EXHIBIT 99.2
TERMINATION AGREEMENT
AGREEMENT, made and entered into as of the 27th day of June,
1997, by and between Orphan Medical, Inc., a Minnesota corporation ("Orphan"),
and Chronimed, Inc., a Minnesota corporation ("Chronimed").
WHEREAS, Orphan and Chronimed are parties to each of the
following agreements (collectively referred to as the "Agreements") which were
entered into by them in connection with, and at the time of, the dividend
distribution by Chronimed to its shareholders of all of the then outstanding
shares of Orphan's common stock:
i. Marketing and Distribution Agreement, dated as of
July 2, 1994, together with amendments thereto dated
December 22, 1995 and June 3, 1996 (dealing with
Antizol-Vet(TM) and Elliots B(TM) Solution)
(collectively, the "Distribution Agreement");
ii. Security Agreement, dated as of July 2, 1994 (the
"Security Agreement"); and
iii. Services Agreement, dated as of July 2, 1994 (the
"Services Agreement")
WHEREAS, Orphan wishes to terminate the Distribution Agreement
and the other Agreements so that Orphan can assume full responsibility for the
distribution and sale of its products, other than Cystadane; and
WHEREAS, Chronimed is willing to terminate the Distribution
Agreement and the other Agreements on the terms and for the consideration set
forth in this agreement;
NOW THEREFORE, in consideration of the premises, the
respective commitments and undertakings of Chronimed and Orphan set forth in
this agreement, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Orphan and Chronimed hereby agree as
follows:
1. Termination of the Agreements. (a) Except as provided in
section 1(b), effective as of the date of this agreement (the "Termination
Date"), each of the Agreements shall be terminated and shall be of no continuing
force or effect, and the rights and obligations of Orphan and Chronimed under
each of the Agreements shall become null and void. The cystadane agreement,
dated October 11, 1996, between Orphan and Chronimed (the "Cystadane Agreement")
shall not be regarded as one of the Agreements and shall continue in full force
and effect after the Termination Date.
(b) The confidentiality provisions set forth in section 6.3 of
the Distribution Agreement shall remain in full force and effect from and after
the Termination Date.
(c) On or before the Termination Date, Chronimed shall execute
and deliver to Orphan such termination statements and other documents as shall
be reasonably necessary to terminate all security interests which were granted
to Chronimed under the Security Agreement to secure the performance of Orphan
under the Distribution Agreement.
2. Termination Payments. In full and final consideration for
Chronimed's agreement to terminate the Agreements, Orphan agrees to make
termination payments to Chronimed in the aggregate amount of $2,500,000, which
payments shall be made in the following manner:
(a) Orphan shall make a cash payment of $250,000 to Chronimed
on the Termination Date;
(b) On March 31, 1998 and on the last day of each three
(3)-month period thereafter, Orphan shall issue and deliver to Chronimed that
number of unregistered shares of Orphan's common stock (the "Shares") as shall
be equal to one percent (1%) of the total outstanding shares of Orphan common
stock immediately prior to the date of issuance of the Shares; provided,
however, that Orphan's obligation to issue Shares to Chronimed shall terminate
at such time as (i) the aggregate cash payments made, or owing to, Chronimed
pursuant to section 2(c), plus (ii) the net sales proceeds realized by Chronimed
from the sale of Shares sold by Chronimed (after payment of any brokerage
commissions and fees, other costs of sale and Chronimed Expenses (as defined in
exhibit A)) within ninety (90) days after the effective date for the
registration statement covering such Shares, plus (iii) the Market Value of
Shares issued to Chronimed pursuant to this section 2(b) which are not sold by
Chronimed within ninety (90) days after the effective date of any registration
statement covering such Shares, exceeds $2,250,000. For purposes of this section
2(b), the term "Market Value" means the average last bid price for shares of
Orphan common stock on the NASDAQ over-the-counter market for the last five (5)
market days in such ninety (90) day period.
(c) Orphan shall make additional cash payments (the
"Supplemental Payments") to Chronimed equal to three percent (3%) of the net
revenues (i.e. gross sales revenues less allowances, discounts, bad debts,
returns and customs and excise taxes) received by Orphan from the sale or
licensing of any of its products (other than Cystadane) subsequent to the
Termination Date; provided, however, that the aggregate amount of Supplemental
Payments shall not exceed (i) $2,250,000, less (ii) the amounts determined
pursuant to sections 2(b)(ii) and 2(b)(iii). Orphan shall make payment of
Supplemental Payments to Chronimed in quarterly installments within thirty (30)
days after the end of each calendar quarter (commencing for the quarter ending
September 30, 1997) based on net revenues received by Orphan in such calendar
quarter (with net revenues for the period from the Termination Date through June
30, 1997 being included in the first calendar quarter). Each such Supplemental
Payment shall be accompanied by a report which substantiates the net revenues
and the determination of the Supplemental Payment. Until such time as Chronimed
has received aggregate payments of $2,500,000 under this agreement, Chronimed
and its representatives may, upon reasonable request and at its expense, review
and copy records of Orphan pertaining to the determination of the Supplemental
Payments.
(d) Notwithstanding the foregoing, Orphan reserves the right,
at any time, to make a cash payment to Chronimed equal to the then unpaid
balance of the $2,500,000 termination payment amount. Upon delivery of such
payment to Chronimed, Orphan shall have no further payment obligations under
this section 2, and Chronimed shall endorse and deliver to Orphan, without
further consideration, any Shares then owned by Chronimed, other than Shares
described in section 2(b)(iii).
(e) In the event that shares of Orphan's common stock cease
being tradeable on a national or regional securities market for any reason, the
unpaid balance of the $2,500,000 termination amount shall be immediately due and
payable by Orphan or its successor to Chronimed in cash. Upon delivery of such
payment to Chronimed, Orphan shall have no further payment obligations under
this section 2, and Chronimed shall endorse and deliver to Orphan, without
further consideration, any Shares then owned by Chronimed, other than Shares
described in section 2(b)(iii).
3. Chronimed Commitments. Within ten (10) days after the sale
of any Shares by Chronimed, Chronimed shall deliver to Orphan a copy of a
broker's sale confirmation which evidences the net sales proceeds realized by
Chronimed. In the event that the aggregate amounts paid to, or realized by,
Chronimed, as determined pursuant to sections 2(a), 2(b)(ii), 2(b)(iii) or 2(c),
exceed $2,500,000, Chronimed shall refund such excess amount to Orphan, in cash,
within fifteen (15) days after such aggregate amount is first determinable.
4. Chronimed Representations. Chronimed represents and
warrants to Orphan as follows:
(a) The Shares being acquired by Chronimed pursuant to this
agreement are being acquired for Chronimed's own account and not with the view
to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the federal Securities Act of 1933 (the
"Securities Act"). Chronimed understands that at the time of their issuance the
Shares will not be registered under the Securities Act by reason of their
contemplated issuance in transactions exempt from the registration and
prospectus delivery requirements of the Securities Act pursuant to section4(2)
thereof.
(b) This agreement has been duly authorized by the requisite
corporate action of Chronimed, has been duly executed and delivered by
Chronimed, and is a valid and binding obligation of Chronimed which is
enforceable against Chronimed in accordance with its terms.
(c) Chronimed has reviewed all of Orphan's filings with the
Securities and Exchange Commission and has taken all actions that it has
determined to be appropriate or necessary to assess the merits and risks of an
investment in the Shares.
(d) Chronimed understands that each certificate representing
the Shares shall initially be endorsed with the following legend:
"The Shares represented by this certificate may not be
transferred without (i) the opinion of counsel satisfactory to
the issuer of such Shares that such transfer may lawfully be
made without registration or qualification under the federal
Securities Act of 1933, as amended, and applicable state
Shares laws; or (ii) such registration or qualification."
5. Representations of Orphan. Orphan represents and warrants
to Chronimed as follows:
(a) This agreement has been duly authorized by the requisite
corporate action of Orphan, has been duly executed and delivered by Orphan, and
is a valid and binding obligation of Orphan which is enforceable against Orphan
in accordance with its terms.
(b) As of the date of this agreement, there are 6,063,588
shares of Orphan's common stock issued and outstanding.
(c) When issued and delivered to Chronimed pursuant to this
agreement, the Shares shall be duly authorized, validly issued, fully paid and
nonassessable, and free and clear of any liens or security interests.
(d) Orphan is currently qualified to register shares of its
capital stock on Form S-3, pursuant to the federal Securities Act of 1933 and
the applicable regulations promulgated thereunder, and until such time as
Chronimed receives the aggregate payments pursuant to this agreement of
$2,500,000, Orphan shall make such filings and shall take such other actions as
shall be necessary for Orphan to continue to qualify for the use of Form S-3.
(e) At the next regularly scheduled meeting of its Board of
Directors, Orphan shall reserve a sufficient number of shares of its authorized
common stock for issuance to Chronimed to satisfy its obligations under section
2(b) of this agreement.
6. Registration Rights. Orphan shall cause the Shares to be
registered for subsequent sale by Chronimed in the manner contemplated by
exhibit A to this agreement.
7. Mutual Release.
(a) Orphan, acting for itself, its insurers, its successors
and assigns, and each of them, does hereby release and forever discharge
Chronimed, its officers, employees, agents, consultants, successors and assigns,
and each of them, from any and all liabilities, claims, demands and causes of
action, either in law or in equity, known or unknown, liquidated or
unliquidated, which have arisen or may arise out of or are in any way connected
with any of the Agreements, on account of any act, omission, event, occurrence,
representation, warranty, failure, default or breach, actual or asserted, of
Chronimed, its officers, employees, agents, consultants, or any of them on or
prior to the date of this instrument; provided, however, that this release does
not affect the obligations or commitments of Chronimed under this agreement.
(b) Chronimed, acting for itself, its insurers, its successors
and assigns, and each of them, does hereby release and forever discharge Orphan
and its officers, employees, agents, consultants, successors and assigns, and
each of them, from any and all liabilities, claims, demands and causes of
action, either in law or in equity, known or unknown, liquidated or
unliquidated, which have arisen or may arise out of or are in any way connected
with any of the Agreements, on account of any act omission, occurrence,
representation, warranty, failure, default or breach, actual or asserted, of
Orphan and its officers, employees, agents or consultants, or any of them, on or
prior to the date of this instrument; provided, however, that this release does
not affect (i) the obligations or commitments of Orphan under this agreement, or
(ii) the obligation of Orphan to make payment to Chronimed of any royalties
payable to Chronimed with respect to the sale of Antizol-Vet(TM) or Elliots
B(TM) products.
8. Miscellaneous.
(a) Binding Effect. This agreement shall be binding on, and
shall inure to the benefit of, Orphan and Chronimed and their respective
successors and assigns.
(b) Entire Agreement. This agreement evidences the complete
agreement and understanding between Orphan and Chronimed with respect to the
subject matter hereof and supersedes and preempts any prior understandings,
agreements or representation, by or between them, whether written or oral, which
related to the subject matter hereof in any way.
(c) Public Announcement. Any public announcement relative to
the matters set forth in this agreement shall be mutually acceptable to both
Orphan and Chronimed, and the parties agree to cooperate in coordinating the
timing and content of such announcement.
(d) Governing Law. This agreement shall be governed by and
interpreted in accordance with the internal law, not the law of conflicts, of
the state of Minnesota.
IN WITNESS WHEREOF, each of Orphan and Chronimed have caused
this agreement to be executed and delivered by a duly authorized representative
as of the date set forth in the first paragraph.
CHRONIMED, INC. ORPHANMEDICAL, INC.
By /s/ Norman A. Cocke By /s/ John Howell Bullion
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EXHIBIT A
REGISTRATION RIGHTS PROVISIONS
1. Registration Commitment. As soon as reasonably practicable
after each issuance of Shares pursuant to this agreement, but not later than
thirty (30) days thereafter, Orphan shall prepare and file a registration
statement under the Securities Act covering such Shares on Form S-3 (or any
successor form subsequently promulgated by the Commission as a replacement for
Form) if such form is then available for use by Orphan.
2. Registration Procedures. In connection with the
registration of Shares under the Securities Act, Orphan will:
(a) prepare and file with the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act (the "Commission") a registration statement with respect
to such Shares, and use its best efforts to cause such registration
statement to become effective and to remain effective for such period
as may be reasonably necessary to effect the sale of such Shares, not
to exceed nine (9) months;
(b) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the
sale of such Shares, not to exceed nine (9) months;
(c) furnish to Chronimed and to the underwriters, if any, of
the Shares being registered such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and
such other documents as such underwriters may reasonably request in
order to facilitate the public offering of such Shares;
(d) use its best efforts to register or qualify the Shares
covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as Chronimed may reasonably request
within twenty (20) days following the original filing of such
registration statement, except that Orphan shall not for any purpose be
required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified;
(e) notify Chronimed, promptly after it shall receive notice
thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(f) notify Chronimed promptly of any request by the Commission
for the amending or supplementing of such registration statement or
prospectus or for additional information;
(g) prepare and file with the Commission, promptly upon the
request of Chronimed, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for Chronimed (and concurred in by counsel for Orphan), is required
under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Shares by Chronimed;
(h) prepare and promptly file with the Commission and promptly
notify Chronimed of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to
such Shares is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus or
any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(i) advise Chronimed, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for that purpose and
promptly use its best efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued;
(j) not file any amendment or supplement to such registration
statement or prospectus to which Chronimed shall have reasonably
objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities
Act or the rules and regulations thereunder, after having been
furnished with a copy thereof at least five business days prior to the
filing thereof, unless in the opinion of counsel for Orphan the filing
of such amendment or supplement is reasonably necessary to protect
Orphan from any liabilities under any applicable federal or state law
and such filing will not violate applicable law; and
(k) at the request of Chronimed, furnish an opinion, dated the
closing date, of the counsel representing Orphan for the purposes of
such registration, addressed to the underwriters, if any, and to
Chronimed, covering such matters as such underwriters and Chronimed may
reasonably request.
3. Expenses. With respect to each inclusion of Shares in a
registration statement pursuant to section 1, Orphan shall bear the following
fees, costs and expenses: all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for Orphan, all
legal fees and disbursements and other expenses of complying with state
securities or blue sky laws of any jurisdictions in which the Shares to be
offered are to be registered or qualified. Fees and disbursements of counsel and
accountants for Chronimed, underwriting discounts and commissions and transfer
taxes for Chronimed and any other expenses incurred by Chronimed not expressly
included above shall be borne by Chronimed (collectively, "Chronimed Expenses").
4. Indemnification.
(a) Orphan will indemnify and hold harmless Chronimed and any
underwriter (as defined in the Securities Act) for Chronimed, and each
person, if any, who controls Chronimed or such underwriter within the
meaning of the Securities Act, from and against any and all loss,
damage, liability, cost and expense to which Chronimed or any such
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
provided, however, that Orphan will not be liable in any such case to
the extent that any such loss, damage, liability, cost or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
written information furnished by Chronimed, such underwriter or such
controlling person specifically for use in the preparation thereof;
provided, however, that the foregoing indemnity, insofar as it relates
to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus but eliminated or remedied
in the prospectus shall not inure to the benefit of any underwriter (or
any employee, agent or affiliate of or any person controlling such
underwriter) with respect to any action or claim asserted by a person
who purchased any Shares from such underwriter unless such person was
sent or given a copy of the prospectus with or prior to the written
confirmation of the sale involved.
(b) Chronimed will indemnify and hold harmless Orphan, any
controlling person and any underwriter from and against any and all
loss, damage, liability, cost or expense to which Orphan or any
controlling person and/or any underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue or alleged
untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in
reliance upon and in strict conformity with written information
furnished by Chronimed specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this section of notice of the
commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the
provisions of said paragraph (a) or (b), promptly notify the
indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than hereunder. In
case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and the
indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the
right to select separate counsel to participate in the defense of such
action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party pursuant to the provisions of said
paragraph (a) or (b) for any legal or other expense subsequently
incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless (i) the
indemnified party shall have employed counsel in accordance with the
proviso of the preceding sentence, (ii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the
notice of the commencement of the action, or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party.