EXHIBIT 10.2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CHROMOS MOLECULAR SYSTEMS INC.
and
CHROMOS, INC.
and
CELLEXSYS, INC.
and
CERTAIN SHAREHOLDERS OF CELLEXSYS, INC.
dated as of June 21, 2004
TABLE OF CONTENTS
PAGE
1. DEFINITIONS............................................................................... 1
2. THE MERGER................................................................................ 10
2.1 The Merger ............................................................................... 10
2.2 The Closing............................................................................... 10
2.3 Effective Date and Time................................................................... 11
2.4 Articles of Incorporation of the Surviving Corporation.................................... 11
2.5 Bylaws of the Surviving Corporation....................................................... 11
2.6 Directors and Officers.................................................................... 11
2.7 Merger Consideration; Conversion of Shares................................................ 11
(a) Cancellation of Company Shares............................................... 11
(b) Consideration................................................................ 11
(c) Payment of Merger Consideration.............................................. 12
(d) Closing of Transfer Books; Surrender of Certificates......................... 13
(e) Deliveries at the Closing.................................................... 13
(f) Minimum Net Asset Adjustment................................................. 14
(g) The Deposit.................................................................. 16
(h) Outstanding Merger Sub Shares to be Converted................................ 16
(i) Outstanding Options to Purchase Company Shares............................... 16
(j) Shareholders' Rights under Washington Law.................................... 16
(k) No Dividends................................................................. 16
(l) No Fractional Shares......................................................... 17
2.8 Shareholder Representative................................................................ 17
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS.............. 17
(a) Organization of the Company.................................................. 17
(b) Charter Documents; Records................................................... 18
(c) Authorization of Transaction................................................. 18
(d) Noncontravention............................................................. 18
(e) Brokers' Fees................................................................ 19
(f) Title to Assets.............................................................. 19
(g) Capitalization; Company Shares............................................... 19
(h) Financial Statements......................................................... 20
(i) Events Subsequent to December 31, 2003....................................... 21
(j) Undisclosed Liabilities...................................................... 22
(k) Legal Compliance............................................................. 23
(l) Clinical Trials.............................................................. 23
(m) Tax Matters.................................................................. 24
(n) Real Property................................................................ 26
(o) Intellectual Property........................................................ 26
(p) Software..................................................................... 29
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TABLE OF CONTENTS
(continued)
PAGE
(q) Use of Intellectual Property................................................. 30
(r) Contracts.................................................................... 30
(s) Powers of Attorney........................................................... 32
(t) Insurance.................................................................... 32
(u) Litigation................................................................... 33
(v) Product Liability............................................................ 33
(w) Employees.................................................................... 33
(x) Employee Benefits............................................................ 34
(y) Guaranties................................................................... 37
(z) Environment, Health, and Safety.............................................. 37
(aa) Certain Business Relationships with the Company.............................. 37
(bb) Certain Payments............................................................. 37
(cc) Access....................................................................... 38
(dd) Vote Required ............................................................... 38
4. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB............................... 38
(a) Organization................................................................. 38
(b) Authorization of Transaction................................................. 38
(c) Noncontravention............................................................. 39
(d) Broker's Fees................................................................ 39
(e) The Parent Shares............................................................ 39
(f) Convertible Debenture and Convertible Debenture Shares....................... 39
(g) Foreign Issuer............................................................... 40
(h) Public Disclosure Record..................................................... 40
5. CONDITIONS TO OBLIGATION TO CLOSE......................................................... 40
(a) Conditions to Obligation of the Parent and Merger Sub........................ 40
(b) Conditions to Obligation of the Company and the Shareholders................. 44
6. PRE-CLOSING COVENANTS..................................................................... 46
(a) Access and Investigation..................................................... 46
(b) Operation of the Businesses of the Company................................... 46
(c) Negative Covenant............................................................ 47
(d) Obligation to Fund the Company............................................... 48
(e) Repayment of Advances Made by Targeted....................................... 48
(f) Intercompany Indebtedness.................................................... 48
(g) Termination of Plans......................................................... 48
(h) No Solicitation.............................................................. 49
(i) Satisfaction of Indebtedness................................................. 52
(j) Tax Matters.................................................................. 52
(k) Approval of Company Shareholders; Information Statement...................... 53
(l) Dissenting Shares............................................................ 54
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TABLE OF CONTENTS
(continued)
PAGE
7. POST-CLOSING COVENANTS.................................................................... 54
(a) General...................................................................... 54
(b) Litigation Support........................................................... 55
(c) Transition................................................................... 55
(d) Confidentiality.............................................................. 55
(e) Noncompetition............................................................... 56
(f) Tax Matters.................................................................. 57
(g) Non-Solicitation............................................................. 60
(h) Foreign Private Issuer Status................................................ 61
(i) Listing of Parent Shares..................................................... 61
8. REMEDIES FOR BREACHES OF THIS AGREEMENT................................................... 61
(a) Survival of Representations and Warranties................................... 61
(b) Indemnification Provisions for Benefit of the Parent......................... 61
(c) Indemnification Holdback..................................................... 62
(d) Indemnification Provisions for Benefit of the Principal Shareholders......... 63
(e) Matters Involving Third Parties.............................................. 64
(f) Determination of Adverse Consequences........................................ 65
(g) Post-Closing................................................................. 65
9. TERMINATION AND EXTENSION................................................................. 65
(a) Termination.................................................................. 65
(b) Termination Fee Payable to Parent............................................ 67
(c) Termination Fee Payable to the Company....................................... 68
(d) Effect of Termination........................................................ 69
(e) Extension of Closing Date by Parent.......................................... 69
(f) Payment of Additional Deposit by Parent...................................... 69
(g) Treatment of Termination Fees................................................ 69
10. MISCELLANEOUS............................................................................. 70
(a) Press Releases and Public Announcements...................................... 70
(b) No Third-Party Beneficiaries................................................. 70
(c) Entire Agreement............................................................. 70
(d) Succession and Assignment.................................................... 70
(e) Counterparts................................................................. 70
(f) Headings..................................................................... 70
(g) Notices...................................................................... 70
(h) Governing Law................................................................ 71
(i) Amendments and Waivers....................................................... 71
(j) Severability................................................................. 72
(k) Expenses..................................................................... 72
(l) Construction................................................................. 72
(m) Incorporation of Exhibits and Schedules...................................... 72
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TABLE OF CONTENTS
(continued)
PAGE
(n) Specific Performance......................................................... 72
(o) Submission to Jurisdiction................................................... 73
(p) Arbitration.................................................................. 73
TABLE OF SCHEDULES AND EXHIBITS:
Schedule A -- Company Disclosure Schedule
Schedule B -- Required Consents
Exhibit A -- Form of Convertible Debenture
Exhibit B -- Articles of Merger
Exhibit C -- Form of Milestone Payment Agreement
Exhibit D -- Form of Transition Services Agreement
Exhibit E -- Form of Opinion of Dorsey & Whitney LLP
Exhibit F -- Form of Opinion of Graham & Dunn
Exhibit G -- Form of Security Agreement
Exhibit H -- Form of Representation and Support Agreement
Exhibit I -- Form of Optionholder Representation Agreement
Exhibit J -- Form of Opinion of Fasken Martineau DuMoulin LLP
Exhibit K -- Form of Opinion of Davis Wright Tremaine LLP
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT") is entered into on June 21,
2004, by and among CHROMOS MOLECULAR SYSTEMS INC. a corporation formed under the
laws of the Province of British Columbia, Canada (the "PARENT"), CHROMOS, INC.,
a corporation organized under the laws of the State of Washington ("MERGER
SUB"), CELLEXSYS, INC., a corporation organized under the laws of the State of
Washington (the "COMPANY"), and each of the Principal Shareholders (as defined
below) of the Company. The Parent, Merger Sub, the Company and the Principal
Shareholders are referred to collectively herein as the "PARTIES".
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RECITALS
A. The Company is in the business of the research and development of
intellectual property in the area of cell therapy technology, including a
patented process for expanding substantial quantities of antigen-specific
cytotoxic T-cells ex vivo (outside the body) before administering them for
therapeutic applications.
B. This Agreement contemplates a merger of the Company and Merger Sub on the
Closing Date, pursuant to which the Parent will acquire one hundred percent
(100%) of the outstanding shares of the Surviving Corporation (as defined
below), and in connection therewith, each of the Shareholders will receive
consideration in the form of cash or shares in the capital of the Parent,
together with such Shareholder's proportionate share of the Convertible
Debenture (as defined below).
Now, therefore, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ACQUISITION PROPOSAL" has the meaning set forth in section 6(h)(i) below.
"ACQUISITION TRANSACTION" has the meaning set forth in section 6(h)(i)
below.
"ACTUAL VALUE" has the meaning in Section 2.7(f)(iv)(C) below.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens,
losses, expenses, and fees, including court costs and reasonable
attorneys' fees and expenses.
"AFFILIATED GROUP" means any affiliated group within the meaning of Code
Section 1504(a) (or any similar group defined under a similar provision of
state, local, or foreign law).
"AGREEMENT" has the meaning set forth in the preface above.
"AMENDED TRANSACTION" has the meaning set forth in section 6(h)(iii)
below.
"ARTICLES OF MERGER" has the meaning set forth in Section 2.3 below.
"BOARD APPROVAL MODIFICATION" has the meaning set forth in Section
6(h)(iii) below.
"BUSINESS" means the business conducted by the Company prior to and as of
the Closing Date, which is the business of research and development of
intellectual property in the area of cell therapy technology, including a
patented process for expanding substantial
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quantities of antigen-specific T-cells ex vivo before administering them
for therapeutic applications.
"CERTIFICATES" has the meaning set forth in Section 2.7(d) below.
"CLOSING" has the meaning set forth in Section 2.2 below.
"CLOSING DATE" has the meaning set forth in Section 2.2 below.
"CLOSING DATE BALANCE SHEET" has the meaning set forth in Section
2.7(f)(ii) below.
"COBRA" has the meaning set forth in Section 3(x)(xi) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means CellExSys, Inc.
"COMPANY BOARD" has the meaning set forth in Section 6(h)(ii) below.
"COMPANY DISCLOSURE SCHEDULE" has the meaning set forth in Section 3
below.
"COMPANY PLANS" has the meaning set forth in Section 3(x)(ii) below.
"COMPANY SHAREHOLDERS MEETING" has the meaning set forth in Section 6(k)
below.
"COMPANY SHARES" means, collectively all of the issued and outstanding
common shares and preferred shares of the Company as of the Closing Date.
"COMPANY'S TRANSACTIONAL EXPENSES" has the meaning set forth in Section
10(k)(iii) below.
"COMPETITIVE BUSINESS" means any business, trade or activity engaged in
the research and development, manufacture, or sale of intellectual
property, products or services in the area of cell therapy technology
using ex vivo (outside the body) expansion of autologous antigen-specific
T-cells.
"CONFIDENTIAL INFORMATION" means: (a) confidential data and confidential
information relating to the business of any Party (the "PROTECTED PARTY")
which is or has been disclosed to another Party (the "RECIPIENT") or of
which the Recipient became aware as a consequence of or through its
relationship with the Protected Party and which has value to the Protected
Party and is not generally known to its competitors and which is
designated by the Protected Party as confidential or otherwise restricted;
and (b) information of the Protected Party, without regard to form,
including, but not limited to, Intellectual Property, technical or
non-technical data, prototypes, specimens, algorithms, formulas, patents,
compilations, technology, devices, methods, techniques, drawings,
processes, personnel and financial data, financial plans, research product
or service plans or lists of customers or suppliers which is not commonly
known or available to the public and which information (i) derives
economic value from not being generally known to,
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and not being readily ascertainable by proper means by, other Persons who
can obtain economic value from its disclosure or use, and (ii) is the
subject of efforts that are reasonable under the circumstances to maintain
its secrecy. Notwithstanding anything to the contrary contained herein,
Confidential Information shall not include any data or information that
(v) has been voluntarily disclosed to the public by the Protected Party,
(w) has been independently developed and disclosed to the public by
others, (x) otherwise enters the public domain through lawful means, (y)
was already known by Recipient prior to such disclosure (as evidenced by
written documentation) or was lawfully and rightfully disclosed to
Recipient by another Person, or (z) that is required to be disclosed by
law or order without the availability of applicable protective orders or
treatment.
"CONFIDENTIAL INFORMATION AGREEMENTS" has the meaning set forth in Section
7.2(e)(ii) below.
"CONVERTIBLE DEBENTURE" means the convertible debenture in substantially
the form attached as Exhibit A hereto to be issued on the Closing Date by
the Parent to the Shareholder Representative, as administrative agent for
the Shareholders, representing, in the aggregate, the balance of the
Merger Consideration payable by the Parent to the Shareholders in
accordance with Section 2.7(c)(ii) hereof.
"CONVERTIBLE DEBENTURE SHARES" means the Parent Shares issuable at the
option of the Parent in accordance with the terms and conditions of the
Convertible Debenture.
"DEPOSIT" means initially the cash amount of Cdn.$750,000, of which
Cdn.$450,000 has been paid by the Parent to the Company and Cdn.$300,000
has been placed in trust with Fasken Martineau DuMoulin LLP and is to be
paid in accordance with Section 2.7(g). The Deposit may be increased to up
to Cdn.$1,000,000 in accordance with Section 9(f).
"DISSENTING SHARES" has the meaning set forth in Section 2.7(j) below.
"EFFECTIVE DATE" has the meaning set forth in Section 2.3 below.
"EFFECTIVE TIME" has the meaning set forth in Section 2.3 below.
"EMPLOYEE BENEFIT PLAN" means any "employee pension benefit plans" (as
defined in ERISA Section 3(2)) any "employee welfare benefit plans" (as
defined in ERISA Section 3(1)) and all other plans, agreements, policies
or arrangements, whether written or unwritten, relating to stock options,
stock purchases, compensation, deferred compensation, bonus, severance,
and other employee benefits, in each case maintained or contributed to as
of the date of this Agreement by the Company for the benefit of any
current or former employees, officers or directors of the Company or for
which the Company is or could be liable, as a result of its status as an
ERISA Affiliate and including any plan which is maintained for Canadian
citizens without regard to whether such plan, agreement policy or
arrangement exists under US or any similar non-US law, rule or regulation.
"EMPLOYMENT AGREEMENT" has the meaning set forth in Section 5(a)(vii)
below.
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"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976, and the Occupational
Safety and Health Act of 1970, each as amended, together with all other US
and non-US laws (including rules, regulations, state law rulings, codes,
plans, permits, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local and foreign governments (and
all agencies thereof) concerning pollution or protection of the
environment, natural resources, public health and safety, or employee
health and safety, including, but not limited to, laws relating to
emissions, discharges, releases, or threatened releases of Hazardous
Substances in ambient air, surface water, drinking water, wetlands, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, recycling, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous,
or toxic materials or wastes.
"EQUITY RIGHTS" has the meaning set forth in Section 6(g) below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means, with respect to any entity, trade or business,
any other entity, trade or business that is a member of a group described
in Code Section 414(b), (c), (m) or (o) or ERISA Section 4001(b)(1) that
includes the first entity, trade or business, or that is a member of the
same "controlled group" as the first entity, trade or business pursuant to
ERISA Section 4001(a)(14), at any time.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended, and any counterpart or similar non-US law.
"FDA" means the United States Food and Drug Administration.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINAL ADJUSTMENT SCHEDULE" has the meaning set forth in Section
2.7(f)(ii) below.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3(h) below.
"FUNDAMENTAL MATTERS" has the meaning set forth in Section 8(a) below.
"GAAP" means United States generally accepted accounting principles as in
effect as of the date hereof.
"GOVERNMENTAL BODY" means any: (a) nation, principality, state,
commonwealth, province, territory, county, municipality, district, or
other jurisdiction of any nature; (b) federal, state, local, municipal,
foreign, or other government; (c) governmental or quasi-governmental
authority of any nature; (d) multi-national organization or body; or (e)
individual, entity or body exercising, or entitled to exercise, any
executive, legislative, judicial, administrative, regulatory, police,
military, or taxing authority or power of any nature.
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"HAZARDOUS SUBSTANCE" means any substance regulated under or defined by
Environmental, Health, and Safety Laws, including, but not limited to, any
pollutant, contaminant, hazardous substance, hazardous constituent,
hazardous waste, special waste, solid waste, industrial waste, petroleum
derived substance or waste, or toxic substance.
"HIGH VALUE" has the meaning set forth in Section 2.7(f)(iv)(B) below.
"HIPAA" has the meaning set forth in Section 3(x)(xii) below.
"INCOME TAXES" means any taxes determined by reference to net income.
"INDEBTEDNESS" means (a) all indebtedness for borrowed money or for the
deferred purchase price of property or services (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not
matured), including the current portion of such indebtedness, (b) all
obligations evidenced by notes, bonds, debentures or similar instruments,
and (c) all capital lease obligations.
"INDEMNIFICATION AMOUNT" has the meaning set forth in Section 8(b)(i)
below.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(e) below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 8(e) below.
"INFORMATION STATEMENT" has the meaning set forth in Section 6(k) below.
"INTELLECTUAL PROPERTY" means, with respect to the Company and the
Business:
(a) all inventions (whether patentable or unpatentable and whether or
not reduced to practice), all improvements thereto, and all US and
non-US patents, patent applications (whether published or
unpublished), and patent disclosures, together with all reissuances,
continuations, divisionals, continuations-in-part, revisions,
extensions, and re-examinations thereof;
(b) all US and non-US trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all
goodwill associated therewith, and all applications, registrations,
and renewals in connection therewith;
(c) all copyrightable works, all US and non-US copyrights, and all
applications, registrations, and renewals in connection therewith;
(d) all trade secrets and confidential business information (including
without limitation ideas, research and development plans, know-how,
formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals);
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(e) all other proprietary rights;
(f) all right, title, and interest in and to the names "CellExSys" and
"SPECIFEX-HBV";
(g) all Licensed Software and license agreements relating thereto; and
(h) with respect to each of the foregoing, all copies and tangible
embodiments thereof (in whatever form or medium).
"IND" means an investigational new drug application made under the rules
and regulations of the FDA.
"KNOWLEDGE" means the actual knowledge of the Company and the Principal
Shareholders, which in the case of Targeted means the actual knowledge of
its executive officers, and the employees of the Company with management
responsibility in the area of the operations of the Company with respect
to which the applicable representation or warranty applies.
"LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign,
or other law, statute, legislation, constitution, principle of common law,
resolution, ordinance, code, edict, decree, proclamation, treaty,
convention, rule, regulation, ruling, directive, pronouncement,
requirement, specification, determination, decision, opinion, or
interpretation that is, has been or may in the future be issued, enacted,
adopted, passed, approved, promulgated, made, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to
become due), including any liability for Taxes.
"LICENSED SOFTWARE" has the meaning set forth in Section 3(p) below.
"LOW VALUE" has the meaning set forth in Section 2.7(f)(iv)(A) below.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the property
or assets of the entity, or a material adverse effect on the condition or
prospects, financial or otherwise, of the business of the entity or the
entity.
"MERGER" means the merger of the Company and Merger Sub on the terms
contemplated under this Agreement in accordance with Washington Law.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.7(b) below.
For the purpose of the indemnification provisions set forth in this
Agreement, the Representation and Support Agreement and the Optionholder
Representation Agreement that limit the liability of each Shareholder to
the value of the Merger Consideration received by such Shareholder
pursuant to this Agreement, "MERGER CONSIDERATION" shall mean the market
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value of the consideration for the Merger received by a Shareholder at the
time such consideration was received. For clarification, if the Merger
Consideration is delivered to the Shareholder by the issuance of Parent
Shares, the value of such Parent Shares for indemnification purposes shall
be the closing bid price of the Parent Shares on the Toronto Stock
Exchange on the day prior to the Closing Date or the date of conversion
pursuant to the Convertible Debenture, as applicable.
"MERGER SUB" has the meaning set forth in the preface above.
"MILESTONE PAYMENT AGREEMENT" has the meaning set forth in Section
5(a)(xi) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"NET ASSETS" means the difference between the (a) total assets of the
Company (excluding the Deposit), and (b) total liabilities of the Company
(excluding the Deposit and excluding any Indebtedness owing by the Company
to any member of the Targeted Affiliated Group), in each case determined
on a book value basis in accordance with GAAP as applied on a consistent
basis. All accounting entries will be made regardless of their amount and
all detected errors and omissions will be corrected regardless of their
materiality.
"OBSERVER" has the meaning set forth in Section 9(j) below.
"OPERATIONAL MATTERS" has the meaning set forth in Section 8(a) below.
"OPTION PLAN" has the meaning set forth in Section 2.7(i) below.
"OPTIONHOLDER REPRESENTATION AGREEMENT" has the meaning set forth in
Section 5(a)(xxvii) below.
"ORDER" means: (a) an order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence,
subpoena, writ, or award that is, has been, or may in the future be,
issued, made, entered, rendered or otherwise put into effect by or under
the authority of any court, administrative agency, or other Governmental
Body or any arbitrator or arbitration panel; or (b) a contract with any
Governmental Body that is, has been, or may in the future be entered into
in connection with any proceeding.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of the Business
consistent with past custom and practice (including with respect to
quantity and frequency) consisting of actions that are recurring in nature
in the course of normal day-to-day operations and which are taken in
accordance with sound and prudent business practices.
"PARENT" means Chromos Molecular Systems, Inc.
"PARENT SECURITIES" means collectively the Parent Shares, the Convertible
Debenture and the Convertible Debenture Shares.
"PARENT SHARES" means common shares in the capital of the Parent.
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"PARENT'S ADVISORS" has the meaning set forth in Section 6(a)(i) below.
"PARTIES" has the meaning set forth in the preface above.
"PERSON" means any individual, corporation, company, partnership,
association, estate, trust or government or any agency or political
subdivision of any government.
"PRE-CLOSING TAX PERIOD" has the meaning set forth in Section 7(f)(i)
below.
"PRINCIPAL SHAREHOLDERS" means Targeted and David M. Schubert.
"PROPOSED AGREEMENT" has the meaning set forth in Section 6(h)(iii) below.
"MERGER CONSIDERATION ADJUSTMENT" has the meaning set forth in Section
2.7(f)(i) below.
"RELATED PERSON" means with respect to a particular individual: (a) each
other member of such individual's Family (as defined below); (b) any
Person that is directly or indirectly controlled by such individual or one
or more members of such individual's Family; (c) any Person in which such
individual or members of such individual's Family hold (individually or in
the aggregate) a Material Interest (as defined below); and (d) any Person
with respect to which such individual or one or more members of such
individual's Family serves as a director, manager, officer, partner,
executor, or trustee (or in a similar capacity). With respect to a
specified Person other than an individual: (A) any Person that directly or
indirectly controls, is directly or indirectly controlled by, or is
directly or indirectly under common control with such specified Person;
(B) any Person that holds a Material Interest in such specified Person;
(C) each Person that serves as a director, manager, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity);
(D) any Person in which such specified Person holds a Material Interest;
(E) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and (F) any
Related Person of any individual described in clause (B) or (C).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides
with such individual, and (b) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the United States
Securities Exchange Act of 1934, as amended) of voting securities or other
voting interests representing at least 10% of the outstanding voting power
of a Person or equity securities or other equity interests representing at
least 10% of the outstanding equity securities or equity interests in a
Person.
"RELEASE AGREEMENT" has the meaning set forth in Section 5(a)(ix) below.
"REPRESENTATION AND SUPPORT AGREEMENT" has the meaning given to that term
in Section 5(a)(xxvi) below.
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"PARENT SECURITIES" means collectively the Parent Shares, the Convertible
Debenture and the Convertible Debenture Shares.
"SECTION (9)(b)(i)(2) PAYMENT" has the meaning set forth in Section
9(b)(i) below.
"SECTION (9)(c)(i)(B) PAYMENT" has the meaning set forth in Section
9(c)(i) below.
"SECURITY AGREEMENT" has the meaning set forth in Section 5(a)(xxiv)
below.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge,
hypothecation, encumbrance, equity, trust, equitable interest, claim,
preference, right of possession, lease, tenancy, license, encroachment,
interference, court order, option, right of first refusal, pre-emptive
right, community property interest, legend, defect, impediment, exception,
reservation, limitation, impairment, imperfection of title, condition,
restriction of any nature or other security interest, other than (a)
mechanic's, materialmen's, and similar liens incurred in the Ordinary
Course of Business not yet due and payable, (b) liens for Taxes not yet
due and payable, (c) purchase money liens and liens securing rental
payments under capital lease arrangements, and (d) other liens arising in
the Ordinary Course of Business and not incurred in connection with the
borrowing of money.
"SHAREHOLDER REPRESENTATIVE" has the meaning given to that term in Section
2.8;
"SHAREHOLDERS" means each holder of Company Shares immediately prior to
the Effective Time.
"SUBSIDIARY" means any corporation, limited partnership, limited liability
company, or other entity with respect to which a specified Person (or a
Subsidiary thereof) owns a majority of the common shares, units or other
equity interests or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"SUPERIOR TRANSACTION" has the meaning set forth in Section 6(h)(ii)(A)
below.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.1 below.
"TARGETED" means Targeted Genetics Corporation.
"TARGETED AFFILIATED GROUP" means the Affiliated Group, of which Targeted
and the Company are members.
"TARGETED BOARD" has the meaning set forth in Section 6(h)(ii) below.
"TAX" means any tax imposed of any nature including federal, state, local
or foreign net income tax, alternative or add-on minimum tax, profits or
excess profits tax, franchise tax, gross income, adjusted gross income or
gross receipts tax, license fee, employment related tax (including
employee withholding or employer payroll tax, FICA, or FUTA), real or
person property tax or ad valorem tax, sales or use tax, transfer tax,
excise tax, stamp tax or duty, any withholding or backup withholding tax,
value added tax, severance
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tax, prohibited transaction tax, premiums tax, occupation tax, windfall
profits tax, environmental tax (including taxes under Code Section 59A),
customs duties, or estimated tax, together with any interest or any
penalty, addition to tax or additional amount imposed by any government
authority responsible for the imposition of any such tax, whether disputed
or not and including any obligations to indemnify or otherwise assume or
succeed to the Tax liability of any other Person.
"TAX RETURN" means any report, estimate, declaration of estimated tax,
information statement or return relating to or required to be filed in
connection with, any Tax, including any information return or report with
respect to backup withholding and other payment to third parties.
"THIRD PARTY ASSETS" has the meaning set forth in Section 3(f) below.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(e)(i) below.
"TRANSITION SERVICES AGREEMENT" has the meaning set forth in Section
5(a)(xii) below.
"U.S. SECURITIES ACT" means the United States Securities Act of 1933, as
amended.
"UNDISCLOSED LIABILITIES" has the meaning set forth in Section 3(j) below.
"WASHINGTON LAW" has the meaning set forth in Section 2.3 below.
"WASHINGTON SECRETARY OF STATE" has the meaning set forth in Section 2.3
below.
2. THE MERGER.
2.1 THE MERGER.
Upon the terms and subject to the conditions hereof, (a) at the Effective
Time (defined below) the separate existence of Merger Sub shall cease and Merger
Sub shall be merged with and into the Company (the Company as the surviving
corporation after the Merger is sometimes referred to herein as the "SURVIVING
CORPORATION") and (b) from and after the Effective Time, the Merger shall have
the effects set forth in this Agreement and all the effects of a merger under
the laws of the State of Washington and other applicable law.
2.2 THE CLOSING .
Subject to the terms and conditions of this Agreement, the closing of the
Merger (the "CLOSING") shall take place on July 27, 2004 (the "CLOSING DATE") at
10:00 a.m. local time at the offices of Dorsey & Whitney, LLP, 3400 - 1420 Fifth
Avenue, Seattle, Washington, or such other date, time or location as the Parent
and the Company shall agree, provided however that the Parent may postpone the
Closing by up to 45 days in accordance with Section 9(e).
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2.3 EFFECTIVE DATE AND TIME.
On the Closing Date and subject to the terms and conditions hereof, the
parties hereto shall cause the appropriate certificates (the "ARTICLES OF
MERGER") in the form attached as Exhibit B complying with the applicable
provisions of the Washington Business Corporation Act ("WASHINGTON LAW") to be
properly executed and filed with the Secretary of State of the State of
Washington (the "WASHINGTON SECRETARY OF STATE"). The Merger shall become
effective on the date (the "EFFECTIVE DATE") and at the time (the "EFFECTIVE
TIME") of filing of the Articles of Merger or at such other time as may be
specified in the Articles of Merger as filed. If the Washington Secretary of
State requires any changes in the Articles of Merger as a condition to filing or
to issuing its certificate to the effect that the Merger is effective, the
Parent, Merger Sub and the Company will execute any necessary revisions
incorporating such changes, provided such changes are not inconsistent with and
do not result in any material change in the terms of this Agreement.
2.4 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION.
At the Effective Time, the Articles of Incorporation of the Surviving
Corporation shall be amended and restated in their entirety in a form acceptable
to Parent. Thereafter, the Articles of Incorporation of the Surviving
Corporation may be amended in accordance with their terms and as provided by
law.
2.5 BYLAWS OF THE SURVIVING CORPORATION.
At the Effective Time, the Bylaws of the Surviving Corporation as in
effect immediately prior to the Effective Time shall continue to be the Bylaws
of the Surviving Corporation. Thereafter, the Bylaws may be amended or repealed
in accordance with their terms and the Articles of Incorporation of the
Surviving Corporation and as provided by law.
2.6 DIRECTORS AND OFFICERS.
At the Effective Time, the directors of Merger Sub shall continue in
office as the directors of the Surviving Corporation and the officers of Merger
Sub shall continue in office as the officers of the Surviving Corporation, and
such directors and officers shall hold office in accordance with and subject to
the Articles of Merger and Bylaws of the Surviving Corporation.
2.7 MERGER CONSIDERATION; CONVERSION OF SHARES.
As of the Effective Time, by virtue of the Merger and without any action
on the part of the holders thereof:
(a) Cancellation of Company Shares. All shares of any class of capital
stock of the Company held by the Company as treasury shares shall be
cancelled.
(b) Consideration. Each issued and outstanding Company Share, other than
as provided in Section 2.7(a), shall be converted into the right to
receive pro rata from the Parent in the manner described in Section
2.7(c) below, the aggregate of Canadian Five Million Six Hundred and
Twenty-Five Thousand Dollars
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(Cdn.$5,625,000), subject to adjustment as provided in Section
2.7(f) below (the "MERGER CONSIDERATION").
(c) Payment of Merger Consideration. At the Closing Date, the Merger
Consideration shall be paid as follows:
(i) Canadian Two Million Two Hundred and Fifty Thousand Dollars
(Cdn.$2,250,000.00) shall be paid, at the option of the Parent
in its sole discretion, to the Shareholders pro rata based
upon the number of Company Shares held by each Shareholder
immediately prior to the Effective Time:
(A) by wire transfer or other immediately available funds to
a bank or other account designated in writing to the
Parent by the Shareholder Representative at least two
business days prior to the Closing Date; or
(B) by the issuance to the Shareholder Representative (in
the names and amounts designated by the Shareholder
Representative) of that number of the Parent Shares
equal to Cdn.$2,250,000 divided by the average closing
bid price of the Parent Shares on the Toronto Stock
Exchange during the period of 30 consecutive trading
days ending not more than 3 trading days prior to the
date of this Agreement, provided that if such bid price
is less than Cdn.$1.50 per share such bid price will be
deemed to be Cdn.$1.50 per share, and if such bid price
is greater than Cdn.$2.75 per share, such bid price will
be deemed to be Cdn.$2.75 per share; or
(C) by any combination of cash and the Parent Shares
aggregating Cdn.$2,250,000 in accordance with
subsections 2.7(c)(i)(A) and (B),
provided that if the total number of the Parent Shares to be
issued will result in Targeted owning that number of the
Parent Shares equal to or greater than 20% of the total issued
and outstanding the Parent Shares, on a fully diluted basis,
as at the Closing Date, the Parent shall not be entitled to
exercise its option to issue the Parent Shares to the
Shareholders pursuant to subsection 2.7(c)(i)(B) on such date
with respect to that amount which would result in Targeted
owning in the aggregate that number of the Parent Shares equal
to greater than 20% of the total issued and outstanding the
Parent Shares, on a fully diluted basis, as at the Closing
Date, but rather payments representing such amounts shall be
paid in accordance with subsection 2.7(c)(i)(A); and
(ii) the balance of the Merger Consideration shall be paid to the
Shareholders pro rata based upon the number of Company Shares
held by each Shareholder immediately prior to the Effective
Time by the issuance of the
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Convertible Debenture to the Shareholder Representative as
administrative agent for the Shareholders in accordance with
the terms and conditions of the Convertible Debenture.
(d) Closing of Transfer Books; Surrender of Certificates. At the
Effective Time, holders of certificates representing shares of the
Company's capital stock that were outstanding immediately prior to
the Effective Time shall cease to have any rights as shareholders of
the Company, and the stock transfer books of the Company shall be
closed with respect to all shares of such capital stock outstanding
immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such
stock transfer books after the Effective Time. At the Closing, the
Shareholder Representative shall deliver an executed letter of
transmittal, in a form reasonably satisfactory to the Parent,
together with those original certificates that immediately prior to
the Closing represented the Company Shares held by each of the
Shareholders, or an affidavit of lost certificate and indemnity duly
executed by the applicable Shareholder for any Certificate which has
been lost, stolen, seized or destroyed (the "CERTIFICATES") to the
Parent. Upon the surrender of Certificates to the Parent, the
Shareholder Representative shall be entitled to receive in exchange
therefor the Merger Consideration in accordance with Section 2.7(c),
subject to any Merger Consideration Adjustment, and the Certificates
so surrendered shall be forthwith cancelled.
(e) Deliveries at the Closing. At the Closing, (i) the Company and the
Shareholders will deliver to the Parent the various certificates,
instruments, and documents referred to in Section 5(a) below; (ii)
the Parent will deliver to the Company and the Shareholder
Representative the various certificates, instruments, and documents
referred to in Section 5(b) below; (iii) the Company and the
Shareholders will execute, acknowledge (if appropriate), and deliver
to the Parent such documents as the Parent and its counsel may
reasonably request; (iv) the Parent will execute, acknowledge (if
appropriate), and deliver to the Company such documents as the
Company and the Shareholder Representative and their counsel
reasonably may request; and (v) the Parent will deliver to the
Shareholder Representative, and others specified in Section 2.7(c),
the Merger Consideration.
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(f) Minimum Net Asset Adjustment.
(i) The Merger Consideration shall be:
(A) decreased on a dollar-for-dollar basis to the extent
that the Net Assets of the Company as of the close of
business on the Closing Date is less than United States
negative One Hundred and Sixty-Five Thousand Dollars (US
$165,000) dollars. For greater certainty and by way of
example, if the Net Assets are negative $200,000, the
Merger Consideration would be decreased by $35,000 under
this Section 2.7(f)(i)(A); and
(B) increased on a dollar-for-dollar basis to the extent
that the Net Assets of the Company as of the close of
business on the Closing Date is greater than United
States negative One Hundred and Sixty-Five Thousand
Dollars (US $165,000) dollars.
Any decrease or increase in the Merger Consideration pursuant
to this Section 2.7(f) shall be referred to as a "MERGER
CONSIDERATION ADJUSTMENT".
(ii) No later than sixty (60) days after the Closing Date, the
Parent shall deliver to the Shareholder Representative (A) a
balance sheet of the Company for the period ended as of the
close of business on the Closing Date (the "CLOSING DATE
BALANCE SHEET") prepared in accordance with GAAP applied on a
basis consistent with the preparation of the Financial
Statements; provided, however, that assets, liabilities,
gains, losses, revenues, and expenses in interim periods or as
of the dates other than year-end (which normally are
determined through the application of so-called interim
accounting conventions or procedures) will be determined, for
purposes of the Closing Date Balance Sheet, through full
application of the procedures used in preparing the most
recent unaudited balance sheet included within the Financial
Statements, and (B) a separate statement showing any
calculations with respect to any necessary Merger
Consideration Adjustment prepared in accordance with GAAP (the
"FINAL ADJUSTMENT SCHEDULE"). The Shareholder Representative
shall have the right to examine and make copies of the work
papers and such other documents that are generated or reviewed
by the Parent in connection with the preparation of the
Closing Date Balance Sheet and the Final Adjustment Schedule.
(iii) The Shareholder Representative shall, within sixty (60) days
following its receipt of the Closing Date Balance Sheet and
the Final Adjustment Schedule, accept or reject the Merger
Consideration Adjustment submitted by the Parent. If the
Shareholder Representative disagrees with such calculation, it
shall give written notice to the Parent of such disagreement
and any reason therefor within such sixty (60) day period.
Should the
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Shareholder Representative fail to notify the Parent of a
disagreement within such sixty (60) day period, the
Shareholders shall be deemed to agree with the Parent's
calculation. The Parent and the Shareholders Representative
will use reasonable efforts to resolve any such objections
themselves. If the Parties do not obtain a final resolution
within thirty (30) days after the Parent has received the
statement of objections, however, the Parent and the
Shareholder Representative will select a nationally-recognized
accounting firm mutually acceptable to them to resolve any
remaining objections. If the Parent and the Shareholders
Representative are unable to agree on the choice of an
accounting firm, they will select a nationally recognized
accounting firm by lot (after excluding their respective
regular outside accounting firms). The determination of any
accounting firm so selected will be set forth in writing and
will be conclusive and binding upon the parties. The Parent
will revise the Closing Date Balance Sheet as appropriate to
reflect the resolution of any objections thereto pursuant to
this Section 2.7(f)(iii).
(iv) In the event the Parties submit any unresolved objections to
an accounting firm for resolution as provided in Section
2.7(f)(iii) above, the Parent and the Shareholders will share
responsibility for the fees and expenses of the accounting
firm as follows:
(A) if the accounting firm resolves all of the remaining
objections in favour of the Parent (the Net Assets of
the Company so determined is referred to herein as the
"LOW VALUE"), the Shareholder Representative will be
responsible for all of the fees and expenses of the
accounting firm;
(B) if the accounting firm resolves all of the remaining
objections in the favour of the Shareholder
Representative (the Net Assets of the Company so
determined is referred to herein as the "HIGH VALUE"),
the Parent will be responsible for all of the fees and
expenses of the accounting firm; and
(C) if the accounting firm resolves some of the remaining
objections in favour of the Parent and the rest of the
remaining objections in favour of the Shareholder
Representative (the Net Assets of the Company so
determined is referred to herein as the "ACTUAL VALUE"),
the Shareholders will be responsible for that fraction
of the fees and expenses of the accounting firm equal to
(x) the difference between the High Value and the Actual
Value over (y) the difference between the High Value and
the Low Value, and the Parent will be responsible for
the remainder of the fees and expenses.
(v) If, based on the Final Adjustment Schedule as finally
determined pursuant to this Section 2.7(f), the Net Assets of
the Company as of the close of
- 16 -
business on the Closing Date is greater or less than United
States negative One Hundred and Sixty-Five Thousand Dollars
(US $-165,000), the aggregate amounts payable by the Parent
pursuant to the Convertible Debenture shall be deemed to be
adjusted by such deficit or such excess.
(g) The Deposit. The total amount of the Deposit is Cdn.$750,000. The
Deposit shall not be deemed to be a payment to the Shareholders as a
part of the Merger Consideration. The Parties acknowledge that the
initial Cdn.$450,000 of the Deposit was a fee paid to the Company as
an inducement to execute the letter of intent with the Parent dated
March 24, 2003 and shall only be returned to the Parent pursuant to
the provisions of Section 9. Upon execution of this Agreement, the
remaining Cdn.$300,000 of the Deposit shall be paid to the Company
and shall be used by the Company to fund its operations. The Deposit
may not be applied to the repayment of an Indebtedness owed by the
Company to any member of the Targeted Affiliated Group.
(h) Outstanding Merger Sub Shares to be Converted. Each issued and
outstanding share of capital stock of Merger Sub shall be converted
into one share of common stock of the Surviving Corporation.
(i) Outstanding Options to Purchase Company Shares. At the Effective
Time, each outstanding option to purchase shares in the capital
stock of the Company granted pursuant to the Company's 2001 Stock
Option Plan (the "OPTION PLAN") shall terminate. All outstanding and
unvested options shall vest immediately prior to the Effective Time.
All outstanding options, unless exercised prior to the Effective
Time, shall be cancelled as of the Effective Time.
(j) Shareholders' Rights under Washington Law. Holders of Company Shares
who have complied with all the requirements for perfecting
dissenters' rights, as required under Washington Law, shall be
entitled to their rights under Washington Law with respect to such
shares (the "DISSENTING SHARES"). Notwithstanding the foregoing, if
any holder of Dissenting Shares shall effectively withdraw or lose
(through failure to perfect or otherwise) the right to dissent,
then, as of the later of the Effective Time and the occurrence of
such event, such holder's shares shall automatically be converted
into and represent only the right to receive the Merger
Consideration to which such holder is then entitled under this
Agreement and Washington Law, without interest thereon and upon
surrender of the certificates representing such shares.
Notwithstanding any provision of this Agreement to the contrary, any
Dissenting Shares held by a Shareholder who has perfected
dissenter's rights for such shares in accordance with Washington Law
shall not be converted into Merger Consideration.
(k) No Dividends. No dividends or other distributions declared or made
with respect to Parent Shares with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificates
with respect to the Parent Shares represented thereby (if any), and
no cash payment in lieu of fractional shares shall be paid to any
such holder, until such holder surrenders such Certificates in
- 17 -
accordance with this Section 2.7 (at which time such holder shall be
entitled to receive all such dividends and distributions and such
cash payment).
(l) No Fractional Shares. No fractional shares of Parent Shares shall be
issued in connection with the Merger, and no certificates for any
such fractional shares shall be issued. In lieu of such fractional
shares, any holder of Company Shares who would otherwise be entitled
to receive a fraction of a share of Parent Shares (after aggregating
all such fractional shares of Parent Shares issuable to such holder)
shall, upon surrender of such holders Certificates, be paid the
dollar amount (rounded to the nearest whole cent), determined by
multiplying such fraction by the conversion price used pursuant to
Section 2.7(c).
2.8 SHAREHOLDER REPRESENTATIVE.
The shareholders of the Company, by approving the Merger at a special
meeting of shareholders or by written consent of the Shareholders, will be
deemed to have irrevocably authorized and appointed Targeted (the
"SHAREHOLDER REPRESENTATIVE") for the purpose of acting on behalf of the
Shareholders with respect to the transactions contemplated by this
Agreement, including without limitation, acting as transfer agent for the
Company Shares, administering the Merger Consideration, as adjusted, as
set forth in Section 2.7 above, making decisions with respect to indemnity
claims and amendments to this Agreement or any ancillary agreements, and
acting on behalf of the Shareholders with respect to the transaction
contemplated by the Convertible Debenture as such Shareholders'
administrative agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
SHAREHOLDERS.
The Company and the Principal Shareholders, jointly and severally,
represent and warrant to the Parent and to Merger Sub that the statements
contained in this Section 3 are true, correct and complete as of the date
hereof and will be true, correct and complete as of the Closing Date,
except as specified to the contrary in the corresponding paragraph of the
disclosure schedule prepared by the Company and the Principal Shareholders
and initialled by the Parent (the "COMPANY DISCLOSURE SCHEDULE"). The
Company Disclosure Schedule will be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this Section 3.
(a) Organization of the Company. The Company is a corporation duly
organized, validly existing and authorized to do business in the
corporate form under the laws of the State of Washington and is duly
qualified to conduct business in every jurisdiction where such
qualification is required, except where the lack of such
qualification would not have a Material Adverse Effect. The
Shareholders are as of the date hereof, and will be as of the
Closing Date, the sole record holders of the outstanding Company
Shares (except for such persons who may receive shares pursuant to
the exercise of currently outstanding options). The Company has all
necessary power and authority to conduct its Business in the manner
in
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which its Business is currently being conducted and in the manner in
which its Business is proposed to be conducted.
(b) Charter Documents; Records.
(i) The Company has delivered to the Parent accurate and complete
copies of:
(A) the Company's articles of incorporation and bylaws,
including all amendments thereto;
(B) records relating to Company Shares, which contain a
complete and correct record of all issuances and
transfers of equity interests and Equity Rights of the
Company;
(C) the minutes and other records of the meetings and other
proceedings, including any action taken by written
consent or otherwise without a meeting of the
shareholders of the Company, the board of directors of
the Company, and all committees of the board of
directors of the Company.
(ii) There have been no meetings or other proceedings of the
shareholders, the board of directors, or any committee of the
board of directors of the Company that are not fully reflected
in such minutes or other records.
(iii) The books of account, stock records, minute books, and other
records of the Company are accurate, up to date, and complete,
and have been maintained in accordance with sound and prudent
business practices.
(c) Authorization of Transaction. Each of the Company and the Principal
Shareholders has the full power and authority to execute and deliver
this Agreement and subject to approval by the shareholders of the
Company to perform its obligations hereunder. Without limiting the
generality of the foregoing, the board of directors of each of the
Company and Targeted have duly authorized the execution, delivery,
and performance of this Agreement by the Company and Targeted,
respectively. This Agreement constitutes a valid and legally binding
obligation of each of the Company and Principal Shareholders,
enforceable in accordance with its terms and conditions, except as
limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the
enforcement of creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding
in equity or at law. Other than filing the Articles of Merger with
the Washington Secretary of State, neither the Company nor Targeted
need give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Governmental Body in
order for the Parties to consummate the transactions contemplated by
this Agreement.
(d) Noncontravention. Neither the execution nor the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate (1) any
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material constitution, statute, law, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, Governmental Body, or court to which the Company is
subject or (2) any provision of the constating documents, board
resolutions or shareholder resolutions of the Company or (ii)
conflict with, result in a violation of, result in a breach of,
constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Company is a party or
to the knowledge of the Company and the Principal Shareholders by
which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its
assets) or (iii) give any Governmental Body or other Person a valid
right to challenge this Agreement or any of the transactions
contemplated hereby or to exercise any remedy or obtain any relief
under any Legal Requirement or any Order to which the Company or any
of its assets are subject.
(e) Brokers' Fees. The Company has not incurred any Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this
Agreement.
(f) Title to Assets. Other than Intellectual Property and the assets set
forth in the Financial Statements, the Company has no assets. All of
the assets of the Company, other than Intellectual Property, which
are necessary and sufficient or material to conduct the Business as
presently conducted are owned by a third party (the "THIRD PARTY
ASSETS"). The Third Party Assets are listed in Section 3(f) of the
Company Disclosure Schedule and are the subject of the Transition
Services Agreement. The Third Party Assets, together with the
Intellectual Property are all of the assets used by the Company or
necessary to conduct the Business as presently conducted. Each such
tangible asset listed in Section 3(f) of the Company Disclosure
Schedule is free from any known material defects, has been
maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear) and
is suitable for the purposes for which it is presently used.
(g) Capitalization; Company Shares. Section 3(g) of the Company
Disclosure Schedule sets forth the number of authorized, issued, and
outstanding equity securities of the Company and indicates the
record and beneficial owners of such securities. The equity
securities of the Company set forth on Section 3(g) of the Company
Disclosure Schedule constitute all of the issued and outstanding
shares of the Company and are duly and validly issued, fully paid
and non-assessable and held of record, by the Shareholders set forth
on Section 3(g) of the Company Disclosure Schedule free and clear of
any Security Interests, and none of such equity securities are
subject to, nor have any been issued in violation of, pre-emptive,
rights of first offer, or similar rights, whether arising under the
constating documents of the Company, or by contract of which the
Company is a party or of which the Company and the Principal
Shareholders have knowledge. Other than Indebtedness to Targeted,
the Company is not the maker or obligor in
- 20 -
respect to any Indebtedness owed to any current or former
shareholder or other equity interest holder of the Company, or to
any other member of the Targeted Affiliated Group. All issuances,
sales and repurchases of equity interests by the Company have been
effected in compliance with all applicable federal and state
securities laws. The share ledger and other corporate records of the
Company contain a complete and correct record of all issuances and
transfers of equity interests of the Company. There are no
pre-emptive, rights of first offer, or similar rights on the part of
any holder of any Company Shares. Except as disclosed in Section
3(g) of the Company Disclosure Schedule, no options, warrants,
conversion or other rights, agreements, commitments, arrangements or
understandings of any kind obligating the Company, contingently or
otherwise, to issue or sell any shares of its common stock or any
securities convertible into or exchangeable for any such shares or
any other securities, are outstanding, and no such authorizations
therefor have been given. The Company and the Principal Shareholders
have no Knowledge of any condition or circumstance that would,
directly or indirectly, give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other
securities of the Company.
(h) Financial Statements. Attached as Section 3(h) of the Company
Disclosure Schedule are unaudited balance sheets and statements of
income, cumulative deficit, changes in shareholders' equity and
income and cash flow of the Company as of December 31, 2003,
December 31, 2002, and December 31, 2001, and unaudited interim
balance sheets and statements of income, cumulative deficit, changes
in shareholders' equity and income and cash flow of the Company
through February 29, 2004 (together, "FINANCIAL STATEMENTS").
(i) Each of the Financial Statements is true, correct, complete
and consistent with the books and records of the Company. Each
of the Financial Statements has been prepared in accordance
with GAAP applied on a consistent basis throughout the periods
covered thereby and presents fairly the financial condition
and results of operations and cash flows of the Company at the
dates and for the periods specified, subject, in the case of
unaudited financial statements, to the absence of notes and
the absence of normal recurring year-end adjustments and
procedures (none of which require material adjustment or are
inconsistent with past practice).
(ii) The Company does not have any debt, liability or obligation of
any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not
reflected or reserved against in the Financial Statements.
Accounts payable reflected in the Financial Statements have
arisen from bona fide transactions. All debts, liabilities and
obligations of the Company incurred after the date of the
Financial Statements were incurred in the Ordinary Course of
Business, arose from bona fide transactions, and are usual and
normal in amount both individually and in the aggregate. The
Company is not directly or indirectly liable to or obligated
to provide funds in respect of or to guaranty or assume any
- 21 -
obligation of any person except to the extent reflected and
fully reserved against in the Financial Statements. Except as
set forth in the Financial Statements, all liabilities of the
Company can be prepaid without penalty at any time.
(iii) The loans, notes and accounts receivable reflected in the
Financial Statements and all such loans, notes and accounts
receivable arising after the applicable dates of the Financial
Statements arose, and have arisen, from bona fide
transactions, and the bad debt reserves established in
connection with such loans, notes, and accounts receivable are
in accordance with GAAP applied on a consistent basis.
(i) Events Subsequent to December 31, 2003. Since December 31, 2003,
there has not been any change resulting in a Material Adverse Effect
on the Business, assets, Liabilities, financial condition,
operations, net income or results of operations of the Company taken
as a whole. Except in accordance with this Agreement and without
limiting the generality of the foregoing, since that date, the
Company:
(i) has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible;
(ii) has not entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases,
and licenses) either involving more than US$20,000 or outside
the Ordinary Course of Business;
(iii) has not, and, to the Knowledge of the Company and the
Principal Shareholders, no party has, accelerated, terminated,
modified, or cancelled any agreement, contract, lease, or
license (or series of related agreements, contracts, leases,
and licenses) involving more than US$20,000 to which the
Company is a party or by which it is bound;
(iv) has not imposed or permitted any Security Interest upon any of
its assets, tangible or intangible;
(v) has not made any distribution or any capital expenditure (or
series of related capital expenditures) either involving more
than US$20,000 or outside the Ordinary Course of Business;
(vi) has not made any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other Person;
(vii) has not issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any Indebtedness;
(viii) has not delayed or postponed the payment of accounts payable
or other Liabilities outside of the Ordinary Course of
Business;
- 22 -
(ix) has not cancelled, compromised, waived, or released any right
or claim (or series of related rights and claims) in excess of
US$20,000 outside the Ordinary Course of Business other than
the Subscription Agreement and Release with Itochu Corporation
dated February 9, 2004;
(x) has not granted any license or sublicense of any rights under
or with respect to any Intellectual Property;
(xi) has not changed or authorized any change in its articles of
incorporation, bylaws, or similar charter documents or been a
party to an Acquisition Transaction, recapitalization,
reclassification of shares, stock split, reverse stock split
or similar transaction;
(xii) has not experienced any material damage, destruction, or loss
(whether or not covered by insurance) to its property;
(xiii) has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and
employees;
(xiv) has not adopted, amended, modified or terminated any bonus,
profit-sharing incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect
to any other Employee Benefit Plan);
(xv) has not made any other change in employment terms for any of
its directors, officers, and employees, including any increase
in compensation;
(xvi) has not made or pledged to make any charitable or other
capital contribution;
(xvii) has not suffered or experienced any other occurrence, event,
incident, action, failure to act, or transaction outside the
Ordinary Course of Business;
(xviii) has not declared or paid any dividend or other distribution,
whether in cash or other property; and
(xix) has not entered into a commitment to do any of the foregoing.
(j) Undisclosed Liabilities. The Company has no Liability (and to the
Knowledge of the Company and the Principal Shareholders there is no
basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the
Company giving rise to any Liability), except for (i) Liabilities
set forth on the face of the Financial Statements, and (ii)
Liabilities which have arisen after the date of the Financial
Statements in the Ordinary Course of Business (none of which results
from, arises out of, or was caused by any breach of contract, breach
of warranty claims, product liability, tort,
- 23 -
infringement, or violation of law), (iii) Liabilities which will
arise from and after the Closing Date in the Ordinary Course of
Business under contracts, instruments and similar obligations of the
Company to be performed following the Closing Date and (iv)
Liabilities set forth on Section 3(j) of the Company Disclosure
Schedule ("UNDISCLOSED LIABILITIES").
(k) Legal Compliance. Except as set forth on Section 3(k) of the Company
Disclosure Schedule, the Company (or parties under contractual
obligation to the Company) now holds, and as of the Closing Date
will hold, all licenses, certificates, approvals and permits from
all state, United States, foreign and other regulatory authorities,
including but not limited to the FDA and any foreign regulatory
authorities performing functions similar to those performed by the
FDA, that are material to the conduct of the Business of the Company
(as such Business is currently conducted), except for such licenses,
certificates, approvals and permits the failure of which to hold
would not have a Material Adverse Effect on the Business of the
Company, all of which are valid and in full force and effect (and
there is no proceeding pending or, to the Knowledge of the Company
and the Principal Shareholders, threatened which may cause any such
license, certificate, approval or permit to be withdrawn, cancelled,
suspended or not renewed). To the Knowledge of the Company and the
Principal Shareholders, the Company is not in violation of any
material law, order, rule, regulation, writ, injunction or decree of
any court or governmental agency or body, including, but not limited
to, those promulgated by the FDA. To the Knowledge of the Company
and the Principal Shareholders, no event has occurred and no
condition or circumstance exists, that might with or without notice
or lapse of time constitute or result directly or indirectly in a
material violation by the Company, or a failure on the part of the
Company to comply with any Legal Requirement, and the Company has
not received, at any time, any notice or other communication in
writing or otherwise from any Governmental Body or any other Person
regarding (i) any actual, alleged, or potential violation of, or
failure to comply with any Legal Requirement, or (ii) any actual,
alleged, possible or potential obligation on the part of the Company
to undertake or bear all or any portion of the cost of, any cleanup
or remedial, corrective or response action of any nature. No prior
notice, consent or waiver from any Person, other than the consents
and waivers listed on Schedule B are required to consummate the
transactions contemplated in this Agreement.
(l) Clinical Trials. All clinical studies and tests (including, but
without limitation the human clinical trials and animal studies)
conducted by the Company or in which the Company has participated
are set forth in Section 3(l) of the Company Disclosure Schedule,
and, to the Knowledge of the Company and the Principal Shareholders,
such studies, to the extent the study IND application was held by
the Company, and tests that were conducted on behalf of the Company,
were and, if still pending, are being conducted in all material
respects (i) in accordance with the protocols, procedures and
controls for such studies and tests of new medical devices or
biologic products, as the case may be, and (ii) in accordance with
all applicable laws, rules and regulations; the descriptions of the
results of such
- 24 -
studies and tests are set forth in Section 3(l) of the Company
Disclosure Schedule and are accurate, complete and fair, and neither
the Company nor the Principal Shareholders has Knowledge of any
other studies or tests, the results of which call into question the
results described or referred set forth is Section 3(l) of the
Company Disclosure Schedule, and the Company has not received any
notices or correspondence from the FDA or any other governmental
agency requiring the termination, suspension or modification of any
studies, to the extent the study IND application was held by the
Company, or tests conducted by, or on behalf of, the Company or in
which the Company has participated that are set forth in Section
3(l) of the Company Disclosure Schedule that would cause the Company
to change the descriptions in Section 3(l) of the Company Disclosure
Schedule;
(m) Tax Matters.
(i) The Targeted Affiliated Group has filed all Tax Returns that
it was required to file under applicable laws and regulations
for each taxable period during which the Company (or its
predecessors) was a member of such Affiliated Group. The
Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all
material respects and have been prepared in substantial
compliance with all applicable laws and regulations. All
material Taxes due and payable by the Company (whether or not
shown on any Tax Return), except for sales or use Taxes
reflected on the Closing Date Balance Sheet, have been paid.
No claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax Returns that the Company
is or may be subject to taxation by that jurisdiction. There
are no Security Interests on any of the assets of the Company
that arose in connection with any failure (or alleged failure)
to pay any Tax. The Company has not been a member of an
Affiliated Group (other than a group the common parent of
which was Targeted) that has filed a "consolidated return"
within the meaning of Code Section 1501, or has filed a
combined or consolidated return with another entity with any
other taxing authority.
(ii) Each member of the Targeted Affiliated Group has made all
withholdings of Taxes required to be made in connection with
amounts paid or owing to any employee, independent contractor,
creditor, shareholder, or other third party and such
withholdings have either been paid to the appropriate
governmental agency or set aside in appropriate accounts for
such purpose.
(iii) There is no dispute or claim concerning any material Income
Tax liability of the Targeted Affiliated Group for any taxable
period during which the Company (or its predecessors) was a
member of such Affiliated Group either (A) claimed or raised
by any governmental tax authority in a writing or (B) as to
which Targeted or any of its officers responsible for Tax
matters has Knowledge based upon personal contact with any
agent of such tax authority. Neither Targeted nor any officer
responsible for Tax
- 25 -
matters of the Company expects any tax authority to assess any
additional Taxes against the Company or for which the Company
may be liable for any period for which Returns have been
filed. The Company is not currently under audit with respect
to Taxes by any tax authority, and has not received any notice
or other indication that any tax authority is considering
assessing any additional Taxes for any period for which Tax
Returns have been filed since inception of the Company. There
is no dispute or claim concerning any Tax Liability of the
Company either (A) claimed or raised by any tax authority in
writing or (B) as to which the Company has Knowledge based
upon personal contact with any agent or representative of such
tax authority. Section 4(m) of the Company Disclosure Schedule
lists all material federal, state, local, and foreign income
Tax returns filed with respect to the Company for taxable
periods ended on or after the inception of the Company,
indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of
audit. The Company has delivered to the Parent true, correct
and complete copies of all material federal and foreign income
Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company.
(iv) No member of the Targeted Affiliated Group has waived any
statute of limitations in respect of Income Taxes or agreed to
any extension of time with respect to an Income Tax assessment
or deficiency. The Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency.
(v) The Company has not filed a consent under Code Section 341(f)
concerning collapsible corporations. The Company is not a
party to any agreement, contract, arrangement or plan that has
resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payment" within the
meaning of Code Section 280G (or any corresponding provision
of state, local or foreign Tax law). The Company has not been
a United States real property holding corporation within the
meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Each member of the
Targeted Affiliated Group has disclosed on its federal Income
Tax Returns all positions taken therein that could give rise
to a substantial understatement of federal Income Tax within
the meaning of Code Section 6662. The Company (or its
predecessors) (x) has not been a member of an Affiliated Group
filing a consolidated federal Income Tax Return (other than a
group the common parent of which was Targeted) and (y) has no
liability for the Taxes of any Person (other than the Company
and the Targeted Affiliated Group) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or
otherwise.
- 26 -
(vi) The unpaid Taxes of the Company did not, as of the date of the
Financial Statements, exceed the reserve for Tax liability
(rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set
forth on the face of the Financial Statements (rather than in
any notes thereto). Since the date of the current Financial
Statements, the Company has not incurred any liability for
Taxes arising from extraordinary gains or losses, as that term
is used in GAAP, outside the ordinary course of business
consistent with past custom and practice.
(vii) The Company will not be required to include any item of income
in, or exclude any item of deduction from, taxable income for
any taxable period (or portion thereof) ending after the
Closing Date as a result of any: (A) change in method of
accounting for a taxable period ending on or prior to the
Closing Date; (B) "closing agreement" as described in Code
Section 7121 (or any corresponding or similar provision of
state, local or foreign Tax law) executed on or prior to the
Closing Date; (C) intercompany transactions or any excess loss
account described in Treasury Regulations promulgated under
Code Section 1502 (or any corresponding or similar provision
of state, local or foreign Tax law); (D) instalment sale or
open transaction disposition made on or prior to the Closing
Date; or (E) prepaid amount received on or prior to the
Closing Date.
(viii) Notwithstanding any provision to the contrary in this
Agreement, with respect to the representations and warranties
set forth in this Section 3(m) and the covenants contained in
Section 7(f) of this Agreement:
(A) "TARGETED AFFILIATED GROUP" shall mean a group of
corporations which includes the Company and only for
such period in which the Company is included in such
group of corporations;
(B) "TAX RETURNS" when such term is used with reference to
Tax Returns required to be filed by the Targeted
Affiliated Group, shall only include Tax Returns which
report financial data of the Company, such as revenues
and expenses, but such term shall not be so limited when
referring to Tax Returns required to be filed by the
Company; and
(C) "TAX" shall only include Taxes for which the Company is
directly or indirectly liable.
(n) Real Property. The Company does not own or lease any real property.
(o) Intellectual Property.
(i) The Company owns, or has the right to use pursuant to license,
sublicense, agreement, or permission, all of the Intellectual
Property necessary or used in the operation of the Business as
presently conducted or as proposed to be conducted, and is not
a party to any unwritten or implied licenses. The
- 27 -
Shareholders and each director, officer, employee, or
independent contractor of the Company have heretofore
transferred to the Company all right, title and interest of
such person in and to any Intellectual Property used or
necessary for the operation of the Business as presently
conducted or as proposed to be conducted. Each item of
Intellectual Property owned or used by the Company immediately
prior to the Closing hereunder will be owned or available for
use by the Surviving Corporation and the Parent on identical
terms and conditions immediately subsequent to the Closing
hereunder. Except with respect to those Liabilities arising
under those licenses, sublicenses, agreements, or permissions
for Intellectual Property to which the Company is a party and
which Intellectual Property is owned by a third party, as set
forth on Section 3(o)(iv) of the Company Disclosure Schedule,
the Company has no Liability to any Person with respect to the
Intellectual Property, or with respect to the license,
distribution, use, creation, development, design,
implementation, or adaptation of the Intellectual Property to
the Business. The Company has not developed jointly with any
other Person, any Intellectual Property that is material to
the Business of the Company and with respect to which such
other Person has any rights. The Company has not granted or
permitted any government agency or instrumentality, foreign or
domestic, to obtain unlimited or government purpose license
rights or any ownership interest in any technical data or
invention belonging to the Company.
(ii) To the Knowledge of the Company and the Principal
Shareholders, the Company has not interfered with, infringed
upon, misappropriated, or otherwise come into conflict with
any Intellectual Property rights of third parties, and to the
Knowledge of the Company and the Principal Shareholders,
neither the Company nor the Shareholders have ever received
any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or
violation (including any claim that the Company must license
or refrain from using any Intellectual Property rights of any
third party). To the Knowledge of the Company and the
Principal Shareholders, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of the Company.
(iii) Section 3(o)(iii) of the Company Disclosure Schedule
identifies each patent or registration which has been issued
or transferred to the Company with respect to any of the
Company's Intellectual Property, identifies each pending
patent application for registration which the Company has made
with respect to any of the Company's Intellectual Property,
and identifies each license, agreement, or other permission
which the Company has granted to any third party with respect
to any of the Company's Intellectual Property. The Company has
delivered to the Parent true, correct and complete copies of
all such patent, trademark and copyright registrations,
applications, licenses, agreements, and permissions (as
amended to date) and has made available to the Parent true,
correct and
- 28 -
complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item.
Section 3(o)(iii) of the Company Disclosure Schedule also
identifies each trade name or unregistered trademark used by
the Company in connection with the Business. With respect to
each item of Intellectual Property required to be identified
in Section 3(o)(iii) of the Company Disclosure Schedule:
(A) the Company possess all right, title, and interest in
and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to
the Knowledge of the Company or the Principal
Shareholders, threatened, which challenges the legality,
validity, enforceability, use, ownership of the item;
and
(D) the Company has never agreed to indemnify any Person for
or against any interference, infringement,
misappropriation, or other conflict with respect to the
item.
(iv) Section 3(o)(iv) of the Company Disclosure Schedule identifies
each item of Intellectual Property that any third party owns
and that the Company uses or distributes pursuant to license,
sublicense, agreement, or permission. The Company has
delivered to the Parent true, correct and complete copies of
all such licenses, sublicenses, agreements, and permissions
(as amended to date). With respect to each item of
Intellectual Property required to be identified in Section
3(o)(iv) of the Company Disclosure Schedule:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable,
and in full force and effect, except as limited by (i)
applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application
affecting the enforcement of creditors' rights generally
and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and
in full force and effect, except as limited by (i)
applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application
affecting the enforcement of creditors' rights generally
and (ii) general principles of equity, regardless of
whether asserted in a
- 29 -
proceeding in equity or at law on identical terms
following the consummation of the transactions
contemplated hereby;
(C) neither the Company, nor to the Knowledge of the Company
and the Principal Shareholders, any other party to the
license, sublicense, agreement, or permission, is in
breach or default thereunder, and no event has occurred
which with notice of lapse of time would constitute a
breach or default or permit termination, modification,
or acceleration thereunder;
(D) the Company has not, and to the Knowledge of the Company
and the Principal Shareholders, no other party to the
license, sublicense, agreement, or permission has,
repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D)
above are true and correct with respect to the
underlying license;
(F) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(G) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the
Knowledge of the Company and the Principal Shareholders,
threatened, which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property or alleges infringement by such item of any
Intellectual Property rights of any third party; and
(H) the Company has not granted any sublicense or similar
right with respect to the license, sublicense,
agreement, or permission.
(p) Software.
(i) The Company does not own any software.
(ii) Section 3(p)(ii) of the Company Disclosure Schedule sets forth
under the caption "Licensed Software" a true, correct and
complete list of all computer programs licensed to the Company
by another person (the "LICENSED SOFTWARE") and the license
agreements for such programs, whether integrated or bundled
with any other software or as a separate stand-alone product.
Such license agreements are in full force and effect,
unamended by written or oral agreement, and the Company is
entitled to the full benefits and advantages of the License
Agreements in accordance with their respective terms, except
as limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general
application affecting the enforcement of creditors' rights
generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding
- 30 -
in equity or at law, and in good standing and there has not
been any default by any party thereto.
(q) Use of Intellectual Property. To the Knowledge of the Company and
the Principal Shareholders, neither the existence nor the sale,
license, lease, transfer, use, reproduction, distribution,
modification or other exploitation by the Company or any of its
successors or assigns of any Intellectual Property, as such
Intellectual Property is or was, or is currently contemplated to be
sold, licensed, leased, transferred, used or otherwise exploited by
such persons, does, did or will (A) constitute a misuse or
misappropriation of any trade secret or proprietary information of
any other person or a violation of any relevant agreement governing
the license of the Intellectual Property, or (B) entitle any other
person to any interest therein, or right to compensation from the
Company, or any of its respective successors or assigns, by reason
thereof. The Company has not received any complaint, assertion,
threat or allegation or otherwise has notice of any lawsuit, claim,
demand, proceeding or investigation involving matters of the type
contemplated by the immediately preceding sentence or has Knowledge
of any facts or circumstances that could reasonably be expected to
give rise to any such lawsuit, claim, demand, proceeding or
investigation. Except with respect to Intellectual Property that is
licensed by the Company from third parties, there are no
restrictions on the ability of the Company, any of its successors or
assigns to sell, license, lease, transfer, use, reproduce,
distribute, modify or otherwise exploit any Intellectual Property.
(r) Contracts. Section 3(r) of the Company Disclosure Schedule lists the
following contracts and other agreements, written or oral, to which
the Company is a party other than licenses involving Intellectual
Property disclosed in Section 4(o)(iii) and 4(o)(v) of the Company
Disclosure Schedule:
(i) any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease
payments in excess of US$20,000 per annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies,
products, or other personal property, or for the furnishing or
receipt of services, the performance of which will extend over
a period of more than one year, or which to the Knowledge of
the Company and the Principal Shareholders, will result in a
loss to the Company, or which involves consideration, in
excess of US$20,000;
(iii) any agreement with a foreign, federal, state, or local
government agency or instrumentality, whether foreign or
domestic;
(iv) any agreement concerning a partnership or joint venture;
(v) any agreement (or group of related agreements) under which any
of them have created, incurred, assumed, or guaranteed any
Indebtedness, under
- 31 -
which any of them have imposed a Security Interest on any of
their assets, tangible or intangible;
(vi) any agreement concerning confidentiality or noncompetition
except those entered into in the Ordinary Course of Business
with Employees of the Company;
(vii) any agreement involving the Shareholders to which the Company
is a party;
(viii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan
or arrangement for the benefit of any of its current or former
directors, officers, and employees;
(ix) any agreement under which the Company has advanced or loaned
any amount in excess of US$20,000 to any of its directors,
officers, and employees;
(x) any agreement under which the consequences of a default or
termination would have a Material Adverse Effect or an
obligation in the amount of US$20,000 or more; or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of
US$20,000.
The Company has delivered to the Parent a true, correct and complete
copy of each written agreement listed in Section 3(r) of the Company
Disclosure Schedule (as amended to date) and a written summary
setting forth the terms and conditions of each oral agreement
referred to in Section 3(r) of the Company Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect, subject to (i)
applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting the enforcement of
creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law;
(B) to the Knowledge of the Company and the Principal Shareholders,
the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby,
subject to (i) applicable bankruptcy, insolvency, fraudulent
conveyance or transfer, reorganization, arrangement, moratorium or
other similar laws from time to time affecting creditor's rights
generally and (ii) general principals of equity, regardless of
whether asserted in a proceeding in equity or at law; (C) the
Company is not, and to the Knowledge of the Company and the
Principal Shareholders, no other party, is in material breach or
default, and no event has occurred which with notice or lapse of
time would constitute a material breach or default, or permit
termination, modification, or acceleration, under the agreements;
(D) no party has repudiated or waived any provision of the
agreement; (E) such agreement does not prohibit or require consent
in the event of
- 32 -
a change of control of the Company; (F) no agreement requires
performance the cost of which will exceed payments scheduled to be
received; and (G) to the Knowledge of the Company and the Principal
Shareholders, no claim or setoff has been or is expected to be
asserted under or against such agreement; and (H) no renegotiations,
attempts to renegotiate have occurred and there are no outstanding
rights to renegotiate.
(s) Powers of Attorney. To the Knowledge of the Company and the
Principal Shareholders, there are no outstanding powers of attorney
executed on behalf of the Company.
(t) Insurance. Section 3(t) of the Company Disclosure Schedule sets
forth the following information with respect to each insurance
policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements)
to which the Company has been a party, a named insured, or otherwise
the beneficiary of coverage at any time during the past three years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are
calculated and operate) of coverage;
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements; and
(vi) a summary of the loss experience under the policy and a
statement describing each claim brought under the policy,
which sets forth the name of the claimant and a description of
the claim.
With respect to each such insurance policy: (A) all policy premiums
due to date have been paid in full, and to the Knowledge of the
Company and the Principal Shareholders, the policy is legal, valid,
binding, enforceable, and in full force and effect with respect to
the periods for which it purports to provide coverage subject to (i)
applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting the enforceability of
creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law;
(B) the Company or, to the Knowledge of the Company and the
Principal Shareholders, any other party to the policy, is in breach
or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or
the lapse of
- 33 -
time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and
(C) no party to the policy has repudiated any provision thereof.
Section 4(t) of the Company Disclosure Schedule describes any
self-insurance arrangements affecting the Company.
(u) Litigation. The Company:
(i) is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge; and
(ii) is not a party and, to the Knowledge of the Company and the
Principal Shareholders, has not been threatened to be made a
party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator.
(v) Product Liability. There are no existing or, to the Knowledge of the
Company and the Principal Shareholders, threatened, claims against
the Company arising out of any injury to individuals or property as
a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by the Company which could
result in Liability to the Company and the Company has no Knowledge
of a reasonable basis for any such claim.
(w) Employees. Section 3(w) of the Company Disclosure Schedule sets
forth (i) the name and the current annual salary (or hourly wage),
including any bonus or commitment to pay any other amount or benefit
in connection with a termination of employment, if applicable, (ii)
the date of execution of each employee's invention disclosure and
confidentiality agreement and (iii) the specific identity of the
employing entity, of all present employees, consultants, and
independent contractors employed by the Company. To the Knowledge of
the Company and the Principal Shareholders, no executive, key
employee, or group of employees has any plans to terminate
employment with the Company. The Company is not a party to or bound
by any collective bargaining agreement, nor has it experienced any
strikes, grievances, claims of unfair labour practice. The Company
and the Principal Shareholders have no Knowledge of any
organizational effort presently being made or threatened by or on
behalf of any labour union with respect to the Company's employees.
There are no written employment or similar agreements for a fixed
term between any employee of the Company and the Company.
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(x) Employee Benefits.
(i) Except for members of the Targeted Affiliated Group, no other
corporation, trade, business, or other entity, would, together
with the Company constitute a single employer within the
meaning of Code Section 414.
(ii) Section 3(x) of the Company Disclosure Schedule contains a
true and complete list of all of the Employee Benefit Plans
which are presently in effect or which have previously been in
effect (the "COMPANY PLANS").
(iii) Each Company Plan has been administered in all material
respects in accordance with its terms and is in compliance in
all material respects with the applicable provisions of U.S.
federal and state law. All reports, returns and similar
documents required to be filed with any governmental agency or
distributed to any participant of each Company Plan have been
duly and timely filed or distributed in all material respects.
(iv) No actions, suits or claims (other than routine claims for
benefits in the ordinary course) are pending or, to the
Knowledge of the Company and the Principal Shareholders,
threatened, with respect to any Company Plan and no event or
condition exists or may be reasonably expected to occur which
would result in the Company having any liability in respect of
any Company Plan not reflected on the Financial Statements.
(v) No statement either written or oral, has been made by the
Company to any individual with regard to any Company Plan that
was not in accordance with the respective Company Plan and
that could create Tax or Liability for the Company or Company
Plan.
(vi) The Company has made all contributions or payments to or under
each Company Plan required by law, or by the terms of such
Company Plan.
(vii) There is no lien outstanding upon any assets of the Company
pursuant to Code Section 412(n) in favour of any Company Plan.
(viii) The Company does not have any past, present or future
obligation or liability to contribute to any multiemployer
plan as defined in ERISA Section 3(37).
(ix) the Company is not obligated, contingently or otherwise, under
any agreement to pay any amount which would be treated as a
"parachute payment," as defined in Code Section 280G(b)
(determined without regard to Code Section 280G(b)(2)(A)(ii)).
(x) With respect to each of the Company Plans:
- 35 -
(A) each of the Company Plans has been established,
maintained, funded and administered in all material
respects in accordance with its governing documents, and
any applicable provisions of ERISA, the Code, other
applicable law, and all regulations promulgated
thereunder;
(B) none of the Company Plans nor any Fiduciary has engaged
in a Prohibited Transaction as defined in ERISA Section
406 or Code Section 4975 (for which no individual or
class exemption exist under ERISA Section 408 or Code
Section 4975, respectively);
(C) all filings and reports as to each of the Company Plans
required to have been made on or before the Closing Date
to the Internal Revenue Service, or to the United States
Department of Labor or to the Pension Benefit Guaranty
Corporation, have been or will be duly made by that
date;
(D) each of the Company Plans which is intended to qualify
as a tax-qualified retirement plan under Code Section
401(a) has received a favourable determination letter(s)
from the Internal Revenue Service as to qualification of
such Company Plan for the period from its adoption
through the Closing Date; nothing has occurred, whether
by action or failure to act, which has resulted in or
would cause the loss of such qualification; and each
trust thereunder is exempt from tax pursuant to Code
Section 501(a);
(E) each of the Company Plans which is required to satisfy
Code Sections 401(k)(3) or 401(m)(2) has been tested for
compliance with, and has satisfied the requirements of,
Code Sections 401(k)(3) and 401(m)(2) for each plan year
ending prior to the Closing Date;
(F) no event has occurred and no condition exists relating
to any of the Company Plans that would subject the
Company to any Tax or Liability under Internal Revenue
Service Sections 4971, 4972 or 4979, or to any Liability
under ERISA Sections 502 or 4071; and
(G) to the extent applicable, each of the Company Plans has
been funded in accordance with its governing documents,
ERISA and the Code or other applicable law, has not
experienced any accumulated funding deficiency (whether
or not waived) and has not exceeded its full funding
limitation (within the meaning of Code Section 412) at
any time.
(xi) With respect to the Company Plans which provide group health
benefits to employees of the Company and are subject to the
requirements of Code Section 4980B and Part 6, Subtitle B of
Title I of ERISA ("COBRA"),
- 36 -
such group health plan has been administered in every material
respect in accordance with its governing documents and COBRA
and with the group health plan requirements of Subtitle K,
Chapter 100 of the Code and ERISA Sections 701 et. seq.
(xii) With respect to the Company Plans which provide group health
benefits to employees of the Company and are subject to the
requirements of the Health Insurance Portability and
Accountability Act ("HIPAA") and its implementing regulations,
such group health plan has been administered in every material
respect in accordance with its governing documents and HIPAA
and with the group health plan requirements of 45 CFR parts
160 through 164.
(xiii) With respect to employee benefit matters generally:
(A) neither the Company, nor any person, firm or corporation
which is or has been under common control of the Company
within the meaning of Section 4001(b) of ERISA,
maintains or contributes to or has ever maintained or
contributed to any Employee Benefit Plan subject to
Title IV of ERISA, or ERISA Section 302 or Code Section
412 or 4971;
(B) other than the acceleration of stock options pursuant to
Section 2.7(i), the consummation of the transactions
contemplated hereby will not accelerate or increase any
Liability under any of the Company Plans because of an
acceleration or increase of any of the rights or
benefits to which Company Plan participants or
beneficiaries may be entitled thereunder;
(C) the Company does not have any obligation to any retired
or former employee or any current employee of the
Company upon retirement or termination of employment
under any Company Plans, other than such obligations
imposed by COBRA; and
(D) any of the Company Plans which is an "employee welfare
benefit plan," within the meaning of ERISA Section 3(1),
may be terminated prospectively without Liability to the
Company or the Parent, including, without limitation,
Liability for unreported (e.g., run-off) benefit claims,
premium adjustments or termination charges of any kind.
(xiv) If any Employee Benefit Plan subject to Title IV of ERISA were
terminated by the Company the fair market value of the assets
of such plan as of the plan termination date would equal or
exceed the plan's "benefit liabilities," as such term is
defined in Section 4001(a)(16) of ERISA, assuming such funding
status is determined using actuarial factors and
- 37 -
applying such other principles that are legally required to be
given effect in the context of the termination of a plan
subject to Title IV of ERISA.
(y) Guaranties. The Company is not a guarantor or otherwise liable for
any Liability or obligation (including Indebtedness) of any other
Person.
(z) Environment, Health, and Safety.
(i) The Company has complied with all Environmental, Health, and
Safety Laws, the failure to comply with which could result in
Adverse Consequences in an amount in excess of US$20,000
individually or in the aggregate, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against the
Company alleging such failure.
(ii) The Company has no Liability (and the Company has not handled,
used, stored, treated, recycled or disposed of any Hazardous
Substance, arranged for the disposal of any Hazardous
Substance, exposed any employee or other individual to any
Hazardous Substance or condition, or owned or operated any
property or facility in any manner that could form the basis
for any present or future action, suit, proceeding, hearing,
investigations, charge, complaint, claim or demand giving rise
to any Liability) for penalties, investigations of or damage
to any site, location, body of water (surface or subsurface),
or other natural resources, for any illness of or personal
injury to any employee or other individual, or for any reason
under any Environmental, Health, and Safety Laws.
(iii) Except as set forth in Section 4(z)(iii) of the Company
Disclosure Schedule, all properties and equipment used in the
Business are and in the past have been free of any amounts of
asbestos, PCB's, methylene chloride, trichlorethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances, the presence of which could
result in Adverse Consequences.
(aa) Certain Business Relationships with the Company. No Related Person
of the Company has or has had, any interest in any property (whether
real, personal, or mixed and whether tangible or intangible) used in
or pertaining to the Company, or the Business. No Related Person of
the Company owns or has owned (of record or as a beneficial owner)
an equity interest or any other financial or profit interest in, a
Person that has had business dealings or a material financial
interest in any transaction with the Company, or the Business.
(bb) Certain Payments. Neither the Company, nor any of its directors,
officers, agents, or employees, nor to the Knowledge of the Company
and the Principal Shareholders, any other person associated with or
acting for or on behalf of the Company, has directly or indirectly
(i) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or
- 38 -
public, regardless of form, whether in money, property or services
(A) to obtain favourable treatment in securing business, (B) to pay
for favourable treatment for business secured, (C) to obtain special
concessions or for special concessions already obtained, for or in
respect of the Company or any affiliate, or (D) in violation of any
Legal Requirement, or (ii) established or maintained any fund or
asset that has not been recorded in the books and records of the
Company.
(cc) Access. The Company and the Principal Shareholders have provided the
Parent and the Parent's representatives with full and complete
access to all of the Company's records and other documents and data.
(dd) Vote Required. The affirmative vote of the holders of two-thirds
(2/3) of the outstanding shares of the Company's common stock and
preferred stock voting together as a single class is the only vote
of the holders of any class or series of the Company's capital stock
or other securities necessary to adopt this Agreement and to approve
the Merger and other transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB.
The Parent and Merger Sub jointly and severally represent and warrant to
the Company and the Shareholders that the statements contained in this
Section 4 are true, correct and complete as of the date hereof and will be
true, correct and complete as of the Closing Date:
(a) Organization. The Parent is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of
its incorporation. The Merger Sub is a corporation duly organized,
validly existing and authorized to do business in a corporate form
in Washington State. Each of the Parent and Merger Sub is duly
qualified as a corporation to do business in every jurisdiction
where such qualification is required, except where the lack of
qualification would not have a Material Adverse Effect.
(b) Authorization of Transaction. Each of the Parent and Merger Sub has
full corporate power and authority to execute and deliver this
Agreement and, with respect to the Parent, the Convertible
Debenture, and to perform its respective obligations hereunder and
thereunder. This Agreement constitutes the valid and legally binding
obligation of the Parent and Merger Sub, enforceable in accordance
with its terms and conditions except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the enforcement of creditors' rights
generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law. Upon the
execution and delivery of the Convertible Debenture, the Convertible
Debenture will constitute the valid and legally binding obligation
of the Parent, enforceable in accordance with its terms and
conditions, subject to applicable bankruptcy, insolvency, fraudulent
conveyance or transfer,
- 39 -
reorganization arrangement or moratorium or other similar laws from
time to time affecting creditors' rights generally. As of the
Closing Date, the Parent and Merger Sub will have obtained any
authorization, consent, or approval of any government or
governmental agencies that they require in order for the Parties to
consummate the transactions contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the Convertible Debenture, nor the consummation of
the transactions contemplated hereby or thereby will (i) violate any
constitution, statute, law, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Parent and
Merger Sub is subject or any provision of the constating documents,
board resolutions or shareholder resolutions of the Parent and
Merger Sub or (ii) conflict with, result in a violation of, result
in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other
arrangement to which the Parent and Merger Sub is a party or by
which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its
assets, other than that imposed by the Security Agreement) or (iii)
give any Governmental Body or other Person a valid right to
challenge this Agreement or any of the transactions contemplated
hereby or to exercise any remedy or obtain any relief under any
Legal Requirement or any Order to which the Parent and Merger Sub or
any of its assets are subject.
(d) Broker's Fees. Neither the Parent, nor Merger Sub has incurred any
Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions
contemplated by this Agreement or the Convertible Debenture for
which the Shareholders could become liable or obligated.
(e) The Parent Shares. Assuming the representations and warranties of
the Shareholders contained in the relevant Representation and
Support Agreement are true and correct, upon issuance thereof to the
Shareholders in accordance with Section 2.7(c), the Parent Shares
will be duly and validly authorized, allotted and issued as
fully-paid and non-assessable common shares in the capital of the
Parent in compliance with all applicable laws including federal and
provincial securities laws.
(f) Convertible Debenture and Convertible Debenture Shares. Upon
issuance thereof to the Shareholders in accordance with Section
2.7(c)(vi), the Convertible Debenture will be duly and validly
created, authorized, allotted and issued in compliance with all
applicable laws including federal and provincial securities laws,
and the Convertible Debenture Shares will, if issued, be duly and
validly authorized, allotted and issued as fully-paid and
non-assessable common shares in the capital of the Parent in
compliance with all applicable laws including federal and provincial
securities laws.
- 40 -
(g) Foreign Issuer. The Parent is a "foreign issuer" as such term is
defined in Regulation S promulgated under the U.S. Securities Act.
(h) Public Disclosure Record. All documents filed by the Parent on the
System for Electronic Document Analysis and Retrieval (SEDAR) as of
the applicable date of such documents contained no untrue statement
of a material fact and did not omit to state a material fact that
was required to be stated or that was necessary to prevent a
statement that was made from being false or misleading in the
circumstances in which it was made. Each of the financial statements
filed by Parent on SEDAR is true, correct, complete and consistent
with the books and records of Parent. Each of such financial
statements has been prepared in accordance with Canadian GAAP
applied on a consistent basis throughout the periods covered thereby
and presents fairly the financial condition and results of
operations and cash flows of Parent at the dates and for the periods
specified, subject, in the case of unaudited financial statements,
to the absence of notes and the absence of normal recurring year-end
adjustments and procedures (none of which require material
adjustment or are inconsistent with past practice). Neither Parent,
nor its Board of Directors or its Audit Committee has received a
report from Parent's auditors noting the existence of a material
weakness nor a significant deficiency with respect to Parent's
internal controls. No securities commission in any jurisdiction in
which Parent is a reporting issuer has commented as to the
disclosure contained in Parent's public reports, unless such
comments have been resolved and are currently reflected in Parent's
public reports. Parent does not currently anticipate amending or
restating any of its public reports.
5. CONDITIONS TO OBLIGATION TO CLOSE.
(a) Conditions to Obligation of the Parent and Merger Sub. The
obligation of the Parent and Merger Sub to consummate the
transactions to be performed by them in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3
above (considered collectively) and each of the
representations and warranties (considered individually) shall
be true and correct in all material respects at and as of the
date of this Agreement and at and as of the Closing Date;
(ii) the Company and the Principal Shareholders shall have
performed and complied with all of their covenants and
obligations hereunder (considered collectively) and each of
such covenants and obligations hereunder (considered
individually) in all material respects through the Closing;
(iii) the Company shall have procured all of the third party
consents specified on Schedule B hereto;
- 41 -
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before
any arbitrator wherein an unfavourable injunction, judgment,
order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation, or (C)
affect adversely the right of the Company Shares and other
Equity Rights to be cancelled upon the Merger, or Merger Sub
to own the assets of the Company, or to operate the Business
(and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(v) all filings that are required to have been made by the Parties
with any Canadian, United States or other Governmental Body in
order to carry out the transactions contemplated by this
Agreement shall have been made and all authorizations,
consents and approvals from any Canadian, United States or
other Governmental Body required to carry out the transactions
contemplated by this Agreement shall have been received and
any applicable waiting periods (and any extensions thereof)
shall have expired provided, that Parent and Merger Sub shall
not be relieved of their obligations to consummate the
transactions if they have not used reasonable best efforts to
complete filings and seek the consents within their control;
(vi) the Company shall have delivered to the Parent a certificate,
executed by the Company to the effect that the conditions
specified above in Sections 5(a)(i)-5(a)(v) have been
satisfied in all respects;
(vii) each of Alan Hardwick and Suzanne Schneider shall have entered
into a definitive Employment Agreement with the Surviving
Corporation (each, an "EMPLOYMENT AGREEMENT"), each containing
provisions relating to non-compete obligations satisfactory to
the Parent and each in form and substance and with a term
reasonably satisfactory to the Parent and the same shall be in
full force and effect.
(viii) [This section has been intentionally deleted.]
(ix) [This section has been intentionally deleted.]
(x) other than the funding pursuant to Sections 6(d) and (e) the
Company shall have delivered to the Parent payoff letters with
respect to all other amounts due under the Indebtedness of the
Company, to release Security Interests in respect to the
Company and otherwise obtain clear title to the Company
Shares, in form and substance reasonably satisfactory to the
Parent, and the Company and the Principal Shareholders shall
have satisfied all Indebtedness of the Company (including the
conversion of any and all Indebtedness owing by the Company to
any member of the
- 42 -
Targeted Affiliated Group into contributed capital of the
Company), and the Company shall have delivered to the Parent,
in form satisfactory to the Parent, evidence of the same;
(xi) the Parent, the Company and the Shareholder Representative
shall have executed and delivered the Milestone Payment
Agreement (the "MILESTONE PAYMENT AGREEMENT") in form and
substance as set forth in Exhibit C attached hereto, and the
same shall be in full force and effect;
(xii) the Parent, the Company and Targeted shall have executed the
Transition Services Agreement (the "TRANSITION SERVICES
AGREEMENT") in form and substance as set forth in Exhibit D
attached hereto, and the same shall be in full force and
effect;
(xiii) the Parent shall have received from Dorsey & Whitney LLP,
counsel to Targeted, opinions with respect to Targeted
Genetics, the transactions contemplated hereby in form and
substance as set forth in Exhibit E attached hereto, addressed
to the Parent, and dated as of the Closing Date;
(xiv) the Parent shall have received from Graham & Dunn PC, counsel
to the Company, opinions with respect to the Company and the
transactions contemplated hereby in form and substance set
forth in Exhibit F attached hereto, addressed to the Parent,
and dated as of the Closing Date;
(xv) the Company shall have delivered to the Parent evidence
reasonably satisfactory to the Parent of the termination of
all Equity Rights and the release of all Liability with
respect to the Equity Rights;
(xvi) Targeted and the Company shall have taken all corporate action
necessary to terminate the Company's participation in,
effective no later than the day before the Closing Date, all
Company Plans which are intended to qualify as tax-qualified
retirement plans under Code Section 401(a), and evidence of
the same shall have been delivered to the Parent;
(xvii) the Company and the Principal Shareholders shall have executed
a funds flow and settlement statement reflecting the
transactions contemplated by this Agreement;
(xviii) the Company shall have delivered to the Parent a certificate
of the Secretary of the Company as to the incumbency of its
officers, a copy of a certificate evidencing the incorporation
and its authorization to conduct business in the State of
Washington, a copy of the articles and bylaws of the Company,
and a copy of the resolutions adopted by the board of
directors and the Shareholders of the Company authorizing the
Merger and the transactions contemplated by this Agreement;
(xix) all actions to be taken by the Company in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions,
- 43 -
instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Parent;
(xx) any orders or approvals which may be required from
shareholders of the Parent, and regulatory and governmental
authorities required to carry out the transactions
contemplated by this Agreement shall have been received and
any applicable waiting periods shall have expired, including,
without limitation, approvals from the Toronto Stock Exchange,
including conditional listing approval of the Parent Shares
and the Convertible Debenture Shares to be issued in
connection with this Agreement and under the Convertible
Debenture on the Toronto Stock Exchange, subject to the filing
of customary documentation;
(xxi) no Person shall have made or threatened any claim asserting
that such Person may be the holder or the beneficial owner of,
or may have the right to acquire or obtain beneficial
ownership of, any capital stock or other securities of the
Company;
(xxii) the Shareholder Representative shall have executed and
delivered the Convertible Debenture in form and substance as
set forth in Exhibit A attached hereto, and the same shall be
in full force and effect;
(xxiii) the Shareholder Representative shall have executed and
delivered the Security Agreement (the "SECURITY AGREEMENT") in
form and substance as set forth in Exhibit G hereto, and the
same shall be in full force and effect;
(xxiv) there shall have been no Material Adverse Effect with respect
of the Company since the date of this Agreement;
(xxv) this Agreement and the transactions contemplated hereby shall
have been duly and validly approved by all of the Shareholders
of the Company and none of the holders of the outstanding
Company Shares shall have exercised statutory dissenters'
rights under Washington law in connection with the Merger;
(xxvi) each Shareholder shall have duly executed and delivered to the
Parent a representation and support agreement (the
"REPRESENTATION AND SUPPORT AGREEMENT") in form and substance
set forth in Exhibit H hereto;
(xxvii) each person who as at the Closing Date has elected to exercise
options to purchase the common shares of the Company shall
have duly executed and delivered to the Parent a
representation agreement (the "OPTIONHOLDER REPRESENTATION
AGREEMENT") in form and substance set forth in Exhibit I
hereto;
(xxviii) the Company shall have obtained shareholder approval of any
payment or benefit that a Company employee or consultant may
receive in connection
- 44 -
with the Merger that would be considered a "parachute payment"
under Section 280G of the Code. Such shareholder approval
shall comply with the "Shareholder Approval Requirements" of
Section 280(b)(5) of the Code and related Treasury
regulations; and
(xxix) the Parent shall be satisfied, in its sole discretion, with
its due diligence investigation of the Company and the
Company's ongoing working capital requirements.
The Parent may waive any condition specified in this Section 5(a) if
it executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Company and the Shareholders. The
obligations of the Company and the Shareholders to consummate the
transactions to be performed by it in connection with the Closing is
subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4
above (considered collectively), and each representation and
warranty (considered individually) shall be true and correct
in all material respects at and as of the date of this
Agreement and at and as of the Closing Date;
(ii) the Parent shall have performed and complied with all of its
covenants and obligations hereunder (considered collectively)
and each of this covenants and obligations hereunder
(considered individually) in all material respects through the
Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before
any arbitrator wherein an unfavourable injunction, judgment,
order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(iv) all filings that are required to have been made by the Parties
prior to Closing with any United States or other Governmental
Body in order to carry out the transactions contemplated by
this Agreement shall have been made and all authorizations,
consents and approvals from any United States or other
Governmental Body required to carry out the transactions
contemplated by this Agreement shall have been received and
any applicable waiting periods (or any extensions thereof)
shall have expired provided that the Company and the Principal
Shareholders shall not be relieved of their obligations to
consummate the transactions contemplated by this Agreement if
they have not used reasonable best efforts to complete filings
and seek consents within their control;
- 45 -
(v) the Parent shall have delivered to the Company and the
Shareholder Representative a certificate to the effect that
the conditions specified above in Sections 5(b)(i)-5(b)(v)
have been satisfied in all respects;
(vi) the Parent shall have executed and delivered the Milestone
Payment Agreement in form and substance as set forth in
Exhibit C attached hereto, and the same shall be in full force
and effect;
(vii) the Shareholder Representative shall have received from (i)
Fasken Martineau DuMoulin LLP, Canadian counsel to the Parent,
an opinion in form and substance as set forth in Exhibit J
attached hereto, and (ii) Davis Wright Tremaine LLP, United
States counsel to the Parent and Merger Sub, an opinion in
form and substance as set forth in Exhibit K attached hereto,
each addressed to the Shareholder Representative, and dated as
of the Closing Date;
(viii) the Parent shall have delivered to the Company and the
Shareholder Representative a certificate of the Secretary of
the Parent as to the incumbency of the officers of the Parent,
a copy of certificates evidencing the incorporation and good
standing of the Parent, a copy of the articles and bylaws of
the Parent, and a copy of the resolutions adopted by the board
of directors of the Parent with respect to the transactions
contemplated by this Agreement;
(ix) all actions to be taken by the Parent in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the
Company;
(x) the Parent shall have executed and delivered the Convertible
Debenture in the form and substance as set forth in Schedule A
hereto, and the same shall be in full force and effect;
(xi) the Shareholder Representative shall have executed and
delivered the Security Agreement in form and substance as set
forth in Exhibit G hereto, and the same shall be in full force
and effect; and
(xii) this Agreement and the transactions contemplated hereby shall
have been duly and validly approved by not less than
two-thirds (2/3) of the outstanding shares of the Company's
common stock and preferred stock voting together as a single
class.
The Shareholder Representative may waive any condition specified in
this Section 5(b) if it executes a writing so stating at or prior to
the Closing.
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6. PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period prior to the
Closing or termination of this Agreement:
(a) Access and Investigation. Between the date hereof and the Closing
Date, the Company and the Principal Shareholders will, and will
cause their representatives to:
(i) afford the Parent, their attorneys, accountants, and other
representatives (collectively, the "PARENT'S ADVISORS")
reasonable access to the Company, and their personnel,
properties (including for purposes of environmental testing),
contracts, books and records, financial statements, and other
documents and data so as to not unreasonably interfere with
the conduct of the Business;
(ii) furnish the Parent with copies of all such contracts, books
and records, and other existing documents and data as the
Parent may reasonably request;
(iii) furnish the Parent and the Parent's Advisors with such
additional financial, operating and other data and information
as the Parent may reasonably request; and
(iv) use its best efforts to cause each firm acting as independent
auditors to the Company (a) to deliver any other information
required to be filed by the Parent pursuant to the rules and
policies of applicable United States or Canadian securities
laws, and (b) to cooperate with the Parent and its auditors to
provide "comfort" letters with respect to financial
information about the Company that may be required to be
included in the Parent's filings with the United States or
Canadian securities regulatory authorities.
(b) Operation of the Businesses of the Company. Between the date hereof
and the Closing Date, the Company, and the Principal Shareholders
will, and the Company will cause its representatives to:
(i) conduct the Business only in the Ordinary Course of Business,
or otherwise with the written consent of the Parent;
(ii) use their best efforts to preserve intact the current business
organization of the Company, keep available the services of
the current officers, employees, and agents of the Company,
maintain the relations and good will with suppliers,
customers, landlords, creditors, employees, agents, and others
having business relationships with the Company, and maintain
such amount of working capital necessary for the Company to
conduct the Business in the Ordinary Course of Business; and
(iii) confer with the Parent concerning operational matters of a
material nature and the status of business operations and
finances.
- 47 -
(c) Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date,
the Company, and the Principal Shareholders will not, without the
prior consent of the Parent, take any affirmative action, or fail to
take any reasonable action within their or its control, which would
cause or result in an inaccuracy or breach of any of the
representations, warranties or covenants of the Company and the
Principal Shareholders set forth in this Agreement, including,
without limitation, any action specified in Section 3(i) of this
Agreement. Without limiting the generality of the foregoing, the
Company agrees that it shall not take any of the following actions
without the prior written consent of the Parent:
(i) amend the articles of incorporation or bylaws of the Company;
make any change in its authorized, issued or outstanding
shares or any other equity security; issue, sell, pledge,
assign or otherwise encumber or dispose of, or purchase,
redeem or otherwise acquire, any of the shares or other equity
securities of the Company or enter into any agreement, call or
commitment of any character so to do; grant or issue any stock
option or warrant relating to, right to acquire, or security
convertible into, shares or other equity security of the
Company; purchase, redeem, retire or otherwise acquire any
shares of, or any security convertible into, shares or other
equity security of the Company, or agree to do any of the
foregoing set forth in this Section 6(c)(i);
(ii) acquire, directly or indirectly, substantially all of the
assets of, or a controlling equity interest in, any
corporation or other entity, or enter into any commitment to
do the same;
(iii) propose, declare, set aside or pay any dividend or other
distribution in respect of any of its shares (including,
without limitation, any stock dividend or distribution);
(iv) incur any Indebtedness, other than normal, Ordinary Course of
Business trade payables and accruals;
(v) repay any Indebtedness of the Company owing to any member of
the Targeted Affiliated Group;
(vi) make any distribution outside of the Ordinary Course of
Business or any distributions in excess of US$5,000, except
upon prior written notice to and written consent of the
Parent;
(vii) commit to or expend funds for any capital expenditure in
excess of US$5,000, except upon prior written notice to and
written consent of the Parent;
(viii) enter into any agreement, commitment or similar transaction
with the Shareholders;
- 48 -
(ix) enter into any employment contract or collective bargaining
agreement, written or oral, or modify the terms of any
existing such contract or agreement, except as disclosed in
the Company Disclosure Schedule;
(x) grant any increase in the base compensation of any of its
directors, officers, and employees outside the Ordinary Course
of Business;
(xi) adopt, amend, modify, or terminate any bonus, profit-sharing,
incentive, severance, or other plan, contract, or commitment
for the benefit of any of its directors, officers, and
employees (or take any such action with respect to any other
Company Plan), except as disclosed in the Company Disclosure
Schedule;
(xii) breach, violate, or contravene any provisions of any agreement
or commitment to which the Company is a party; and
(xiii) make any other change in employment terms for any of its
directors, officers, and employees outside the Ordinary Course
of Business.
(d) Obligation to Fund the Company. If the Company requires working
capital to fund its operations until the Closing Date in addition to
the Deposit, Targeted shall advance to the Company the amount
required. Prior to making any such advances, Targeted shall obtain
the Parent's prior written consent, which consent shall not be
unreasonably withheld.
(e) Repayment of Advances Made by Targeted. If the Closing Date occurs
on or before July 27, 2004, then up to United States Fifty Thousand
Dollars (US $50,000) of any amounts advanced under Section 6(d)
above shall be excluded from Section 6(f) below and shall be repaid
in cash by the Parent to Targeted on the Closing Date. The amounts
repaid pursuant to this Section 6(e) shall not constitute a portion
of the Merger Consideration.
(f) Intercompany Indebtedness. At or prior to the Closing Date, the
Company and Targeted shall convert any and all Indebtedness owing by
the Company to any member of the Targeted Affiliated Group (other
than amounts to be repaid under Section 6(e)) to contributed capital
of the Company, and evidence of the same shall be delivered by the
Company and Targeted to the Parent.
(g) Termination of Plans. Prior to the Closing Date, the Company will
terminate all plans or agreements permitting the issuance of Company
Shares or the shares of the Company; options to acquire Company
Shares or shares of the Company; and/or other rights to acquire
Company Shares or shares of the Company, that are valued in whole or
in part by reference to Company Shares or shares of the Company or
that may be settled in Company Shares or shares of the Company (such
option and other rights are hereafter collectively referred to as
"EQUITY RIGHTS"). Prior to the Closing Date, the Company shall take
such action as is necessary to cancel, effective no later than the
Closing Date, all outstanding Equity Rights in a manner that is
binding upon the holders of such Equity Rights
- 49 -
and without liability to the Company that has not been fully
satisfied on the Closing Date. Prior to the Closing Date, Targeted
and the Company shall take all corporate action necessary to
terminate the Company's participation in, effective no later than
the day before the Closing Date, all Company Plans which are
intended to qualify as tax-qualified retirement plans under Code
Section 401(a).
(h) No Solicitation.
(i) From the date hereof until the earlier of (A) the termination
of this Agreement in accordance with Section 9 hereof and (B)
the Closing Date, Targeted and the Company will not (subject
to the exceptions described herein), directly or indirectly,
and will not authorize or permit any affiliate, officer,
director, employee, shareholder, representative or agent of
Targeted or the Company to, directly or indirectly, (x)
solicit, initiate, invite, assist, facilitate, promote or
encourage proposals or offers from, or entertain or enter into
discussions or negotiations with any other person relating to
the acquisition of the Company common shares or any other
securities of the Company, any amalgamation, merger or other
form of business combination involving the Company, any sale,
lease, exchange or transfer of all or a substantial portion of
the assets of the Company, or any takeover bid,
reorganization, recapitalization, liquidation or winding-up of
or other business combination or transaction involving the
Company with any person other than Parent or any of its
affiliates (each, an "ACQUISITION TRANSACTION" and any offer
or proposal relating to any transaction or series of related
transactions involving an Acquisition Transaction, an
"ACQUISITION PROPOSAL") or (y) enter into any letter of intent
or similar document or any contractual agreement or commitment
contemplating or otherwise relating to any Acquisition
Proposal. Targeted and the Company will ensure that its
affiliates, officers, directors, employees, shareholders,
representatives and agents, including any financial or other
advisors or representatives retained by it are aware of the
provisions of this Section 6(h) and Targeted and the Company
will be responsible for any breach of this Section 6(h) by any
of the foregoing and any such breach shall be considered a
breach by Targeted and the Company.
(ii) Notwithstanding the foregoing, provided that there has been no
breach of this Section 6(h) and the Company or Targeted has
received an unsolicited written Acquisition Proposal from a
third party, the Board of Directors of Targeted ("TARGETED
BOARD"), the Board of Directors of the Company ("COMPANY
BOARD"), Targeted and the Company are not prohibited by this
Section 6(h) from:
(A) considering, negotiating and providing information and
disclosure in respect of the Company if the Targeted
Board and the Company Board determine in good faith
(after appropriately considering all relevant factors)
that such unsolicited Acquisition Proposal is, or is
reasonably likely to result in, a "SUPERIOR
TRANSACTION". For
- 50 -
purposes of this Agreement "SUPERIOR TRANSACTION" shall
mean an Acquisition Proposal: (I) pursuant to which (1)
75% of the then outstanding Company common shares would
be transferred, (2) the holders of Company common shares
immediately prior to such transaction would, following
such transaction, receive in exchange for such common
shares an amount of securities (if any) of the surviving
or resulting entity (or its direct or indirect parent,
as applicable) constituting less than 50% of the voting
power of the surviving or resulting entity (or its
direct or indirect parent, as applicable) or (3) in
which all or substantially all of the assets of the
Company would be transferred; (II) on terms which are
more favourable from a financial point of view to the
Shareholders than the Merger (taking into account all of
the terms, conditions and aspects of such proposal and
the Merger); (III) with a minimum aggregate net
consideration payable to the Shareholders of the product
of (x) the product of the 20-day weighted average price
of the Parent Shares for the period ended two (2)
business days before the date of this Agreement and
3,480,520, plus the amount of Cdn.$375,000, and (y)
1.25; and (V) for which any necessary financing is
committed; provided:
a. the Company promptly (and in any event at least
two business days prior to taking any such action)
notifies Parent orally and in writing of the
identity of a party to whom it is providing
information or with whom it is discussing or
negotiating and the material terms and conditions
of any Acquisition Proposal;
b. the Company receives from such person or group an
executed confidentiality agreement containing
limitations on the use and disclosure of all
nonpublic written and oral information furnished
to such person or group by or on behalf of the
Company which are no less favourable to the
Company than the Confidentiality Agreement entered
into with Parent; and
c. contemporaneously with furnishing any such
nonpublic information to such person or group, the
Company furnishes such nonpublic information to
Parent (to the extent such nonpublic information
has not been previously furnished by the Company
to Parent; or
(B) accepting, approving, recommending to its shareholders
or entering into an unsolicited bona fide agreement or
arrangement regarding such unsolicited Acquisition
Proposal if the Targeted Board and the Company Board
determines in good faith (after appropriately
considering all relevant factors) that such
- 51 -
Acquisition Proposal would, if consummated in accordance
with its terms (but taking into account the risk of
non-completion), result in a Superior Transaction;
provided that immediately prior to any entry into an
agreement or arrangement pursuant to this Section
6(h)(ii)(B), the Company terminates this Agreement
pursuant to Section 9(a) and at or prior to such
termination pays the Termination Fee pursuant to Section
9(a)(v);
(iii) The Company will not enter into any agreement, arrangement or
understanding regarding a Superior Transaction (a "PROPOSED
AGREEMENT") and will not modify its recommendation to the
Shareholders regarding the Merger (a "BOARD APPROVAL
MODIFICATION") relating to a Superior Transaction without
first providing Merger Sub and Parent with an opportunity to
amend the Merger provisions contemplated by this Agreement as
described below in Section 6(h)(iv). The Company will in any
event:
(A) provide Parent with a copy of any Proposed Agreement in
the final form proposed by the person making the
proposal, as soon as possible and in any event not less
than five business days prior to its proposed execution
by the Company,
(B) provide Parent not less than five business days prior
written notice of any such Board Approval Modification
together with a description of the material terms of the
Superior Transaction related thereto, and
(C) provide written advice or other mutually agreed upon
form of written evaluation from Duff & Phelps LLC, or
such other independent advisor to be chosen by Ernst &
Young LLP (a "VALUATION LETTER"), confirming that the
evaluation by the Company Board that the Acquisition
Proposal satisfies clauses 6(h)(ii)(A)(II) and (III) of
the definition of Superior Transaction is reasonable.
If the Company does not provide a Valuation Letter as set
forth in Section 6(h)(iii)(C) above, the Parent shall have the
right, within the five (5) business day notice period set
forth above, to challenge the good faith determination made by
the Targeted Board or the Company Board that the Acquisition
Proposal constitutes a Superior Transaction, in which case,
the Parent shall give written notice to the Targeted Board or
the Company Board, as applicable, of such disagreement and
require that the Targeted Board obtain a Valuation Letter
before proceeding with the Superior Transaction. Should the
Parent fail to notify the Targeted Board or the Company Board,
as applicable, of such a disagreement within such five (5)
business day notice period, the Parent shall be deemed to
agree with the Targeted Board's or the Company Board's good
faith determination
- 52 -
with respect to the Acquisition Proposal. Once delivered, the
Valuation Letter will be conclusive and binding upon the
Parent and the Targeted Board and the Company Board. If the
Valuation Letter states that the Acquisition Proposal
constitutes a Superior Transaction in accordance with the
terms of this Section 6(h), then the Targeted Board and the
Company Board may proceed with the Superior Transaction after
the expiry of the five (5) day notice period if there is no
Amended Transaction (defined below), and the Parent shall bear
the fees of Duff & Phelps LLC associated with the delivery of
the Valuation Letter. If the Valuation Letter states that the
Acquisition Proposal does not constitute a Superior
Transaction in accordance with the terms of this Section 6(h),
then the Targeted Board and the Company Board shall not
proceed with the Superior Transaction and the Targeted Board
shall bear the fees of Duff & Phelps LLC associated with the
delivery of the Valuation Letter.
(iv) If Merger Sub and Parent agree to amend the Merger provisions
contemplated by this Agreement (an "AMENDED TRANSACTION")
within the five (5) business day notice period such that in
the good faith determination of the Targeted Board and the
Company Board in the exercise of their fiduciary duties, the
Amended Transaction, if consummated, is reasonably likely to
result in a transaction which is as favourable from a
financial point of view to the Shareholders as the Superior
Transaction (taking into account all of the terms, conditions
and aspects of such Amended Transaction and Superior
Transaction), the Company will not enter into the Proposed
Agreement or, as applicable, effect the Board Approval
Modification, and will agree to the Amended Transaction. Any
amendment to an Acquisition Proposal will be deemed for
purposes hereof to be a new Acquisition Proposal which will be
subject to the provisions of this Section 6(h).
(i) Satisfaction of Indebtedness. At or prior to the Closing Date, the
Company shall satisfy any and all Indebtedness of the Company, to
otherwise cause the release of all Security Interests in respect to
the Company and obtain clear title to the Company Shares, and
evidence of the same shall be delivered by the Company and the
Shareholder Representative to the Parent.
(j) Tax Matters.
(i) Without the prior written consent of the Parent, Targeted
shall not, nor shall it permit the Company to, make or change
any election, change an annual accounting period, adopt or
change any accounting method, file any amended Return, enter
into any closing agreement, settle any Tax claim or
assessment, surrender any right to claim a refund of Taxes,
consent to any extension or waiver of the limitation period
applicable to any Tax claim or assessment, or take any other
similar action relating to the filing of any Return or the
payment of any Tax, if such election, adoption, change,
amendment, agreement, settlement, surrender, consent
- 53 -
or other action would have the effect of increasing the
liability for Taxes of the Company for any period ending after
the Closing Date or decreasing any Tax attribute of Company
existing on the Closing Date.
(ii) All tax sharing agreements to which the Company is a party,
including without limitation any tax sharing agreement between
Targeted and the Company shall be terminated as of the Closing
Date and will have no further effect for any taxable year
(whether the current year, a future year, or a past year).
(k) Approval of Company Shareholders; Information Statement. As promptly
as practicable after the execution of this Agreement, and in no
event later than ten business days after the date of this Agreement,
the Company shall prepare in consultation with the Parent an
information statement relating to the adoption of this Agreement and
the approval of the Merger and other transactions contemplated
hereby by the Shareholders and the exercise of statutory dissenters'
rights under Washington law in connection therewith (the
"INFORMATION STATEMENT"). The Company shall provide and include in
the Information Statement such information relating to the Company
and the Shareholders as may be required pursuant to the provisions
of applicable securities and corporate laws. The Company shall also
provide and include in the Information Statement such information
relating to the Parent as Parent shall deem necessary to satisfy the
provisions of applicable securities and corporate laws. The Company
shall, in accordance with its articles of incorporation and bylaws
and the applicable requirements of the Washington Business
Corporation Act, call and hold a special meeting of the Shareholders
as promptly as practicable, and in any event not later than July 6,
2004, for the purpose of permitting them to consider and to vote
upon the adoption of this Agreement (the "COMPANY SHAREHOLDER
MEETING"). The Company shall cause a copy of the Information
Statement to be delivered to each Shareholder and to each option
holder of the Company. As promptly as practicable after the delivery
of copies of the Information Statement to all Shareholders and
optionholders, the Company shall use its commercially reasonable
efforts
(i) to solicit from each such Shareholder a proxy in favour of
approval of adoption of this Agreement and the approval of the
Merger and other transactions contemplated hereby,
(ii) to solicit from each Shareholder a proxy in favour of approval
of items necessary to prevent any payment or benefit that a
Company employee or consultant may receive in connection with
the Merger from being considered a "parachute payment" under
Section 280G of the Code; and
(iii) to cause each Shareholder to execute and deliver to Parent a
Representation and Support Agreement substantially in the form
of Exhibit H hereto.
- 54 -
In lieu of calling and holding the Company Shareholder Meeting, the
Company may solicit written consents (to be effective on or prior to
July 6, 2004) in accordance with its articles of incorporation and
Washington Law. Parent will promptly provide all information
relating to its business and operations necessary for inclusion in
the information statement to satisfy all requirements of applicable
state and federal securities and corporate laws.
(l) Dissenting Shares. Prior to the Closing Date, the Company shall
furnish the Parent with the name and address of each Shareholder of
the Company who, prior to the Closing, has requested appraisal
rights pursuant to Washington Law and the number of Dissenting
Shares owned by such Shareholder.
7. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
period following the Closing:
(a) General.
(i) In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, the
Principal Shareholders and the Parent will take such further
action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may
request, at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to the
indemnification hereunder). The Principal Shareholders
acknowledge and agree that from and after the Closing the
Parent will have the right to possession of all documents,
books, records (including Tax records), agreements, and
financial data of any sort relating to the Company and the
Principal Shareholders will deliver to the Parent all such
documents, books, records (including Tax records), agreements
and financial data of any sort relating to the Company such
which may be reasonably requested and which cannot be
otherwise located or duplicated without unreasonable effort or
expense, except as may specifically be excluded in this
Agreement and its Schedules; provided, however, that the
Shareholders shall have the right to obtain access to such
documents, books, records (including Tax records), agreements,
and financial data to the extent related to the period prior
to the Closing and make photocopies thereof for a proper
purpose, such as in connection with the preparation of their
Tax Returns.
(ii) Each Principal Shareholder will use its best efforts to cause
each firm acting as independent auditors to the Company (A) to
deliver to the Parent financial statements audited and
prepared in accordance with GAAP, (B) to deliver an auditor's
report and consents with respect to financial statements of
the Company, and other information required to be filed by the
Parent pursuant to the rules and policies of applicable
Canadian securities laws, and (C) to cooperate with the Parent
and its auditors to provide "comfort" letters with respect to
financial information about the
- 55 -
Company that may be required to be included in the Parent's
filings with the Canadian securities regulatory authorities.
(iii) If any Security Interest registered against Targeted shall
extend to any of the assets used in the operation of the
Business, Targeted shall take all steps necessary to remove
and discharge any such Security Interest.
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim or
demand in connection with (i) any transaction contemplated under
this Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing
Date involving the Parent or the Shareholders, each of the other
Parties will reasonably cooperate with the contesting or defending
Party and his or its counsel in the contest or defence, make
available his or its personnel, and provide such testimony and
access to his or its books and records as shall be necessary in
connection with the contest or defence, all at the sole cost and
expense of the contesting or defending Party (unless the contesting
or defending Party is entitled to such indemnification under Section
8 below).
(c) Transition. The Principal Shareholders will use their reasonable
commercial efforts not to take any action that is designed or
intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Company, or
the Parent from maintaining the same business relationships with the
Parent after the Closing as it maintained with the Company prior to
the Closing.
(d) Confidentiality. The Principal Shareholders will treat and hold as
confidential all of the Confidential Information of the Company,
refrain from using any of the Confidential Information and deliver
promptly to the Parent or destroy, at the request and option of the
Parent, all tangible embodiments (and all copies) of the
Confidential Information which are in his or her possession. In the
event that any Principal Shareholder is requested or required (by
oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, such
Principal Shareholder will notify the Parent promptly of the request
or requirement so that the Parent may seek an appropriate protective
order or waive compliance with the provisions of this Section 7(d).
If, in the absence of a protective order or the receipt of a waiver
hereunder, such Shareholder is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else
stand liable for contempt, such Principal Shareholder may disclose
the Confidential Information to the tribunal; provided, however,
that such Principal Shareholder shall use its reasonable efforts to
obtain, at the reasonable request of the Parent and at the Parent's
sole expense, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Parent shall designate.
- 56 -
(e) Noncompetition.
(i) Noncompetition Covenant.
(A) In connection with the purchase of the Company by the
Parent as provided in this Agreement, Targeted hereby
agrees that, except as otherwise expressly provided in
this Section 7(e), neither it, nor any of member of the
Targeted Affiliated Group, shall, at any time within a
period of eighteen (18) months from and after the
Closing Date (the "NONCOMPETITION PERIOD"), directly or
indirectly, engage in any Competitive Business, or
operate, manage or control any person, firm,
corporation, partnership, limited liability company,
trust or other business entity (whether as an agent,
partner, member, joint venture, shareholder,
beneficiary, creditor, consultant, advisor or otherwise,
as the case may be) that engages in any Competitive
Business in the State of Washington, the Province of
British Columbia, the United States of America, Canada
or any other country. The provisions of this Section
7(e) shall not prohibit the aggregate ownership by the
Targeted Affiliated Group of up to ten percent (10%) of
the issued and outstanding capital stock of a
publicly-held corporation that operates a Competitive
Business, so long as no member of the Targeted
Affiliated Group participates in the control thereof,
takes an active part in the management or direction
thereof, acts as a consultant or advisor thereto or in
any other way renders services thereto.
(B) If Targeted is alleged by the Parent to have materially
breached or threatened to breach its noncompetition
covenants described in Section 7(e)(i) hereof, the
Parent shall have the right, in addition to any other
rights or remedies which it may have hereunder, or at
law or in equity, to seek and obtain specific
performance thereof and/or to enjoin such breach or
threatened breach. The Parties hereto acknowledge and
agree that any such breach or threatened breach shall
cause irreparable injury to the Parent and the Parent
could not be reasonably or adequately compensated in
damages at law. The equitable remedies provided for in
this Section 7(e)(ii) are not exclusive of any other
remedy, and such remedies shall be cumulative and shall
be in addition to every other remedy provided for herein
or now or hereafter at law or in equity or by statute or
otherwise.
(C) If, in any judicial proceeding, any court or arbitrator
determines that any noncompetition covenant included in
Section 7(e) hereof, or any part thereof, is
unenforceable because of the duration of such provision
or the area covered thereby, such covenant shall be
considered divisible with respect to scope, duration and
geographic
- 57 -
area such court or arbitration shall have the power to
reduce the scope duration or geographic area of such
provision and, in its reduced form, such provision shall
then be enforceable and shall be enforced.
(ii) Employee Noncompetition Matters. Parent and Company hereby
acknowledge that Targeted has entered into certain
confidential information, invention assignment, noncompetition
and nonsolicitation agreements (the "CONFIDENTIAL INFORMATION
AGREEMENTS") with the current and former employees of the
Company covering, among other things, the confidentiality of
information used in their employment with the Company.
Further, Parent and Company each agree that they shall neither
(A) take any actions to induce such employees to violate the
terms of the Confidential Information Agreements, nor (B) use,
distribute, disclose or otherwise make use of or disseminate
any information obtained, directly or indirectly, as a result
of a breach of any such Confidential Information Agreement;
provided, however, that this clause shall not apply to any
information used in the ordinary course of business of the
Company as it was conducted immediately prior to the Closing.
(f) Tax Matters.
(i) The Principal Shareholders, severally and not jointly, shall
indemnify the Company the Parent and Merger Sub, and hold them
harmless from and against, any loss, claim, liability,
expense, or other damage attributable to (A) all Taxes (or the
non-payment thereof) of the Company for all Taxable periods
ending on or before the Closing Date and the portion through
the end of the Closing Date for any Taxable period that
includes (but does not end on) the Closing Date ("PRE-CLOSING
TAX PERIOD"), (B) all Taxes of any member of an affiliated,
consolidated, combined or unitary group of which the Company
(or any predecessor of any of the foregoing) is or was a
member on or prior to the Closing Date, including pursuant to
Treasury Regulation Section 1.1502-6 or any analogous or
similar state, local, or foreign law or regulation, and (C)
any and all Taxes of any person (other than the Company)
imposed on the Company as a transferee or successor, by
contract or pursuant to any law, rule, or regulation, which
Taxes relate to an event or transaction occurring before the
Closing Date; provided however, that in the case of clauses
(A), (B), and (C) above, the Shareholders shall be liable only
to the extent that such Taxes exceed the amount, if any,
reserved for such Taxes (excluding any reserve for deferred
Taxes established to reflect timing differences between book
and Tax income) on the face of the balance sheet that is part
of the Financial Statements (rather than in any notes
thereto).
(ii) In the case of any Taxable period that includes (but does not
end on) the Closing Date (a "STRADDLE PERIOD"), the amount of
any Taxes based on or measured by income or receipts of the
Company for the Pre-Closing Tax
- 58 -
Period shall be determined based on an interim closing of the
books as of the close of business on the Closing Date and the
amount of other Taxes of the Company for a Straddle Period
which relate to the Pre-Closing Tax Period shall be deemed to
be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number
of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in such
Straddle Period.
(iii) For all taxable periods ending on or before the Closing Date,
Targeted shall cause the Company to join in Targeted's
consolidated federal Income Tax Return and comparable
consolidated or combined state Income Tax Returns and, in
jurisdictions requiring reporting of the income of the Company
separate from that of Targeted, to file separate Company state
and local Income Tax Returns. Targeted shall include the
income of the Company (including any deferred items triggered
into income by Treasury Regulation Section 1.1502-13, Treasury
Regulation Section 1.1502-14 and any excess loss account taken
into income by Treasury Regulation Section 1.1502-19 or
comparable provisions of state and local Income Tax
regulations) on Targeted's consolidated federal Income Tax
Returns and comparable consolidated or combined state Income
Tax Returns for all periods through the Closing Date and pay
any federal, state, and local Income Taxes attributable to
such income. All such Returns shall be prepared and filed in a
manner consistent with prior practice, except as required by a
change in applicable law. The Parent shall have the right to
review and comment on any such Returns prepared by Targeted.
The Parent shall cause the Company to furnish information to
Targeted as reasonably requested by Targeted to allow Targeted
to satisfy its obligations under this section in accordance
with past custom and practice. The Company and the Parent
shall consult and cooperate with Targeted as to any elections
to be made on returns of the Company for periods ending on or
before the Closing Date. The Parent shall cause the Company to
file income Tax Returns for all periods other than periods for
which Targeted has responsibility to do so pursuant to this
Section 7(f).
(iv) (A) The Parent, the Company, and the Principal Shareholders
shall cooperate fully, as and to the extent reasonably
requested by the other Party, in connection with the
filing of Tax Returns pursuant to Section 7(f)(iv) and
any audit, litigation or other proceeding with respect
to Taxes. Such cooperation shall include the retention
and (upon the other Party's request) the provision of
records and information which are reasonably relevant to
any such audit, litigation or other proceeding and
making employees available on a mutually convenient
basis to provide additional information and explanation
of any material provided hereunder. The Company and the
Principal Shareholders agree (i) to retain all books and
records with respect to Tax matters pertinent to the
Company relating to any taxable period beginning before
the Closing Date
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until the expiration of seven (7) years following the
Closing Date or if later, the expiration of the statute
of limitations (and, to the extent notified by the
Parent to Targeted, any extensions thereof) of the
respective taxable periods, and to abide by all record
retention agreements entered into with any taxing
authority, and (ii) to give the other Party reasonable
written notice prior to transferring, destroying or
discarding any such books and records and, if the other
Party so requests, the Company or Principal
Shareholders, as the case may be, shall allow the other
Party to take possession of such books and records.
(B) the Parent and each Principal Shareholder further agree,
upon request, to use their best efforts to obtain any
certificate or other document from any governmental
authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be
imposed (including, but not limited to, with respect to
the transactions contemplated hereby).
(v) Following the Closing, Targeted will allow the Company and
their counsel to participate, at the Parent's expense, in any
audits of Targeted consolidated U.S. federal Income Tax
Returns to the extent that such Returns relate to the Company.
Targeted will not settle any such audit in a manner which
would adversely affect the Company after the Closing Date
without the prior written consent of the Parent, which consent
shall not be unreasonably withheld.
(vi) All transfer, documentary, sales, use, stamp, registration and
other such Taxes, and all conveyance fees, recording charges
and other fees and charges (including any penalties and
interest) incurred in connection with consummation of the
transactions contemplated by this Agreement shall be paid by
the Shareholders when due, and the Shareholders will, at their
own expense, file all necessary Tax Returns and other
documentation with respect to all such Taxes, fees and
charges, and, if required by applicable law, the Shareholders
will join in the execution of any such Returns and other
documentation.
(vii) the Parent agrees to indemnify Targeted for any additional Tax
owed by Targeted (including tax owed by Targeted due to this
indemnification payment) resulting from any transaction
engaged in by the Company not in the Ordinary Course of
Business occurring after the Closing Date and after the
Merger.
(viii) the Parent and Targeted agree to report all transactions not
in the Ordinary Course of Business occurring after the Closing
Date and after the Merger on the Parent's federal Income Tax
Return to the extent permitted by Regulation
1.1502-76(b)(1)(ii)(B) and any similar state or local tax
provision.
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(ix) At the Parent's option, the Shareholder Representative and the
Parent shall join in making an election under Code Section
338(h)(10) (and any corresponding elections under state,
local, or foreign tax law) (collectively, a "SECTION
338(h)(10) ELECTION") with respect to the purchase and sale of
the stock of the Company. Parent will pay any Tax attributable
to the making of the Section 338(h)(10) Election and will
indemnify Targeted against any losses arising out of any
failure to pay such Tax. Parent will also pay any state,
local, or foreign Tax (and indemnify Targeted against any
losses arising out of any failure to pay such Tax)
attributable to an election under state, local, or foreign law
similar to the election available under Code Section 338(g)
(or which results from the making of an election under Code
Section 338(g) with respect to the purchase and sale of the
stock of the Company hereunder.
(x) The Parties agree that the Merger Consideration and the
liabilities of the Company (plus other relevant items) will be
allocated to the assets of the Company for all purposes
(including Tax and financial accounting purposes) as shown on
the Allocation Schedule attached hereto, in a manner
consistent with Code Section 338 and 1060 and the regulations
thereunder. The Parent and Targeted shall file all Tax Returns
(including amended returns and claims for refund) and
information reports in a manner consistent with such
allocation.
(xi) For each year that it is a "passive" foreign investment
company, within the meaning of the Code, the Parent shall
provide to the Shareholders all information that a United
States shareholder making a "mark to market" election (as
defined in the Code) is required to obtain for United States
federal income tax purposes, and will take any other steps as
are reasonably necessary to facilitate such election by the
Shareholder.
(xii) The parties agree to treat any indemnity payment made pursuant
to this Agreement as an adjustment to the Merger Consideration
for all federal, state, local and foreign Tax purposes, to the
extent permitted by law.
(g) Non-Solicitation. Until the date that ends one year after the
Closing Date, no member of the Targeted Affiliated Group, nor any
member of the Parent's Affiliated Group shall directly or
indirectly, through any officer, director, employee, representative
or agent of such person, on its own behalf or on behalf of others,
solicit, divert or hire away, or attempt to solicit, divert, or hire
away, any independent contractor or any person employed by any
member of the other's Affiliated Group or persuade or attempt to
persuade any such individual to terminate his or her employment with
any member of the other's Affiliated Group; provided, however,
nothing shall prohibit the employment of an unsolicited individual
responding to a general advertisement for employment.
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(h) Foreign Private Issuer Status. The Parent shall use its best efforts
to remain a "foreign issuer" as such term is defined in Regulation S
promulgated under the U.S. Securities Act for two years following
the Closing Date.
(i) Listing of Parent Shares. The Parent shall use its best efforts to
maintain the listing of its common shares on the Toronto Stock
Exchange, or on a U.S. national securities exchange or Nasdaq for
three years following the Closing Date.
(j) Observer. Effective as of the Closing, the Principal Shareholders
shall, as long as amounts owing under the Convertible Debenture
remain outstanding, be entitled to have an individual (who may
change from time to time) (an "OBSERVER") attend meetings of the
Board of Directors of the Parent from time to time. If requested by
the Board of Directors of the Parent, an Observer must sign a
non-disclosure agreement in a form satisfactory to the Parent
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Company and the Principal
Shareholders contained in Sections 3(b), 3(d)(ii), 3(e), 3(h)
through 3(l) and Sections 3(n) through 3(cc) of this Agreement and
all of the other representations, warranties, covenants,
indemnities, and other agreements of the Parent, Merger Sub, the
Principal Shareholders and the Company contained in this Agreement
(collectively, the "OPERATIONAL MATTERS") shall survive the Closing
and continue in full force and effect for a period of two (2) years
thereafter; all of the representations and warranties contained in
Section 3(m) shall survive the Closing and continue in full force
and effect until reparation of the applicable statute of
limitations; all of the representations and warranties contained in
Sections 3(a), 3(c), 3(d)(i) and (iii), 3(f), 3(g) and 3(dd), and
Section 4 (collectively, the "FUNDAMENTAL MATTERS")) shall survive
the Closing and continue in full force and effect for a period of
five (5) years thereafter, or such shorter period provided by any
applicable statutes of limitations. No action, claim, or proceeding
may be brought by any Party hereto against any other Party resulting
from, arising out of, or caused by a breach of a representation or
warranty contained herein, or the failure to perform any covenant or
other obligations hereunder, after the time such representation,
warranty or covenant ceases to survive pursuant to the preceding
sentence, unless written notice of such claim setting forth with
specificity the basis for such claim is delivered to the applicable
Party prior to such time in accordance with the notice provisions
set forth in Section 10(g) of this Agreement.
(b) Indemnification Provisions for Benefit of the Parent. In the event
any Principal Shareholder or the Company breaches (or in the event
any third party alleges facts that, if true, would mean any
Principal Shareholder or the Company has breached) any of his
representations, warranties, and covenants contained in this
Agreement, and, if there is an applicable survival period pursuant
to Section 8(a) above, provided that the Parent provides written
notice of a claim for indemnification setting forth the basis for
such claim against the Shareholders within such survival
- 62 -
period, then the Principal Shareholders, jointly and severally,
agree to defend, indemnify and hold harmless the Parent, subject to
the limitations set forth herein, from and against the entirety of
any Adverse Consequences the Parent may suffer through and after the
date of the claim for indemnification (including any Adverse
Consequences the Parent may suffer after the end of any applicable
survival period) resulting from, arising out of, or caused by the
breach (or the alleged breach); provided, however, that:
(i) the Principal Shareholders shall not have any obligation to
indemnify the Parent from and against any Adverse Consequences
resulting from, arising out of, or caused by the breach (or
alleged breach) of any representation or warranty with respect
to Operational Matters or tax matters set forth in Section
3(m) beyond a maximum aggregate amount of Cdn.$850,000 (the
"INDEMNIFICATION AMOUNT"). No such restriction shall be
applicable with respect to Fundamental Matters;
(ii) the Principal Shareholders shall not have any indemnification
obligation for breaches (or alleged breaches) with respect to
Operational Matters until the Parent has suffered Adverse
Consequences by reason thereof in excess of United States
Twenty Five Thousand Dollars (US $25,000), but in such event,
Principal Shareholders shall be liable for the full amount of
such Adverse Consequences. No such restriction shall be
applicable with respect to (A) the Undisclosed Liability
listed in Section 3(j) Paragraph 1 of the Company Disclosure
Schedule and (B) all valid and enforceable claims for deferred
compensation established against the Company by employees of
the Company with respect to any and all deferred compensation
owing to such employees upon any form of disposition or sale
of the Company to a third party; and
(iii) the Principal Shareholders shall not have any obligation to
indemnify the Parent from and against any Adverse Consequences
resulting from, arising out of, or caused by the breach (or
alleged breach) of any representation or warranty with respect
to Fundamental Matters or Operational Matters which, in
aggregate, exceed the Merger Consideration, and further that
no Principal Shareholder shall be liable for any such Adverse
Consequences whether resulting from, arising out of, or caused
by the breach (or alleged breach) of any representation or
warranty with respect to Fundamental Matters or Operational
Matters which, in aggregate, exceed that portion of the Merger
Consideration which such Principal Shareholder is entitled to
receive pursuant to Section 2.7(c) of this Agreement.
Any claim for indemnification made by the Parent setting forth the
basis for such claim against the Shareholders shall be provided in
accordance with the notice provisions set forth in Section 10(g) of
this Agreement.
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(c) Indemnification Holdback. If the Parent makes a written claim for
indemnification to a Principal Shareholder in accordance with
Section 8(b) above prior, to the expiry date of the Convertible
Debenture:
(i) if such claim is in respect of Operational Matters, the Parent
shall be entitled to withhold from and setoff against any
amounts owing under the Convertible Debenture and scheduled to
be paid on the Maturity Date (as defined in the Convertible
Debenture) the amount of such claim, to a maximum of the
Indemnification Amount pending determination of such claim; or
(ii) if such claim is in respect of Fundamental Matters, the Parent
shall be entitled to withhold from and setoff against any
amounts owing under the Convertible Debenture the amount of
such claim. Amounts owing under the Convertible Debenture
shall be a nonexclusive source of indemnification with respect
to any Fundamental Matters, and, subject to the provisions set
forth in Section 8(b) above, shall not otherwise limit the
liability of the Shareholders with respect to indemnification
under this Agreement.
For clarification, the Parent shall first withhold from and setoff
against amounts owing under the Convertible Debenture the amount of
any indemnification claim before making any indemnification claim
against the Shareholders relating to that other portion of the
Merger Consideration received by the Shareholders on Closing.
Any disagreement with respect to the determination of any claim for
indemnification shall be resolved in the manner set forth in Section
10(p) below. The arbitrator shall issue its report as to the
validity of such claim for indemnification within sixty (60) days
after such dispute is referred to such arbitrator. The Principal
Shareholders on the one hand, and the Parent on the other hand,
shall bear all costs and expenses incurred by it in connection with
such arbitration, except that the fees and expenses of the
arbitrator hereunder shall be borne by the Principal Shareholders
and the Parent in such proportion as such arbitrator shall determine
based on the relative merit of the position of the parties. This
provision for arbitration shall be specifically enforceable by the
Parties and the decision of such arbitrator in accordance with the
provisions hereof shall be final and binding with respect to the
matters so arbitrated and there shall be no right of appeal
therefrom. If a claim for indemnification by the Parent is finally
determined to be valid pursuant to this Section 8(c), the balance
payable by the Parent pursuant to the Convertible Debenture shall be
deemed to be reduced accordingly.
(d) Indemnification Provisions for Benefit of the Principal
Shareholders. In the event the Parent breaches (or in the event any
third party alleges facts that, if true, would mean the Parent has
breached) any of their representations, warranties, and covenants
contained in this Agreement, and, if there is an applicable survival
- 64 -
period pursuant to Section 8(a) above, provided that the Shareholder
Representative provides written notice of a claim for
indemnification setting forth with specificity the basis for such
claim against the Parent within such survival period, then the
Parent agrees to defend, indemnify and hold harmless the Principal
Shareholders from and against the entirety of any Adverse
Consequences (up to but not in excess of the aggregate Merger
Consideration received by the Principal Shareholders) the Principal
Shareholders may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Principal
Shareholders may suffer after the end of any applicable survival
period) resulting from, arising out of, or caused by the breach (or
the alleged breach). Any claim for indemnification made by the
Principal Shareholders setting forth the basis for such claim
against the Parent shall be provided in accordance with the notice
provisions set forth in Section 10(g) of this Agreement.
(e) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "INDEMNIFIED
PARTY") with respect to any matter (a "THIRD PARTY CLAIM")
which may give rise to a claim for indemnification against any
other Party (the "INDEMNIFYING PARTY") under this Section 8,
then the Indemnified Party shall promptly notify each
Indemnifying Party thereof in writing; provided, however, that
no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel
of its choice satisfactory to the Indemnified Party so long as
(A) the Indemnifying Party notifies the Indemnified Party in
writing within fifteen (15) days after the Indemnified Party
has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from
and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party
Claim, (B) the Indemnifying Party provides the Indemnified
Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial
resources to defend against the Third Party Claim and fulfill
its indemnification obligations hereunder, (C) the Third Party
Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an
adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party,
likely to establish a precedential custom or practice
materially adverse to the continuing business interest of the
Indemnified Party, and (E) the Indemnifying Party conducts the
defence of the Third Party Claim actively and diligently.
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(iii) So long as the Indemnifying Party is conducting the defence of
the Third Party Claim in accordance with Section 8(e)(ii)
above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the
defence of the Third Party Claim, (B) the Indemnified Party
will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without
the prior written consent of the Indemnifying Party (which
consent shall not be unreasonably withheld).
(iv) In the event any of the conditions in 8(e)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or
enter into any settlement with respect to, the Third Party
Claim in any manner it may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent
from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Party will reimburse the Indemnified Party
promptly and periodically for the costs of defending against
the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Party will remain
responsible for any Adverse Consequences the Indemnified Party
may suffer resulting, arising out of, relating to, in the
nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section 8.
(f) Determination of Adverse Consequences. The Parties shall take into
account the time cost of money (using the prime rate of the Royal
Bank of Canada as the discount rate) and shall make appropriate
adjustments for tax benefits and insurance coverage in determining
Adverse Consequences for purposes of this Section 8. All
indemnification payments under this Section 8 shall be deemed
adjustments to the Merger Consideration.
(g) Post-Closing. Following the Closing, the remedy of the Principal
Shareholders, on the one hand, and the Parent on the other hand,
with respect to any breach or threatened breach of a representation,
warranty or covenant contained herein or with respect to any event,
circumstance or condition occurring on or before the Closing shall
be limited to the enforcement of the indemnification obligations set
forth in Section 8; provided, however, that nothing provided in this
Section 8(g) shall limit the right of any Party to seek any
equitable remedy available to enforce his or its rights hereunder in
accordance with Section 10(n).
9. TERMINATION AND EXTENSION.
(a) Termination. This Agreement may be terminated at any time prior to
or on the Closing Date:
(i) by the mutual consent of the Shareholder Representative and
the Parent;
(ii) by the Parent:
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(A) if any one of the conditions for the benefit of the
Parent and Merger Sub set forth in Section 5(a) have not
been satisfied or waived by the Parent or Merger Sub on
or before the Closing, or
(B) in the event that the Company or the Shareholders have
not complied with or performed, in all material
respects, their respective covenants and obligations
under this Agreement or the applicable Representation
and Support Agreement to be complied with or performed
at or prior to the Closing Date, or any of the
representations and warranties of any of the Company or
Shareholders under this Agreement or the applicable
Representation and Support Agreement are not true and
correct in all material respects at or prior to the
Closing Date;
(iii) by the Shareholder Representative;
(A) if any one of the conditions for the benefit of the
Company or the Shareholders set forth in Section 5(b)
have not been satisfied or waived by the Company or
Shareholder Representative on or before the Closing, or
(B) in the event that the Parent or Merger Sub shall not
have complied with or performed, in all material
respects, its respective covenants and obligations under
this Agreement to be complied with or performed at or
prior to the Closing Date, or any of the representations
and warranties of either of them under this Agreement
are not true and correct in all material respects at or
prior to the Closing Date;
(iv) by either Parent or the Shareholder Representative if the
Closing shall not have occurred by the Closing Date, unless
the Closing Date is postponed pursuant to Section 9(e);
provided, however, that the right to terminate this Agreement
under this Section 9(a)(iv) shall not be available to any
Party whose action or failure to act has been a principal
cause of the failure of the Closing to occur on or before such
date and such action or failure to act constitutes a breach of
this Agreement; and
(v) by the Shareholder Representative in order to immediately
enter into a Proposed Agreement or in order to recommend to
its shareholders acceptance or approval of a Superior
Transaction that does not involve or contemplate a Proposed
Agreement, each in accordance with the terms of Section 6(h)
of this Agreement; provided, in either case, that the Company
has paid the Termination Fee described in Section 9(c).
Neither the Parent nor the Shareholder Representative may exercise
any termination right pursuant to this Section 9(a) unless the
Parent or the Shareholder Representative, as the case may be, has
delivered a written notice to the other
- 67 -
parties hereto specifying in reasonable detail all breaches of
covenants, representations and warranties or other matters which the
Parent or the Shareholder Representative, as the case may be, is
asserting as the basis for the exercise of the termination right, as
the case may be. If any such notice is delivered in respect of the
exercise of a termination right under Sections 9(a)(ii), (iii) or
(iv), provided that the Parent or the Shareholder Representative, as
the case may be, is proceeding diligently to cure such matter, if
such matter is susceptible to being cured, the other parties hereto
may not terminate this Agreement as a result thereof until the
expiration of a period of fifteen (15) days from such notice.
(b) Termination Fee Payable to Parent.
(i) Notwithstanding any other provisions hereof, if this Agreement
is terminated or the transactions contemplated hereunder are
not consummated because the Parent has terminated this
Agreement pursuant to Section 9(a)(ii) hereof, the Shareholder
Representative shall pay to the Parent, within 5 business days
of such termination, a fee equal to the amount of (1) the
Deposit paid by the Company prior to such termination date,
plus (2) United States Three Hundred Thousand Dollars (US
$300,000) (this payment in Section 9(b)(i)(2), the "SECTION
9(b)(i)(2) PAYMENT"), as liquidated damages, in immediately
available funds to an account designated by the Parent,
provided that such fee shall not be payable if the Parent is
in breach of any obligation hereunder and such breach renders
compliance with the conditions in Section 5(b) for the benefit
of the Shareholders of the Company incapable of fulfillment,
and provided further that the Section 9(b)(i)(2) Payment shall
not be payable to the Parent if the Parent shall have
terminated this Agreement pursuant to Section 9(a)(ii) due to
a failure on the part of the Company or the Shareholders to
satisfy the obligations referred to therein under
circumstances where: (1) such failure was a direct result of
circumstances that were beyond the control of the Company or
the Shareholders, and (2) the Company and the Shareholders
each used best efforts to satisfy such obligations.
For clarification, if (x) the Shareholders fail to approve
this Agreement and the transactions contemplated hereby
pursuant to the conditions set forth in Section 5(a)(xxvi)
hereof, the Shareholder Representative shall pay the Section
9(b)(i)(2) Payment to the Parent in accordance with the terms
of this Section 9(b)(i); and (y) the Company, despite the use
of its best efforts to obtain such consents, fails to obtain
any third party consents pursuant to Section 5(a)(iii) hereof,
the Shareholder Representative shall not be obligated to pay
the Section 9(b)(i)(2) Payment to the Parent.
(ii) Notwithstanding any other provisions hereof, if this Agreement
is terminated or the transactions contemplated hereunder are
not consummated because the Shareholder Representative shall
have terminated this Agreement pursuant to Section 9(a)(v),
the Shareholder
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Representative shall pay to the Parent, concurrently with such
termination, a fee equal to the sum of:
(A) the amount of the Deposit paid to the Company prior to
such termination date; plus
(B) the amount of United States Five Hundred Thousand
Dollars (US $500,000),
as liquidated damages in immediately available funds to an
account designated by the Parent.
(iii) For clarification, any amounts paid by the Parent to the
Company pursuant to Section 9(f) of this Agreement become part
of the Deposit and shall be repaid as such under this Section
9(b) in the circumstances outlined above.
(c) Termination Fee Payable to the Company.
(i) Notwithstanding any other provisions hereof, if this Agreement
is terminated or the transactions contemplated hereunder are
not consummated because the Shareholder Representative shall
have terminated this Agreement pursuant to Sections 9(a)(iii),
the Parent shall:
(A) not be entitled to repayment of the Deposit prior to
such date which Deposit shall be forfeited as liquidated
damages,
(B) pay to the Company the amount of United States Three
Hundred Thousand Dollars (US $300,000) (this payment in
Section 9(c)(i)(B), the "SECTION 9(c)(i)(B) PAYMENT"),
as liquidated damages, in immediately available funds to
an account designated by the Parent, and
(C) pay to Targeted any funds which were to be repaid to
Targeted by the Parent on the Closing Date pursuant to
Section 6(e) hereof;
provided that such liquidated damages set forth in Sections
9(c)(i)(A) and (B) shall not be payable if either the Company
or the Shareholders is in breach of any obligation hereunder
and such breach renders compliance with the conditions in
Section 5(a) for the benefit of the Parent and Merger Sub
incapable of fulfillment, and provided further that the
Section 9(c)(i)(B) Payment shall not be payable to the
Shareholder Representative if the Shareholder Representative
shall have terminated this Agreement pursuant to Section
9(a)(iii) due to a failure on the part of the Parent to
satisfy the obligations referred to therein under
circumstances where: (1) such failure was a direct result of
circumstances that were beyond the control of the Parent, and
(2) the Parent used best efforts to satisfy such obligations.
- 69 -
For clarification, the Parent shall (x) pay the Section
9(c)(i)(B) Payment to the Shareholder Representative if the
condition set forth in Section 5(a)(xxix) has not been
satisfied or waived, and (y) not pay the Section 9(c)(i)(B)
Payment to the Shareholder Representative in accordance with
the terms of this Section 9(c)(i) if despite the use of its
best efforts to obtain such approvals, the Parent fails to
obtain the required regulatory approvals for the transactions
contemplated by this Agreement pursuant to the condition set
forth in Section 5(a)(xx) hereof.
(ii) For clarification, any amounts paid by the Parent to the
Company pursuant to Section 9(f) of this Agreement become part
of the Deposit and, as such, shall not be repaid under this
Section 9(c) in the circumstances outlined above.
(d) Effect of Termination. In the event of termination of this Agreement
by the Shareholder Representative, on the one hand, or the Parent,
on the other, as provided in Section 9(a), all provisions of this
Agreement shall terminate and there shall be no liability on the
part of any of the Principal Shareholders or the Parent or their
respective shareholders, officers, or directors, except that Section
10(h) and 10(k) hereof shall survive indefinitely, except that the
Parties shall remain liable for willful breaches of this Agreement
prior to the time of such termination, and except that liability for
payments due under Sections 9(b) and (c) shall survive.
(e) Extension of Closing Date by Parent. If the Closing has not occurred
on or before July 27, 2004, the Parent may at its option postpone
the Closing Date for up to an additional 45 days by delivering
written notice to the Shareholder Representative advising of the
reason for the extension.
(f) Payment of Additional Deposit by Parent. If option to extend the
Closing Date is exercised by the Parent,
(i) if any one of the conditions for the benefit of the Company or
the Principal Shareholders set forth in Section 5(b)(i)
through (xi) have not been satisfied or waived by the Company
or Shareholder Representative on or before the Closing, or
(ii) in the event that the Parent or Merger Sub shall not have
complied with or performed, in all material respects, its
respective covenants and obligations under this Agreement to
be complied with or performed at or prior to the Closing,
then the Parent shall pay to the Company the cash amount of Canadian
Two Hundred and Fifty Thousand Dollars (Cdn. $250,000), which amount
shall be an increase to the Deposit, such that the aggregate Deposit
then paid by Chromos will be Canadian One Million Dollars (Cdn
$1,000,000). The additional Deposit shall be used by the Company to
fund its operations and may not be applied to
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repay any Indebtedness owed by the Company to any member of the
Targeted Affiliated Group.
(g) Treatment of Termination Fees. Parties acknowledge that the amount
set out in this Section 9(b) and 9(c) represent liquidated damages
which are a genuine pre-estimate of the damages, including
opportunity costs, which respective Parties will suffer or incur as
a result of the event giving rise to such damages and resultant
termination of this Agreement (except for the provisions relating to
willful breach in Section 9(d)), and are not penalties. Parties
irrevocably waive any right they may have to raise as a defence that
such liquidated damages are excessive or punitive.
10. MISCELLANEOUS.
(a) Press Releases and Public Announcements. Neither the Company, nor
the Principal Shareholders shall issue any press release or make any
public announcement relating to the subject matter of this Agreement
without the prior written approval of the Parent. The Parent, upon
prior notice to the Company, may make any public disclosure it
believes in good faith is required or permitted by applicable law or
any listing or trading agreement concerning its publicly-traded
securities.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations
by or between the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign
either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of each
other Party; provided, however, that the Parent may (i) assign any
or all of its rights and interests hereunder to one or more of its
affiliates and (ii) designate one or more of its affiliates to
perform its obligations hereunder (in any or all of which cases the
Parent nonetheless shall remain responsible for the performance of
all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
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(g) Notices. All notices, requests, demands, claims (including, but not
limited to, claims for indemnification made by the parties hereto
pursuant to Section 8 of this Agreement), and other communications
hereunder will be in writing. Any notice, request, demand, claim, or
other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to
the intended recipient as set forth below:
If to the Parent (or the Company, following the Closing):
CHROMOS MOLECULAR Copy to:
SYSTEMS INC. FASKEN MARTINEAU DuMOULIN
LLP
8081 Lougheed Highway 2100 - 1075 West Georgia Street
Burnaby, BC, Canada Vancouver, BC, Canada, V6E 3G2
Attention: Alistair Duncan Attention: Iain Mant
Facsimile: 604.415.7151 Facsimile: 604.631.3232
If to the Shareholders (or the Company, prior to the Closing):
TARGETED GENETICS Copy to:
CORPORATION, as Shareholder DORSEY & WHITNEY LLP
Representative
100 - 1100 Olive Way 3400 - 1420 Fifth Avenue
Seattle, WA 98101 Seattle, WA 98101-4010
Attention: H. Stewart Parker Attention: Chris Barry
Facsimile: 206.223.0288 Facsimile: 206.903.8820
Copy to:
GRAHAM & DUNN PC
Pier 70
Suite 300 - 2801 Alaskan Way
Seattle, Washington 98121-1128
Attention: Daren Nitz
Facsimile: 206.340.9599
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set
forth above using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary
mail, or electronic mail), but no such notice, request, demand,
claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices,
requests, demands, claims, and other
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communications hereunder are to be delivered by giving the other
Party notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed
exclusively in accordance with the laws of the State of Washington
and the laws of the United States applicable therein, without regard
to conflict of law provisions thereof.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and
signed by each of the Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other
jurisdiction.
(k) Expenses.
(i) The Parent will bear its own costs and expenses (including but
not limited to financial, advisory, accounting, legal, and
environmental fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby.
(ii) Each Shareholder shall bear his own costs and expenses
(including but not limited to financial, advisory, accounting,
legal, and environmental fees and expenses).
(iii) The Company shall bear, to a maximum of United States Dollars
Twenty Thousand (US$20,000), the costs and expenses (including
but not limited to financial, advisory, accounting, legal, and
environmental fees and expenses) of the Company, incurred in
connection with this Agreement and the transactions
contemplated hereby (the "COMPANY'S TRANSACTIONAL EXPENSES").
For clarification, the Company's Transactional Expenses will
constitute a liability of the Company in the calculation of
the Net Assets of the Company performed for the purposes of
determining the Merger Consideration Adjustment, if any.
(l) Construction. Any reference to any federal, state, local, or foreign
statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires
otherwise. The word "including" shall mean including without
limitation. Items set forth in the Company Disclosure Schedule shall
be deemed an exception only to the representations and warranties
for which they are identified and any other representations or
warranties to which the Company
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Disclosure Schedule with respect to representations and warranties
contain in appropriate cross-reference.
(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference
and made a part hereof.
(n) Specific Performance. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached. Accordingly,
each of the Parties agrees that the other Party shall be entitled to
an injunction or injunctions to prevent breaches of the provisions
of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court
having, in accordance with the terms of this Agreement, jurisdiction
over the Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
(o) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any court sitting in King County in the State of
Washington in any action or proceeding arising out of or relating to
this Agreement and agrees that all claims in respect of the action
or proceeding may be heard and determined in any such court. Each
Party also agrees not to bring any action or proceeding arising out
of or relating to this Agreement in any other court. Each of the
Parties waives any defence of inconvenient forum to the maintenance
of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with
respect thereto. The Shareholders appoint the Shareholder
Representative as his, her, or its agent to receive on his, her, or
its behalf service of copies of the summons and complaint and any
other process that might be served in the action or proceeding. Any
Party may make service on any other Party by sending or delivering a
copy of the process (i) to the Party to be served at the address and
in the manner provided for the giving of notices in Section 10(g)
above or (ii) if to the Shareholders, in care of the Shareholder
Representative at the address and in the manner provided for the
giving of notices in Section 10(g) above. Each Party agrees that a
final judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any
other manner provided by law or in equity.
(p) Arbitration. In the event of any controversy or claim arising out of
or relating to any provision of this Agreement or the breach
thereof, the sole recourse shall be to demand arbitration of the
matter in accordance with the rules of the American Arbitration
Association or its successor; provided, that either party may have
recourse to a court of law for purposes of seeking injunctive or
other extraordinary relief. The demand for arbitration shall be
filed within a reasonable time after the controversy or claim has
arisen, and in no event after the date upon which institution of
legal proceedings based on such controversy or claim would be barred
by the applicable statute of limitations. Selection of the
arbitrator and all procedural aspects of the arbitration will be
pursuant to the rules of the American Arbitration Association for
commercial disputes, with the exception
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that the parties will in good faith attempt to agree upon the
arbitrator from the list of arbitrators then available. The
arbitration shall occur in Seattle, Washington, as soon as
reasonably possible. It is the intent of the parties that discovery
be expeditious and not overly burdensome and shall be generally done
under the Federal Rules of Civil Procedure as limited by the
arbitrator in time, volume and scope. The arbitrator will have the
power to interpret, but not add to, modify, or not apply, any
portion of this Agreement. The decision of the arbitrator shall be
rendered within fifteen (15) days of the close of the hearing and
shall be conclusive and binding on the parties in the arbitration.
The decision of the arbitrator may be entered and shall be
enforceable in a court of competent jurisdiction. The parties
irrevocably consent to the jurisdiction of the State of Washington
for purposes of this Section. The substantially prevailing party
shall be reimbursed all reasonable costs and expenses, including all
reasonable attorneys' fees, incurred in connection with the
application of this Section.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
CHROMOS MOLECULAR SYSTEMS INC.
By: /s/ Alistair Duncan
-----------------------------------
Name: Alistair Duncan
Title: President & Chief Executive Officer
CHROMOS, INC.
By: /s/ Alistair Duncan
-----------------------------------
Name: Alistair Duncan
Title: President & Chief Executive Officer
CELLEXSYS, INC.
By: /s/ H. Stewart Parker
-----------------------------------
Name: H. Stewart Parker
Title: Chairman
TARGETED GENETICS CORPORATION
By: /s/ H. Stewart Parker
-----------------------------------
Name: H. Stewart Parker
Title: President & Chief Executive Officer
/s/ Philip B. Maples /s/ David M. Schubert
------------------------------ -----------------------------------
Witness DAVID SCHUBERT
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SCHEDULE A
COMPANY DISCLOSURE SCHEDULE
(SEE ATTACHED)
SCHEDULE B
REQUIRED CONSENTS
EXHIBIT A
FORM OF CONVERTIBLE DEBENTURE
(SEE ATTACHED)
EXHIBIT B
ARTICLES OF MERGER
(SEE ATTACHED)
EXHIBIT C
FORM OF MILESTONE PAYMENT AGREEMENT
(SEE ATTACHED)
EXHIBIT D
FORM OF TRANSITION SERVICES AGREEMENT
(SEE ATTACHED)
EXHIBIT E
FORM OF OPINION OF DORSEY & WHITNEY LLP
(SEE ATTACHED)
EXHIBIT F
FORM OF OPINION OF GRAHAM & DUNN PC
(SEE ATTACHED)
EXHIBIT G
FORM OF SECURITY AGREEMENT
(SEE ATTACHED)
EXHIBIT H
FORM OF REPRESENTATION AND SUPPORT AGREEMENT
(SEE ATTACHED)
EXHIBIT I
FORM OF OPTIONHOLDER REPRESENTATION AGREEMENT
(SEE ATTACHED)
EXHIBIT J
FORM OF OPINION OF FASKEN MARTINEAU DUMOULIN LLP
(SEE ATTACHED)
EXHIBIT K
FORM OF OPINION OF DAVIS WRIGHT TREMAINE LLP
(SEE ATTACHED)