Exhibit 10.702
EXECUTION COPY
GOVERNANCE AGREEMENT dated as of November 20, 1994
(this "Agreement"), among CIBA-GEIGY LIMITED, a Swiss
corporation ("Ciba"), CIBA-GEIGY CORPORATION, a New York
Corporation that is an indirect wholly owned subsidiary of
Ciba ("C Corp"), and CHIRON CORPORATION, a Delaware
corporation (the "Company").
WHEREAS Ciba and the Company have determined to enter into a
strategic partnership in the area of biotechnology under which the two
companies will enter into various collaborations, the Company will
remain an autonomous and entrepreneurial business and will continue to
make acquisitions of businesses and technologies within its strategic
mission and Ciba will make substantial investments in the Company so
as to enhance its capabilities for growth and strategic success;
WHEREAS Ciba, C Corp, CIBA Biotech Partnership, Inc., a Delaware
corporation ("Holdings"), and the Company have entered into the
Investment Agreement dated as of the date hereof (the "Investment
Agreement");
WHEREAS each of Ciba, C Corp, Holdings and the Company have each
determined to engage in the transactions contemplated by the
Investment Agreement pursuant to which transactions Ciba initially
will own a minority of the then outstanding shares of Common Stock of
the Company; and
WHEREAS Ciba, C Corp and the Company desire to establish in this
Agreement certain terms and conditions concerning the corporate
governance of the Company and certain terms and conditions concerning
the acquisition and disposition of securities of the Company by Ciba
and its Subsidiaries.
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained herein and for other good and valuable
consideration, the sufficiency and receipt of
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which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
"ACQUISITION" means any acquisition of (i) any 10% or greater
voting interest in any Person, (ii) the business of any Person or
(iii) any assets of any Person comprising all or a Substantial Part of
either such Person or the Company, in each case whether such
acquisition be by merger, consolidation, the purchase of stock or
assets or otherwise, but shall not include (a) any such acquisition of
an equity interest in any Person primarily as part of the
establishment of a technology collaboration with such Person so long
as the value of the consideration for such equity is less than
$20,000,000 and is paid in cash or (b) any such acquisition which in
substance is the acquisition of intellectual property and not of a
business or any operating assets of a business, so long as the
consideration for such intellectual property does not include Equity
Securities.
"AFFILIATE" has the meaning assigned to such term in the
Investment Agreement.
"ANCILLARY AGREEMENTS" has the meaning assigned to such term in
the Investment Agreement.
"ASSOCIATE" has the same meaning as in Rule 12b-2 promulgated
under the Exchange Act.
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of
the Company except where the context requires otherwise.
"BUYOUT TRANSACTION" means a tender offer, merger, sale of
substantially all of the Company's assets or similar transaction
involving Ciba or one of its Affiliates and the Company or the
Unaffiliated Equity Holders that (1) offers each Unaffiliated Equity
Holder the opportunity to dispose of all Equity Securities owned by
such stockholder or otherwise provides for the acquisition of all (but
not less than all) Equity Securities owned by such stockholder, in
each case for consideration reflecting such stockholder's
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proportionate share of the Third Party Sale Value Consideration and
(2) for each class of Equity Securities, provides the same
consideration for each security within such class.
"CCD" means Ciba Corning Diagnostics Corp., a Delaware
corporation.
"CIBA'S PERCENTAGE INTEREST" means the percentage of Voting
Power, determined on the basis of the number of shares of Voting Stock
actually outstanding, that is controlled directly or indirectly by
Ciba or any Subsidiary of Ciba (other than the Company and its
Subsidiaries), including by beneficial ownership.
"CLOSING" means the date shares of Common Stock are accepted for
payment pursuant to the Offer.
"COMMON STOCK" means the Common Stock of the Company, and any
other capital stock of the Company that does not have a fixed,
floating or formulaic right to the payment of dividends or of a
preferential amount upon liquidation.
"COMPANY" has the meaning set forth above.
"DIRECTOR" means a member of the Board of Directors.
"DISCRIMINATORY TRANSACTION" means any transaction or other
corporate action (other than those imposed pursuant to the express
terms of this Agreement and other than those imposed, without the
happening of a contingency, on each other stockholder) which would
(x) impose limitations on the legal rights of Ciba or any of its
Affiliates or Associates as a stockholder of the Company,
including, without limitation, any action which would impose
restrictions based upon the size of security holding, nationality
of a securityholder, the business in which a securityholder is
engaged or other considerations applicable to Ciba and not to
stockholders generally, (y) deny any benefit to Ciba or any of its
Affiliates or Associates, proportionately as a holder of any class
of Voting Stock, that is made available to other holders of any
class of Voting Stock or (z) otherwise materially adversely
discriminate against Ciba, its Affiliates or Associates as
stockholders of the Company.
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"EFFECTIVENESS OF THE AGREEMENT" means the Closing.
"EQUITY SECURITY" means (i) any Common Stock or other Voting
Stock, (ii) any securities of the Company convertible into or
exchangeable for Common Stock or other Voting Stock or (iii) any
options, rights or warrants (or any similar securities) issued by the
Company to acquire Common Stock or other Voting Stock.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, as amended.
"EXECUTIVE OFFICER" has the meaning set forth in Section 2.12(c).
"EXTRAORDINARY DIVIDEND" means (i) the first dividend paid by the
Company with respect to its Common Stock (other than pro rata
dividends paid solely in additional shares of Common Stock), (ii) if
the Company has previously paid a cash dividend with respect to its
Common Stock, the payment by the Company of a dividend with respect to
its Common Stock (other than pro rata dividends paid solely in
additional shares of Common Stock) if the per share amount of such
dividend, when taken together with the aggregate per share amount of
cash dividends paid by the Company within the preceding 12 months,
exceeds 5% of the Company's net earnings per share (determined in
accordance with GAAP) for such 12 month period or (iii) the payment by
the Company of a dividend with respect to any capital stock other than
Common Stock unless such dividend is required by the instrument
creating such capital stock.
"FAIR MARKET VALUE" means, as of any date of determination, (i)
in the case of a security, the average of the closing sale prices of
such security during the 10-day period immediately preceding such date
of determination on the principal U.S. or foreign securities exchange
on which such security is listed or, if such security is not listed or
primarily traded on any such exchange, the average of the closing sale
prices or the closing bid quotations of such security during the
10-day period preceding such date of determination on the Nasdaq
National Market or any comparable system then in use or, if no such
quotations are available, the fair market value of such security as of
such date of determination as determined in good faith by a majority
of the Independent Directors (or, in the case of
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any securities payable as part of the Third Party Sale Value
Consideration, by the arbitrator(s) pursuant to Section 4.01(d) to the
extent applicable); and (ii) in the case of property other than cash
or a security, the fair market value of such property on such date of
determination as determined in good faith by a majority of Independent
Directors.
"FIRST STANDSTILL PERIOD" means the period beginning at the
Effectiveness of this Agreement and terminating at the later to occur
of (i) January 15, 2000, and (ii) the fifth anniversary of the
Closing.
"GAAP" means U.S. generally accepted accounting principles.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of
such Person under conditional sale or other title retention agreements
relating to property or assets purchased by such Person, (c) all
obligations of such Person issued or assumed as the deferred purchase
price of property or services, (d) all Indebtedness of others secured
by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any lien on property
owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (e) all guarantees by such Person
of Indebtedness of others, (f) all obligations of such Person in
respect to interest rate protection agreements, foreign currency
exchange agreements or other interest or exchange rate hedging
arrangements, in each case other than those entered into primarily as
a hedge, and (g) all capital lease obligations of such Person.
"INDEPENDENT DIRECTOR" means a Director of the Company (i) who is
not and has never been an officer or employee of the Company, any
Affiliate or Associate of the Company or of an entity that derived 5%
or more of its revenues or earnings in its most recent fiscal year
from transactions involving the Company or any Affiliate or Associate
of the Company, (ii) who is not and has never been an officer,
employee or director of Ciba (except for Xx. Xxxxx Xxxxxxxx, who shall
be an Independent Director), any Affiliate or Associate of Ciba or of
an entity that derived more than 5% of its revenues or earnings in its
most recent fiscal year from transactions involving Ciba or any
Affiliate or Associate of Ciba and (iii) who has no
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affiliation, compensation, consulting or contracting arrangement with
the Company, Ciba or their respective Affiliates or any other entity
such that a reasonable person would regard such Director as likely to
be unduly influenced by management of the Company or Ciba,
respectively, but shall not include any Investor Director or
Management Director.
"INDEX DEBT" means the Company's senior, unsecured,
noncredit-enhanced long-term indebtedness for borrowed money.
"INVESTMENT AGREEMENT" has the meaning set forth above.
"INVESTMENT GRADE" means a rating of at least Baa3 by Xxxxx'x or
of at least BBB- by S&P. If the rating system of Moody's or S&P shall
change, or if either such rating agency shall cease to be in the
business of rating corporate debt obligations, the Company and Ciba
shall negotiate in good faith to amend the applicable reference to a
specific rating in this definition to reflect such changed rating
system or the nonavailability of ratings from such rating agency.
"INVESTOR DIRECTOR" means a Director who is designated for such
position by Ciba in accordance with Section 2.01.
"LEVEL I ACQUISITION" means any Acquisition by the Company or any
of its Subsidiaries for which the sole consideration given by the
Company and its Subsidiaries consists of cash and/or shares of
Specified Equity Securities having an aggregate Fair Market Value not
exceeding, when taken together with the Fair Market Value of the
consideration given by the Company and its Subsidiaries (such value
being determined as of the date of the giving of the relevant
consideration) for all other Acquisitions by them being consummated
simultaneously with such Acquisition or previously consummated during
the same fiscal year of the Company during which such Acquisition is
consummated, $125,000,000.
"LEVEL II ACQUISITION" means any Acquisition by the Company or
any of its Subsidiaries that is not a Level I Acquisition.
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"LEVEL I STOCK ISSUANCE" means (i) during the five year period
commencing with the Effectiveness of this Agreement, any Stock
Issuance providing gross proceeds not exceeding (A) when taken
together with the gross proceeds from all other Stock Issuances being
consummated simultaneously with such issuance or previously
consummated during such five year period (including Stock Issuances
pursuant to the Subscription Agreement), $700,000,000, or (B) when
taken together with the gross proceeds from all other Stock Issuances
being consummated simultaneously with such issuance or previously
consummated during such five year period (excluding Stock Issuances
pursuant to the Subscription Agreement), $400,000,000 and (ii) during
each subsequent five year period, any Stock Issuance providing gross
proceeds not exceeding (A) when taken together with the gross proceeds
from all other Stock Issuances being consummated simultaneously with
such issuance or previously consummated during such five year period
(including Stock Issuances pursuant to the Subscription Agreement),
the aggregate of (1) $400,000,000 plus (2) if positive, the
Subscription Amount (as defined in the Subscription Agreement) as of
the commencement of such period less $200,000,000 or (B) when taken
together with the gross proceeds from all other Stock Issuances being
consummated simultaneously with such issuance or previously
consummated during such five year period (excluding Stock Issuances
pursuant to the Subscription Agreement), $400,000,000.
"LEVEL II STOCK ISSUANCE" means any Stock Issuance that is not a
Level I Stock Issuance.
"MANAGEMENT DIRECTOR" means a Director who is also an employee of
the Company or any other Director designated as such by the Nominating
Committee in accordance with Section 2.01.
"MARKET PURCHASE" means an acquisition of Equity Securities that
is within the definition of "Rule 10b-18 Purchase" under Rule 10b-18
under the Exchange Act as in effect on the date hereof that satisfies
the conditions of paragraph (b) of Rule 10b-18.
"MEASUREMENT STANDARDS" means the measurement standards set and
approved pursuant to Section 2.12.
"MOODY'S" means Xxxxx'x Investor Service, Inc.
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"NEW SECURITY" means any Equity Security issued by the Company
after the Closing; PROVIDED that "New Security" shall not include (i)
any securities issuable upon conversion of any convertible Equity
Security, (ii) any securities issuable upon exercise of any option,
warrant or other similar Equity Security or (iii) any securities
issuable in connection with any stock split, stock dividend or
recapitalization of the Company where such securities are issued to
all stockholders of the Company on a proportionate basis.
"NOMINATING COMMITTEE" shall mean the Nominating Committee of the
Board of Directors as described in Section 2.03(b)(ii).
"OFFER" has the meaning assigned to such term in the Investment
Agreement.
"OPERATING PLAN" means an operating plan of the Company and its
Subsidiaries for any fiscal year and will include, at a minimum, an
operating budget, a research and development budget, a capital
expenditures budget, a financing plan and financial and operating
performance goals for the Company (including sales and net profits and
any appropriate qualitative objectives).
"PERSON" means an individual, a partnership, a joint venture, a
corporation, a trust, an incorporated or unincorporated organization,
a government or any department or agency thereof.
"PRO RATA SHARE" means the fraction of an entire issuance of New
Securities, the numerator of which shall be the number of shares of
Common Stock owned by Ciba and its Affiliates (other than the Company
and its Subsidiaries) immediately prior to such issuance of such New
Securities and the denominator of which shall be the aggregate number
of shares of Common Stock outstanding immediately prior to such
issuance of such New Securities.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the date hereof, by and among Ciba, C Corp,
Holdings and the Company.
"SEC" means the Securities and Exchange Commission.
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"SECOND STANDSTILL PERIOD" means the period commencing at the end
of the First Standstill Period and terminating at the date that Ciba
and its Affiliates become the beneficial owners of all outstanding
shares of Equity Securities.
"SECTION 16 OFFICERS" has the meaning assigned to such term in
Section 2.03(b)(iv).
"SECURITIES ACT" means the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended.
"SIGNIFICANT SUBSIDIARY" has the meaning assigned to such term in
the Investment Agreement.
"S&P" means Standard & Poor's Corporation.
"SPECIFIED EQUITY SECURITIES" means (i) any Common Stock, (ii)
any nonvoting preferred stock (or any convertible preferred stock
having voting rights on an as-converted basis) of the Company having a
fixed, floating or formulaic dividend rate and a fixed liquidation
preference, that does not participate in the financial results of the
Company or any of its Subsidiaries or other business operations and
the value of which is not derived from any other security or business
operation and (iii) any debt securities of the Company convertible
into any of the foregoing.
"STANDSTILL PERIODS" means the First Standstill Period and the
Second Standstill Period.
"STOCK ISSUANCE" means any issuance of any Equity Securities or
other capital stock (including any options, warrants or other rights
with respect thereto) of the Company or any of its Subsidiaries,
except (i) to a wholly owned Subsidiary of the Company or to the
Company, as the case may be, (ii) as contemplated by the exception set
forth in Section 2.04(b)(ii), and (iii) issuances of Specified Equity
Securities in connection with (A) any Level I Acquisition and (B) to
the extent approved in accordance with Section 2.04, any Level II
Acquisition.
"STRATEGIC PLAN" means the strategic plan of the Company and its
Subsidiaries which sets forth the strategic direction for the Company
and its Subsidiaries and their businesses (by strategic business
units) for an open long
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term horizon and for a period of three fiscal years in quantitative
terms. While the specific items addressed in the Strategic Plan will
depend upon the circumstances at the time of preparation, the parties
expect the first Strategic Plan prepared after the Closing will be
based generally on the items set forth in Annex A.
"STRATEGIC PLANNING COMMITTEE" means the Strategic Planning
Committee of the Board of Directors as described in Section 2.03(b)
(iii).
"STRATEGIC REVIEW" means a review and process that determines
whether the Strategic Plan is still valid, reviews progress to date,
updates key elements of the Strategic Plan, if deemed necessary, and
proposes modifications in objectives and strategies if deemed
necessary. It includes a review of (i) whether assumptions (including
as to market factors, competition, regulation, patents, pipeline,
etc.) are still valid; (ii) whether objectives are still realistic;
(iii) whether strategies and programs are on track; (iv) whether
resource assessments are still valid; and (v) an updated outlook
(financial and nonfinancial) if material deviations are expected.
"SUBSCRIPTION AGREEMENT" means the Subscription Agreement dated
as of the date hereof among Ciba, C Corp, Holdings and the Company.
"SUBSIDIARY" has the same meaning as in Rule 12b-2 promulgated
under the Exchange Act.
A "SUBSTANTIAL PART" of any Person means, as of any date of
determination, more than 10% of the Fair Market Value of the total
assets of such Person and its Subsidiaries as of the end of such
Person's most recent fiscal quarter ending prior to such date of
determination.
"SUPERMAJORITY VOTE OF THE BOARD" means approval by a majority of
the entire Board of Directors, which majority includes a majority of
all Investor Directors and a majority of all Independent Directors.
"THIRD PARTY SALE VALUE" means the value that an unaffiliated
third party would be expected (based on financial analyses generally
used by investment bankers in the preparation of a fairness opinion
for an acquisition transaction) to pay for all the Equity Securities
of the
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Company in an arm's-length transaction negotiated by a willing seller
and a willing buyer.
"THIRD PARTY SALE VALUE CONSIDERATION" means consideration at
least equal as of the relevant date to Third Party Sale Value.
"TOTAL VOTING POWER" means the aggregate number of votes entitled
to be voted in an election of Directors of the Company by all the
outstanding Voting Stock.
"UNAFFILIATED EQUITY HOLDERS" means holders of Equity Securities
other than Ciba or any of its Affiliates.
"VOTING POWER" means the ability to vote or to control, directly
or indirectly, by proxy or otherwise the vote of any Voting Stock.
"VOTING STOCK" means securities having the right to vote
generally in any election of Directors of the Company.
"13D GROUP" means any group of Persons formed for the purpose of
acquiring, holding, voting or disposing of Voting Stock which would be
required under Section 13(d) of the Exchange Act, and the rules and
regulations thereunder (as in effect, and based on legal
interpretations thereof existing, on the date hereof), to file a
statement on Schedule 13D with the SEC as a "person" within the
meaning of Section 13(d)(3) of the Exchange Act if such group
beneficially owned Voting Stock representing more than 5% of any class
of Voting Stock then outstanding.
SECTION 1.02. INTERPRETATION. The rules of interpretation set
forth in Section 7.04 of the Investment Agreement shall apply to this
Agreement, and the provisions thereof shall be deemed to be
incorporated by reference herein.
ARTICLE II
CORPORATE GOVERNANCE
SECTION 2.01. COMPOSITION OF THE BOARD OF DIRECTORS. Subject to
this Article II, the fundamental policies and strategic direction of
the Company shall be determined by its Board of Directors as provided
in this
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Article II. The composition of the Board of Directors and manner of
selecting members thereof shall be as follows:
(a) At and after the Effectiveness of this Agreement, the Board
of Directors shall be comprised of 11 Directors. The number of such
Directors may be increased only in accordance with Sections 2.01(g)
and 2.04(a).
(b) Immediately following the Effectiveness of this Agreement,
the Company shall elect to its Board of Directors the three
individuals notified prior to the Closing by Ciba to the Company,
which individuals will include Xx. Xxxx Xxxxxx (unless any such
individual is unable or unwilling to serve, in which event the Company
shall elect a substitute individual designated by Ciba prior to the
Closing), each of whom is designated as an Investor Director by Ciba.
The Company agrees to file with the SEC, and to transmit to all
holders of record of Common Stock and other Voting Stock, the
information referred to in Section 14(f) of the Exchange Act in
connection with such election as and to the extent required by such
Section 14(f). Each such individual (or if applicable such
individual's substitute) shall be assigned to the class of the Board
of Directors notified by Ciba to the Company prior to the Closing.
Following the Effectiveness of this Agreement, the current Directors
of the Company listed under the heading of "Management Directors" in
Schedule 2.01 shall be deemed and continue to be Management Directors
and the current Directors of the Company listed under the heading
"Independent Directors" in Schedule 2.01 shall be deemed and continue
to be Independent Directors, in each case until the expiration of the
term of their respective elections (or any earlier termination,
resignation or removal).
(c) Except as otherwise provided herein, at all times from and
after the Effectiveness of this Agreement, the Directors shall be
nominated as follows (it being understood that such nomination shall
include any nomination of any incumbent Director for reelection to the
Board of Directors):
(i) the Nominating Committee shall nominate three Management
Directors, two of whom shall be the two most senior executives of
the Company;
(ii) Ciba shall have the right to designate three Investor
Directors, each of whom shall be nominated by the Nominating
Committee; and
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(iii) the Nominating Committee shall nominate the remaining
Directors, each of whom (A) shall have an outstanding reputation
for personal integrity and distinguished achievement in areas
relevant to the Company (in applying the foregoing criteria the
Nominating Committee shall be guided by the quality of the
individuals currently serving as directors of the Company and
Ciba) and (B) shall be an Independent Director.
(d) Notwithstanding anything in the foregoing paragraph (c) to
the contrary, (i) at any time Ciba's Percentage Interest is less than
30% but at least 20%, the Directors shall be nominated as set forth in
such paragraph (c) except Ciba shall have the right to designate for
nomination two Investor Directors and (ii) at any time Ciba's
Percentage Interest shall be less than 20%, the Directors shall be
nominated as set forth in such paragraph (c) except Ciba shall have
the right to designate for nomination one Investor Director.
(e) In connection with each annual meeting of the stockholders
of the Company, Ciba shall have the right to designate for nomination
a number of nominees for Director that together with the persons
designated for nomination by Ciba who are Directors in the classes not
standing for election at such annual meeting equals the number of
Investor Directors that Ciba is entitled to designate for nomination
pursuant to this Section 2.01 as of the date of such annual meeting.
Each person so designated shall be included in management's slate of
nominees for such annual meeting.
(f) Ciba and the Nominating Committee, respectively, shall have
the right to designate any replacement for a Director designated for
nomination or nominated in accordance with this Section 2.01 by Ciba
or the Nominating Committee, respectively, upon the death,
resignation, retirement, disqualification or removal from office for
other cause of such Director. Such replacement for any Independent
Director shall also be an Independent Director conforming to the
standard set forth in clause (A) of Section 2.01(c)(iii). The Board of
Directors shall elect each person so designated.
(g) Without limiting the generality of Section 2.01(c), in the
event that at any time after the Effectiveness of this Agreement the
number of Investor
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Directors on the Board of Directors differs from the number that Ciba
has the right (and wishes) to designate pursuant to this Section 2.01,
(i) if the number of Investor Directors exceeds such number, Ciba
shall promptly take all appropriate action to cause to resign that
number of Investor Directors as is required to make the remaining
number of such Investor Directors conform to this Section 2.01 or (ii)
if the number of Investor Directors otherwise is less than such
number, the Company shall take all necessary action to create
sufficient vacancies on the Board of the Company to permit Ciba to
designate the full number of Investor Directors which it is entitled
(and wishes) to designate pursuant to this Section 2.01 (such action
to include expanding the size of the Board of Directors, seeking the
resignation or removal of Directors or, at the request of Ciba,
calling a special meeting of the shareholders of the Company for the
purpose of removing Directors to create such vacancies to the extent
permitted by applicable law). Upon the creation of any vacancy
pursuant to the preceding sentence Ciba, shall designate the person to
fill such vacancy in accordance with this Section 2.01 and the Board
of Directors shall elect each person so designated.
(h) Notwithstanding anything herein to the contrary, no
individual who is an officer, director, partner or principal
stockholder of any competitor of the Company or any of its
Subsidiaries (other than Ciba and its Affiliates) or any competitor of
Ciba or any of its Subsidiaries (other than the Company) shall serve
as a Director without the unanimous consent of the Nominating
Committee.
SECTION 2.02. SOLICITATION AND VOTING OF SHARES. (a) The Company
shall use its best efforts to solicit from the stockholders of the
Company eligible to vote for the election of Directors proxies in
favor of the nominees selected in accordance with Section 2.01.
(b) In any election of Directors or any meeting of the
stockholders of the Company called expressly for the removal of
Directors, so long as the Board of Directors includes (and will
include after any such removal) the number of Investor Directors
contemplated by Section 2.01, Ciba and its Affiliates shall be present
for purposes of establishing a quorum and shall vote all their shares
of Voting Stock (i) in favor of any nominee or Director selected in
accordance with Section 2.01, (ii) in favor of removal of any Director
as contemplated by Section 2.01(g)
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and (iii) otherwise against the removal of any Director designated in
accordance with Section 2.01. Subject to Section 2.08, in any other
matter submitted to a vote of the stockholders of the Company, Ciba
may vote any or all of its shares in its sole discretion unless such
matter was approved by Ciba or a majority of the Investor Directors in
accordance with Section 2.04 or 2.12, in which case Ciba and its
Affiliates shall cast all their votes in favor of such matter.
(c) Ciba agrees that it will, and will cause any of its
Subsidiaries (other than the Company and its Subsidiaries) to, take
all action as a stockholder of the Company or as is otherwise
reasonably within its control, as necessary to effect the provisions
of this Agreement.
SECTION 2.03. COMMITTEES. (a) Subject to the general oversight
and authority of the full Board of Directors, the Board of Directors
shall establish, empower and maintain the committees of the Board of
Directors contemplated by this Section 2.03.
(b) The following committees shall be established, empowered and
maintained by the Board of Directors at all times during the term of
this Agreement:
(i) an Audit Committee, consisting solely of Investor
Directors and Independent Directors and a majority of whose
members shall be Independent Directors;
(ii) a Nominating Committee, responsible, among other
things, for recommending the nomination of Directors, all
pursuant to Section 2.01, and comprised and conducting itself
as follows:
(A) until the fifth anniversary of the Effectiveness of
this Agreement and thereafter if Ciba's Percentage Interest
is less than 40%, the Nominating Committee shall be
comprised of two Independent Directors, one Management
Director and one Investor Director;
(B) on and after the fifth anniversary of the
Effectiveness of this Agreement, so long as Ciba's
Percentage Interest is at least 40%, the Nominating
Committee shall be composed of two
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Independent Directors, one Management Director and two Investor
Directors;
(C) a majority of the Independent Directors shall designate
the Independent Directors that serve on the Nominating Committee,
the Chief Executive Officer of the Company shall designate the
Management Director that serves on the Nominating Committee and a
majority of the Investor Directors shall designate the Investor
Directors that serve on the Nominating Committee;
(D) a quorum of the Nominating Committee required for any
action thereby shall require the attendance of each member
thereof who is an Independent Director or an Investor Director;
and
(E) the Nominating Committee shall act by majority vote of
the entire Nominating Committee; PROVIDED, HOWEVER, that (1) on
and after the fifth anniversary of the Effectiveness of this
Agreement, so long as Ciba's Percentage Interest is at least 40%,
the Management Director member of the Nominating Committee cannot
vote to break any tie vote between all the Investor Director
members, on the one hand, and all the Independent Director
members, on the other hand, and (2) in addition on and after the
eleventh anniversary of the Effectiveness of this Agreement, so
long as Ciba's Percentage Interest is at least 49%, the Investor
Director members shall have a deciding vote (meaning that, with
respect to any motion before the committee, if the two Investor
Director members vote one way and the two Independent Director
members vote the other way, the vote of the Investor Directors
will control) to break any tie vote between all the Investor
Director members, on the one hand, and all the Independent
Director members, on the other hand;
(iii) a Strategic Planning Committee, coming into existence and
having the responsibilities as set forth in Section 2.12 and comprised
and conducting itself as follows:
(a) the Strategic Planning Committee shall be comprised of
the three Investor Directors, three Independent Directors (who
shall be designated by
17
a majority of the Independent Directors) and one Management
Director (who shall be designated by a majority of the Management
Directors); and
(b) a quorum of the Strategic Planning Committee required
for any action thereby shall require the attendance of each
member thereof, and the Strategic Planning Committee shall act by
majority vote of the entire Strategic Planning Committee;
PROVIDED, HOWEVER, that the Management Director member of the
Strategic Planning Committee cannot vote to break any tie vote
between all the Investor Director members, on the one hand, and
all the Independent Director members, on the other hand.
(iv) a Compensation Committee, responsible, among other things,
for recommending to the Board of Directors, for approval by a majority
of the Board of Directors (subject to Sections 2.04 and 2.12), (a) the
adoption and amendment of all employee benefit plans and arrangements,
(b) the engagement of, terms of any employment agreements and
arrangements with and termination of all persons designated as by the
Company as "officers" for purposes of Section 16 of the Exchange Act
("Section 16 Officers"), (c) the policies, limitations and procedures
under which the Stock Option Plan Administration Committee shall
operate and (d) the granting under the Company's employee benefit
plans of stock options and other equity rights to Section 16 Officers,
and consisting solely of Investor Directors and Independent Directors
who constitute disinterested persons (as such term is defined in Rule
16b-3(d) under the Exchange Act) and a majority of whose members shall
be Independent Directors;
(v) a Stock Option Plan Administration Committee, responsible,
among other things, for (A) recommending to the Board of Directors,
for approval by a majority of the Board of Directors, subject to
Sections 2.04 and 2.12, the adoption and amendment of all stock option
plans of the Company and (B) the administration of such plans
(including, subject to Sections 2.04 and 2.12, the approval of all
grants under the Company's employee benefit plans of stock options and
other equity rights to all persons other than those persons for
whom such grants are required to be approved by the Compensation
Committee pursuant to paragraph (iv) above), and
18
(unless the composition of the committee is otherwise changed in a
manner consistent with this Agreement by the Board of Directors)
consisting solely of two Management Directors; and
(vi) such other committees as the Board of Directors deems
necessary or desirable; PROVIDED that such committees are established
in compliance with the terms of this Agreement.
(c) Except as otherwise provided in this Agreement or as
agreed by a majority of the Investor Directors, the number of Investor
Directors on each committee of the Board of Directors shall be the same
proportion of the total membership of such committee as the number of
Investor Directors, as the case may be, is of the entire Board of
Directors.
(d) No action by any committee of the Board of Directors shall
be valid unless taken at a meeting for which adequate notice has been
duly given or waived by the members of such committee. Such notice shall
include a description of the general nature of the business to be
transacted at the meeting, and no other business may be transacted at
such meeting unless all members of the committee are present and consent
to the consideration of such other business. Any committee member unable
to participate in person at any meeting shall be given the opportunity
to participate by telephone. The Board of Directors or the remaining
committee members shall designate an Investor Director, Independent
Director or Management Director to replace any absent or disqualified
Investor Director member, Independent Director member or Management
Director member, respectively, of any committee. In the event that any
Investor Director or Independent Director ceases to serve on any
committee of the Board of Directors and, after a reasonable time, no
successor to such Director is designated in accordance with the terms
hereof to serve on such committee, the number of members of such
committee may be reduced if such reduction does not (and no such
reduction is intended to) result in a change of the relative authorities
within such committee among the Investor Directors (taken as a group),
the Independent Directors (taken as a group) and the Management
Director. Each of the committees established by the Board of Directors
pursuant to this Section 2.03 shall establish such other rules and
procedures for its operation and governance (consistent with the terms
of this Agreement) as
19
it shall see fit and may seek such consultation and advice as to matters
within its purview as it shall require.
SECTION 2.04. APPROVAL REQUIRED FOR CERTAIN ACTIONS. (a) So long
as Ciba's Percentage Interest is at least 40%, the approval of Ciba shall
be required for the Company or any of its Subsidiaries to do or effect any
of the following:
(i) the entry by the Company or any of its Subsidiaries into
any Discriminatory Transaction;
(ii) a Level II Stock Issuance;
(iii) a reclassification, combination, split, subdivision or
redemption, purchase or other acquisition, directly or indirectly, of
any debt or equity securities or other capital stock of the Company;
(iv) any amendment to the Certificate of Incorporation of the
Company or, subject to Section 2.01, any change in the size or
composition of the Board of Directors or any committee thereof;
(v) any amendment to the By-laws of the Company; PROVIDED that
Ciba's approval to any such amendment voted on by the Board of
Directors and approved by a majority of Investor Directors will be
deemed to have been given unless prior to the Board of Directors' vote
on such amendment Ciba notifies the Company of its disapproval
thereof;
(vi) any incurrence, assumption or issuance by the Company or
any of its Subsidiaries of Indebtedness (other than any Indebtedness
of CCD assumed at the Closing and any refinancings thereof to the
extent such refinancings do not increase the aggregate outstanding
principal amount thereof) that, when aggregated with the principal
amount of all then outstanding Indebtedness of the Company and its
Subsidiaries incurred, assumed or issued after the date of this
Agreement (other than any Indebtedness of CCD assumed at the Closing
and any refinancings thereof to the extent such refinancings do not
increase the aggregate outstanding principal amount thereof), exceeds
$460,000,000 if such incurrence, assumption or issuance (A) might
reasonably be expected to result in the Index Debt being rated less
than
20
Investment Grade by Xxxxx'x or S&P or (B) occurs at a time when the
Index Debt is rated less than Investment Grade by Xxxxx'x or S&P;
(vii) the adoption or implementation of any takeover defense
measures (except against Persons other than Ciba and its Affiliates),
including the institution, amendment or redemption by the Company or
any of its Subsidiaries of any stockholder rights plan or similar plan
or device, or any change of control matters (including change of
control provisions in future collaborations that could have a material
adverse effect on the value of Ciba's holdings in the Company if Ciba
were to increase its ownership interest in the Company);
(viii) any transaction involving or any action by the Company or
any Subsidiary (a) leading to a circumstance in which any Person or
13D Group (other than Ciba and/or its Affiliates) shall beneficially
own or control Equity Securities representing a percentage of Total
Voting Power, or any equity interest in the Company or its successor,
greater than 15% or (b) requiring the approval or participation of
holders of a majority of the Voting Stock or Equity Securities;
(ix) any Level II Acquisition;
(x) any sale, asset exchange, lease, exchange, mortgage,
pledge, transfer or other disposition by merger or otherwise by the
Company or any of its Subsidiaries (in one transaction or a series of
related transactions) of all of the business or assets of the Company
and its Subsidiaries taken as a whole or of any part thereof
constituting a Substantial Part of the Company;
(xi) any change in the Company's fiscal year;
(xii) any change in the strategic mission of the Company and its
Subsidiaries from that of being a technology-driven health care
company; or
(xiii) the dissolution of the Company or any Significant
Subsidiary thereof; the adoption of a plan of liquidation of the
Company or any Significant Subsidiary thereof; or any action by the
Company or any Significant Subsidiary thereof to commence any suit,
21
case, proceeding or other action (A) under any existing or future law
of any jurisdiction relating to bankruptcy, insolvency, reorganization
or relief of debtors seeking to have an order for relief entered with
respect to the Company or any Significant Subsidiary thereof, or
seeking to adjudicate the Company or any Significant Subsidiary
thereof a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding up, liquidation, dissolution,
composition or other relief with respect to the Company or any
Significant Subsidiary thereof or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for the Company
or any Significant Subsidiary thereof, or for all or any Substantial
Part of the assets of the Company or any Significant Subsidiary
thereof, or making a general assignment for the benefit of the
creditors of the Company or any Significant Subsidiary thereof.
(b) So long as Ciba's Percentage Interest is at least 40%, the
approval of a majority of the Investor Directors shall be required for the
Board of Directors to approve or authorize, and for the Company or any of
its Subsidiaries to do, any of the following:
(i) the declaration or payment by the Company of any
Extraordinary Dividend;
(ii) the issuance of any Equity Securities or other capital stock
(or any options, warrants or rights with respect thereto) of the
Company or any of its Subsidiaries to any of their directors, officers
or other employees as compensation (pursuant to any plan or
otherwise), except the issuance of Common Stock or options for the
purchase thereof (A) pursuant to any employee compensation plan in
existence at the Closing as long as the number of shares issued or
issuable at any time pursuant to grants in any year (other than grants
described in the following clause (B) or (C)) (1) does not exceed the
lesser of 4% of the number of shares of Common Stock outstanding at
the beginning of such year and 1,750,000 and (2) are issued for a
price (or, in the case of options, having an exercise price) at least
equal to fair market value (as defined in such plan), (B) as
contemplated by Section 5.14(f) of the Investment Agreement or (C) to
officers or other employees of the CCD component of the Company's
diagnostics business during the three year period
22
commencing with the Closing in amounts consistent with amounts granted
to comparable employees of the Company;
(iii) (A) during the five year period commencing with the
Closing, (1) any changes to any employment agreement (or related
arrangements) entered into between the Company and C. Xxxxxxx Xxxxx as
contemplated by the Investment Agreement and (2) any disposition (in
one transaction or a series of related transactions) of all of the
business or assets of CCD or 25% or more thereof and (B) during the
one year period commencing with the Closing, any removal, termination
(including constructive termination) or replacement of him as chief
operating officer of the business of CCD (other than for cause);
(iv) any amendment to the By-laws of the Company;
(v) in connection with any Acquisition by the Company or any of
its Subsidiaries, the giving of any consideration by the Company or
any of its Subsidiaries other than cash, shares of Specified Equity
Securities or, to the extent any other required approval pursuant to
Section 2.04 has been obtained, any assets of the Company or any of
its Subsidiaries;
(vi) subject to any other approval required under this Section
2.04, the issuance of any security of the Company or any Subsidiary
other than Specified Equity Securities; or
(vii) the establishment of any committee of the Board of
Directors other than as provided in Section 2.03(b)(i) through (v).
(c) With respect to any Acquisitions or Stock Issuances
consummated by the Company or any of its Subsidiaries between the fifth and
tenth anniversaries of the Effectiveness of this Agreement (and for each
subsequent five year period), Ciba and the Company shall negotiate in good
faith prior to the beginning of such period regarding whether the
$125,000,000 limit in the definition of Level I Acquisition or the
$400,000,000 limits in the definition of Level I Stock Issuance should be
revised; PROVIDED that, absent any mutual written agreement among the
parties hereto, such limits shall continue unchanged during such periods.
23
SECTION 2.05. MATERIAL TRANSACTIONS WITH CIBA. The Company shall
not enter into any contract, agreement or transaction, with Ciba or any of
its Affiliates after the Closing described in Item 404 of Regulation S-K
promulgated by the SEC unless a majority of the Independent Directors or
holders of a majority of the Voting Power of the Voting Stock which is held
by Unaffiliated Equity Holders approve such contract, agreement or
transaction; PROVIDED, HOWEVER, that the restrictions contained in this
Section 2.05 shall not apply to any contract, agreement or transaction that
is expressly contemplated by the Investment Agreement, this Agreement or
any other Ancillary Agreement.
SECTION 2.06. ENFORCEMENT OF THIS AGREEMENT. A majority of the
Independent Directors shall have full and complete authority on behalf of
the Company to enforce the terms of this Agreement.
SECTION 2.07. CERTIFICATE OF INCORPORATION AND BY-LAWS. The
Company and Ciba shall take or cause to be taken all lawful action
necessary to ensure at all times that the Company's Certificate of
Incorporation and By-laws are not at any time inconsistent with the
provisions of this Agreement. Not later than the Effectiveness of this
Agreement, the Board of Directors shall amend the Company's By-laws to
reflect the provisions of Sections 2.04, 2.10, 2.11 and 2.12. At Ciba's
request the Board of Directors shall adopt (and if necessary submit and
recommend for approval by stockholders) other amendments to the Company's
Certificate of Incorporation or By-laws reasonably necessary to implement
the provisions of this Agreement.
SECTION 2.08. ADVISORS. The Independent Directors shall be
entitled to retain, at the cost and expense of the Company, the services of
an investment banking firm of national reputation of their choice and one
law firm of their choice to advise them in their capacity as Independent
Directors with respect to any matter on which the Independent Directors, as
a group, are required or permitted to act hereunder.
SECTION 2.09. NOMINATION TO CIBA BOARD OF DIRECTORS. Unless
otherwise prohibited by applicable law and unless he is unwilling or unable
to serve, at the first opportunity available under Ciba's standard
operating procedures after the Effectiveness of this Agreement, Ciba shall
nominate Xx. Xxxxxxx X. Xxxxxx for election to its Board of Directors and
shall renominate Xx. Xxxxxx to its
24
Board of Directors at the conclusion of any term during which Xx. Xxxxxx
shall serve as a director of Ciba for so long as Xx. Xxxxxx shall remain
the Chairman of the Board of Directors or the principal executive officer
of the Company.
SECTION 2.10. STRATEGIC PLANNING PROCESS. (a) Management of the
Company shall prepare and propose to the Board of Directors a three year
Strategic Plan, beginning with the period 1996-1998. The Strategic Plan for
1996-1998 will be proposed to the Board of Directors within six months of
the Closing, and a Strategic Plan for each subsequent period will be
proposed not later than two months before the beginning of the first fiscal
year covered by such Plan. The goals of each Strategic Plan shall be
aggressive but reasonable and achievable. In connection with the
preparation of each Strategic Plan, management of the Company shall confer
on a reasonable basis with the Investor Directors.
(b) From time to time at the request of management of the
Company, and at least once a year during the second and third fiscal years
of a Strategic Plan and prior to the budgeting process for the following
year, management of the Company will hold a Strategic Review with the Board
of Directors and, in light of such review, management, or any three
Directors, may propose to the Board of Directors revisions or updates to
the Strategic Plan in light of changed circumstances.
(c) The entire Board of Directors shall consider and vote upon
any proposed new Strategic Plan or any revisions or updates to an existing
Strategic Plan, and approval of such matters will require a Supermajority
Vote of the Board.
SECTION 2.11. OPERATING PLANNING PROCESSES. (a) The management
of the Company will, on an annual basis, prepare and recommend to the Board
of Directors an Operating Plan for each fiscal year that is consistent with
the then applicable Strategic Plan. Management will submit an Operating
Plan for each fiscal year not later than one month before the beginning of
such fiscal year. The financial and operating performance goals in each
Operating Plan shall be aggressive but reasonable and achievable and the
budgets shall be reasonably designed to achieve such goals.
(b) The Operating Plan will be subject to the approval of the
Board of Directors. At any time after
25
fiscal year 1995 that there is not in effect a Strategic Plan covering the
current year adopted by the Board of Directors in accordance with Section
2.10, approval of an Operating Plan will require a Supermajority Vote of
the Board and, except as set forth in Section 2.12, at all other times
approval of an Operating Plan will be by majority vote of the Board of
Directors.
SECTION 2.12. MEASUREMENT STANDARDS. (a) In connection with its
review and approval of the Operating Plan for each fiscal year, the Board
of Directors also shall set and approve Measurement Standards for that
fiscal year. The Measurement Standards will be set with a view such that
failure to meet such Measurement Standards taken as a whole (and taking
into account, to the extent the Directors judge to be appropriate, any
qualitative standards included in such goals) would represent an
unreasonably low rate of accretion in the overall valuation of the Company
compared to the expectations underlying the then effective Strategic Plan;
it being understood that the annual rate of accretion should not be less
than 7% in the absence of unusual circumstances (but may be considerably
more). While the Measurement Standards will be derived from the financial
and operating performance goals in the applicable Operating Plan and
Strategic Plan, if, as anticipated, the goals of those Plans are aggressive
(but reasonable and achievable), the Measurement Standards would be
expected to be significantly lower than those goals. If during a fiscal
year, events for which management should not reasonably be held accountable
or which management would not reasonably be expected to anticipate occur
that significantly adversely impact the Company's ability to fulfill
applicable Measurement Standards, the Directors shall in good faith
discuss whether revisions to the Measurement Standards are appropriate.
Approved Measurement Standards shall not change, however, without further
action of the Board of Directors under the next paragraph.
(b) The entire Board of Directors shall consider and vote upon
the establishment or revision of Measurement Standards, and approval of
such matters will require a Supermajority Vote of the Board.
(c) In the event Measurement Standards for any fiscal year
commencing with 1996 have not been approved by the beginning of such fiscal
year, then until Measurement Standards for such fiscal year are approved
pursuant to this Section 2.12, the Company shall not take any of the
26
following actions unless approved by a Supermajority Vote of the Board:
(i) the granting of stock options and other equity rights to
any Section 16 Officers;
(ii) increasing compensation of any officer included in the
compensation table of the Company's most recent annual proxy statement
(or who would be included in the compensation table of the Company's
next annual proxy statement) (an "Executive Officer");
(iii) initiating any new collaboration or entering into any new
material licenses of technology with any entity, including Ciba; or
(iv) initiating new material capital projects.
(d) The Strategic Planning Committee will function from time to
time from and after the first day immediately following any fiscal year for
which the Company shall have failed to meet the applicable Measurement
Standards and will continue to function until the Measurement Standards for
a subsequent full fiscal year are fulfilled. The Strategic Planning
Committee will prepare and recommend to the entire Board of Directors a
remedial plan to restore the Company to compliance with applicable
Measurement Standards. In addition, during such period the Company shall
not take any of the following actions unless approved by a Supermajority
Vote of the Board:
(i) approving the remedial plan proposed by the Strategic
Planning Committee;
(ii) approving the Operating Plan proposed pursuant to Section
2.11(a); or
(iii) setting the form and amount of compensation of any
Executive Officer (on which matter the Management Directors shall not
vote).
(e) In the event the Company fails to meet the Measurement
Standards for two consecutive fiscal years, then thereafter until the
Measurement Standards for a subsequent full fiscal year are fulfilled, in
addition to the responsibilities of the Strategic Planning Committee set
forth in paragraph (d) above, the Strategic Planning Committee shall have
the delegated power of the Board of
27
Directors to set the compensation and terminate the employment of the
Executive Officers. In addition, during such period the Company shall not
take any of the following actions unless approved by a Supermajority Vote
of the Board (and by any vote required pursuant to Section 2.04):
(i) all matters requiring approval by a Supermajority Vote of
the Board pursuant to paragraph (d) above;
(ii) hiring of any Executive Officers (on which matter the
Management Directors shall not vote);
(iii) issuance of any Equity Security (other than (A) stock
options consistent with past practice (other than to Section 16
Officers) and (B) pursuant to exercise of a warrant or option or
conversion of a convertible security, in each case that is outstanding
at the beginning of such period);
(iv) incurrence or issuance of any Indebtedness by the Company
or any of its Subsidiaries other than in the ordinary course of
business; or
(v) initiation of any material Acquisition by the Company or
any of its Subsidiaries.
ARTICLE III
EQUITY PURCHASES FROM THE COMPANY
SECTION 3.01. SUBSCRIPTION RIGHTS. So long as Ciba has the right
to designate any Investor Directors pursuant to Section 2.01, if the Board
of Directors shall authorize the issuance of New Securities to any Person
(other than (i) any New Securities issued to officers, employees or
directors of the Company or any of its Subsidiaries pursuant to any
employee stock offering, plan or arrangement in compliance with Section
2.04(b) and (ii) Ciba or its Affiliates (other than the Subsidiaries of the
Company)), then, prior to each such issuance of New Securities, the Company
shall offer to Ciba a Pro Rata Share of such New Securities. Any offer of
New Securities made to Ciba under this Section 3.01 shall be made by notice
in writing (the "Subscription Notice") at least 5 days prior to the date on
which the meeting of the Board of Directors is held to authorize the
issuance of such New Securities. The
28
Subscription Notice shall set forth (i) the number of New Securities
proposed to be issued to Persons other than Ciba and the terms of such New
Securities, (ii) the consideration (or manner of determining the
consideration by reference to the market price), if any, for which such New
Securities are proposed to be issued and the terms of payment, (iii) the
number of New Securities offered to Ciba in compliance with the provisions
of this Section 3.01 and (iv) the proposed date of issuance of such New
Securities. Not later than 20 days after such Board of Directors meeting
authorizing such issuance is held, Ciba shall notify the Company in writing
whether it elects to purchase all or any portion of the New Securities
offered to Ciba pursuant to the Subscription Notice. If Ciba shall elect to
purchase any such New Securities, the New Securities which it shall have
elected to purchase shall be issued and sold to Ciba by the Company at the
same time and on the same terms and conditions as the New Securities are
issued and sold to third parties (except that, if such New Securities are
issued for consideration other than cash, Ciba shall pay the Fair Market
Value thereof). If, for any reason, the issuance of New Securities to third
parties is not consummated, Ciba's right to its Pro Rata Share of such
issuance shall lapse, subject to Ciba's ongoing subscription right with
respect to issuances of New Securities at later dates or times.
SECTION 3.02. ISSUANCE AND DELIVERY OF NEW SECURITIES AND
VOTING STOCK. The Company represents and covenants to Ciba that (i) upon
issuance all of the shares of New Securities sold to Ciba pursuant to
this Article III shall be duly authorized, validly issued, fully paid
and nonassessable and will be approved (if outstanding securities of the
Company of the same type are at the time already approved) for quotation
on the NASDAQ National Market or for quotation or listing on the
principal trading market for the securities of the Company at the time
of issuance and (ii) upon delivery of such shares, they shall be free
and clear of all claims, liens, encumbrances, security interests and
charges of any nature and shall not be subject to any preemptive right
of any Shareholder of the Company. If at the time of issuance of any
shares of Common Stock pursuant to this Article III, the Company shall
not have redeemed the Rights (as defined in the Rights Agreement dated
as of August 29, 1994, between the Company and Continental Stock
Transfer and Trust Company, as Rights Agent), then each share of Common
Stock issued pursuant hereto shall have attached to it Rights or new
rights with
29
terms substantially the same as, and at least as favorable to Ciba as,
are provided under the Rights. Each share issued or delivered by the
Company hereunder shall bear the legend set forth in Section 3.02(d) of
the Investment Agreement.
ARTICLE IV
LIMITATIONS ON PURCHASES OF ADDITIONAL EQUITY SECURITIES
SECTION 4.01. PURCHASES OF EQUITY SECURITIES. (a) During the
First Standstill Period, Ciba shall not, directly or indirectly,
purchase or otherwise acquire any Equity Securities from any Person
other than the Company unless (i) such acquisition is a Market Purchase
and (ii) immediately after such purchase or acquisition, Ciba's
Percentage Interest would not exceed the greatest of (A) 49.9%, (B) the
highest Ciba's Percentage Interest resulting from any acquisition by
Ciba or its Affiliates of Equity Securities that has been approved
pursuant to paragraph (c) below and (C) the highest Ciba's Percentage
Interest immediately following any action by the Company (including a
purchase by the Company of outstanding Equity Securities or a sale of
Equity Securities to Ciba or its Affiliates by the Company) that
increases Ciba's Percentage Interest.
(b) Subject to Section 4.01(d), during the Second Standstill
Period, Ciba shall not, directly or indirectly, purchase or otherwise
acquire any Equity Securities from any Person other than the Company unless
(i) such acquisition is a Market Purchase and (ii) immediately after such
purchase or acquisition, Ciba's Percentage Interest would not exceed the
greatest of (A) 55%, (B) the highest Ciba's Percentage Interest resulting
from any acquisition by Ciba or its Affiliates of Equity Securities that
has been approved pursuant to paragraph (c) below and (C) the highest
Ciba's Percentage Interest immediately following any action by the Company
(including a purchase by the Company of outstanding Equity Securities or a
sale of Equity Securities to Ciba or its Affiliates by the Company) that
increases Ciba's Percentage Interest.
(c) Except with respect to a Buyout Transaction, which shall be
governed by paragraph (d) below, any purchase or other acquisition of
Equity Securities by Ciba or its Affiliates (other than the Company and its
Subsidiaries)
30
from any Person other than the Company not permitted by Section 4.01(a) or
(b) shall require the approval of a majority of the Independent Directors
acting solely in the interest of the Unaffiliated Equity Holders and in
granting such approval the Independent Directors, unless a majority of them
decide otherwise, will require a purchase price for such Equity Securities
in connection therewith reflecting a proportionate share of then prevailing
Third Party Sale Value; PROVIDED that no such purchase shall increase
Ciba's Percentage Interest above 79.9%.
(d) Ciba may propose and consummate a Buyout Transaction at any
time after the sixth anniversary of the Closing (or, if the provisions of
Section 2.12(e) are in effect on the fifth anniversary of the Closing or
come into effect during any fiscal year that begins after the fifth
anniversary of the Closing, at any time thereafter) and then only in
accordance with the following procedures:
(i) If Ciba is able to obtain the approval of a majority of
the Independent Directors for a proposed Buyout Transaction, Ciba may
proceed with such Buyout Transaction (in which event nothing in this
Agreement shall prevent or impede such Buyout Transaction from
proceeding or being consummated and the Company will take all action
reasonably necessary to allow such transaction to proceed in
accordance with the provisions hereof).
(ii) If Ciba is not able to obtain the approval of a majority
of the Independent Directors for a proposed Buyout Transaction within
four months after such Buyout Transaction is first proposed to the
Directors of the Company, Ciba may either (a) withdraw such proposal
(in which case Ciba may not again propose a Buyout Transaction for a
period of one year after such withdrawal) or (b) request arbitration
of the amount of the Third Party Sale Value pursuant to paragraph
(iii) below; PROVIDED that, unless the provisions of Section 2.12(e)
shall be in effect, a majority of the Independent Directors shall have
the right (the "Postponement Right"), exercisable on only one occasion
and within 14 days of Ciba's request for arbitration, to postpone
such arbitration for a period of up to one year from the date of
Ciba's request therefor, and if the Independent Directors shall so
postpone the arbitration, Ciba shall either (1) withdraw its proposal
for a Buyout Transaction, in which case Ciba
31
may not again propose a Buyout Transaction for a period of one year,
or (2) accept such postponement.
(iii) Within 15 days of such arbitration request (or, if the
Independent Directors shall have duly exercised the Postponement Right
and Ciba shall have accepted such postponement pursuant to paragraph
(ii) above, within 15 days of the first anniversary of such
request), Ciba and the Company shall appoint an independent appraiser
(which shall be an internationally recognized investment bank)
mutually satisfactory to them that shall determine the aggregate Third
Party Sale Value for each class of Equity Securities with respect to
the proposed Buyout Transaction. If Ciba and the Company are unable to
agree on a mutually acceptable appraiser within such 15-day period,
such Third Party Sale Value shall be determined by a panel of three
independent appraisers (which shall be internationally recognized
investment banks), one of whom shall be appointed by Ciba, another by
the Company and the third of whom shall be appointed by the other two
appraisers or, if such two appraisers are unable to agree on a third
appraiser within seven days after the appointment of the second of
them, by the American Arbitration Association (or its successor);
PROVIDED, HOWEVER, that if Ciba or the Company shall not have
appointed its appraiser within 30 days after a request by Ciba for
arbitration of the amount of the Third Party Sale Value, the
determination of the Third Party Sale Value shall be made solely by
the appraiser selected by the other party. Ciba and the Company may
each submit to the appraiser (or, if applicable, the appraisers)
their respective positions on the Third Party Sale Value (as a whole,
and not on an Equity Security class by class basis) and may also
submit written and oral presentations to support their respective
positions. The appraiser or appraisers shall determine the aggregate
amount of the Third Party Sale Value (and, if applicable, the Fair
Market Value on the date of such determination of any securities
payable as part of the Third Party Sale Value Consideration). If
necessary, the appraiser or appraisers shall also allocate such
aggregate Third Party Sale Value among the classes of Equity
Securities. The appraiser or appraisers shall be directed to make
their determination within thirty
32
calendar days of appointment and such determination, when made, shall
be final and binding with respect to the proposed Buyout Transaction.
(iv) Within ten business days after the appropriate Third Party
Sale Value is determined pursuant to the procedures set forth in
paragraph (iii) above, Ciba shall elect (a) to proceed with a Buyout
Transaction offering such Third Party Sale Value Consideration payable
in cash and/or marketable securities (in which event nothing in this
Agreement shall prevent or impede such Buyout Transaction from
proceeding or being consummated and the Company will take all action
reasonably necessary to allow such transaction to proceed in
accordance with the provisions hereof) or (b) to withdraw its proposal
for a Buyout Transaction (in which event Ciba may not again propose a
Buyout Transaction for a period of one year after such withdrawal);
PROVIDED, HOWEVER, that Ciba shall have the right to elect to withdraw
its proposal for a Buyout Transaction pursuant to the foregoing clause
(b) on only one occasion (it being understood that a withdrawal
pursuant to the proviso to clause (b) of paragraph (ii) above shall
not count as such a withdrawn proposal).
(v) In the event that a single appraiser is appointed under
paragraph (iii) above, the fees and expenses of such appraiser shall
be divided equally between Ciba and the Company. In the event that
more than a single appraiser is appointed, the fees and expenses of
the appraiser appointed by Ciba shall be paid by Ciba, the fees and
expenses of the appraiser appointed by the Company shall be paid by
the Company and the fees and expenses of the third appraiser shall be
divided equally between Ciba and the Company.
SECTION 4.02. ADDITIONAL LIMITATIONS. During the Standstill
Periods, Ciba shall not, and shall not permit its Subsidiaries to:
(a) make, or in any way participate, directly or indirectly, in
any "solicitation" of "proxies" to vote (as such terms are used in the
proxy rules of the SEC) or seek to advise, encourage or influence any
person or entity with respect to the voting of any shares of capital
stock of the Company, initiate, propose or otherwise solicit
stockholders of the Company for the
33
approval of one or more stockholder proposals or induce or attempt to
induce any other individual, firm, corporation, partnership or other
entity to initiate any stockholder proposal; or
(b) deposit any shares of Voting Stock into a voting trust or
subject any shares of Voting Stock to any arrangement or agreement
with respect to the voting of such securities or form, join or in any
way participate in or otherwise encourage the formation of a 13D Group
with respect to any shares of Common Stock.
ARTICLE V
TRANSFER OF COMMON STOCK
SECTION 5.01. TRANSFER OF COMMON STOCK. (a) During the
Standstill Periods, Ciba will not, and will not permit any wholly owned
Subsidiary of Ciba to, directly or indirectly, sell, transfer or
otherwise dispose of any shares of Common Stock except (i) pursuant to a
registered underwritten public offering in accordance with the
Registration Rights Agreement, (ii) in accordance with the volume and
manner-of-sale limitations of Rule 144 promulgated under the Securities
Act (regardless of whether such limitations are applicable) and (iii) to
any directly or indirectly wholly owned Subsidiary of Ciba.
(b) During the Standstill Periods, Ciba will not, and will
not permit any wholly owned Subsidiary of Ciba to, directly or
indirectly, sell, transfer or otherwise dispose of any interest in any
shares of Common Stock to any purchaser or group (within the meaning of
Section 13(d)(3) of the Exchange Act) of purchasers, if, after giving
effect to such sale, such purchaser or group of purchasers would, to
Ciba's knowledge, own, or have the right to acquire, 5% or more of the
then outstanding shares of Common Stock.
(c) During the Standstill Periods, Ciba shall not sell,
transfer or otherwise dispose of any of the capital stock of any wholly
owned Subsidiary of Ciba that owns shares of Common Stock, except to
another wholly owned Subsidiary of Ciba.
(d) Purported transfers of shares of Common Stock that are not
in compliance with this Article V shall be of no force or effect.
34
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. NOTICES. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given
(and shall be deemed to have been duly given upon receipt) by delivery in
person, by cable, facsimile transmission, telegram or telex or by
registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this
Section 6.01) specified in Section 7.02 of the Investment Agreement.
SECTION 6.02. AMENDMENTS; WAIVERS. (a) No provision of this
Agreement may be amended or waived unless such amendment or waiver is in
writing and signed, in the case of an amendment, by the parties hereto, or
in the case of a waiver, by the party against whom the waiver is to be
effective; PROVIDED that no such amendment or waiver by the Company shall
be effective without the approval of a majority of the Independent
Directors or, in the case of an amendment to or waiver of the provisions of
Article IV, without the approval of 100% of the Independent Directors
(except for amendments or waivers of the provisions of Article IV that are
administrative in nature and that do not materially adversely affect the
rights of the Unaffiliated Equity Holders, which amendments and waivers
shall only require the approval of a majority of the Independent
Directors).
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 6.03. SEVERABILITY. If any term or provision of this
Agreement or the application thereof to either party or set of
circumstances shall, in any jurisdiction and to any extent, be finally
held invalid or unenforceable, such term or provision shall only be
35
ineffective as to such jurisdiction, and only to the extent of such
invalidity or unenforceability, without invalidating or rendering
unenforceable any other terms or provisions of this Agreement or under any
other circumstances, and the parties shall negotiate in good faith a
substitute provision which comes as close as possible to the invalidated or
unenforceable term or provision, and which puts each party in a position
as nearly comparable as possible to the position it would have been in but
for the finding of invalidity or unenforceability, while remaining valid
and enforceable.
SECTION 6.04. ENTIRE AGREEMENT; ASSIGNMENT. (a) The Investment
Agreement, this Agreement, the Registration Rights Agreement, the other
Ancillary Agreements and the agreements contemplated hereby and thereby
constitute the entire agreement among the parties hereto with respect to
the subject matter hereof and thereof and supersede all prior agreements
and undertakings, both written and oral, between the parties with respect
to the subject matter hereof.
(b) None of the parties to this Agreement shall assign any of
its rights or obligations hereunder without the prior written consent of
the other parties hereto, except that Ciba and C Corp may assign all or any
of their rights and obligations hereunder to any wholly owned (directly or
indirectly) Subsidiary of Ciba that agrees in writing to be bound by the
provisions hereof; PROVIDED that no such assignment shall relieve Ciba or
C Corp of their obligations hereunder.
SECTION 6.05. PARTIES IN INTEREST. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person, other than the parties hereto and their
respective permitted successors and assigns, any right, benefit or remedy
of any nature or kind whatsoever under or by reason of this Agreement.
SECTION 6.06. SPECIFIC PERFORMANCE. The parties hereto recognize and
agree that immediate irreparable damages for which there is no adequate
remedy at law would occur in the event that any provision of this Agreement
is not performed in accordance with the specific terms hereof or is
otherwise breached. It is accordingly agreed that in the event of a failure
by a party to perform its obligations
36
under this Agreement, the nonbreaching party shall be entitled to specific
performance through injunctive relief to prevent breaches of the provisions
of this Agreement and to enforce specifically the provisions of this
Agreement in any action instituted in any court having subject matter
jurisdiction, in addition to any other remedy to which such party may be
entitled, at law or in equity.
SECTION 6.07. GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware
applicable to contracts executed and to be fully performed in that State.
All actions and proceedings arising out of or relating to this Agreement
shall be brought by the parties and heard and determined only in a Delaware
state court or a federal court sitting in that State and the parties hereto
consent to jurisdiction before and waive any objections of venue to the
Delaware Chancery Court.
SECTION 6.08. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same agreement.
SECTION 6.09. EFFECTIVENESS; TERMINATION. This Agreement shall
become effective upon the Effectiveness of this Agreement. This Agreement
shall terminate at such time (i) that the Investment Agreement is
terminated in accordance with its terms, (ii) after the Effectiveness of
this Agreement that Ciba and its Affiliates beneficially own Voting Stock
representing 100% or less than 10% of the then applicable Total Voting
Power or (iii) that any Person or 13D Group beneficially owns or controls
Voting Stock representing more than 50% of the Total Voting Power;
PROVIDED, HOWEVER, that, in the event that this Agreement shall terminate
under clause (ii) because Ciba's ownership is less than 10%, Article IV
shall survive such termination for a period of three years from the date of
such termination.
SECTION 6.10. WAIVER OF JURY TRIAL. Each of the parties hereto
hereby irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Agreement or the actions of any of them
in the negotiation, administration, performance and enforcement thereof.
37
SECTION 6.11. FINANCIAL STATEMENTS. (a) From and after the
Effectiveness of this Agreement, the Company shall furnish to Ciba:
(i) within 65 days after the end of each fiscal year, its
consolidated balance sheet and related statements of income and
changes in financial position, showing the financial condition of the
Company and its consolidated Subsidiaries as of the close of such
fiscal year and the results of its operations and the operations of
such Subsidiaries during such year, all audited by KPMG Peat Marwick
or other independent public accountants of recognized international
standing and accompanied by an opinion of such accountants (which
shall not be qualified in any material respect) to the effect that
such consolidated financial statements fairly present the financial
condition and results of operations of the Company on a consolidated
basis in accordance with GAAP consistently applied; and
(ii) within 35 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated balance sheet
and related statements of income and changes in financial position,
showing the financial condition of the Company and its consolidated
Subsidiaries as of the close of such fiscal quarter and the results of
its operations and the operations of such Subsidiaries during such
fiscal quarter and the then elapsed portion of the fiscal year, all
certified by one of the senior financial officers as fairly presenting
the financial condition and results of operations of the Company on a
consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments.
(b) At the request of Ciba, at such time as Ciba is required to
include the financial results of the Company in Ciba's financial
statements, the Company shall cooperate with and assist Ciba in the
translation of the financial statements referred to in paragraph (a) above
in order to conform such financial statements to international accounting
standards.
SECTION 6.12. BUSINESS OPPORTUNITIES. Except as otherwise
provided in this Agreement, the Ancillary Agreements or otherwise pursuant
to a written agreement among the parties, (i) neither Ciba nor any of its
Subsidiaries or Affiliates (other than the Company and its
38
Subsidiaries), on the one hand, nor Chiron or any of its Subsidiaries or
Affiliates (other than, if applicable, Ciba and its Subsidiaries), on the
other hand (each such group referred to in this Section 6.12 as a "party"),
shall have any obligation to provide to or share with the other any of such
party's corporate opportunities, (ii) each party shall have the right to
pursue its own corporate opportunities and shall not be restricted from
competing directly or indirectly with the other and (iii) each party shall
have the right to pursue any corporate opportunities jointly created or
developed by the parties or which otherwise become known to either of them
(other than any such opportunity specifically directed to or otherwise made
available for the benefit of the other party and subject to any obligation
of confidentiality relating to such corporate opportunity). Each party may
establish reasonable appropriate internal procedures and operations,
including
39
procedures which (subject to and consistent with Sections 2.04 and 2.12 and
the right of the Investor Directors to vote upon any matter presented to
the Board of Directors) are reasonably designed to protect potential
opportunities during consideration by its Board of Directors.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
CHIRON CORPORATION,
By /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name:
Title:
CIBA-GEIGY LIMITED
By /s/ Xxxx Xxxxxx
-----------------------------------
Name:
Title:
By /s/ Xxxx Xxxxxxxxx
-----------------------------------
Name:
Title:
CIBA-GEIGY CORPORATION
By /s/ McGraw
-----------------------------------
Name:
Title:
SCHEDULE 2.01 TO
THE GOVERNANCE AGREEMENT
BOARD OF DIRECTORS
Management Directors
---------------------
Xxxxxxx X. Xxxxxx I
Xxxxxx X. Xxxxxxx XX
Xxxx X. Xxxxxxx III
Independent Directors
---------------------
Xxxxxx X. Xxxxxx I
Xxxxxx X. Strijkert I
Xxxxxxx X. Xxxxxx XX
Xxxxx Xxxxxxxx XX
Xxxxx X. Xxxxxxx III
ANNEX A TO
THE GOVERNANCE AGREEMENT
The Strategic Plan will address, among other items, (i) a market
and technology/patent analysis (including at the strategic business unit
level); (ii) a competitive analysis; (iii) an analysis of regulatory
developments and potential impacts; (iv) an analysis of critical success
factors and potential changes; (v) an analysis of strengths, weaknesses,
opportunities and threats; (vi) a portfolio analysis; (vii) strategic
objectives (financial and non-financial); (viii) key strategies, programs
and resources (including product pipeline assessment/projections,
partnerships, joint ventures, acquisitions and capital expenditures, etc.);
(ix) an analysis of equity and debt financing and (x) financial strategic
parameters (including income before interest and taxes and earnings per
share for a minimum of three fiscal years and including sensitivities and
nonfinancial strategic parameters (including milestones on product
approvals, introductions, etc.) and risk assessment.
