
Ratio shall equal 0 if the Transaction Expenses exceed $4,500,000. The
"Transaction Expenses" are (i) fees and expenses of the Company's
attorneys, accountants, financial advisors and other outside advisors
directly relating to the Merger Agreement or the Merger and (ii) severance
payments triggered or to be triggered by the transaction or the termination
of the Company's employees by the Company as a direct result of the Merger
Agreement or the Merger. The "Closing Parent Price" shall equal the average
of the per share closing prices of Parent Common Stock as reported by the
Nasdaq National Market for the ten trading days ending three trading days
prior to the Milestone Date, rounded to the fourth decimal place.
Notwithstanding the foregoing, if prior to the Milestone Date, there is a
change in the number of issued and outstanding shares of Parent Common
Stock as the result of reclassification, subdivision, recapitalization,
stock split (including reverse stock split) or stock dividend, the number
of shares of Parent Common Stock issued in exchange for the CVRs shall be
equitably adjusted to give effect to such event. The shares of Parent
Common Stock payable pursuant to this Section, together with cash payments
in lieu of fractional shares pursuant to Section 4.1(b), are referred to
collectively as the "CVR Consideration."
(b) No fractional shares of Parent Common Stock shall be issued
pursuant to this Agreement. In lieu of fractional shares, each Holder who
would otherwise have been entitled to a fraction of a share of Parent
Common Stock hereunder (after aggregating all fractional shares to be
received by such Holder), shall receive, without interest, an amount in
cash (rounded to the nearest whole cent) determined by multiplying such
fraction by the per share closing price of Parent Common Stock as reported
by the Nasdaq National Market on the trading day on which the Milestone
Date occurs (or, if the Milestone Date occurs on a date that is not a
trading day, on the immediately preceding trading day).
4.2 Exchange of Certificates. As soon as practicable after the Milestone
Date, Parent shall notify the Rights Agent and the Rights Agent shall promptly
thereafter mail, to all Holders of record of CVRs that were converted into the
right to receive CVR Consideration, instructions for surrendering their CVR
Certificates in exchange for a certificate representing shares of Parent Common
Stock and cash in lieu of fractional shares. Upon surrender of CVR Certificates
for cancellation to the Rights Agent, together with a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss of, and
title to, the CVR Certificates shall pass, only upon delivery of the CVR
Certificates to the Rights Agent) and other requested documents and in
accordance with the instructions thereon, the Holder of such Certificates shall
be entitled to receive in exchange therefor (a) a certificate representing that
number of whole shares of Parent Common Stock into which the CVRs theretofore
represented by the CVR Certificates so surrendered shall have been converted
pursuant to the provisions of this Agreement and (b) a check in the amount of
any cash due pursuant to Section 4.1(b) or Section 4.4. No interest shall be
paid or shall accrue on any such amounts. Until surrendered in accordance with
the provisions of this Section, each CVR Certificate shall represent for all
purposes only the right to receive CVR Consideration and, if applicable, amounts
under Section 4.4. Shares of Parent Common Stock into which the CVRs shall be
converted at the Milestone Date shall be deemed to have been issued on the
Milestone Date. Subject to Section 6 hereof, if any certificates representing
shares of Parent Common Stock are to be issued in a name other than that in
which the CVR Certificate surrendered is registered, it shall be a condition of
such exchange that the person requesting such exchange shall deliver to the
Rights Agent all documents necessary to evidence and effect such transfer and
shall pay to the Rights Agent any transfer or other taxes required by reason of
the issuance of a certificate representing shares of Parent Common Stock in a
name
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other than that of the registered Holder of the CVR Certificate surrendered, or
establish to the satisfaction of the Rights Agent that such tax has been paid or
is not applicable. Beginning the date which is six months following the
Milestone Date, Parent shall act as the Rights Agent and thereafter any holder
of an unsurrendered CVR Certificate shall look solely to Parent for any amounts
to which such Holder may be due, subject to applicable law. Notwithstanding any
other provisions of this Agreement, any portion of the CVR Consideration
remaining unclaimed five years after the Milestone Date (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to, or
become property of, any governmental entity) shall, to the extent permitted by
law, become the property of Parent free and clear of any claims or interest of
any person previously entitled thereto.
4.3 Lost Certificates. If any CVR Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such CVR Certificate to be lost, stolen or destroyed and, if required
by Parent or the Rights Agent, the posting by such person of a bond in such
reasonable amount as Parent or the Rights Agent may direct as indemnity against
any claim that may be made against it with respect to such CVR Certificate, the
Rights Agent shall deliver in exchange for such lost, stolen or destroyed CVR
Certificate (a) if prior to the Milestone Date, a new CVR Certificate of like
tenor and evidencing the number of CVRs evidenced by the CVR Certificate so
lost, stolen or destroyed or (b) if after the Milestone Date, the applicable
certificates representing shares of Parent Common Stock, cash in lieu of
fractional shares and any amounts due pursuant to Section 4.4.
4.4 Distributions with Respect to Unexchanged Shares. No dividend or other
distribution declared with respect to Parent Common Stock with a record date
after the Milestone Date shall be paid to holders of unsurrendered CVR
Certificates until such holders surrender such CVR Certificates. Upon the
surrender of such CVR Certificates in accordance with Section 4.2, there shall
be paid to such holders, promptly after such surrender, the amount of dividends
or other distributions, without interest, declared with a record date after the
Milestone Date and not paid because of the failure to surrender such CVR
Certificates for exchange.
4.5 Withholding Rights. Parent shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
Holder of CVRs such amounts as it is required to deduct and withhold with
respect to the making of such payment under the any provision of federal, state,
local or foreign tax law. To the extent that amounts are so withheld by Parent,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the Holder of the CVRs in respect of which such deduction
and withholding was made.
Section 5. Non-Transferability and Registration of CVRs.
5.1 The CVRs and any interest therein may not be sold, assigned, pledged,
encumbered, or in any other manner transferred or disposed of, in whole or in
part, other than in accordance with Section 6 hereof and in compliance with
applicable United States federal and state securities laws and the terms and
conditions hereof.
5.2 The CVRs have been registered pursuant to the Registration Statement
under the Act. Parent covenants and agrees:
(a) To use its reasonable best efforts to register or qualify any
transfers of the CVRs pursuant to Section 6 hereof under the Securities or
Blue Sky laws of each jurisdiction in which such registration or
qualification is necessary; and
(b) To pay all expenses incurred by it in complying with this Section
5.2, including, without limitation, (i) all registration and filing fees,
(ii) all printing expenses, (iii) all fees and disbursements of counsel and
independent public accountants for Parent, and (iv) all Blue Sky fees and
expenses.
Section 6. Exchange, Transfer, or Assignment of CVRs.
6.1 CVRs and any interest therein shall not be sold, assigned, transferred,
pledged, encumbered or in any other manner transferred or disposed of, in whole
or in part, other than through a Permitted Transfer (as defined herein). A
"Permitted Transfer" shall mean (i) the transfer of any or all of the CVRs on
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death by will or intestacy; (ii) transfer by instrument to an inter vivos or
testamentary trust in which the CVRs are to be passed to beneficiaries upon the
death of the trustee, (iii) transfers made pursuant to a court order; (iv) if
the Holder is a partnership, a distribution to the transferring partnership to
its partners; or (v) a transfer made by operation of law.
6.2 In the event of a Permitted Transfer, CVRs may be assigned or
transferred upon surrender of CVR Certificates to the Rights Agent, accompanied
(if so required by Parent or the Rights Agent) by a written instrument or
instruments of transfer in form satisfactory to Parent and the Rights Agent,
duly executed by the registered holder or by a duly authorized representative or
attorney, such signature to be guaranteed by a commercial bank or trust company
having an office in the United States, by a broker or dealer that is a member of
the National Association of Securities Dealers, Inc., or by a member of a
national securities exchange. Upon any such registration of transfer, a new CVR
Certificate shall be issued to the transferee and the surrendered CVR
Certificate shall be cancelled by the Rights Agent. CVR Certificates so
cancelled shall be delivered by the Rights Agent to Parent from time to time or
otherwise disposed of by the Rights Agent in a manner satisfactory to Parent.
6.3 Any transfer or assignment of CVRs shall be without charge (other than
the cost of any transfer tax) to the holder and any new CVR Certificates issued
pursuant to this Section 6 shall be dated the date of such transfer or
assignment.
Section 7. Rights of CVR Certificate Holder. The Holder of any CVR
Certificate or CVR, shall not, by virtue thereof, be entitled to any rights of a
stockholder of Parent, either at law or in equity, and the rights of the Holders
are limited to those expressed in this Agreement.
Section 8. Availability of Information. Parent will provide to the Rights
Agent all information in connection with this Agreement and the CVRs that the
Rights Agent may reasonably request.
Section 9. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which Parent and the Holders, by their acceptance hereof,
shall be bound.
9.1 The statements contained herein and in the CVR Certificates shall be
taken as statements of Parent, and the Rights Agent assumes no responsibility
for the correctness of any of the same except such as describe the Rights Agent
or actions taken or to be taken by it. The Rights Agent assumes no
responsibility with respect to the delivery of CVRs and the CVR Consideration
except as herein otherwise provided.
9.2 The Rights Agent shall not be responsible for any failure of Parent to
comply with any of the covenants contained in this Agreement or in the CVR
Certificates to be complied with by Parent.
9.3 The Rights Agent shall not be responsible for (i) determining if the
Milestone Date has occurred, (ii) calculating the Exchange Ratio, nor (iii)
assessing the amount of Transaction Expenses. Parent shall be responsible for
providing this information to the Rights Agent.
9.4 The Rights Agent may consult at any time with counsel satisfactory to
it (who may be counsel for Parent), and the Rights Agent shall incur no
liability or responsibility to Parent or to any Holder with respect to any
action taken, suffered, or omitted by it hereunder in good faith and in
accordance with the opinion or the advice of such counsel, provided that the
Rights Agent shall have exercised reasonable care in the selection and continued
employment of such counsel.
9.5 The Rights Agent shall incur no liability or responsibility to Parent
or to any Holder for any action taken in reliance on any notice, resolution,
waiver, consent, order, certificate, or other paper, document, or instrument
believed by it to be genuine and to have been signed, sent, or presented by the
proper party or parties.
9.6 Parent agrees (i) to pay to the Rights Agent reasonable compensation
for all services rendered by the Rights Agent in the execution of this Agreement
and (ii) to reimburse the Rights Agent for all taxes and governmental charges,
reasonable expenses, and other charges of any kind and nature incurred by the
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Rights Agent in connection with this Agreement. Parent shall reimburse the
Rights Agent for the reasonable costs of any counsel engaged by the Rights Agent
for the purposes contemplated by Section 9.4, provided that (x) such engagement
is reasonably necessary in the discharge of the Rights Agent's function
hereunder and relates to matters outside the ordinary course and (y) the Rights
Agent first consults with Parent a reasonable amount of time prior to incurring
any such liability. The Rights Agent shall be paid any compensation or
reimbursement owed to it directly.
9.7 The Holders of at least two-thirds of the outstanding CVRs may direct
the Rights Agent to act on behalf of the Holders in enforcing any of their
rights hereunder and pursuant to the CVRs. The Rights Agent shall be under no
obligation to institute any action, suit, or legal proceeding or to take any
other action likely to involve material expense unless the Holders shall furnish
the Rights Agent with reasonable security and indemnity for any costs and
expenses which may be incurred. All rights of action under this Agreement or
under any of the CVR Certificates may be enforced by the Rights Agent without
the possession of any of the CVR Certificates or the production thereof at any
trial or other proceeding relative thereto, and any such action, suit, or
proceeding instituted by the Rights Agent shall be brought in its name as Rights
Agent, and any recovery of judgment shall be for the ratable benefit of the
registered Holders, as their respective rights or interests may appear.
9.8 The Rights Agent shall act hereunder solely as agent, and its duties
shall be determined solely by the provisions hereof. The Rights Agent shall not
be liable for anything which it may do or refrain from doing in connection with
this Agreement except for its own gross negligence or bad faith.
9.9 Parent agrees to indemnify Rights Agent for, and hold Rights Agent
harmless against, any loss, liability, claim or expense ("Loss") arising out of
or in connection with Rights Agent's duties under this Agreement, including the
costs and expenses of defending Rights Agent against any Loss, unless such Loss
shall have been determined by a court of competent jurisdiction to be a result
of Rights Agent's negligence, bad faith or willful or intentional misconduct.
Rights Agent agrees to notify Parent in writing of any receipt of an
assertion of a claim or any action commenced against Rights Agent, within seven
(7) business days after the receipt of notice of such assertion or having been
served with the summons or other first legal process giving information as to
the nature and basis of any such assertion or action. The failure to so notify
Parent will not relieve Parent from liability hereunder unless prejudice is
suffered by Parent as a result of such failure. At its election, Parent may
assume the conduct of Rights Agent's defense in any such action or claim, at its
sole cost and expense. In the event that Parent elects to assume the defense,
Parent shall not be liable for fees and expenses of any counsel thereafter
retained by Rights Agent. In no case will Parent be liable for special,
indirect, incidental or consequential loss or damages of any kind whatsoever
(including but not limited to lost profits).
The obligations of Parent under this section shall survive the termination
of this Agreement.
Section 10. Change of Rights Agent.
10.1 Any corporation into which the Rights Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Rights Agent, shall be the
successor to the Rights Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto.
10.2 The Rights Agent may resign and be discharged from its duties under
this Agreement by giving to Parent notice in writing, specifying a date when
such resignation shall take effect, which notice shall be sent at least 30 days
prior to the date so specified. If the Rights Agent shall resign or otherwise
become incapable of acting, Parent shall appoint a successor to the Rights
Agent. After appointment the successor Rights Agent shall be vested with the
same powers, rights, duties, and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the former Rights Agent
shall deliver and transfer to the successor Rights Agent copies of all books,
records, plans, and other documents in the former Rights Agent's possession
relating to the CVRs or this Agreement and execute and deliver any
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further assurance, conveyance, act, or deed necessary for the purpose. Failure
to give any notice provided for in this Section 10.2 or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.
Section 11. Successors. All covenants and provisions of this Agreement by
or for the benefit of Parent, the Rights Agent, or the Holders shall bind and
inure to the benefit of their respective successors, assigns, heirs, and
personal representatives.
Section 12. Termination. This Agreement shall terminate on the earlier to
occur of the following events:
(i) Six months after the Milestone Date; or
(ii) July 6, 2002.
Section 13. Counterparts. This Agreement may be executed in any number of
counterparts; and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute one and the
same agreement.
Section 14. Headings. The headings of sections of this Agreement have been
inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
Section 15. Amendments. This Agreement may be amended by the written
consent of Parent and the affirmative vote or the written consent of holders
holding not less than two-thirds in interest of the then outstanding CVRs;
provided, however, that no such modification or amendment to this Agreement may,
without the consent of each Holder affected thereby, change in manner adverse to
the Holders, (a) any provision contained herein with respect to termination of
this Agreement or the CVRs, (b) the amount of CVR Consideration to be issued
according to the terms of this Agreement to the Holders of the CVRs, or (c) the
provisions of this Section 15. Notwithstanding the foregoing, Parent and the
Rights Agent may from time to time supplement or amend this Agreement, without
the approval of any Holder, in order to cure any ambiguity or to correct or
supplement any provision contained in this Agreement which may be defective or
inconsistent with any other provision in this Agreement, or to make any other
provisions in regard to matters or questions arising under this Agreement which
Parent and the Rights Agent may deem necessary or desirable and which shall not
be inconsistent with the provisions of the CVRs and which shall not adversely
affect the interests of the Holders.
Section 16. Notices. Any notice required to be given hereunder shall be
sufficient if in writing and sent by facsimile transmission, by courier or other
national overnight express mail service (with proof of service), hand delivery,
or certified or registered mail (return receipt requested and first-class
postage prepaid), addressed as follows:
If to Parent:
Antigenics Inc.
630 Fifth Avenue, Suite 1200
New York, New York 10111
Attn: Garo H. Armen, Ph.D.
Telephone: (212) 332-4774
If to the Rights Agent:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
Attn: Angela Francis-Brown
Herb Lemmer
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or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date of
receipt.
Section 17. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation, other than Parent, the Rights
Agent, and the registered Holders, any legal or equitable right, remedy, or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of Parent, the Rights Agent, and the registered Holders.
Section 18. Governing Law; Submission to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Delaware without regard to its rules of conflict of laws. The parties hereto
agree that any suit, action, or proceeding seeking to enforce any provision of,
or based on any matter arising out of, this Agreement may be brought in the
United States District Court for the District of Massachusetts, and each of the
parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such suit, action, or proceeding and
irrevocably waives any objection which it may now or hereafter have to the
laying of the venue of any such suit, action, or proceeding in any such court or
that any such suit, action, or proceeding which is brought in any such court has
been brought in an inconvenient forum. Process in any such suit, action, or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party in the manner provided for
notices in Section 16 shall be deemed effective service of process on such
party.
[The remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
ANTIGENICS INC.
By:
--------------------------------------
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Rights Agent
By:
--------------------------------------
Name:
Title:
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ANNEX C
April 23, 2001
Board of Directors
Aronex Pharmaceuticals, Inc.
8707 Technology Forest Place
The Woodlands, TX 77381-1191
Members of the Board:
We understand that Aronex Pharmaceuticals, Inc. (the "Company"), Antigenics,
Inc. ("Acquiror"), and NASA Merger Corp. (a wholly owned subsidiary of Acquiror,
"Merger Sub") are proposing to enter into an Agreement and Plan of Merger (the
"Agreement") which will provide, among other things, for the merger (the
"Merger") of Merger Sub with and into the Company. Upon consummation of the
Merger, the Company will become a wholly owned subsidiary of Acquiror.
Under the terms, and subject to the conditions, set forth in the draft of the
Agreement dated April 20, 2001 (the "Draft Agreement"), at effective time of the
Merger, each outstanding share of common stock of the Company, par value $0.001
per share ("Company Common Stock"), will be converted into the right to receive
(i) a fraction of a share of common stock of Acquiror, par value $0.01 per share
("Acquiror Common Stock"), equal to $1.10 divided by the average of the per
share closing prices of the Acquiror Common Stock as reported by the Nasdaq
National Market for the ten trading days ending two trading days prior to the
consummation of the Merger (the "Exchange Ratio") and (ii) subject to certain
conditions, one contingent value right (a "CVR") issued pursuant to the
Contingent Value Rights Agreement (the "CVR Agreement") in the form attached as
an exhibit to the Draft Agreement. The Draft Agreement further provides that in
no event will the Exchange Ratio exceed 0.0917 or be less than 0.0550. The
shares of Acquiror Common Stock and the CVRs to be issued in the Merger are
collectively referred to herein as the "Consideration". In connection with the
Agreement, certain holders of shares of Company Common Stock will enter into a
Stockholder Voting Agreement with Acquiror (the "Voting Agreement"). The terms
and conditions of the Merger are set out more fully in the Draft Agreement.
You have asked us whether, in our opinion, the Consideration is fair from a
financial point of view and as of the date hereof to the "Holders of Company
Common Stock." The "Holders of Company Common Stock" shall be defined as all
holders of Company Common Stock other than Acquiror, Merger Sub, any affiliates
of Acquiror or Merger Sub or any holders of Company Common Stock who are
officers or directors (or who have representatives serving as directors) of the
Company.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company and Acquiror,
respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data, including certain financial
forecasts and other forward looking information, concerning the
Company prepared by the management of the Company;
(iii) reviewed with the Acquiror certain publicly available estimates
of research analysts relating to Acquiror;
(iv) held discussions with the respective managements of the Company
and Acquiror concerning the businesses, past and current
operations, financial condition and future prospects of both the
Company and Acquiror, independently and combined, including
discussions with the managements of the Company and Acquiror
concerning their views regarding the strategic rationale for the
Merger;
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Board of Directors
Aronex Pharmaceuticals, Inc.
April 23, 2001
Page 2
(v) reviewed the financial terms and conditions set forth in the
Draft Agreement and drafts, dated April 20, 2001, of the CVR
Agreement and the Voting Agreement (collectively, the "Draft
Agreements");
(vi) reviewed the stock price and trading history of Acquiror Common
Stock and Company Common Stock;
(vii) compared the financial performance of Acquiror and the prices
and trading activity of Acquiror Common Stock with that of
certain other publicly traded companies comparable with
Acquiror;
(viii) compared the financial performance of the Company with that of
certain publicly traded companies comparable to the Company;
(ix) compared the financial terms of the Merger with the financial
terms, to the extent publicly available, of other transactions
that we deemed relevant;
(x) reviewed the pro forma impact of the Merger;
(xi) participated in discussions and negotiations among
representatives of the Company and Acquiror and their financial
and legal advisors; and
(xii) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the managements of the Company and Acquiror) or
publicly available and have neither attempted to verify, nor assumed
responsibility for verifying, any of such information. We have relied upon the
assurances of the managements of the Company and Acquiror that they are not
aware of any facts that would make such information inaccurate or misleading.
Furthermore, we did not obtain or make, or assume any responsibility for
obtaining or making, any independent evaluation or appraisal of the properties,
assets or liabilities (contingent or otherwise) of the Company or Acquiror, nor
were we furnished with any such evaluation or appraisal. With respect to the
financial forecasts and other forward looking financial information (and the
assumptions and bases therefor) for each of the Company and Acquiror that we
have reviewed, we have assumed that such forecasts and other forward looking
financial information have been reasonably prepared in good faith on the basis
of reasonable assumptions and reflect the best currently available estimates and
judgments as to the future financial condition and performance of each of the
Company and Acquiror, respectively, and we have further assumed that such
projections and other forward looking financial information will be realized in
the amounts and in the time periods currently estimated. We have assumed that
the Merger will be consummated upon the terms set forth in the Draft Agreements
without material alteration thereof, including, among other things, that the
Merger will be accounted for as a "purchase method" business combination in
accordance with U.S. generally accepted accounting principles ("GAAP") and that
the Merger will be treated as a tax-free reorganization pursuant to the Internal
Revenue Code of 1986, as amended. In addition, we have assumed that the
historical financial statements of each of the Company and Acquiror reviewed by
us have been prepared and fairly presented in accordance with U.S. GAAP
consistently applied. We have relied as to all legal matters relevant to
rendering our opinion on the advice of counsel to the Company.
This opinion is necessarily based upon market, economic and other conditions as
in effect on, and information made available to us as of, the date hereof. It
should be understood that subsequent
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Board of Directors
Aronex Pharmaceuticals, Inc.
April 23, 2001
Page 3
developments may affect the conclusion expressed in this opinion and that we
disclaim any undertaking or obligation to advise any person of any change in any
fact or matter affecting this opinion which may come or be brought to our
attention after the date of this opinion. Our opinion is limited to the
fairness, from a financial point of view and as to the date hereof, to the
Holders of Company Common Stock of the Consideration. We do not express any
opinion as to (i) the value of any employee agreement or other arrangement
entered into in connection with the Merger, (ii) any tax or other consequences
that might result from the Merger or (iii) what the value of Acquiror Common
Stock will be when issued to the Company's stockholders pursuant to the Merger
or the price at which the shares of Acquiror Common Stock that are issued
pursuant to the Merger may be traded in the future. Our opinion does not address
the relative merits of the Merger and the other business strategies that the
Company's Board of Directors has considered or may be considering, nor does it
address the decision of the Company's Board of Directors to proceed with the
Merger.
We are acting as financial advisor to the Company in connection with the Merger
and will receive (i) a fee contingent upon the delivery of this opinion
irrespective of the conclusion reached herein and (ii) an additional fee
contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of our
engagement. In the past, we have provided certain investment banking services to
the Acquiror including acting as co-manager for the Acquiror's filing of an
initial public offering. In the ordinary course of business, we may trade in
Acquiror's securities and the Company's securities for our own account and the
account of our customers and, accordingly, may at any time hold a long or short
position in Acquiror's securities or the Company's securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of the Company in connection with its evaluation of the Merger. Our
opinion is not intended to be and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote, or take any
other action, with respect to the Merger. This opinion may not be summarized,
described or referred to or furnished to any party except with our express prior
written consent.
Based upon and subject to the foregoing considerations, it is our opinion that,
as of the date hereof, the Consideration is fair to the Holders of Company
Common Stock from a financial point of view.
Very truly yours,
/s/ ROBERTSON STEPHENS INC.
C-3
187
ARONEX PHARMACEUTICALS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING TO BE HELD JULY 12, 2001
The undersigned hereby appoints Geoffrey F. Cox, Ph.D. and Terance A.
Murnane and each of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and vote, as designated on
the reverse side, all of the shares of the common stock of Aronex
Pharmaceuticals, Inc. (the "Company") held of record by the undersigned on June
1, 2001 at the Special Meeting (the "Special Meeting") of Stockholders of the
Company to be held on Thursday, July 12, 2001, at 9:00 a.m., local time at the
offices of Palmer & Dodge LLP, One Beacon Street, Boston, Massachusetts, and any
adjournment(s) thereof.
It is important that your shares be represented at the Special Meeting
regardless of whether you plan to attend. THEREFORE, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING POSTPAID ENVELOPE AS
PROMPTLY AS POSSIBLE. If you are present at the Special Meeting, and wish to do
so, you may revoke the proxy and vote in person.
(To be Dated And Signed On Reverse Side)
188
Please date, sign and mail your proxy card back as soon as possible!
Special Meeting of Stockholders
Aronex Pharmaceuticals, Inc.
July 12, 2001
- --------------------------------------------------------------------------------
A [ X ] PLEASE MARK YOUR |
VOTES AS IN THIS |
EXAMPLE. |- - -
1. To adopt and approve the FOR AGAINST ABSTAIN
Agreement and Plan of Merger [ ] [ ] [ ]
dated as of April 23, 2001
among Antigenics Inc.,
Nasa Merger Corp. and
Aronex Pharmaceuticals, Inc.; and
_______________________________________________________________________________
To act upon such other business as may properly come before the meeting or
any adjournments thereof.
Only stockholders of record at the close of business on June 1, 2001
will be entitled to notice of and to vote at the Special Meeting.
SIGNATURE DATE
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SIGNATURE DATE
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Signature is held jointly
NOTE: Please execute this Proxy as your name appears hereon. When shares are
held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by the
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.