AGREEMENT
AND
PLAN OF REORGANIZATION
AMONG
BIO-TECHNOLOGY GENERAL CORP.,
MYLS ACQUISITION CORP.
AND
MYELOS CORPORATION
February 21, 2001
TABLE OF CONTENTS
ARTICLE I The Merger................................................................................1
Section 1.1 The Merger...............................................................1
Section 1.2 Closing; Effective Time..................................................1
Section 1.3 Effect of the Merger.....................................................2
Section 1.4 Certificate of Incorporation; Bylaws.....................................2
Section 1.5 Directors and Officers...................................................2
Section 1.6 Effect on Capital Stock..................................................2
Section 1.7 Surrender of Certificates................................................5
Section 1.8 No Further Ownership Rights in Company Capital Stock.....................7
Section 1.9 Lost, Stolen or Destroyed Certificates...................................8
Section 1.10 Taking of Necessary Action; Further Action...............................8
Section 1.11 Withholding Rights.......................................................8
Section 1.12 Contingent Payments......................................................8
Section 1.13 Limitation on Number of Shares of Parent Common Stock Issued............10
ARTICLE II Representations and Warranties of Company...............................................11
Section 2.1 Organization, Standing and Power........................................11
Section 2.2 Subsidiaries and Other Interests........................................11
Section 2.3 Authority...............................................................11
Section 2.4 Capital Structure.......................................................12
Section 2.5 Financial Statements....................................................13
Section 2.6 Absence of Certain Changes..............................................14
Section 2.7 Absence of Undisclosed Liabilities......................................15
Section 2.8 Litigation..............................................................16
Section 2.9 Restrictions on Business Activities.....................................16
Section 2.10 Intellectual Property...................................................16
Section 2.11 Interested Party Transactions...........................................19
Section 2.12 Minute Books............................................................19
Section 2.13 Material Contracts......................................................19
Section 2.14 Title to Property.......................................................20
Section 2.15 Environmental Matters...................................................21
Section 2.16 Taxes...................................................................22
Section 2.17 Employee Benefit Plans..................................................24
Section 2.18 Employee Matters........................................................26
Section 2.19 Insurance...............................................................26
Section 2.20 Licenses and Permits....................................................27
Section 2.21 Compliance With Laws....................................................27
Section 2.22 Regulatory Compliance...................................................27
Section 2.23 Certain Business Practices..............................................28
Section 2.24 Brokers' and Finders' Fee...............................................29
Section 2.25 Representations Complete................................................29
ARTICLE III Representations and Warranties of Parent and Merger Sub................................29
Section 3.1 Organization, Standing and Power........................................29
Section 3.2 Authority...............................................................29
Section 3.3 SEC Documents; Financial Statements.....................................30
Section 3.4 Capital Structure.......................................................31
Section 3.5 Litigation..............................................................31
Section 3.6 Absence of Certain Changes..............................................31
Section 3.7 Absence of Undisclosed Liabilities......................................32
Section 3.8 Interim Operations of Merger Sub........................................32
Section 3.9 Representations Complete................................................32
ARTICLE IV Conduct Prior To The Effective Time.....................................................32
Section 4.1 Conduct of Business of Company..........................................32
Section 4.2 No Solicitation.........................................................35
ARTICLE V Additional Agreements....................................................................36
Section 5.1 Preparation of Solicitation Statement...................................36
Section 5.2 Approval of Company Shareholders........................................37
Section 5.3 Sale of Shares Pursuant to Regulation D.................................37
Section 5.4 Access to Information...................................................37
Section 5.5 Confidentiality.........................................................37
Section 5.6 Public Disclosure.......................................................38
Section 5.7 Reasonable Best Efforts.................................................38
Section 5.8 Notice of Certain Events................................................39
Section 5.9 Cancellation of Company Options and Warrants............................40
Section 5.10 Blue Sky Laws...........................................................40
Section 5.11 Nonaccredited Shareholders..............................................41
Section 5.12 Listing of Additional Shares............................................41
Section 5.13 Employees...............................................................41
Section 5.14 Expenses................................................................41
Section 5.15 Registration of Shares of Parent Common Stock Issued in the Merger......41
Section 5.16 Indemnification and Insurance...........................................44
Section 5.17 Conversion of Company Preferred Stock...................................46
ARTICLE VI Conditions to the Merger................................................................46
Section 6.1 Conditions to Obligations of Each Party to Effect the Merger............46
Section 6.2 Additional Conditions to the Obligations of Parent and Merger Sub.......46
Section 6.3 Additional Conditions to Obligations of Company.........................48
ARTICLE VII Termination, Amendment and Waiver......................................................49
Section 7.1 Termination.............................................................49
Section 7.2 Effect of Termination...................................................50
Section 7.3 Amendment...............................................................50
Section 7.4 Extension, Waiver.......................................................50
ARTICLE VIII Escrow and Indemnification............................................................51
Section 8.1 Escrow Fund.............................................................51
Section 8.2 Indemnification.........................................................51
Section 8.3 Escrow Period: Release From Escrow......................................53
Section 8.4 Claims Upon Escrow Fund.................................................53
Section 8.5 Objections to Claims....................................................54
Section 8.6 Claims by Company Indemnitees...........................................54
Section 8.7 Resolution of Conflicts and Arbitration.................................55
Section 8.8 Shareholders' Agent.....................................................55
Section 8.9 Actions of the Shareholders' Agent......................................56
Section 8.10 Third-Party Claims......................................................56
ii
ARTICLE IX General Provisions......................................................................57
Section 9.1 Notices.................................................................57
Section 9.2 Definitions.............................................................58
Section 9.3 Counterparts............................................................59
Section 9.4 Entire Agreement; Nonassignability; Parties in Interest.................59
Section 9.5 Severability............................................................59
Section 9.6 Remedies Cumulative.....................................................59
Section 9.7 Governing Law...........................................................59
Section 9.8 Waiver of Jury Trial....................................................59
Section 9.9 Rules of Construction...................................................60
Section 9.10 Third Party Beneficiaries...............................................60
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Index of Defined Terms
Defined Term Section
- ------------ -------
Acquisition Proposal...................................................4.2(a)
Affiliate..............................................................9.2(a)
Agent Certificate......................................................8.6(a)
Agreement............................................................Preamble
Antitrust Law..........................................................5.7(b)
Average Closing Price..............................................1.6(a)(ii)
California Law............................................................1.1
Cash Election.......................................................1.6(a)(1)
Cash Election Number................................................1.6(a)(1)
Cash Election Share.................................................1.6(a)(1)
Cash Merger Consideration..........................................1.6(a)(ii)
Certificate of Merger.....................................................1.1
Certificates...........................................................1.7(c)
Closing...................................................................1.2
Closing Date..............................................................1.2
COBRA.................................................................2.17(e)
Code.................................................................Recitals
Company..............................................................Preamble
Company Agreements........................................................2.3
Company Balance Sheet.....................................................2.7
Company Balance Sheet Date................................................2.6
Company Capital Stock................................................Recitals
Company Common Stock.................................................Recitals
Company Common Stock Outstanding....................................1.6(a)(i)
Company Disclosure Schedule................................................II
Company Employee Plans................................................2.17(a)
Company Indemnified Persons............................................8.2(c)
Company Intellectual Property.........................................2.10(b)
Company Preferred Stock..............................................Recitals
Company Products..................................................2.10(b)(ii)
Company Options........................................................1.6(c)
Company Shareholder....................................................1.6(f)
Company Stock Option Plan.................................................2.4
Company Warrants.......................................................1.6(d)
Confidentiality Agreement.................................................5.5
Contingent Payments...................................................1.12(b)
Contingent Shares.....................................................5.15(a)
Copyrights.......................................................2.10(a)(iii)
Damages................................................................8.2(b)
Delaware Law..............................................................1.1
Dissenting Shareholder.................................................1.6(g)
Dissenting Shares......................................................1.6(g)
Effective Time............................................................1.2
Election............................................................1.6(a)(2)
Environmental Laws.................................................2.15(a)(i)
ERISA.................................................................2.17(a)
i
ERISA Affiliate.......................................................2.17(a)
Escrow Agent...........................................................8.1(a)
Escrow Agreement.......................................................6.2(f)
Escrow Cash............................................................1.7(i)
Escrow Claim Certificate..................................................8.4
Escrow Fund............................................................8.1(a)
Escrow Shares..........................................................1.7(i)
Exchange Act..............................................................3.3
Exchange Agent.........................................................1.7(a)
Exchange Fund..........................................................1.7(b)
FDA...................................................................1.12(a)
FDCA..................................................................2.22(a)
Financial Statements...................................................2.5(a)
First Contingent Payment..............................................1.12(a)
Form of Election....................................................1.6(a)(4)
GAAP..................................................................1.12(b)
Governmental Entity.......................................................2.3
Hazardous Materials...............................................2.15(a)(ii)
HIPAA.................................................................2.17(e)
Holder................................................................5.15(a)
Holder Indemnitee.....................................................5.15(e)
HSR Act...................................................................2.3
IND...................................................................2.22(c)
Intellectual Property.................................................2.10(a)
Investor Representation Statement.........................................5.3
IRS...................................................................2.16(m)
Issued Patents.....................................................2.10(a)(i)
knowledge..............................................................9.2(b)
Legal Provisions.........................................................2.21
Liens.....................................................................2.3
material...............................................................9.2(c)
Material Adverse Effect................................................9.2(d)
Merger...............................................................Recitals
Merger Consideration...............................................1.6(a)(ii)
Merger Sub...........................................................Preamble
NASD......................................................................3.2
NDA...................................................................1.12(a)
Parent...............................................................Preamble
Parent Common Stock....................................................1.6(a)
Parent Disclosure Schedule................................................III
Parent Financial Statements...............................................3.3
Parent Indemnified Persons.............................................8.2(b)
Parent Indemnitee.....................................................5.15(f)
Parent Rights.............................................................3.4
Parent Stock Plans........................................................3.4
Parent SEC Documents......................................................3.3
Parent 10-K............................................................8.2(a)
Patents...........................................................2.10(a)(ii)
Patent Applications...............................................2.10(a)(ii)
Per Share Merger Consideration.........................................1.6(a)
Permits..................................................................2.22
ii
Person.................................................................9.2(e)
Pharmaceutical Product................................................2.22(a)
Proceeding................................................................2.8
Registrable Securities................................................5.15(a)
Registration Statement................................................5.15(a)
Release..........................................................2.15(a)(iii)
SEC.......................................................................3.2
Second Contingent Payment.............................................1.12(b)
Securities Act.........................................................1.6(h)
Shareholders' Agent....................................................8.8(a)
Solicitation Statement.................................................5.1(a)
Stock Election......................................................1.6(a)(2)
Stock Election Number...............................................1.6(a)(2)
Stock Election Share................................................1.6(a)(2)
Stock Exchange Ratio..............................................1.6(a)(iii)
Stock Merger Consideration.........................................1.6(a)(ii)
Subsidiary.............................................................9.2(f)
Surviving Corporation.....................................................1.1
Tax(es)............................................................2.16(a)(i)
Tax Returns.......................................................2.16(a)(ii)
Third Party Intellectual Property.....................................2.10(c)
Trademarks........................................................2.10(a)(iv)
U.S. Person............................................................6.2(h)
Voting Agreement.....................................................Recitals
iii
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of February 21, 2001 by and among Bio-Technology General Corp.,
a Delaware corporation ("Parent"), MYLS Acquisition Corp., a Delaware
corporation ("Merger Sub") and wholly-owned subsidiary of Parent, and Myelos
Corporation, a California corporation ("Company").
RECITALS
A. The Boards of Directors of Company, Parent and Merger Sub believe it is
in the best interests of their respective companies and the shareholders of
their respective companies that Company and Merger Sub combine into a single
company through the statutory merger of Company with and into Merger Sub (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Company Common Stock, no par value per share ("Company Common Stock"), shall be
converted into the right to receive the Merger Consideration (assuming the
conversion of all outstanding shares of Company Preferred Stock, no par value
per share ("Company Preferred Stock" and, together with the Company Common
Stock, the "Company Capital Stock"), into shares of Company Common Stock prior
to the Effective Time) upon the terms and subject to the conditions set forth
herein.
C. Company, Parent and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of the Internal Revenue Code of 1986, as
amended (the "Code"), and to cause the Merger to qualify as a reorganization
under the provisions of Section 368(a) of the Code.
E. Concurrent with the execution of this Agreement and as an inducement to
Parent to enter into this Agreement, certain of the affiliates of Company who
are shareholders, officers or directors have on the date hereof entered into an
agreement (the "Voting Agreement") to vote the shares of Company Common Stock
owned by such Person to approve the Merger and against any competing proposals.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable, consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time and subject to and upon the
terms and conditions of this Agreement, the Certificate of Merger attached
hereto as Exhibit 1.1 (the "Certificate of Merger"), the applicable provisions
of the Delaware General Corporation Law ("Delaware Law") and the applicable
provisions of the California Corporations Code ("California Law"), the Company
shall be merged with and into Merger Sub, the separate corporate existence of
Company shall cease and Merger Sub shall continue as the surviving corporation.
Merger Sub as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
Section 1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable, but
no later than two (2) business days, after the satisfaction or waiver (subject
to applicable law) of each of the conditions set forth in Article VI hereof
1
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of those conditions), or at
such other time as the parties hereto agree (the "Closing Date"). The Closing
shall take place at the offices of Fulbright & Jaworski L.L.P., 666 Fifth
Avenue, New York, NY 10103, or at such other location as the parties hereto
agree. In connection with the Closing, the parties hereto shall cause the Merger
to be consummated by filing the Certificate of Merger with the Secretary of
State of the State of Delaware and the Secretary of State of the State of
California, in accordance with the relevant provisions of Delaware Law and
California Law (the time of such filing being the "Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law and California Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Company and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
Section 1.4 Certificate of Incorporation; Bylaws.
(a) The Certificate of Incorporation of Merger Sub in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with Delaware Law and such Certificate of Incorporation, except that
Article FIRST thereof shall read as follows: "The name of the Corporation is
Myelos Corporation."
(b) The Bylaws of Merger Sub in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until thereafter
amended.
Section 1.5 Directors and Officers. The directors and officers of Merger
Sub immediately prior to the Effective Time shall be the directors and officers
of the Surviving Corporation, until the earlier of their resignation or removal
or their respective successors are duly elected or appointed and qualified, as
the case may be.
Section 1.6 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, Company or the
holders of any of Company's securities:
(a) Conversion of Company Capital Stock. Each share of Company
Common Stock issued and outstanding immediately prior to the Effective
Time (assuming the conversion of all Company Preferred Stock into Company
Common Stock and the exercise of all outstanding Company Options and
Company Warrants prior to the Effective Time) shall be converted and
exchanged into the right to receive an amount (the "Per Share Merger
Consideration") determined by dividing the Merger Consideration by the
Company Common Stock Outstanding, payable in cash or shares of Parent's
Common Stock, $0.01 par value per share (together with the associated
Parent Rights, the "Parent Common Stock"), as set forth in this Section
1.6(a). For purposes of this Agreement:
(i) "Company Common Stock Outstanding" means the total number
of shares of Company Common Stock issued and outstanding at the
Effective Time, assuming the conversion of Company Preferred Stock
into Company Common Stock and the exercise of all outstanding
Company Options and Company Warrants prior to the Effective Time;
2
(ii) "Merger Consideration" means $35,000,000, payable as
follows: (A) $14,000,000 shall be payable in aggregate in cash (the
"Cash Merger Consideration"), and (B) $21,000,000 shall be payable
through the issuance of 2,344,692 shares of Parent Common Stock (the
"Stock Merger Consideration"), with the number of shares of Parent
Common Stock to be issued in the Merger determined by dividing
$21,000,000 by $8.9564 (the "Average Closing Price"), representing
the average of the closing prices of Parent Common Stock as reported
on the Nasdaq National Market during the twenty trading days ending
one day prior to the date of this Agreement; and
(iii) "Stock Exchange Ratio" means the ratio determined by
dividing the Per Share Merger Consideration by the Average Closing
Price.
For purposes of clarity, each record holder of Company Common Stock shall
be entitled pursuant to this Section 1.6(a) to make a Cash Election, Stock
Election or any combination thereof, with respect to the Company Common
Stock owned by such record holder, provided that the sum of all Elections
made by such record holder equals 100% of such record holder's Company
Common Stock and that each Election is for a whole number of shares of
Company Common Stock and not a fractional share.
(1) Cash Election. Subject to the provisions of this Section
1.6(a), each record holder of Company Common Stock Outstanding
immediately prior to the Effective Time shall be entitled to elect
to receive the Per Share Merger Consideration in cash (a "Cash
Election") for all or any part of such holder's Company Common Stock
(each, a "Cash Election Share"). Notwithstanding the foregoing, the
aggregate number of shares of Company Common Stock that may be
converted in the Merger into the right to receive Cash Merger
Consideration (rounded down to the nearest whole share, the "Cash
Election Number") shall not exceed the number equal to (A) the
quotient determined by dividing the Cash Merger Consideration by the
Per Share Merger Consideration minus (B) the number of Dissenting
Shares.
(2) Stock Election. Each record holder of Company Common Stock
immediately prior to the Effective Time shall be entitled to elect
to receive the Per Share Merger Consideration in shares of Parent
Common Stock (a "Stock Election" and, together with the Cash
Election, an "Election") for all or any part of such holder's
Company Common Stock (a "Stock Election Share"). The number of
shares of Parent Common Stock to be issued in respect of a Stock
Election is the product determined by multiplying the total number
of Stock Election Shares by the Stock Exchange Ratio.
Notwithstanding the foregoing, the aggregate number of shares of
Company Common Stock that may be converted in the Merger into the
right to receive Stock Merger Consideration shall not exceed the
Company Common Stock Outstanding less the Cash Election Number
(rounded down to the nearest whole share, the "Stock Election
Number").
(3) Proration of Company Common Stock. If the aggregate number
of shares of Company Common Stock in respect of which Cash Elections
have been made exceeds the Cash Election Number, each Cash Election
Share shall be converted into (A) the right to receive an amount in
cash, without interest, equal to the product of (1) the Per Share
Merger Consideration and (2) a fraction (the "Cash Fraction"), the
numerator of which shall be the Cash Election Number and the
denominator of which shall be the total number of Cash Election
Shares, and (B) a number of shares of Parent Common Stock equal to
the product of (1) the Stock Exchange Ratio and (2) a fraction equal
to one
3
minus the Cash Fraction. If the aggregate number of shares of
Company Common Stock in respect of which Stock Elections have been
made exceeds the Stock Election Number, each Stock Election Share
shall be converted into (A) the right to receive the number of
shares of Parent Common Stock equal to the product of (1) the Stock
Exchange Ratio and (2) a fraction (the "Stock Fraction"), the
numerator of which shall be the Stock Election Number and the
denominator of which shall be the total number of Stock Election
Shares, and (B) an amount in cash, without interest, equal to the
product of (1) the Per Share Merger Consideration and (2) a fraction
equal to one minus the Stock Fraction. Parent shall make all
computations contemplated by this Section 1.6(a)(3), and all such
computations shall be conclusive and binding on the holders of
Company Common Stock.
(4) Form of Election. Elections shall be made on a form
designed for that purpose (a "Form of Election"). A holder of record
of Company Common Stock who holds such Company Common Stock as
nominee, trustee or in another representative capacity (a "Shares
Representative") may submit multiple Forms of Election; provided
that such Shares Representative certifies that each such Form of
Election covers all the Company Common Stock held by such Shares
Representative for each particular beneficial owner whose Company
Common Stock is covered by such Form of Election. To be effective, a
Form of Election must be properly completed, signed and submitted to
Parent prior to the Effective Time, and if no Form of Election is
submitted to Parent by the Effective Time, such record holder shall
be allocated cash and shares of Parent Common Stock in Parent's
discretion after giving effect to all Forms of Election received by
Parent. Parent shall have the discretion to determine whether Forms
of Election have been properly completed, signed and submitted or
revoked and to disregard immaterial defects in Forms of Election.
The decision of Parent in such matters shall be conclusive and
binding. Parent shall be under no obligation to notify any person of
any defect in a Form of Election submitted to it.
(b) Cancellation of Company Capital Stock Owned by Parent. At the
Effective Time, each share of Company Common Stock and Company Preferred
Stock owned by Parent or any direct or indirect wholly owned subsidiary of
Parent immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Company Stock Options. At the Effective Time, all options to
purchase Company Common Stock then outstanding under the Company Stock
Option Plan ("Company Options") shall be cancelled in accordance with
Section 5.9.
(d) Company Warrants. At the Effective Time, all warrants to
purchase Company Preferred Stock or Company Common Stock then outstanding
("Company Warrants") shall be cancelled in accordance with Section 5.9.
(e) Capital Stock of Merger Sub. Each share of common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time
shall remain outstanding, unchanged by reason of the Merger, as one fully
paid and nonassessable share of common stock of the Surviving Corporation.
Each stock certificate of Merger Sub evidencing ownership of any such
shares shall continue to evidence ownership of such shares of capital
stock of the Surviving Corporation.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof each holder of shares of Company
Common Stock ("Company
4
Shareholder") who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock to be received by such holder) shall receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of
(i) such fraction multiplied by (ii) the Average Closing Price. The
fractional share interests of each Company Shareholder shall be
aggregated, so that no Company Shareholder shall receive cash in respect
of fractional share interests in an amount greater than the value of one
full share of Parent Common Stock.
(g) Dissenters' Rights. Notwithstanding any provision of this
Agreement to the contrary, any shares of Company Capital Stock held by a
holder who has demanded and perfected such holder's right for appraisal of
such shares in accordance with California Law and who, as of the Effective
Time, has not effectively withdrawn or lost such right to appraisal
("Dissenting Shares"), if any, shall not be converted into the Merger
Consideration but shall instead be converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to California Law. Company shall give Parent
prompt notice of any demand received by Company to require Company to
purchase shares of Company Capital Stock, and Parent shall have the right
to direct and participate in all negotiations and proceedings with respect
to such demand. Company agrees that, except with the prior written consent
of Parent, or as required under the California Law, it will not
voluntarily make any payment with respect to, or settle or offer to
settle, any such purchase demand. Each holder of Dissenting Shares
("Dissenting Shareholder") who, pursuant to the provisions of California
Law, becomes entitled to payment of the fair value for shares of Company
Capital Stock shall receive payment therefor (but only after the value
therefor shall have been agreed upon or finally determined pursuant to
such provisions). If, after the Effective Time, any Dissenting Shares
shall lose their status as Dissenting Shares, Parent shall issue and
deliver, upon surrender by such shareholder of a certificate or
certificates representing shares of Company Capital Stock, the portion of
the Merger Consideration to which such shareholder would otherwise be
entitled under this Section 1.6 less the portion of the Merger
Consideration allocable to such shareholder that has been deposited in the
Escrow Fund pursuant to Section 1.7(i) and Article VIII hereof.
(h) Certificate Legends. The shares of Parent Common Stock to be
issued pursuant to this Article I shall not have been registered and shall
be characterized as "restricted securities" under the federal securities
laws, and under such laws such shares may be resold without registration
under the Securities Act of 1933, as amended (the "Securities Act"), only
in certain limited circumstances. Each certificate evidencing shares of
Parent Common Stock to be issued pursuant to this Article I shall bear the
following legend, in addition to any legends required by state securities
laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE
SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
Section 1.7 Surrender of Certificates.
(a) Exchange Agent. American Stock Transfer & Trust Company shall
act as exchange agent (the "Exchange Agent") in the Merger.
5
(b) Parent to Provide Parent Common Stock and Cash. Promptly after
the Effective Time, Parent shall supply or cause to be supplied to the Exchange
Agent for exchange in accordance with this Article I through such reasonable
procedures as Parent may adopt (i) certificates evidencing the shares of Parent
Common Stock issuable pursuant to Section 1.6(a) in exchange for shares of
Company Capital Stock outstanding immediately prior to the Effective Time, less
the number of shares of Parent Common Stock to be deposited into the Escrow Fund
pursuant to the requirements of Section 1.7(i) and Article VIII and (ii) cash in
an amount sufficient to permit payment of the Cash Merger Consideration and cash
in lieu of fractional shares pursuant to Section 1.6(f) (the "Cash Payment
Funds" and, together with the shares of Parent Common Stock deposited pursuant
to clause (i), the "Exchange Fund"). The Exchange Fund shall not be used for any
purpose except as expressly provided in this Agreement. The Cash Payment Funds
shall be invested by the Exchange Agent as directed by Parent or the Surviving
Corporation pending payment thereof by the Exchange Agent to the holders of
record of shares of Company Common Stock. Earnings from such investment shall be
the sole and exclusive property of Parent and the Surviving Corporation, and no
part of such earnings shall accrue to the benefit of holders of record of shares
of Company Common Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock, whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon receipt of the Certificates by the Exchange Agent, and shall be
in such form and have such other provisions as Parent may reasonably specify),
(ii) such other customary documents as may be required pursuant to such
instructions, and (iii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration (without interest). Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal and other documents, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor (A) the cash portion of the Merger
Consideration, less the pro rata portion of such cash to be deposited in the
Escrow Fund on such holder's behalf pursuant to Section 1.7(i) and Article VIII
(without interest), (B) a certificate representing the number of whole shares of
Parent Common Stock less the number of shares of Parent Common Stock to be
deposited in the Escrow Fund on such holder's behalf pursuant to Section 1.7(i)
and Article VIII hereof, (C) any dividends or other distributions to which such
holder is entitled pursuant to Section 1.7(d), and (D) cash (without interest)
in respect of fractional shares as provided in Section 1.6(f) and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Certificate that, prior to the Effective Time, represented
shares of Company Capital Stock will be deemed from and after the Effective
Time, for all corporate purposes, other than the payment of dividends, to
evidence the ownership of the number of full shares of Parent Common Stock into
which such shares of Company Capital Stock shall have been so converted and the
right to receive the cash portion of the Merger Consideration (without interest)
and an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions with respect to Parent Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest at the time of such surrender, the amount of any such dividends
or other distributions with a record date after the Effective Time theretofore
payable (but for the provisions of this Section 1.7(d)) with respect to such
shares of Parent Common Stock.
6
(e) Transfers of Ownership. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of Company Common Stock or Company Preferred Stock
thereafter on the records of the Company. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, or any portion of
the cash portion of the Merger Consideration is to be paid to Person other than
the Person in whose name the Certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that the Certificate
so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the Person requesting such exchange will have paid to Parent
or any agent designated by it any transfer or other taxes required by reason of
the issuance of a certificate for shares of Parent Common Stock in any name
other than that of the registered holder of the Certificate surrendered or
payment of any portion of the Cash Merger Consideration to any Person other than
the registered holder of the Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to Company Shareholders six months after the
Effective Time shall be delivered to Parent, upon demand, and any Company
Shareholders who have not previously complied with this Section 1.7 shall
thereafter look only to Parent for payment of their claim for the Merger
Consideration and any dividends or distributions with respect to Parent Common
Stock.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, Parent, the Surviving Corporation or
any party hereto shall be liable to any Person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Dissenting Shares. The provisions of this Section 1.7 shall also
apply to Dissenting Shares that lose their status as such, except that the
obligations of Parent under this Section 1.7 shall commence on the date of loss
of such status and the holder of such shares shall be entitled to receive in
exchange for such shares the Merger Consideration to which such holder is
entitled pursuant to Section 1.6 hereof.
(i) Escrow. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Article VIII hereof, Parent
shall cause to be distributed to the Escrow Agent out of the Cash Merger
Consideration to be paid at Closing $500,000 in cash (the "Escrow Cash") and a
certificate or certificates representing 55,826 shares of Parent Common Stock to
be issued at the Closing (the "Escrow Shares") (which shall be registered in the
name of the Escrow Agent as nominee for the holders of Certificates canceled
pursuant to this Section 1.7). Such cash and shares shall be beneficially owned
by such holders and such cash and shares shall be held in escrow and shall be
available to compensate Parent for certain damages as provided in Article VIII.
To the extent not used for such purposes, such cash and shares shall be
released, all as provided in Article VIII hereof. Each Company Stockholder shall
contribute a pro rata share of the Escrow Cash and the Escrow Stock, based on
the number of shares of Company Common Stock owned at the Effective Time,
regardless of the type of consideration such Company Stockholder elected to
receive in the Merger pursuant to the Form of Election.
Section 1.8 No Further Ownership Rights in Company Capital Stock. The
Merger Consideration delivered upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof (including any
dividends, distributions or cash paid in lieu of fractional shares) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Capital Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Capital Stock which were outstanding immediately prior to
7
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article I.
Section 1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof such Merger
Consideration (and dividends, distributions and cash in lieu of fractional
shares) as may be required pursuant to Section 1.6; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent, the Surviving Corporation or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
Section 1.10 Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and Company will take all such reasonable and lawful action as may be
necessary or desirable in order to effectuate the Merger in accordance with this
Agreement as promptly as possible. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
Company and Merger Sub, the officers and directors of Company and Merger Sub are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
Section 1.11 Withholding Rights. Each of the Surviving Corporation and
Parent shall be entitled, or shall be entitled to cause the Exchange Agent, to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of shares of Company Common Stock such amounts as
it is required to deduct and withhold with respect to the making of such payment
under the Code, and the rules and regulations promulgated thereunder, or any
provision of state, local or foreign Tax law. To the extent that amounts are so
withheld by the Surviving Corporation, Parent or the Exchange Agent, as the case
may be, such amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in respect
to which such deduction and withholding was made by the Surviving Corporation,
Parent or the Exchange Agent, as the case may be.
Section 1.12 Contingent Payments.
(a) In the event that the (i) Parent publicly announces that it will
file a New Drug Application ("NDA") relating to the use of Prosaptide TX-14(A)
to treat neuropathic pain or neuropathy, (ii) the Surviving Corporation receives
United States Food and Drug Administration ("FDA") minutes stating that the
clinical data possessed by the Surviving Corporation is sufficient for an NDA
filing for the use of Prosaptide TX-14(A) to treat neuropathic pain or
neuropathy without requiring any further testing or (iii) the Surviving
Corporation initiates preparation of an NDA for Prosaptide TX-14(A) for the
treatment of neuropathic pain or neuropathy (the date the earliest of the
foregoing occurs being the "Payment Trigger Date") then Parent shall pay to each
Person who was a holder of Company Common Stock Outstanding an amount per share
of Company Common Stock determined by dividing $30,000,000 (the "First
Contingent Payment") by the Company Common Stock Outstanding at the time such
payment is due. Subject to Section 1.13, at least forty percent (40%) of the
First Contingent Payment shall be paid in shares of Parent Common Stock, and the
remainder shall be paid in cash, shares of Parent Common Stock, or a combination
thereof, as determined by Parent in its sole discretion; provided, however, that
notwithstanding the foregoing, Parent shall issue at least that number of shares
of Parent Common Stock such that, when combined with the Merger Consideration
paid at Closing, at least fifty percent (50%) of
8
the aggregate amount was paid in shares of Parent Common Stock (or the Parent
stock issuable pursuant to Section 1.13). The number of shares of Parent Common
Stock to be issued in payment of the First Contingent Payment shall be equal to
the quotient determined by dividing (i) the amount of the First Contingent
Payment to be paid through the issuance of shares of Parent Common Stock by (ii)
the average of the closing prices of Parent Common Stock as reported on the
Nasdaq National Market during the twenty trading days ending on the Payment
Trigger Date. Each Company Shareholder will receive a pro rata portion of the
cash and shares of Parent Common Stock in payment of the First Contingent
Payment based upon such Person's beneficial ownership of Company Common Stock
Outstanding at the Effective Time, subject to the provisions of Section 1.6(h),
which payment shall be made promptly following the Payment Trigger Date. The
Company acknowledges that Parent and the Surviving Corporation shall have the
right at any time to discontinue clinical trials with respect to Prosaptide
TX-14(A).
(b) In the event that the FDA approves the sale of Prosaptide
TX-14(A) for the treatment of neuropathic pain or neuropathy, then Parent shall
pay to each Person who was a holder of Company Common Stock Outstanding an
amount per share of Company Common Stock (the "Second Contingent Payment" and,
together with the First Contingent Payment, the "Contingent Payments")
determined by dividing the Product Net Sales by the Company Common Stock
Outstanding at the time such payment is due. Subject to Section 1.13, at least
fifty percent (50%) of the Second Contingent Payment shall be paid in shares of
Parent Common Stock, and the remainder shall be paid in cash, shares of Parent
Common Stock, or a combination thereof, as determined by Parent in its sole
discretion. The number of shares of Parent Common Stock to be issued in payment
of the Second Contingent Payment shall be equal to the quotient determined by
dividing (i) the amount of the Second Contingent Payment to be paid through the
issuance of shares of Parent Common Stock by (ii) the average of the closing
prices of Parent Common Stock as reported on the Nasdaq National Market during
the twenty trading days ending one day prior to the payment date of the Second
Contingent Payment. Each Company Shareholder will receive a pro rata portion of
the cash and shares of Parent Common Stock in payment of the Second Contingent
Payment based upon such Person's beneficial ownership of Company Common Stock
Outstanding at the Effective Time, subject to the provisions of Section 1.6(h).
For purposes of determining the amount of the Second Contingent Payment, (i)
"Product Net Sales" shall mean fifteen percent (15%) of the Net Sales of
Prosaptide TX-14(A) for the treatment of neuropathic pain or neuropathy for the
earlier to occur of (A) the period beginning on the first day of the
twenty-fifth full month following the date that Prosaptide TX-14(A) was
commercially introduced by Parent in the United States for the treatment of
neuropathic pain or neuropathy (the "Introduction Date") and ending on the last
day of the thirty-sixth full month following the Introduction Date and (B) the
period beginning on the first day of the one hundred and ninth full month
following the Closing Date and ending on the last day of the one hundred
twentieth full month following the Closing Date (the earliest to occur of (A)
and (B) being the "Measurement Period"), and (ii) "Net Sales" shall mean all
accounts receivable arising from the worldwide sale of Prosaptide TX-14(A) for
the treatment of neuropathic pain or neuropathy by the Surviving Corporation (or
by the Surviving Corporation's distributors) to unaffiliated third parties such
as wholesalers, pharmacists and patients (but specifically excluding
distributors, subdistributors, licensees, sublicensees or Persons performing
similar functions) after deducting (i) normal and customary trade, quantity and
cash discounts actually allowed, (ii) chargebacks, (iii) allowances for credits
granted because of rejections, returns or price reductions, (iv) sales taxes and
other governmental charges imposed on sales, and (v) freight and insurance
charges which are separately invoiced, all as determined in accordance with
United States generally accepted accounting principles ("GAAP").
The Surviving Corporation shall, as promptly as practicable after the end
of the Measurement Period, but in no event later than fifty-five (55) days
thereafter, calculate the amount of the Net Sales during the Measurement Period,
and shall deliver to the Shareholders' Agent a written calculation of how the
Net Sales for the Measurement Period was determined. The Shareholders' Agent
shall have twenty-
9
five (25) days after delivery to verify such calculation, and the Surviving
Corporation shall cooperate with the Shareholders' Agent to the extent
reasonably practicable to support and document such calculation. In the event
the Shareholders' Agent does not object to such calculation within such 25-day
period, then such calculation shall become final and binding on the parties
hereto, and the Surviving Corporation shall pay the Second Contingent Payment,
in accordance with the preceding paragraph, within ten (10) days after the
earlier to occur of (i) the end of such 25-day period or (ii) Parent's receipt
of a statement from Shareholders' Agent that it has no objection to the
Surviving Corporation's calculation. If the Shareholders' Agent objects to any
such calculation, it shall notify the Surviving Corporation in writing (the
"Objection Statement") prior to the end of such 25-day period, and Parent shall
pay the Second Contingent Payment in the amount initially determined by the
Surviving Corporation, in accordance with the preceding paragraph, within ten
(10) days after the date it receives the Objection Statement. The Surviving
Corporation and the Shareholders' Agent will attempt in good faith to resolve
such dispute, but if they are unable to do so, the parties will submit the
unresolved aspects to Parent's independent accountants to resolve the dispute
and make a determination. The fees and expenses of such accounting firm shall be
shared one-half by the Shareholders together and one-half by the Surviving
Corporation. If the Shareholders' Agent disagrees with the determination of
Parent's independent accountants, the Shareholders' Agent may hire, at the
Shareholders' expense, another "Big Five" accounting firm to review the
determination of Parent's independent accountants; provided, however, that the
Surviving Corporation will bear such expense if the final amount of Net Sales
for the Measurement Period is seven and one-half percent (7.5%) or more higher
than the Net Sales initially proposed by the Surviving Corporation. The
Surviving Corporation and the Shareholders' Agent shall request that Parent's
independent accountants and such accounting firm attempt to agree upon the
proper calculation; if they agree, their determination will be binding; if they
do not agree, the dispute will be submitted to arbitration in accordance with
the procedures set forth in Section 8.7.
(c) All payments of the Contingent Payments shall be made to the
Shareholders' Agent, who shall be responsible for distributing such payments to
Company Shareholders.
(d) Each Company Shareholder's right to receive the First Contingent
Payment and the Second Contingent Payment, if any, is personal to such Company
Shareholder and shall not be sold, transferred, assigned or pledged, in whole or
in part, by such Company Shareholder otherwise than upon death of such Company
Shareholder by will or under applicable laws of descent and distribution.
Section 1.13 Limitation on Number of Shares of Parent Common Stock Issued.
Notwithstanding anything herein to the contrary, in no event shall Parent be
obligated to issue pursuant to Sections 1.6(a), 1.12(a), 1.12(b) and 8.6 more
than 10,962,000 shares of Parent Common Stock, and any amount of the Merger
Consideration, the First Contingent Payment and/or the Second Contingent Payment
that cannot be paid in shares of Parent Common Stock as a result of the
operation of this Section 1.13 shall instead be paid in shares of Parent's
Series B Preferred Stock (the "Series B Preferred Stock") having the
designations, powers, preferences, rights, qualifications, limitations and
restrictions set forth in Exhibit 1.13; provided, however, that (a) Parent will
pay cash in lieu of the issuance of shares of Series B Preferred Stock to the
extent Parent determines in its sole discretion that (i) such payment in cash
will not jeopardize the treatment of the Merger as a reorganization under
Section 368(a) of the Code and (ii) such use of cash will not adversely affect
the Parent's business, operations, financial condition or prospects and (b) if
Parent is required to issue shares of Series B Preferred Stock in payment of the
First Contingent Payment, then Parent will issue shares of an additional series
of its preferred stock in payment of the Second Contingent Payment, which shares
shall be identical in all respects to the Series B Preferred Stock except that
the average closing price will be based on the average closing price determined
pursuant to Section 1.12(b) rather than Section 1.12(a) (the "Series C Preferred
Stock"). The number of shares of Series B Preferred Stock to be issued shall be
determined by dividing that portion of the First Contingent Payment and/or the
Second Contingent Payment that cannot be paid in shares of Parent Common Stock
10
by the Series B Preferred Stock Value. The number of shares of Series C
Preferred Stock to be issued shall be determined by dividing that portion of the
Second Contingent that cannot be paid in shares of Parent Common Stock or shares
of Series B Preferred Stock by the Series C Preferred Value. The "Series B
Preferred Stock Value" shall be the fair market value of the Series B Preferred
Stock as agreed to by Parent and the Shareholders' Agent or, if the Parent and
the Shareholders' Agent cannot reach agreement on the Series B Preferred Stock
Value, by an independent investment banking firm chosen by the Shareholders'
Agent from among three proposed by Parent. The "Series C Preferred Stock Value"
shall be the fair market value of the Series C Preferred Stock as agreed to by
Parent and the Shareholders' Agent or, if the Parent and the Shareholders' Agent
cannot reach agreement on the Series C Preferred Stock Value, by an independent
investment banking firm chosen by the Shareholders' Agent from among three
proposed by Parent. The determination of such investment banking firm shall be
final and binding on Parent and Company Shareholders. Parent and Company
Shareholders as a group shall each pay one-half of the fees and expenses of such
investment banking firm.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Sub that the
statements contained in this Article II are true and correct, except as
disclosed in a document of even date herewith and delivered by Company to Parent
referring to the representations and warranties in this Agreement (the "Company
Disclosure Schedule"). The Company Disclosure Schedule will be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article II, and the disclosure in any such numbered and lettered section of
the Company Disclosure Schedule shall qualify only the corresponding subsection
in this Article II (except to the extent disclosure in any numbered and lettered
section of the Company Disclosure Schedule is specifically cross-referenced in
another numbered and lettered section of the Company Disclosure Schedule).
Section 2.1 Organization, Standing and Power. Company is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Company has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership, leasing
or operation of its properties makes such qualification or licensing necessary
(all of which jurisdictions are set forth in Section 2.1 of the Company
Disclosure Schedule), except where the failure to be so qualified and in good
standing would not have a Material Adverse Effect on Company. Company has
delivered to Parent a true and correct copy of the Articles of Incorporation and
Bylaws of Company, each as amended to date. Company is not in violation of any
of the provisions of its Articles of Incorporation or Bylaws.
Section 2.2 Subsidiaries and Other Interests. The Company does not have,
and has never had, any Subsidiaries other than Teklan Corporation, which is
inactive, has never conducted any business and has no material assets or
liabilities. Company does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable for
any equity or similar interest in, any corporation, partnership, joint venture
or other business association or entity.
Section 2.3 Authority. Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Company subject only to the
approval of the Merger by Company's shareholders as contemplated by Section
6.1(a). The affirmative vote of the holders of a majority of the shares of
Company's Common Stock and two-thirds of Company Preferred Stock voting as
separate classes outstanding on the record date established by Company to vote
on the Merger is the
11
only vote of the holders of any of Company's Capital Stock necessary under
California Law and the Articles of Incorporation to approve this Agreement and
the transactions contemplated hereby. The Board of Directors of Company has
unanimously (i) approved this Agreement and the Merger, (ii) determined that the
Merger is in the best interests of the shareholders of Company and is on terms
that are fair to such shareholders and (iii) recommended that the shareholders
of Company approve this Agreement and the Merger. This Agreement has been duly
executed and delivered by Company and constitutes the valid and binding
obligation of Company enforceable against Company in accordance with its terms,
except that such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and is subject to general principles of equity. The execution and
delivery of this Agreement by Company does not, and the consummation of the
transactions contemplated hereby will not, assuming compliance with the matters
referred to in the next sentence, require any consent or other action by any
Person under, or conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or result in the triggering
of any payment or other obligation under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under, or result in the creation of any pledge, claim, lien, charge,
encumbrance or security interest of any kind or nature whatsoever (collectively,
"Liens") in or upon any of the properties or assets of Company under, (i) any
provision of the Articles of Incorporation or Bylaws of Company or its
Subsidiary, as amended, or (ii) any mortgage, indenture, lease, contract or
other agreement, obligation, commitment, arrangement, understanding or
instrument to which Company is a party or by which Company or any of its assets
is bound (collectively, "Company Agreements"), or any Legal Provision, Permit,
concession, franchise, license, judgment, order or decree applicable to Company
or any of properties or assets. No consent, approval, order or authorization of,
or registration, declaration or filing with, any supranational, national, state,
municipal, local or foreign government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority (each, a "Governmental
Entity") is required by or with respect to Company or its Subsidiary in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger as provided in Section 1.2; (ii) filings required under
Regulation D of the Securities Act; (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
(iv) such filings as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"); (v) those that may be
required solely by reason of Parent's or Merger Sub's (as opposed to any other
third party's) participation in the transactions contemplated by this Agreement;
and (vi) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Company and would not prevent, or materially alter or delay, any of
the transactions contemplated by this Agreement.
Section 2.4 Capital Structure. The authorized capital stock of Company
consists of 50,000,000 shares of Company Common Stock and 13,312,256 shares of
Company Preferred Stock, of which there are designated 3,070,000 shares of
Series A Preferred Stock, 3,428,573 shares of Series B Preferred Stock,
5,313,683 shares of Series C Preferred Stock and 1,500,000 shares of Series D
Preferred Stock. As of the date hereof, there were issued and outstanding
2,643,974 shares of Company Common Stock, 3,070,000 shares of Series A Preferred
Stock, convertible into 3,684,000 shares of Company Common Stock, 3,428,573
shares of Series B Preferred Stock, convertible into 4,114,285 shares of Company
Common Stock, 5,313,683 shares of Series C Preferred Stock, convertible into
6,376,411 shares of Company Common Stock, and 1,412,500 shares of Series D
Preferred Stock, convertible into 1,695,000 shares of Company Common Stock. All
of the issued and outstanding shares of Company Capital Stock are owned, of
record and beneficially, by the persons in the amounts set forth in Section 2.4
of the Company Disclosure Schedule. Section 2.4 of the Company Disclosure
Schedule hereto sets forth a true and complete list as of the date hereof of all
holders of outstanding Company Options and
12
Company Warrants, including the number of shares of Company Common Stock subject
to each such option and warrant, the exercise or vesting schedule, the exercise
price per share and the term of each such option and warrant. No Persons other
than the Company Shareholders and holders of Company Options and Company
Warrants are or will be entitled to receive any payment with respect to the
Company Capital Stock. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of Company are as set forth in its Articles of
Incorporation, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable corporate laws. All outstanding shares of
Company Common Stock and Company Preferred Stock are duly authorized, validly
issued, fully paid and non-assessable and are free of any Liens other than any
those created by or imposed upon the holders thereof, and are not subject to
preemptive rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws of Company or any Company Agreement. As of the date
hereof, (i) Company Warrants to purchase 34,286 shares of Company Common Stock
were outstanding, (ii) 129,346 shares of Common Stock were reserved for issuance
under the 1995 Equity Incentive Plan (the "1995 Stock Option Plan"), all of
which were subject to outstanding options, and (iii) 1,581,828 shares of Common
Stock were reserved for issuance under the 1997 Equity Incentive Plan (together
with the 1995 Stock Option Plan, the "Company Stock Option Plan"), of which
1,214,100 shares were subject to outstanding options and 367,828 shares were
reserved for future option grants. Except for the rights created pursuant to
this Agreement, pursuant to the Company Preferred Stock and the rights disclosed
in the preceding sentence, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which Company is a party or by
which it is bound obligating Company to issue, deliver, sell, repurchase or
redeem or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of Company Capital Stock or obligating Company to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. All shares of
Company Common Stock issuable upon conversion of Company Preferred Stock or upon
exercise of Company Options will be, when issued pursuant to the respective
terms of such Company Preferred Stock and Company Options, duly authorized,
validly issued, fully paid and non-assessable and free of any Liens other than
any those created by or imposed upon the holders thereof, and not subject to
preemptive rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws of Company or any Company Agreement. There are no bonds,
debentures, notes or other indebtedness of Company having the right to vote (or
convertible into securities having the right to vote) on any matters on which
shareholders of Company may vote. There are no other contracts, commitments or
agreements relating to voting, purchase or sale of Company Capital Stock (i)
between or among Company and any of its shareholders and (ii) to Company's
knowledge, between or among any of Company's shareholders, except for the
shareholders delivering the Voting Agreements. All shares of outstanding Company
Common Stock and Company Preferred Stock and rights to acquire Company Capital
Stock were issued in compliance with all applicable federal and state securities
laws.
Section 2.5 Financial Statements. Company has delivered to Parent complete
and correct copies of the audited balance sheet and related statements of income
and cash flows of Company as of and for the years ended December 31, 1998, 1999
and 2000 (collectively, the "Financial Statements"). The Financial Statements
have been derived from the books and records of Company. The Financial
Statements were prepared in accordance with GAAP, applied on a consistent basis
with prior periods, are complete and correct in all material respects and fairly
present the financial condition and results of operations of Company as of the
dates and for the periods indicated. During the period covered by such Financial
Statements Company has conducted no business other than its current business.
All material liabilities and obligations of Company, whether absolute, accrued,
contingent or otherwise, whether direct or indirect, and whether due or to
become due, which existed at the date of such Financial Statements have been
disclosed in the balance sheets included in the Financial Statements or in notes
to the Financial Statements to the extent such liabilities were required, under
GAAP, to be so disclosed. Except as set forth in the notes to the Financial
Statements, the liabilities on the latest balance sheet of Company
13
included in the Financial Statements consist solely of accrued obligations and
liabilities incurred by Company in the ordinary course of business to Persons
which are not Affiliates of Company. The statements of operations included in
the Financial Statements do not contain any material items of special or
non-recurring income or other income not earned, or omit any material item of
expense incurred, in each case in the ordinary course of business except as
expressly specified therein. Company has records that accurately and validly
reflect its transactions and accounting controls sufficient to insure that such
transactions are (i) in all material respects executed in accordance with its
management's general or specific authorization and (ii) recorded in conformity
with GAAP. Company maintains and will continue to maintain a standard system of
accounting established and administered in accordance with GAAP.
Section 2.6 Absence of Certain Changes. Since December 31, 2000 (the
"Company Balance Sheet Date"), Company has conducted its business in the
ordinary course consistent with past practice, and there has not been:
(a) any event, occurrence or development which, individually or in
the aggregate, has had or reasonably would be expected to have a Material
Adverse Effect on Company;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of Company Capital Stock, or
any repurchase, redemption or other acquisition by Company or Subsidiary
of any outstanding shares of Company Capital Stock or other equity
securities of, or other ownership interests in, Company;
(c) any amendment of any term of any outstanding security of Company
that would materially increase the obligations of Company under such
security;
(d) any (i) incurrence or assumption by Company of any indebtedness
for borrowed money other than under existing credit facilities (or any
renewals, replacements or extensions that do not increase the aggregate
commitments thereunder) in the ordinary course of business consistent with
past practice or (ii) guarantee, endorsement or other incurrence or
assumption of liability (whether directly, contingently or otherwise) by
Company for the obligations of any other Person, other than in the
ordinary course of business consistent with past practice;
(e) any creation or assumption by Company of any Lien on any asset
of Company other than in the ordinary course of business consistent with
past practice;
(f) any making of any loan, advance or capital contribution to or
investment in any Person by Company other than advances to employees of
Company made in the ordinary course of business consistent with past
practice;
(g) any acquisition or disposition of any assets or business of
Company other than in the ordinary course of business consistent with past
practice;
(h) any agreement, commitment or understanding entered into by
Company outside the ordinary course of business or providing for total
payments by Company in excess of $25,000 in any 12 month period with any
Person, or modified or amended in any material respect the terms of any
such existing agreement;
(i) any revaluing in any material respect any of the assets of
Company, including without limitation writing down the value of any assets
or inventory or writing off notes or accounts receivable, other than in
the ordinary course of business consistent with past practice;
14
(j) any material change in any method of accounting or accounting
principles or practice by Company, except for any such change required by
reason of a change in GAAP;
(k) any (i) grant of the right to receive any severance, retention
or termination pay to any current or former director, officer or employee
of Company, (ii) entering into of any employment, deferred compensation or
other similar agreement (or any amendment to any such existing agreement)
with any current or former director, officer or employee of Company, (iii)
increase or acceleration in vesting or benefits payable under any existing
severance or termination pay policies or employment agreements or (iv)
increase or acceleration in vesting or payment of compensation, bonus or
other benefits payable to current or former directors, officers or
employees of Company other than, in the case of clause (iv) only, normal
increases in compensation, bonus or other benefits payable to employees of
Company in the ordinary course of business consistent with past practice
or merit increases in salaries of employees at regularly scheduled times
in customary amounts consistent with past practice;
(l) any material changes in the business policies (including
advertising, investment, marketing, pricing, purchasing, production,
personnel, sales or budgeting) or organization of Company;
(m) any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof to
organize any employees of the Company, which employees were not subject to
a collective bargaining agreement at December 31, 1999, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect
to such employees;
(n) any loss or termination of, or any material adverse change in
relations with, any (a) customer that accounted for more than two percent
(2%) of Company revenues in the years ended December 31, 1999 or 2000, or
is expected to account for more than two percent (2%) of Company revenues
for the year ended December 31, 2001, or (b) supplier that, individually
or in the aggregate, had resulted or may result in a Material Adverse
Effect;
(o) any delay or postponement in the payment of accounts payable and
other liabilities outside the ordinary course of business;
(p) any action which, if it had been taken after the date hereof,
would have required the consent of Parent under Section 4.1 hereof; or
(q) any agreement to take any actions specified in this Section 2.6,
except for this Agreement.
Section 2.7 Absence of Undisclosed Liabilities. Company has no obligations
or liabilities (whether pursuant to contracts or otherwise) of any nature
(matured or unmatured, fixed or contingent) other than (i) those set forth or
adequately provided for in the Balance Sheet for the period ended December 31,
2000 (the "Company Balance Sheet"), (ii) those incurred in the ordinary course
of business and not required to be set forth in the Company Balance Sheet under
GAAP, (iii) those incurred in the ordinary course of business since the Company
Balance Sheet Date and consistent with past practice (none of which is liability
for breach of contract, breach of warranty, tort, infringement claim or lawsuit
or a liability to repay or refund to any Person any amount previously received
by Company) and (iv) those incurred in connection with the execution of this
Agreement. To the knowledge of Company, there are no asserted claims for
indemnification by any Person against Company under any law or agreement or
15
pursuant to Company's Articles of Incorporation or Bylaws, and Company is
unaware of any facts or circumstances that might give rise to the assertion of
such a claim against Company thereunder.
Section 2.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation (collectively, "Proceeding")
pending before any Governmental Entity, foreign or domestic, or, to the
knowledge of Company, threatened against or affecting Company or any of its
properties or officers or directors (in their capacities as such). There is no
judgment, decree or order against Company or, to the knowledge of Company, any
of its directors or officers (in their capacities as such). All Proceedings to
which Company is a party (or, to the knowledge of Company, threatened to become
a party) are disclosed in Section 2.8 of the Company Disclosure Schedule. No
Governmental Entity has indicated in writing an intention to conduct any audit,
investigation or other review with respect to Company which investigation or
review, if adversely determined, individually or in the aggregate, would have a
Material Adverse Effect on Company. All Proceedings have been timely reported to
all applicable insurance carriers and no reservation of rights or denial of
coverage has been issued by any such carrier.
Section 2.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Company which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of Company, any acquisition of property
by Company or the conduct of business by Company as currently conducted or as
proposed to be conducted by Company.
Section 2.10 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property" means:
(i) all issued patents, reissued or reexamined patents,
revivals of patents, utility models, certificates of invention,
registrations of patents and extensions thereof, regardless of
country or formal name (collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional and
provisional patent applications, reexamination proceedings,
invention disclosures and records of invention (collectively "Patent
Applications" and, with the Issued Patents, the "Patents");
(iii) all copyrights and copyrightable works, including all
rights of authorship, use, publication, reproduction, distribution,
performance transformation, moral rights and rights of ownership of
copyrightable works, semiconductor topography works and mask works,
and all rights to register and obtain renewals and extensions of
registrations, together with all other interests accruing by reason
of international copyright conventions (collectively, "Copyrights");
(iv) trademarks, registered trademarks, applications for
registration of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names,
registered trade names and applications for registrations of trade
names (collectively, "Trademarks");
(v) all technology, ideas, inventions, designs, proprietary
information, manufacturing and operating specifications, know-how,
formulae, trade secrets, technical data, computer programs,
hardware, software and processes; and
16
(vi) all other intangible assets, properties and rights
(whether or not appropriate steps have been taken to protect, under
applicable law, such other intangible assets, properties or rights).
(b) With respect to each item of Intellectual Property incorporated
into any product of Company or otherwise used in the business of Company (except
"off the shelf" or other software widely available through regular commercial
distribution channels at a cost not exceeding $10,000 on standard terms and
conditions, as modified for Company's operations) ("Company Intellectual
Property") Section 2.10 of the Company Disclosure Schedule lists:
(i) all Issued Patents and Patent Applications, all registered
Trademarks and trademark applications and all registered Copyrights,
including the jurisdictions in which each such item of Intellectual
Property has been issued or registered or in which any such
application for such issuance and registration has been filed; and
(ii) the following agreements relating to each of the products
of Company (the "Company Products") or other Company Intellectual
Property: all (A) agreements granting any right to distribute or
sublicense a Company Product, (B) any licenses of Intellectual
Property to or from Company, (C) agreements pursuant to which the
amounts actually paid or payable under firm commitments to or by
Company are $25,000 or more, (D) joint development agreements, (E)
any agreement by which Company grants any ownership right to any
Company Intellectual Property owned by Company, (F) any order
relating to Company Intellectual Property and (G) any option
relating to any Company Intellectual Property.
(c) Section 2.10 of the Company Disclosure Schedule contains an
accurate list of all licenses, sublicenses and other agreements to which Company
is a party and pursuant to which Company is authorized to use, or has acquired,
any Intellectual Property owned by any third party, excluding "off the shelf" or
other software at a cost not exceeding $10,000 and widely available through
regular commercial distribution channels on standard terms and conditions
("Third Party Intellectual Property").
(d) Company owns or possesses adequate licensed or other rights to
use all Intellectual Property necessary in all material respects for the
operation of the business of Company as presently conducted and as currently
proposed to be conducted, free and clear of all Liens other than, in the case of
licensed Intellectual Property, as set forth in the license therefor.
(e) There is no unauthorized use, disclosure, infringement or
misappropriation of any Company Intellectual Property, including any Third Party
Intellectual Property, by any third party, including any employee or former
employee of Company. The Company has not entered into any agreement to indemnify
any other Person against any charge of infringement of any Intellectual
Property. There are no royalties, fees or other payments payable by Company to
any Person by reason of the ownership, use, sale or disposition of Intellectual
Property.
(f) Company is not in breach of any license, sublicense or other
agreement relating to the Company Intellectual Property or Third Party
Intellectual Property Rights. Neither the execution, delivery or performance of
this Agreement or any ancillary agreement contemplated hereby nor the
consummation of the Merger or any of the transactions contemplated by this
Agreement will contravene, conflict with or result in an infringement on
Parent's right to own or use any Company Intellectual Property, including any
Third Party Intellectual Property.
17
(g) All Patents, registered Trademarks, registered service marks and
registered Copyrights held by Company are valid and subsisting. All maintenance
and annual fees have been fully paid and all fees paid during prosecution and
after issuance of any patent comprising or relating to such item have been paid
in the correct entity status amounts. Company is not infringing,
misappropriating or making unlawful use of, and has not received any notice or
other communication (in writing or otherwise) of any actual, alleged, possible
or potential infringement, misappropriation or unlawful use of, any proprietary
asset owned or used by any third party. There is no Proceeding pending or, to
the knowledge of Company, threatened nor has any claim or demand been made,
which challenges the legality, validity, enforceability or ownership of any item
of Company Intellectual Property or Third Party Intellectual Property or alleges
a claim of infringement of any Patents, Trademarks, service marks, Copyrights or
violation of any trade secret or other proprietary right of any third party.
Company has not brought a Proceeding alleging infringement of Company
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(h) All current and former officers and employees of Company have
executed and delivered to Company an agreement (containing no exceptions or
exclusions from the scope of its coverage) regarding the protection of
proprietary information and the assignment to Company of any Intellectual
Property arising from services performed for Company by such Persons, the form
of which has been supplied to Parent. All current and former consultants and
independent contractors to Company involved in the development, modification,
marketing and servicing of Company Products and/or Company Intellectual Property
have executed and delivered to Company an agreement in the form provided to
Parent (containing no exceptions or exclusions from the scope of its coverage)
regarding the protection of proprietary information and the assignment to
Company of any Intellectual Property arising from services performed for Company
by such Persons. To Company's knowledge, no employee or independent contractor
of Company is in violation of any term of any patent disclosure agreement or
employment contract or any other contract or agreement relating to the
relationship of any such employee or independent contractor with Company. No
current or former officer, director, shareholder, employee, consultant or
independent contractor has any right, claim or interest in or with respect to
any Company Intellectual Property.
(i) Company has taken all commercially reasonable and customary
measures and precautions necessary to protect and maintain the confidentiality
of all Company Intellectual Property (except such Company Intellectual Property
whose value would be unimpaired by public disclosure) and otherwise to maintain
and protect the full value of all Intellectual Property it owns or uses. All
use, disclosure or appropriation of Intellectual Property not otherwise
protected by patents, patent applications or copyright ("Confidential
Information") owned by Company by or to a third party has been pursuant to the
terms of a written agreement between Company and such third party. All use,
disclosure or appropriation of Confidential Information not owned by Company has
been pursuant to the terms of a written agreement between Company and the owner
of such Confidential Information, or is otherwise lawful.
(j) No product liability claims have been communicated in writing to
or, to Company's knowledge, threatened against Company.
(k) Company is not subject to any Proceeding or outstanding decree,
order, judgment or stipulation restricting in any manner the use, transfer or
licensing thereof by Company, or which may affect the validity, use or
enforceability of such Company Intellectual Property. Company is not subject to
any agreement which. restricts in any material respect the use, transfer or
licensing by Company of the Company Intellectual Property or Company Products.
18
Section 2.11 Interested Party Transactions. Company is not indebted to any
director, officer, employee or agent of Company (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such Person is indebted to Company. There have been no transactions since
December 31, 1998 which would require disclosure if Company were subject to
disclosure under Item 404 of Regulation S-K under the Securities Act.
Section 2.12 Minute Books. The minute books of Company and its Subsidiary
made available to Parent contain a complete and accurate summary of all meetings
of directors and shareholders or actions by written consent since the time of
incorporation of Company and the Subsidiary, and reflect all transactions
referred to in such minutes accurately in all material respects.
Section 2.13 Material Contracts.
(a) Section 2.13 of the Company Disclosure Schedule sets forth a
complete list of all currently effective written or oral:
(i) employment contracts, arrangements or policies of Company
which may not be immediately terminated without penalty (or any
augmentation or acceleration of benefits);
(ii) leases, sales contracts and other agreements with respect
to any property, real or personal, of Company, except for leases of
personal property involving, on an annual basis, less than $25,000
individually and $50,000 in the aggregate;
(iii) contracts or commitments for capital expenditures or
acquisitions in excess of $25,000 on an annual basis for one project
or series of related projects;
(iv) agreements, contracts, indentures or other instruments
relating to the borrowing of money, or the guarantee of any
obligation (third party or otherwise) for the borrowing of money
(excluding routine checking account overdraft agreements);
(v) contracts or agreements providing for any covenant not to
compete by Company or otherwise restricting in any way Company's
engaging in any business activity (including a description of the
businesses to which the covenant not to compete applies);
(vi) contracts or agreements relating to consultancies,
professional retentions, agency, sales or distributorship
arrangements pertaining to Company or its products or activities
involving total payments within any 12 month period in excess of
$25,000 and which are not terminable on 30 days' notice without
penalty;
(vii) contracts, agreements or commitments requiring Company
to indemnify or hold harmless any Person;
(viii) all contracts with any customer or supplier involving
total payments within any 12 month period in excess of $25,000 and
which are not terminable on 30 days' notice without penalty;
(ix) any written agreement (or group of related agreements)
for the acquisition of services, supplies, equipment, inventory,
fixtures or other property involving more than $50,000;
19
(x) any agreement providing for the purchase from a supplier
of all or substantially all of the requirements of Company of a
particular product or service;
(xi) any agreement, contract, arrangement or understanding
with any Affiliate, licensee or Company Shareholder;
(xii) any license or agreement granting or restricting the
right of Company to use any Intellectual Property;
(xiii) any partnership, joint venture and similar agreements
involving a sharing of profits or expenses;
(xiv) any guaranty or suretyship, indemnification or
contribution agreement or performance bond; and
(xv) contracts, agreements, arrangements or commitments, other
than the foregoing, which could reasonably be considered material to
Company's business
True, correct and complete copies of each agreement listed in Sections
2.10(b)(ii) and 2.13 of the Company Disclosure Schedule have been delivered to
Parent.
(b) With respect to each Company Agreement (whether or not so
listed): (i) the agreement is legal, valid, binding and enforceable and in full
force and effect with respect to Company, and to Company's knowledge is legal,
valid, binding, enforceable and in full force and effect with respect to each
other party thereto, in either case subject to the effect of bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and except as the availability of equitable remedies
may be limited by general principles of equity; (ii) the agreement will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing, subject to the effect of bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and except as the availability of equitable remedies may be limited by
general principles of equity; (iii) Company has performed all the obligations
required to be performed by it and is entitled to all benefits thereunder; and
(iv) neither Company nor, to Company's knowledge, any other party is in breach
or default, and no event has occurred which with notice or lapse of time would
constitute a breach or default by Company or, to Company's knowledge, by any
such other party, or permit termination, modification or acceleration, under the
agreement. Company is not a party to any oral contract, agreement or other
arrangement.
Section 2.14 Title to Property. Company has good and marketable title to
all of its properties, interests in properties and assets, real and personal,
reflected in the Company Balance Sheet or acquired after the Company Balance
Sheet Date (except properties, interests in properties and assets sold or
otherwise disposed of since the Company Balance Sheet Date in the ordinary
course of business), or with respect to leased properties and assets, valid
leasehold interests therein, free and clear of all Liens, except (i) the Lien of
current taxes not yet due and payable, (ii) such imperfections of title, Liens
and easements as do not and will not materially detract from or interfere with
the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) Liens
securing debt which is reflected on the Company Balance Sheet. The plants,
property and equipment of Company that are used in the operation of its business
are in all material respects in good operating condition and repair, subject to
normal wear and tear not caused by neglect. All properties used in the
operations of Company are reflected in the Company Balance Sheet to the extent
GAAP require the same to be reflected. All leases of real and personal property
to which Company is a party are in full
20
force and effect and are valid, binding and enforceable in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy
laws and other similar laws affecting creditors' rights generally and general
principles of equity, regardless of whether asserted in a proceeding in equity
or at law. True and correct copies of all such leases have been provided to
Parent. Company owns no real property.
Section 2.15 Environmental Matters.
(a) For purposes of this Agreement:
(i) "Environmental Laws" shall mean all applicable U.S.,
state, local and foreign laws, statutes, treaties, rules, codes,
ordinances, regulations, certificates, orders, directives,
interpretations, licenses, permits and other authorizations of any
Governmental Entity and judgments, decrees, injunctions, writs,
orders or like action of any court, arbitrator or other
administrative, judicial or quasi-judicial tribunal or agency of
competent jurisdiction, including any thereof of the European
Community or the European Union, having the force of law and being
applicable to Company, dealing with the protection of health,
welfare or the environment, including, without limitation, flood,
pollution or disaster laws and health and environmental protection
laws and regulations, and all other rules and regulations
promulgated thereunder and any provincial, municipal, water board or
other local statute, law, rule, regulation or ordinance relating to
public or employee health, safety or the environment, including all
laws relating to Releases into air, water, land or groundwater,
relating to the withdrawal or use of groundwater, and relating to
the use, handling, transportation, manufacturing, introduction into
the stream of commerce or disposal of Hazardous Materials,
including, without limitation, the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601, et seq., as amended ("CERCLA"), and the federal
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., as amended ("RCRA").
(ii) "Hazardous Materials" shall mean any material, chemical,
liquid, gas compound, substance, mixture or by-product that is
identified, defined, designated, listed, restricted or otherwise
regulated under Environmental Laws as a "hazardous constituent,"
"hazardous substance," "hazardous material," "hazardous waste,"
"infectious waste," "medical waste," "biomedical waste," "solid
waste", "pollutant" "toxic pollutant" or "contaminant," or any other
formulation or terminology intended to classify or identify
substances, constituents, materials, or wastes by reason of
properties that are deleterious to the environment, natural
resources, worker health and safety, or public health and safety,
including, without limitation, ignitability, corrosivity,
reactivity, carcinogenicity, toxicity and reproductive toxicity.
(iii) "Release" shall mean the spilling, leaking, discharging,
injecting, emitting and/or disposing and placement of a Hazardous
Material in any location that poses a threat thereof.
(b) Company is and has been in compliance in all material respects
with all Environmental Laws relating to the properties or facilities currently
or previously used, leased or occupied by Company at any time. During the period
of ownership or operation by the Company of any of its currently or previously
owned, leased or operated properties, and, to the Company's knowledge, prior to
the period of such ownership or operation, no Hazardous Material has been
treated or disposed of, and there have been no Releases or threatened Releases
of Hazardous Material at, in, on, under or
21
affecting such properties or any contiguous site that may or will give rise to
liability of Company under Environmental Laws. To Company's knowledge, no
Company employee or other Person has claimed that Company is liable for alleged
injury or illness resulting from an alleged exposure to a Hazardous Material. No
civil, criminal or administrative Proceeding is pending or, to Company's
knowledge, threatened against Company, with respect to Hazardous Materials or
Environmental Laws, and Company is not aware of any facts or circumstances which
could form the basis for assertion of a claim against Company or which could
form the basis for liability of Company, regarding Hazardous Materials or
regarding actual or potential noncompliance with Environmental Laws. Company has
not received any written notice of, or entered into or assumed by contract,
judicial or administrative settlement, or operation of law any indemnification
obligation, order, settlement or decree relating to: (i) any violation of any
Environmental Laws or the institution or pendency of any Proceeding by any
Governmental Entity or any third party in connection with any alleged violation
of Environmental Laws or any Release of Hazardous Materials, (ii) the response
to or remediation of Hazardous Material at or arising from any of Company's
activities or properties or any other properties or (iii) payment for any
response action relating to or remediation of Hazardous Material at or arising
from any of Company's properties, activities, or any other properties.
Section 2.16 Taxes.
(a) For purposes of in this Agreement:
(i) "Tax" and "Taxes" includes any federal, state, local or
foreign income, gross receipts, capital, franchise, import, goods
and services, value added, sales and use, estimated, alternative
minimum, add-on minimum, sales, use, transfer, registration, excise,
natural resources, severance, stamp, occupation, premium, windfall
profit, environmental, customs, duties, real property, personal
property, capital stock, social security, unemployment, disability,
payroll, license, employee withholding or other tax of any kind
whatsoever, including any interest, penalties or additions to tax or
additional amounts in respect of the foregoing; the foregoing shall
include any transferee or secondary liability for a Tax and any
liability assumed by agreement or arising as a result of being (or
ceasing to be) a member of any Affiliated Group (as defined in
Section 1504 of the Code) or being included (or required to be
included) in any Tax Return relating thereto).
(ii) "Tax Returns" means returns, declarations, reports,
claims for refund, information returns or other documents (including
any related or supporting schedules, statements or information)
filed or required to be filed in connection with the determination,
assessment or collection of any Taxes of any party or the
administration of any laws, regulations or administrative
requirements relating to any Taxes.
(b) Company has properly prepared and timely filed all Tax Returns
relating to any and all Taxes concerning or attributable to Company or its
operations for any period ending on or before the Closing Date and such Tax
Returns are true and correct in all material respects and have been completed in
accordance with applicable Legal Provisions. Company has made available to
Parent copies of all Tax Returns filed for all periods since its inception.
(c) Company has fully and timely paid all Taxes shown to be payable
on such Tax Returns covered by Section 2.16(b).
(d) Company has no liabilities for unpaid Taxes that have not been
accrued for or reserved on the latest balance sheet included in the Financial
Statements, whether asserted or unasserted,
22
contingent or otherwise, and Company has no knowledge of any basis for the
assertion of any such liability attributable to Company, its assets or
operations. The cash reserves or accruals for Taxes provided in the books and
records of Company with respect to any period for which Tax Returns have not yet
been filed or for which Taxes are not yet due and owing have been made in
accordance with GAAP and are, or prior to the Effective Time, will be,
sufficient for all unpaid Taxes of Company through and including the Effective
Time. Company has no liability for Taxes of any other Person as a transferee,
successor, by contract or otherwise. Company has not executed any agreements or
waivers extending any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(e) Company is not a party to any Tax-sharing agreement or similar
arrangement with any other party, and Company has not assumed any Tax
obligations of, or with respect to any transaction relating to, any other Person
or agreed to indemnify any other Person with respect to any Tax.
(f) Company's Tax Returns have never been audited by a government or
taxing authority, nor is any such audit in process or pending, and Company has
not been notified of any request for such an audit or other examination. No
claim has been made by a taxing authority in a jurisdiction where Company does
not file Tax Returns such that it is or may be subject to taxation by that
jurisdiction.
(g) Company has never been a member of an affiliated group of
corporations filing a consolidated federal income tax return.
(h) Section 2.16 of the Company Disclosure Schedule sets forth (i)
any Tax exemption, Tax holiday or other Tax sparing arrangement that Company has
in any jurisdiction, including the nature, amount and length of such Tax
exemption, Tax holiday or other Tax-sparing arrangement and (ii) any expatriate
Tax programs or policies affecting Company. Company is in compliance in all
material respects with all terms and conditions required to maintain such Tax
exemption, Tax holiday or other Tax-sparing arrangement or order of any
Governmental Entity and the consummation of the transactions contemplated hereby
will not have any adverse effect on the continuing validity and effectiveness of
any such Tax exemption, Tax holiday or other Tax-sparing arrangement or order.
(i) Company has not filed any consent agreement under Section 341(f)
of the Code or agreed to have Section 341(f)(4) apply to any disposition of
assets owned by Company.
(j) Company has not been at any time a United States Real Property
Holding Corporation within the meaning of Section 897(c)(2) of the Code.
(k) Company is not a party to any contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Company that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 464 or 162(m) of the Code by Company or
the Surviving Corporation as an expense under applicable law.
(l) Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and have duly and timely withheld from employee salaries, wages and
other compensation and have paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws.
(m) Neither Company nor any other Person on behalf of and with
respect to Company has (A) agreed to or is required to make any adjustments
pursuant to Section 481(a) of the Code or any similar provision of state, local
or foreign law by reason of a change in accounting method initiated by Company
or has any knowledge that the Internal Revenue Service ("IRS") has proposed any
such
23
adjustment or change in accounting method, or has any application pending with
any taxing authority requesting permission for any changes in accounting methods
that relate to the business or operations of Company, (B) executed or entered
into a closing agreement pursuant to Section 7121 of the Code or any predecessor
provision thereof or any similar provision of state, local or foreign law with
respect to Company, or (C) requested any extension of time within which to file
any Tax Return of Company, which Tax Return has since not been filed.
(n) No property owned by Company is (A) property required to be
treated as being owned by another Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (B)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code or (C) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code.
(o) Company is not subject to any private letter ruling of the IRS
or comparable rulings of other taxing authorities.
(p) Company does not own any interest in any entity that is treated
as a partnership for U.S. federal income Tax purposes or would be treated as a
pass-through, transparent or disregarded entity for any Tax purpose.
(q) Neither Company nor any of its Affiliates has taken or agreed to
take any action or knows of any fact or circumstance that could prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
Section 2.17 Employee Benefit Plans.
(a) Section 2.17 of the Company Disclosure Schedule contains a
complete and accurate list of each plan, program, policy, practice, contract,
agreement or other arrangement providing for employment, compensation,
retirement, deferred compensation, loans, severance, separation, relocation,
repatriation, expatriation, visas, work permits, termination pay, performance
awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom
stock, stock appreciation right, supplemental retirement, fringe benefits,
cafeteria benefits or other benefits whether written or unwritten, including,
without limitation, each "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not subject to ERISA, which is or has been sponsored,
maintained, contributed to or required to be contributed to by Company or any
trade or business (whether or not incorporated) which is or, at any relevant
time, was treated as a single employer with Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate"), for the
benefit of any Person who performs or who has performed services for Company or
with respect to which Company or any ERISA Affiliate has or may have any
liability (including, without limitation, contingent liability) or obligation
(collectively, the "Company Employee Plans").
(b) Documents. Company has furnished to Parent true and complete
copies of documents embodying each of the Company Employee Plans and related
plan documents, including (without limitation) trust documents, group annuity
contracts, plan amendments, insurance policies or contracts, participant
agreements, employee booklets, administrative service agreements, summary plan
descriptions, compliance and nondiscrimination tests for the last three plan
years, standard COBRA forms and related notices, registration statements and
prospectuses, and any material communications with employees or Governmental
Entities relating thereto. With respect to each Company Employee Plan which is
subject to ERISA reporting requirements, Company has provided copies of the Form
5500 reports filed for the last two plan years. Company has furnished Parent
with the most recent IRS
24
determination letter issued with respect to each such Company Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Company Employee Plan subject to Code Section 401(a).
(c) Compliance. (i) Each Company Employee Plan has been administered
in all material respects in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), and Company and each ERISA Affiliate have
performed all material obligations required to be performed by them under, are
not in any material respect in default under or violation of and have no
knowledge of any material default or violation by any other party to, any of the
Company Employee Plans; (ii) any Company Employee Plan intended to be qualified
under Section 401(a) of the Code has since its inception been so qualified and
has either obtained from the IRS a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code which are
currently effective, or has time remaining to apply under applicable Treasury
Regulations or IRS pronouncements for a determination letter and to make any
amendments necessary to obtain a favorable determination letter; (iii) none of
the Company Employee Plans promises or provides retiree medical or other retiree
welfare benefits to any Person; (iv) there has been no "prohibited transaction,"
as such term is defined in Section 406 of ERISA or Section 4975 of the Code,
with respect to any Company Employee Plan; (v) none of Company or any ERISA
Affiliate is subject to any liability or penalty under Sections 4976 through
4980 of the Code or Title I of ERISA with respect to any Company Employee Plan;
(vi) all contributions required to be made by Company or any ERISA Affiliate to
any Company Employee Plan with respect to all periods prior to the Effective
Time have been fully paid or accrued on the Financial Statements; (vii) with
respect to each Company Employee Plan, no "reportable event" within the meaning
of Section 4043 of ERISA (excluding any such event for which the thirty (30) day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA has
occurred; (viii) each Company Employee Plan subject to ERISA has prepared in
good faith and timely filed all requisite governmental reports (which were true
and correct in all material respects as of the date filed) and has properly and
timely filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such Company
Employee Plan; (ix) no Proceeding has been brought, or to the knowledge of
Company is threatened, against or with respect to any such Company Employee
Plan, including any audit or inquiry by the IRS or United States Department of
Labor; and (x) there has been no amendment to, written interpretation or
announcement by Company or any ERISA Affiliate which would materially increase
the expense of maintaining any Company Employee Plan above the level of expense
incurred with respect to that Plan for the most recent fiscal year included in
the Financial Statements.
(d) No Title IV or Multiemployer Plan. None of Company or any ERISA
Affiliate has ever maintained, established, sponsored, participated in,
contributed to, or is obligated to contribute to, or otherwise incurred any
obligation or liability (including, without limitation, any contingent
liability) under any (i) "multiemployer plan" (as defined in Section 3(37) of
ERISA) or (ii) to any "pension plan" (as defined in Section 3(2) of ERISA)
subject to Section 302 or Title IV of ERISA or Section 412 of the Code. Neither
Company nor any ERISA Affiliate has any actual or potential withdrawal liability
(including, without limitation, any contingent liability) for any complete or
partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any
multiemployer plan.
(e) COBRA. FMLA, HIPAA, Cancer Rights. With respect to each Company
Employee Plan, Company has complied in all material respects with (i) the
applicable health care continuation and notice provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the regulations
thereunder or any state law governing health care coverage extension or
continuation; (ii) the applicable requirements of the Family and Medical Leave
Act of 1993 and the regulations thereunder; (iii) the applicable requirements of
the Health Insurance Portability and
25
Accountability Act of 1996 ("HIPAA"); and (iv) the applicable requirements of
the Cancer Rights Act of 1998.
(f) Effect of Transaction. The consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
director, officer, employee or other service provider of Company or any ERISA
Affiliate to severance benefits or any other payment (including, without
limitation, unemployment compensation, golden parachute, bonus, retention or
benefits under any Company Employee Plan), except as expressly provided in this
Agreement or (ii) accelerate the time of payment or vesting of any such benefits
or increase the amount of compensation due any such employee or service
provider. No benefit payable or which may become payable by Company pursuant to
any Company Employee Plan or as a result of or arising under this Agreement
shall constitute an "excess parachute payment" (as defined in Section 280G(b)(1)
of the Code) which is subject to the imposition of an excise Tax under Section
4999 of the Code or the deduction for which would be disallowed by reason of
Section 280G of the Code. Each Company Employee Plan can be amended, terminated
or otherwise discontinued after the Effective Time in accordance with its terms,
without material liability to Parent or the Surviving Corporation (other than
ordinary administration expenses typically incurred in a termination event).
Section 2.18 Employee Matters. Section 2.18 of the Company Disclosure
Schedule contains a list of the names of all employees (including, without
limitation part-time, temporary and inactive employees), leased employees,
independent contractors and consultants of Company, their respective salaries or
wages, other compensation and dates of employment and positions. Company is in
compliance in all material respects with all currently applicable Legal
Provisions respecting terms and conditions of employment including, without
limitation, applicant and employee background checking, immigration laws,
discrimination laws, verification of employment eligibility, employee leave
laws, classification of workers as employees and independent contractors, wage
and hour laws, and occupational safety and health laws. There are no Proceedings
pending or, to Company's knowledge, reasonably expected or threatened, between
Company, on the one hand, and any or all of its current or former employees, on
the other hand, including, but not limited to, any claims for actual or alleged
harassment or discrimination based on race, national origin, age, sex, sexual
orientation, religion, disability, or similar tortuous conduct, breach of
contract, wrongful termination, defamation, intentional or negligent infliction
of emotional distress, interference with contract or interference with actual or
prospective economic disadvantage. There are no claims pending, or, to Company's
knowledge, reasonably expected or threatened, against Company under any workers'
compensation or long term disability plan or policy. Company has no material
unsatisfied obligations to any employees, former employees or qualified
beneficiaries pursuant to COBRA, HIPAA or any state law governing health care
coverage extension or continuation. Company is not a party to any collective
bargaining agreement or other labor union contract, nor does Company know of any
activities or proceedings of any labor union to organize its employees. There is
no labor strike, slowdown or work stoppage or lockout against Company. Company
has provided all employees with all wages, benefits, relocation benefits, stock
options, bonuses and incentives and all other compensation which became due and
payable through the date of this Agreement. Company has not instituted any
"freeze" of, or delayed or deferred the grant of, any cost-of-living or other
salary adjustments for any of its employees.
Section 2.19 Insurance. Company carries property, liability, workers'
compensation and such other types of insurance pursuant to the insurance
policies listed and briefly described in Section 2.19 of the Company Disclosure
Schedule (collectively, the "Insurance Policies" and each individually, an
"Insurance Policy"). The Insurance Policies cover such risks and contain such
policy limits, types of coverage and deductibles as are, in Company's judgment,
adequate to insure fully (subject to the deductibles and retention amounts
described in Section 2.19 of the Company Disclosure Schedule) against risks to
which Company and its employees, business, properties and other assets may be
exposed
26
in the operation of the business as currently conducted. There is no material
claim pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All of the Insurance Policies are valid and enforceable policies, all premiums
due and payable under all such policies and bonds have been paid and Company is
otherwise in compliance in all material respects with the terms of such policies
and bonds. Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies. There are no
outstanding claims, settlements or premiums owed against any Insurance Policy,
or if there are, Company has given all notices or has presented all potential or
actual claims under any Insurance Policy in due and timely fashion. Section 2.19
of the Company Disclosure Schedule set forth a list of all claims under any
Insurance Policy in excess of $50,000 per occurrence filed by or on behalf of
Company since January 1, 1998. The Insurance Policies are sufficient for
compliance in all material respects with all requirements of Legal Provisions
and the terms of Company Agreements.
Section 2.20 Licenses and Permits. Company has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant or
other authorization of a Governmental Entity (i) pursuant to which Company
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Company's business or the holding of any such
interest (collectively, "Permits"), all of which are listed (with expiration
dates, if applicable) on Schedule 2.20 of the Company Disclosure Schedule, and
all of such Permits are in full force and effect except where the failure to
obtain or have any such authorizations could not reasonably be expected to have
a Material Adverse Effect on Company. No Permit is subject to revocation or
forfeiture by virtue of any existing circumstances, there is no Proceeding
pending or, to the knowledge of Company, threatened to modify or revoke any
Permit, and no Permit is subject to any outstanding order, decree, judgment,
stipulation or, to the knowledge of Company, investigation that would reasonably
be likely to materially adversely affect such Permit.
Section 2.21 Compliance With Laws. Company has complied in all material
respects with, is not in violation in any material respect of and has not
received any notices of violation with respect to, any federal state, local or
foreign statute, law, regulation, judgment, order or decree of any Government
Entity (collectively, "Legal Provisions") with respect to the ownership or
operation of its business. No investigation or review by any Governmental Entity
(including without limitation any audit or similar review by any federal,
foreign, state or local taxing authority) with respect to Company is pending or,
to the knowledge of Company, threatened, nor has any Governmental Entity
indicated in writing to Company an intention to conduct the same.
Section 2.22 Regulatory Compliance.
(a) As to each Company Product subject to the jurisdiction of the
FDA under the Federal Food, Drug and Cosmetic Act and the regulations thereunder
("FDCA") (each such product, a "Pharmaceutical Product") that is manufactured,
tested, distributed and/or marketed by Company, such Pharmaceutical Product is
being manufactured, tested, distributed and/or marketed in compliance in all
material respects with all applicable requirements under the FDCA and similar
Legal Provisions, including those relating to investigational use, premarket
approval, good manufacturing practices, labeling, advertising, record keeping,
filing of reports and security. Company has not received any notice or other
communication from the FDA or any other Governmental Entity (i) contesting the
premarket approval of, the uses of or the labeling and promotion of any
Pharmaceutical Product or (ii) otherwise alleging any violation of any Legal
Provision by Company.
(b) Section 2.22(b) of the Company Disclosure Schedule sets forth a
list of each of Company's pending and approved NDAs, Investigational New Drug
applications ("INDs") and similar state or foreign regulatory filings. True and
complete copies of such NDAs and INDs, including all supplements, amendments and
annual reports, have heretofore been made available to Parent. Copies of
27
correspondence from the FDA, and similar state or foreign regulatory
authorities, and Company's responses have heretofore been made available to
Parent.
(c) As to each biological or drug of Company for which a biological
license application, NDA, IND or similar state or foreign regulatory application
has been approved, Company is in compliance in all material respects with 21
U.S.C. sec. 355 or 21 C.F.R. Parts 312 or 314 et seq., respectively, and similar
Legal Provisions and all terms and conditions of such applications. As to each
such drug, Company, and the officers, employees or agents of Company, have
included in the application for such drug, where required, the certification
described in 21 U.S.C. sec. 335a(k)(1) or any similar Legal Provision and the
list described in 21 U.S.C. sec. 335a(k)(2) or any similar Legal Provision, and
such certification and such list was in each case true and accurate in all
material respects when made and remained true and accurate in all material
respects thereafter. In addition, Company is in compliance in all material
respects with all applicable registration and listing requirements set forth in
21 U.S.C. sec. 360 and 21 C.F.R. Part 207 and all similar Legal Provisions.
(d) Section 2.22(d) of the Company Disclosure Schedule sets forth a
list of (i) Form 483s, (ii) Notices of Adverse Findings and (iii) warning
letters or other correspondence from the FDA or state or foreign regulatory
authorities in which the FDA or any such authority asserted that the operations
of Company may not be in compliance with applicable Legal Provisions, orders,
judgments or decrees, in each case received by Company from the FDA or any such
authority since January 1, 1997 and the response of Company to the FDA or any
such authority to such notices from the FDA or any such authority. True and
complete copies of such Form 483s, Notices of Adverse Findings, letters and
other correspondence and Company's responses have heretofore been made available
to Parent. All manufacturing operations of Company have been and are being
conducted in compliance in all material respects with the good manufacturing
practice regulations set forth in 21 C.F.R. Parts 210 and 211 and similar state
or foreign regulations.
(e) Section 3.23(g) of the Company Disclosure Schedule sets forth
Adverse Reaction Reports filed by the Company with the FDA or state or foreign
regulatory authorities during the period commencing January 1, 1997.
(f) Neither Company, nor any officer, employee or agent of Company
has made an untrue statement of a material fact or fraudulent statement to the
FDA or other Governmental Entity performing similar functions, failed to
disclose a material fact required to be disclosed to the FDA or any other
Governmental Entity performing similar functions, or committed an act, made a
statement, or failed to make a statement that, at the time such disclosure was
made, could reasonably be expected to provide a basis for the FDA or any other
Governmental Entity performing similar functions to invoke its policy respecting
"Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities",
set forth in 56 Fed. Reg. 46191 (September 10, 1991) or any similar policy.
Neither Company nor any officer, employee or agent of Company has been convicted
of any crime or engaged in any conduct for which debarment is mandated by 21
U.S.C. sec. 335a(a) or any similar Legal Provision or authorized by 21 U.S.C.
sec. 335a(b) or any similar Legal Provision.
Section 2.23 Certain Business Practices. Neither Company nor, to the
knowledge of Company, any director, officer, agent or employee of Company has
(i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful
payment.
28
Section 2.24 Brokers' and Finders' Fee. Except for Prudential Vector
Healthcare Group, a unit of Prudential Securities Incorporated ("PVHG"), no
broker, finder or investment banker is entitled to brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with the Merger, this Agreement or any transaction contemplated
hereby. Company has provided a complete and correct copy of Company's agreement
with PVHG to Parent.
Section 2.25 Representations Complete. None of the representations or
warranties made by Company herein or in any Schedule or Exhibit hereto,
including the Company Disclosure Schedule, or certificate furnished by Company
pursuant to this Agreement or any written statement furnished to Parent pursuant
hereto or in connection with the transactions contemplated hereby, when all such
documents are read together in their entirety, contains, or will contain at the
Effective Time, any untrue statement of a material fact, or omits, or will omit
at the Effective Time, to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading; provided, however, that it is understood that any
financial projections delivered by Company represent only Company's best
estimate under the circumstances of what it reasonably believes (although it is
not aware of any fact or information that would lead it to believe that such
projections are misleading in any material respect) and are based upon
assumptions set forth in such projections that Company believes were reasonable
as of the time such projections were made. Company does not make any other
representation or warranty regarding such projections other than as set forth in
this Section 2.25. There is no fact (other than matters of a general economic or
political nature that do not affect Company uniquely) known to Company that has
not been disclosed by Company to Parent that might reasonably be expected to
have or result in a Material Adverse Effect on Company or adversely affect the
ability of Company to conduct its business after the Closing as currently
conducted and as currently proposed to be conducted.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to Company that the statements
contained in this Article III are true and correct, except as disclosed in a
document of even date herewith and delivered by Parent to Company on the date
hereof referring to the representations and warranties in this Agreement (the
"Parent Disclosure Schedule"). The Parent Disclosure Schedule will be arranged
in paragraphs corresponding to the lettered and numbered paragraphs contained in
this Article III, and the disclosure in any such numbered and lettered section
of the Parent Disclosure Schedule shall qualify only the corresponding section
in this Article III (except to the extent disclosure in any numbered and
lettered section of the Parent Disclosure Schedule is specifically
cross-referenced in another numbered and lettered section of the Parent
Disclosure Schedule).
Section 3.1 Organization, Standing and Power. Each of Parent and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Each of Parent and Merger Sub has
the corporate power to own its properties and to carry on its business as now
being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on
Parent. Parent has delivered a true and correct copy of the Certificate of
Incorporation and Bylaws of Parent and Merger Sub, each as amended to date, to
Company. Neither Parent nor Merger Sub is in violation of any of the provisions
of its Certificate of Incorporation or Bylaws.
Section 3.2 Authority. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This
29
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable against each of Parent and Merger Sub in accordance with its terms,
except that such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and is subject to general principles of equity. The execution and
delivery of this Agreement do not and the consummation of the transactions
contemplated hereby will not, assuming compliance with the matters referred to
in the next sentence, require any consent or other action by any Person under,
or conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or result in the triggering of any
payment or other obligation under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under, or
result in the creation of any Lien in or upon any of the properties or assets of
Parent or any of its Subsidiaries under, (i) any provision of the Certificate of
Incorporation or Bylaws of Parent or any of its Subsidiaries, as amended, or
(ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or any of its
Subsidiaries or their properties or assets. No consent, approval, order or
authorization of or registration, declaration or filing with any Governmental
Entity is required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Parent and
Merger Sub or the consummation by Parent and Merger Sub of the transactions
contemplated hereby, except for (i) the filing of the Certificate of Merger as
provided in Section 1.2, (ii) filings required under Regulation D of the
Securities Act, (iii) the filing of a Form 8-K with the Securities and Exchange
Commission ("SEC") and National Association of Securities Dealers ("NASD"), (iv)
any filings as may be required under applicable state securities laws and the
securities laws of any foreign country, (v) such filings as may be required
under the HSR Act, (vi) the filing with the Nasdaq National Market of a
Notification Form for Listing of Additional Shares with respect to the shares of
Parent Common Stock issuable in the Merger and the Contingent Shares issuable
pursuant to Section 1.12, (vii) filings required to perform its obligations
under Section 5.15, (viii) the filing of a certificate of designations to create
a series of preferred stock in accordance with Section 1.13, (ix) those that may
be required solely by reason of Company's (as opposed to any third party's)
participation in the transactions contemplated by this Agreement, and (x) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Parent and
would not prevent, materially alter or delay any of the transactions
contemplated by this Agreement.
Section 3.3 SEC Documents; Financial Statements. Parent has made available
to Company or its counsel through EDGAR a true and complete copy of each
statement, report, registration statement (with the prospectus in the form filed
pursuant to Rule 424(b) of the Securities Act), definitive proxy statement and
other filing filed with the SEC by Parent since January 1, 2000, and, prior to
the Effective Time, Parent will have made available to Company or its counsel
through EDGAR true and complete copies of any additional documents filed with
the SEC by Parent prior to the Effective Time (collectively, the "Parent SEC
Documents"). In addition, Parent has made available to Company all exhibits to
the Parent SEC Documents filed prior to the date hereof which are (i) requested
by Company and (ii) are not available in complete form through EDGAR ("Requested
Confidential Exhibits") and will promptly make available to Company all
Requested Confidential Exhibits to any additional Parent SEC Documents filed
prior to the Effective Time. All documents required to be filed as exhibits to
the Company SEC Documents have been so filed, and all material contracts so
filed as exhibits are in full force and effect except those which have expired
in accordance with their terms, and neither Parent nor any of its Subsidiaries
is in default thereunder, except for any defaults which would not have a
Material Adverse Effect on Parent. As of their respective filing dates, the
Parent SEC Documents complied in all material respects with the requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act and none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to
30
the extent corrected by a subsequently filed Parent SEC Document prior to the
date hereof. The financial statements of Parent, including the notes thereto,
included in the Parent SEC Documents (the "Parent Financial Statements"),
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Qs, as permitted by Form 10-Q of the SEC). The Parent
Financial Statements fairly present the consolidated financial condition and
operating results of Parent and its Subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments). There has been no change in Parent
accounting policies except as described in the notes to the Parent Financial
Statements and as required by Staff Accounting Bulletin 101.
Section 3.4 Capital Structure. The authorized capital stock of Parent
consists of 150,000,000 shares of common stock, $.01 par value, and 4,000,000
shares of Preferred Stock, $.01 par value. At the close of business on February
16, 2001, (i) 54,824,842 shares of Parent Common Stock were issued and
outstanding, (ii) no shares of Preferred Stock were issued or outstanding and
(iii) 150,000 shares of Parent Preferred Stock were designated Series A Junior
Participating Cumulative Preferred Stock and were reserved for issuance in
connection with the rights (the "Parent Rights") issued pursuant to the Rights
Agreement, dated as of October 7, 1998, by and between Parent and American Stock
Transfer & Trust Company, as Rights Agent. There are no other outstanding shares
of capital stock or voting securities of Parent other than shares of Parent
Common Stock issued after February 16, 2001 pursuant to, or upon the exercise of
options issued under, the Parent stock plans described in the Parent SEC
Documents (the "Parent Stock Plans"). The authorized capital stock of Merger Sub
consists of 100 shares of Common Stock, all of which are issued and outstanding
and are held by Parent. All outstanding shares of Parent and Merger Sub have
been duly authorized, validly issued, fully paid and are nonassessable. As of
the close of business on February 16, 2001, Parent has reserved 10,568,726
shares of Parent Common Stock for issuance to employees, directors and
independent contractors pursuant to the Parent Stock Plans, of which 7,035,269
shares are subject to outstanding, unexercised options (other than "options"
deemed granted under Parent's employee stock purchase plan). Other than this
Agreement and the Parent Stock Plans, there are no other options, warrants,
calls, rights, commitments or agreements of any character to which Parent or
Merger Sub is a party or by which either of them is bound obligating Parent or
Merger Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Parent or Merger Sub or obligating Parent or Merger Sub to grant, extend or
enter into any such option, warrant, call, right, commitment or agreement. The
shares of Parent Common Stock to be issued pursuant to the Merger and in payment
of the Contingent Payments will be duly authorized, validly issued, fully paid
and nonassessable.
Section 3.5 Litigation. There is no Proceeding pending before any
Governmental Entity, foreign or domestic, or, to the knowledge of Parent,
threatened against Parent or any of its Subsidiaries or any of their respective
properties or any of their respective officers or directors (in their capacities
as such) that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect on Parent. There is no judgment, decree or order
against Parent or any of its Subsidiaries or, to the knowledge of Parent, any of
their respective directors or officers (in their capacities as such) that could
prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on Parent.
Section 3.6 Absence of Certain Changes. Since September 30, 2000, Parent
has conducted its business in the ordinary course consistent with past practice,
and there has not been: (i) any event, occurrence or development which,
individually or in the aggregate, has had or reasonably would be expected to
have a Material Adverse Effect on Parent; (ii) any change in accounting methods
or practices
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by Parent or any revaluation by Parent of any of its assets; (iii) any material
contract entered into by Parent, other than in the ordinary course of business
and as provided to Company, or any material amendment or termination of, or
default under, any material contract to which Parent is a party or by which it
is bound; or (iv) any negotiation or agreement by Parent or any of its
Subsidiaries to do any of the things described in the preceding clauses (i)
through (iii) (other than negotiations with Company and its representatives
regarding the transactions contemplated by this Agreement).
Section 3.7 Absence of Undisclosed Liabilities. Parent has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
balance sheet included in Parent's Quarterly Report on Form 10-Q for the period
ended September 30, 2000, (ii) those incurred in the ordinary course of business
and not required to be set forth in the Parent's balance sheet under GAAP and
(iii) those incurred in the ordinary course of business since the September 30,
2000 and consistent with past practice.
Section 3.8 Interim Operations of Merger Sub. Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement,
has engaged in no other business activities and has conducted its operations
only as contemplated by this Agreement.
Section 3.9 Representations Complete. None of the representations or
warranties made by Parent or Merger Sub herein or in any Schedule hereto,
including the Parent Disclosure Schedule, or certificate furnished by Parent or
Merger Sub pursuant to this Agreement, or the Parent SEC Documents, or any
written statement furnished to Company pursuant hereto or in connection with the
transactions contemplated hereby, when all such documents are read together in
their entirety, contains, or will contain at the Effective Time, any untrue
statement of a material fact or omits, or will omit at the Effective Time, to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading; provided, however, that for purposes of this representation, any
document filed by Parent with the SEC after the date hereof that provides
information inconsistent with or in addition to any other written statement
furnished to Company in connection with the transactions contemplated hereby,
shall be deemed to supersede any other document or written statement furnished
to Company with respect to such inconsistent or additional information; and
provided further that it is understood that any financial projections delivered
by Parent represent only Parent's best estimate under the circumstances of what
it reasonably believes (although it is not aware of any fact or information that
would lead it to believe that such projections are misleading in any material
respect) and are based upon assumptions set forth in such projections that
Parent believes were reasonable as of the time such projections were made.
Parent does not make any other representation or warranty regarding such
projections other than as set forth in this Section 3.9.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
Section 4.1 Conduct of Business of Company. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, Company agrees (except to the extent
expressly contemplated by this Agreement or as consented to in writing by
Parent), to carry on its business in the usual regular and ordinary course in
substantially the same manner as heretofore conducted, and in compliance in all
material respects with all applicable Legal Provisions, to pay or perform its
obligations when due and to use all reasonable efforts to preserve intact its
present business organizations, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others having business
dealings with it to the end that its goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Without limiting the foregoing, except as
expressly contemplated by this Agreement
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or the Company Disclosure Schedule, Company shall not do, cause or permit any of
the following, without the prior written consent of Parent:
(a) Charter Documents. Cause or permit any amendments to its
Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. (i) Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, (ii) split, combine or
reclassify any of its capital stock, (iii) issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or repurchase or otherwise acquire, directly
or indirectly, any shares of its capital stock except from former
employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any termination
of service to it or (iv) adopt a plan or agreement of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Company;
(c) Stock Option Plans, Etc. Accelerate, amend or change the period
of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or
other rights granted under any of such plans;
(d) Material Contracts. Enter into any contract or commitment, or
violate, amend or otherwise modify or waive any of the terms of any of its
contracts, other than in the ordinary course of business consistent with
past practice;
(e) Issuance of Securities. Issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible
into or exchangeable for, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it
to issue any such shares or other convertible or exchangeable securities
other than the issuance of shares of Company Common Stock pursuant to the
exercise of stock options, warrants or other rights therefore outstanding
as of the date of this Agreement; provided, however, that Company may, in
the ordinary course of business consistent with past practice, grant
options for the purchase of Company Common Stock under the Company Stock
Option Plan;
(f) Intellectual Property. Transfer to any Person any rights to its
Intellectual Property other than in the ordinary course of business
consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements pursuant to
which any other party is granted marketing or other rights of any type or
scope with respect to any of Company Products or Company Intellectual
Property;
(h) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets except in the ordinary course of
business consistent with past practice;
(i) Indebtedness. Incur any indebtedness for borrowed money or
guarantee any such indebtedness, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Company,
guarantee any debt securities of another Person, enter into any "keep
well" or other agreement to maintain any financial statement condition of
another Person or enter into any arrangement having the economic effect of
any of the foregoing;
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(j) Agreements. Enter into, terminate or amend, in a manner which
will adversely affect the business of Company, (i) any agreement involving
an obligation to pay or the right to receive $10,000 or more, (ii) any
agreement relating to the license, transfer or other disposition or
acquisition of Intellectual Property rights or rights to market or sell
Company Products or (iii) any other agreement which is material to the
business or prospects of Company or would be required to be disclosed
pursuant to Section 2.13 hereunder;
(k) Payment of Obligations. Pay, discharge or satisfy, in an amount
in excess of $25,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the
payment, discharge or satisfaction of liabilities reflected or reserved
against in the Financial Statements;
(l) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements other than as expressly set forth in
Company's capital expenditure budget previously delivered to Parent;
(m) Insurance. Materially reduce the amount of any insurance
coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(o) Employee Benefit Plans; New Hires; Pay Increase. Amend any
Company Employee Plan except to the extent required by applicable law,
adopt any plan, contract or arrangement that would constitute a Company
Employee Plan, take any action to fund or in any other way secure the
payment of compensation or benefits under any Company Employee Plan, hire
any new officer level employee, pay any special bonus, special
remuneration or special noncash benefit (except payments and benefits made
pursuant to written agreements outstanding on the date hereof), or
increase the benefits, salaries or wage rates of its employees except in
the ordinary course of business consistent with past practice;
(p) Severance Arrangements. (i) Grant any severance or termination
pay or benefits (A) to any current or former director or officer or (B) to
any other employee except payments made pursuant to written agreements
outstanding on the date hereof and disclosed on the Company Disclosure
Schedule, or (ii) increase in any manner the severance or termination pay
of any current or former director, officer or employee;
(q) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines
that failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with Parent
prior to the filing of such a suit, or (iii) for a breach of this
Agreement;
(r) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, make any
investment in any other Person or otherwise acquire or agree to acquire
any assets which are material, individually or in the aggregate, to its
business;
(s) Taxes. Make or change any election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any amendment to a
Tax Return, enter into any
34
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to
any material claim or assessment in respect of Taxes;
(t) Regulatory Matters. Except as required by a Governmental Entity,
make any material amendment to any NDA, Supplemental NDA or their foreign
equivalents, or except as reasonably required due to medical or regulatory
considerations, as required by a Governmental Entity, suspend, terminate
or otherwise discontinue any planned or ongoing research and development
activities, programs, clinical trials or other such activities;
(u) Accounting Matters. Except as required by GAAP, (i) make any
change in accounting methods, practices or principles or (ii) accelerate
any income, postpone any expense or reverse any reserve, except on a basis
consistent with past practice;
(v) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; or
(w) Other. Agree or commit to take any of the actions described in
Sections 4.1(a) through (v) above, or take or agree or commit to take any
action that would (i) make any representation and warranty of Company
hereunder inaccurate in any respect at, or as of any time prior to, the
Effective Time (or, in the case of representations and warranties that are
not qualified by reference to the term "Material Adverse Effect" and/or
taken as a whole, or derivatives or variations of such terms, inaccurate
in any material respect at, or as of any time prior to, the Effective
Time) or (ii) that would reasonably be expected to prevent, impair or
materially delay the ability of Company or Parent to consummate the
transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, Company shall deliver to
Parent a copy of any income or franchise Tax Return required to be filed by
Company prior to the Effective Time no later than thirty (30) days prior to the
due date for the filing thereof, which returns shall be prepared in a manner
consistent with prior practice unless otherwise required by applicable Legal
Provisions. Parent shall be entitled to review and comment on any such Tax
Returns prior to the due date for filing, and Company shall make any changes to
such Tax Returns reasonably requested by Parent.
Section 4.2 No Solicitation.
(a) From and after the date of this Agreement until the Effective
Time, Company shall not, directly or indirectly through any officer, director,
employee, representative or agent of Company or otherwise, (i) solicit, initiate
or encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, any offer or proposal for, or any indication of interest
in, (A) a merger or other business combination involving Company, (B) the
acquisition of any equity interest in, or a substantial portion of the assets
of, Company or (C) any similar transaction the effect of which would be
reasonably likely to prohibit, restrict or delay consummation of the Merger or
which would be reasonably be expected to materially dilute the benefits to
Parent of the transactions contemplated hereby (any of the foregoing being
referred to in this Agreement as an "Acquisition Proposal"), (ii) engage or
participate in negotiations or discussions concerning, or provide any non-public
information to any Person or entity relating to, any Acquisition Proposal, or
(iii) agree to, enter into, accept, approve or recommend any Acquisition
Proposal. Company represents and warrants that it has the legal right to
terminate any pending discussions or negotiations relating to an Acquisition
Proposal without payment of any fee or other penalty. Company will, and will
cause the other Persons listed in the first sentence of this Section
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4.2 to, immediately cease and cause to be terminated all discussions and
negotiations, if any, that have taken place prior to the date hereof with any
parties with respect to any Acquisition Proposal and, to the extent within its
power, to recover or cause to be destroyed all information concerning the
Company in the possession of such Persons and their affiliates, representatives
and advisors. Without limiting the generality of the foregoing, the parties
hereto understand and agree that any violation of the restrictions of this
Section 4.2 by any officer, director, employee, investment banker, consultant or
other agent of the Company shall be deemed to be a breach of this Section 4.2 by
Company.
(b) Company shall notify Parent immediately (and no later than 24
hours) after receipt by Company (or its advisors) of any Acquisition Proposal or
any request for nonpublic information in connection with an Acquisition Proposal
or for access to the properties, books or records of Company by any Person or
entity that informs Company that it is considering making, or has made, an
Acquisition Proposal. Such notice shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Preparation of Solicitation Statement.
(a) As soon as practicable after the execution of this Agreement,
Company shall prepare, with the cooperation of Parent, a solicitation statement
(the "Solicitation Statement") for the solicitation of approval of Company
Shareholders describing this Agreement and the transactions contemplated hereby
and thereby. Parent shall provide such information about Parent as Company shall
reasonably request. The information supplied by Company for inclusion in the
Solicitation Statement to be sent to Company Shareholders shall not, on the date
the Solicitation Statement is first mailed to Company Shareholders or at the
Effective Time, contain any untrue statement of a material fact, or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they are made, not false or
misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication which has become false or misleading.
Notwithstanding the foregoing, Company makes no representation, warranty or
covenant with respect to any information supplied by Parent or Merger Sub which
is contained in the Solicitation Statement. The information supplied by Parent
for inclusion in the Solicitation Statement shall not, on the date the
Solicitation Statement is first mailed to Company Shareholders, nor at the
Effective Time, contain any untrue statement of a material fact, or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which it is made, not false or misleading or
omit to state any material fact necessary to correct any statement in any
earlier communication which has become false or misleading. Notwithstanding the
foregoing, Parent and Merger Sub make no representation, warranty or covenant
with respect to any information supplied by Company which is contained in the
Solicitation Statement. The Solicitation Statement shall comply in all material
respects with the requirements of California Law.
(b) The Solicitation Statement shall constitute a disclosure
document for the offer and issuance of shares of Parent Common Stock to be
received by the holders of Company Capital Stock in the Merger. Parent and
Company shall each use reasonable commercial efforts to cause the Solicitation
Statement to comply with applicable federal and state securities laws
requirements. Each of Parent and Company agrees to provide promptly to the other
such information concerning its business and financial statements and affairs
as, in the reasonable judgment of the providing party or its counsel, may be
required or appropriate for inclusion in the Solicitation Statement or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Solicitation Statement. Company will promptly advise Parent, and
36
Parent will promptly advise Company, in writing if at any time prior to the
Effective Time either Company or Parent shall obtain knowledge of any facts that
might make it necessary or appropriate to amend or supplement the Solicitation
Statement in order to make the statements contained or incorporated by reference
therein not misleading or to comply with applicable law. The Solicitation
Statement shall contain the recommendation of the Board of Directors of Company
that the Company Shareholders approve the Merger and this Agreement and the
conclusion of the Board of Directors of Company that the terms and conditions of
the Merger are fair to and in the best interests of Company Shareholders.
Anything to the contrary contained herein notwithstanding, Company shall not
include in the Solicitation Statement any information with respect to Parent or
its affiliates or associates, the form and content of which information shall
not have been approved by Parent prior to such inclusion.
Section 5.2 Approval of Company Shareholders. Company shall promptly after
the date hereof take all action necessary in accordance with California Law and
its Articles of Incorporation and Bylaws to convene a meeting of Company
Shareholders to obtain the written consent of Company Shareholders approving the
Merger as soon as practicable. Subject to Section 5.1, Company shall use its
reasonable best efforts to solicit from all Company Shareholders written
consents in favor of the Merger and shall take all other action necessary or
advisable to secure the vote or consent of Company Shareholders required to
effect the Merger.
Section 5.3 Sale of Shares Pursuant to Regulation D. The parties hereto
acknowledge and agree that the shares of Parent Common Stock issuable to Company
Shareholders pursuant to Sections 1.6, 1.12 and 1.13 hereof shall constitute
"restricted securities" under the Securities Act. The certificates of Parent
Common Stock shall bear the legends set forth in Section 1.6(h). It is
acknowledged and understood that Parent is relying on certain written
representations made by each Company Shareholder. Company will use its
reasonable best efforts to cause each Company Shareholder to execute and deliver
to Parent an Investor Representation Statement in the form attached hereto as
Exhibit 5.3 (the "Investor Representation Statement").
Section 5.4 Access to Information.
(a) Each party shall afford the other party and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of such party's
properties, contracts, commitments, books and records and (ii) all other
information concerning the business, properties and personnel of such party and
its Subsidiaries as the other party may reasonably request.
(b) Subject to compliance with applicable law, from the date hereof
until the Effective Time, each of Parent and Company shall confer on a regular
and frequent basis with one or more representatives of the other party to report
operational matters of materiality and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.4 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
Section 5.5 Confidentiality. The parties acknowledge that Parent and
Company have previously executed a non-disclosure agreement dated September 28,
2000 (the "Confidentiality Agreement"), which Confidentiality Agreement is
hereby incorporated herein by reference and shall continue in full force and
effect in accordance with its terms.
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Section 5.6 Public Disclosure. Unless otherwise permitted by this
Agreement, Parent and Company shall consult with each other before issuing any
press release or otherwise making any public statement (including any broadly
issued statement or announcement to Company employees) or making any other
public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by Legal
Provisions or by obligations pursuant to any listing agreement with any national
securities exchange or with the NASD.
Section 5.7 Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each
party will use its reasonable best efforts in good faith to take, or cause to be
taken, all actions and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable under
applicable Legal Provisions to consummate the Merger and the other transactions
contemplated by this Agreement, including using reasonable best efforts to
accomplish the following: (i) the taking of all reasonable acts necessary to
cause the conditions to Closing to be satisfied, (ii) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or to
avoid an action or Proceeding by, any Governmental Entity, (iii) the obtaining
of all necessary consents, approvals or waivers from third parties (provided
that if obtaining any such consent, approval or waiver would require any action
other than the payment of a nominal amount, such action shall be subject to the
consent of Parent, not to be unreasonably withheld), (iv) the defending of any
Proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (v) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by, and to fully carry out the purposes of, this Agreement. Company shall give
Parent the opportunity to participate, on an advisory basis, in the defense of
any shareholder litigation against Company and/or its directors relating to the
transactions contemplated by this Agreement. Each party shall also refrain from
taking, directly or indirectly, any action contrary or inconsistent with the
provisions of this Agreement, including action that would impair such party's
ability to consummate the Merger and the other transactions contemplated hereby.
(b) In furtherance and not in limitation of the foregoing, each
party hereto agrees to make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act and any other applicable Antitrust Law with respect
to the transactions contemplated hereby as promptly as practicable after the
date hereof and to supply as promptly as practicable any additional information
and documentary material that may be requested pursuant to the HSR Act or any
other applicable Antitrust Law and to take all other actions reasonably
necessary to cause the expiration or termination of the applicable waiting
periods under the HSR Act and any other applicable Antitrust Law as soon as
practicable. For purposes of this Agreement, "Antitrust Law" means the Sherman
Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other federal, state and foreign, if any,
Legal Provisions that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization or restraint of trade or
lessening of competition through merger or acquisition.
(c) Each of Parent and Company shall, in connection with the efforts
referenced in Section 5.7(b) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act or any other applicable Antitrust Law, use its reasonable best efforts to
(i) cooperate in all respects with each other in connection with any filing or
submission and in
38
connection with any investigation or other inquiry, including any proceeding
initiated by a private party; (ii) keep the other party informed in all material
respects of any material communication received by such party from, or given by
such party to, the Federal Trade Commission (the "FTC"), the Antitrust Division
of the Department of Justice (the "DOJ") or any other Governmental Entity and of
any material communication received or given in connection with any Proceeding
by a private party, in each case regarding any of the transactions contemplated
hereby; and (iii) unless prohibited by applicable law, permit the other party to
review any material communication given by it to, and consult with each other in
advance of any meeting or conference with, the FTC, the DOJ or any such other
Governmental Entity or, in connection with any Proceeding by a private party,
with any other Person, and to the extent permitted by the FTC, the DOJ or such
other applicable Governmental Entity or other Person, give the other party the
opportunity to attend and participate in such meetings and conferences.
(d) Notwithstanding anything to the contrary contained in this
Agreement, Parent shall not have any obligation under this Agreement: (i) to
dispose or transfer, or cause any of its Subsidiaries to dispose of or transfer,
any assets, or to commit to cause Company to dispose of any assets; (ii) to
discontinue or to cause any of its Subsidiaries to discontinue offering any
product or service, or to commit to cause Company to discontinue offering any
product or service; (iii) to license or otherwise make available, or cause any
of its Subsidiaries to license or otherwise make available, to any Person, any
technology or other Intellectual Property, or to commit to cause Company to
license or otherwise make available to any Person any technology or other
Intellectual Property; (iv) to hold separate or cause any of its Subsidiaries to
hold separate any assets or operations (either before or after the Closing
Date), or to commit to cause Company to hold separate any assets or operations;
or (v) to make or cause any of its Subsidiaries to make any commitment (to any
Governmental Entity or otherwise) regarding its future operations or the future
operations of Company.
(e) Without limiting the generality of this Section 5.7, Parent and
Company shall together, or pursuant to an allocation of responsibility to be
agreed between them, coordinate and cooperate (i) in connection with the
preparation of the Solicitation Statement, (ii) in determining whether any
action by or in respect of, or filing with, any Governmental Entity is required,
or any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement, and (iii) in seeking any such
actions, consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Solicitation Statement
and seeking timely to obtain any such actions, consents, approvals or waivers.
Section 5.8 Notice of Certain Events.
(a) Company and Parent shall promptly notify each other of:
(i) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental
Entity in connection with the transactions contemplated by this
Agreement;
(iii) any Proceedings commenced or, to its knowledge,
threatened against, relating to or involving or otherwise affecting
it which relate to the consummation of the transactions contemplated
by this Agreement;
39
(iv) any event or occurrence not in the ordinary course of
business of its business or which could reasonably be expected to
have a Material Adverse Effect;
(v) its obtaining knowledge of the occurrence, or failure to
occur, of any event which occurrence or failure to occur will be
likely to cause (A) any representation or warranty made by it (and,
in the case of Parent, made by Merger Sub) contained in this
Agreement that is qualified as to materiality becoming untrue or
inaccurate in any respect or any such representation of warranty
that is not so qualified becoming untrue or inaccurate in any
material respect, (B) the failure of it (and, in the case of Parent,
by Merger Sub) to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by
it under this Agreement and (C) any fact or development which would
result in the failure of any condition hereto not to be satisfied;
(vi) the failure by it to perform, or comply with, in any
material respect any of its obligations, covenants, or agreements
contained in this Agreement; or
(vii) Company obtaining knowledge of a material breach by
Parent, or Parent obtaining knowledge of a material breach by
Company, of their respective representations, warranties or
covenants hereunder of which the breaching party has not already
given notice pursuant to clauses (v) or (vi) above.
(b) Company shall promptly notify Parent of any notice of, or other
communications relating to, a default or event that, with notice or lapse of
time or both, would become a default, received by it subsequent to the date of
this Agreement, under any Company Agreement.
(c) No notification under this Section 5.8 shall affect the
representations, warranties or obligations of the parties or the conditions to
the obligations of the parties hereunder, or limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 5.9 Cancellation of Company Options and Warrants.
(a) Company agrees to use its reasonable best efforts to obtain,
prior to the Closing Date, a binding written agreement, reasonably acceptable to
Parent, from each holder of Company Options whereby such holder agrees that if
the Company Option(s) held by such holder have not been exercised prior to the
Closing Date, then such Company Options shall not be exercised on or after the
Closing Date and shall be cancelled as of the Effective Time.
(b) Company agrees to use its reasonable best efforts to obtain,
prior to the Closing Date, a binding written agreement, reasonably acceptable to
Parent, from each holder of Company Warrants whereby such holder agrees that if
the Company Warrant(s) held by such holder have not been exercised prior to the
Closing Date, then such Company Warrants shall not be exercised on or after the
Closing Date and shall be cancelled as of the Effective Time.
Section 5.10 Blue Sky Laws. Parent shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Parent Common Stock in connection
with the Merger. Company shall use its commercially reasonable efforts to assist
Parent as may be necessary to comply with the securities and blue sky laws of
all jurisdictions which are applicable in connection with the issuance of Parent
Common Stock in connection with the Merger.
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Section 5.11 Nonaccredited Shareholders. Prior to the Closing, Company
shall not take any action, including the granting of employee stock options,
that would cause the number of Company Shareholders who are not "accredited
investors" pursuant to Regulation D promulgated under the Securities Act to
increase to more than 35 during the term of this Agreement.
Section 5.12 Listing of Additional Shares. Prior to the Effective Time,
Parent shall file with the Nasdaq National Market a Notification Form for
Listing of Additional Shares with respect to the shares of Parent Common Stock
issuable in the Merger.
Section 5.13 Employees. Company will use reasonable commercial efforts in
consultation with Parent to retain existing employees of Company through the
Effective Time and following the Merger. Company shall use its reasonable
efforts (i) to cause each of such employees set forth in Schedule 5.13(a) to
execute an Offer Letter in the form attached hereto as Exhibit 5.13(a), and (ii)
to cause each Person set forth on Schedule 5.13(b) to execute a Non-Competition
and Non-Solicitation Agreement in the form set forth as Exhibit 5.13(b).
Section 5.14 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense, except
that each of Parent and Company shall bear one-half of the filing fees under the
HSR Act; and provided further that any out-of-pocket expenses incurred by
Company in excess of $800,000 in connection with the transactions contemplated
hereby, including without limitation fees and expenses of legal counsel,
financial advisors and accountants, if any, shall remain an obligation of
Company's Shareholders, except that the fees owed to Company's financial advisor
in respect of the Contingent Payment, which fees are described in Section 5.14
of the Company Disclosure Schedule, shall be paid by the Surviving Corporation.
If Parent or Company receives any invoices for amounts in excess of said
amounts, it may pay such fees; provided, however, that such payment shall, if
not promptly reimbursed by Company Shareholders at Parent's request, constitute
"Damages" recoverable under the Escrow Agreement and such Damages shall not be
subject to the escrow threshold set forth in Section 8.2(d) and, to the extent
not otherwise recoverable under the Escrow Agreement, may be offset against any
Contingent Payments.
Section 5.15 Registration of Shares of Parent Common Stock Issued in the
Merger.
(a) Parent shall use its reasonable commercial efforts to cause the
shares of Parent Common Stock issued in the Merger (including Escrow Shares) and
any shares of Parent Common Stock issued in payment of the Contingent Payments
(the "Contingent Shares" and, together with the shares of Parent Common Stock
issued in the Merger, the "Registrable Securities") to be registered under the
Securities Act so as to permit the resale thereof, and in connection therewith
shall use its reasonable commercial efforts to prepare and file a registration
statement under the Securities Act (the "Registration Statement") with the SEC
as soon as practicable after the Effective Time, in the case of the shares
issued in the Merger, and, in the case of Contingent Shares, as soon as
practicable after the issuance thereof, and shall use its reasonable commercial
efforts to cause the Registration Statement to become effective as soon as
possible after the filing thereof; provided, however, that each holder of
Registrable Securities ("Holder") shall provide all such information and
materials to Parent and take all such action as may be required in order to
permit Parent to comply with all applicable requirements of the SEC and to
obtain any desired acceleration of the effective date of such Registration
Statement. Such provision of information and materials is a condition precedent
to the obligations of Parent pursuant to this Section 5.15. The offering made
pursuant to such registration shall not be underwritten.
(b) Parent shall (i) prepare and file with the SEC the Registration
Statement in accordance with Section 5.15(a) hereof with respect to the shares
of Registrable Securities and shall use
41
all reasonable commercial efforts to cause the Registration Statement to remain
effective for a period ending on the first to occur of (A) the date all of the
shares registered thereunder and not previously sold by the Holders may be sold
under Rule 144 in one three-month period (assuming compliance by the Holders
with the provisions thereof) or (B) two (2) years after the Effective Time; (ii)
prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith as may be
necessary to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all securities proposed to be registered in the
Registration Statement until the termination of effectiveness of the
Registration Statement; and (iii) furnish to each Holder such number of copies
of any prospectus (including any amended or supplemented prospectus) in
conformity with the requirements of the Securities Act, and such other
documents, as each Holder may reasonably request in order to effect the offering
and sale of the Registrable Securities to be offered and sold, but only while
Parent shall be required under the provisions hereof to cause the Registration
Statement to remain current.
(c) Notwithstanding any other provision of this Section 5.15, Parent
shall have the right at any time to require that all Holders suspend further
open market offers and sales of Registrable Securities whenever, and for so long
as, in the reasonable judgment of Parent in good faith after consultation with
counsel, there is in existence material undisclosed information or events with
respect to Parent (the "Suspension Right"). In the event Parent exercises the
Suspension Right, such suspension will continue for the period of time
reasonably necessary for disclosure to occur at a time that is not materially
detrimental to Parent or until such time as the information or event is no
longer material, each as determined in good faith by Parent after consultation
with counsel, but in no event shall any single suspension continue for more than
120 consecutive days. Parent will promptly give the Shareholders' Agent notice,
in a writing signed by an executive officer of Parent of any such suspension
(the "Suspension Notice"). Parent agrees to notify the Shareholders' Agent
promptly upon termination of the suspension (the "Resumption Notice"). Upon
receipt of either a Suspension Notice or Resumption Notice, the Shareholders'
Agent shall immediately notify each Holder concerning the status of the
Registration Statement. In addition, each Holder shall agree in the Investor
Representation Statement that if such Holder intends to sell Registrable
Securities pursuant to the Registration Statement, such Holder will give at
least three (3) business days' prior written notice to Parent of any such
proposed sale of Registrable Securities pursuant to the Registration Statement
(which notice may cover sales to be made within a ten (10) business day period
following the date of Parent's response) and not to make such sale (i) unless
such three (3) business days elapse without response from Parent, or (ii) in the
event Parent responds by stating that an amendment to the Registration Statement
or supplement to the prospectus must be filed in order to cause the prospectus
included in such Registration Statement, as then in effect, not to include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing, until Parent notifies the Holder
that the Registration Statement has been amended or the prospectus supplemented
as required, which Parent shall do as soon as reasonably practicable subject to
the first two sentences of this Section 5.15(c). Parent shall use commercially
reasonable efforts to respond to Holder as soon as reasonably practicable after
receiving such notice of proposed sale. No prior notice of sale shall be
required to the extent such Holder is selling Registrable Securities other than
pursuant to the Registration Statement. For purposes of this Section 5.15(c),
(i) the term "business day" means any day that the Nasdaq National Market is
open for trading and (ii) in determining the three (3) business day prior notice
requirement, such period shall commence on the business day the notice is
received by Parent if such notice is received by Parent by 12:00 noon New York
City time or on the next business day if received by Parent after such time.
(d) Parent shall pay all of the out-of-pocket expenses, other than
underwriting discounts and commissions and fees and expenses of counsel for the
Holders, if any, incurred in connection with any registration of Registrable
Securities pursuant to this Section 5.15, including, without
42
limitation, all registration and filing fees, printing expenses, transfer
agents' and registrars' fees and the fees and disbursements of Parent's outside
counsel and independent accountants.
(e) To the fullest extent permitted by law, the Parent will
indemnify, defend, protect and hold harmless each selling Holder, each
underwriter of Parent Common Stock being sold by such Holders pursuant to this
Section 5.15, each Person, if any, who controls any such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act and their
respective affiliates, officers, directors, partners, successors and assigns
(each a "Holder Indemnitee") against all actions, claims, losses, damages,
liabilities and expenses to which they or any of them become subject under the
Securities Act, the Exchange Act or under any other statute or at common law or
otherwise and, except as hereinafter provided, will promptly reimburse each such
Holder Indemnitee for any legal or other expenses reasonably incurred by them or
any of them in connection with investigating or defending any actions, whether
or not resulting in any liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of material fact in any Registration
Statement and any prospectus filed pursuant to Section 5.15 or any
post-effective amendment thereto or arise out of or are based upon any omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or any violation by the
Parent of any rule or regulation promulgated under the Securities Act, the
Exchange Act or any Legal Provision applicable to the Parent and relating to
action or inaction required of the Parent in connection with such registration;
provided, however, that the Parent shall not be liable to any such Holder
Indemnitee in respect of any claims, losses, damages, liabilities and expenses
resulting from any untrue statement or alleged untrue statement, or omission or
alleged omission, made in reliance upon and in conformity with information
furnished in writing to the Parent by such Holder Indemnitee specifically for
use in connection with such registration statement and prospectus or
post-effective amendment.
(f) To the fullest extent permitted by law, each selling Holder of
Registrable Securities registered in accordance with Section 5.15 will indemnify
the Parent, each Person, if any, who controls the Parent within the meaning of
the Securities Act or the Exchange Act, each underwriter of Parent Common Stock
and their respective affiliates, officers, directors, partners, successors and
assigns (each a "Parent Indemnitee") against any actions, claims, losses,
damages, liabilities and expenses to which they or any of them may become
subject under the Securities Act, the Exchange Act or under any other statute or
at common law or otherwise, and, except as hereinafter provided, will promptly
reimburse each Parent Indemnitee for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact in any
Registration Statement and any prospectus filed pursuant to Section 5.15 or any
post-effective amendment thereto, or any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, which untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
information furnished in writing to the Parent by such Holder specifically for
use in connection with such registration statement, prospectus or post-effective
amendment; provided, however, that the obligations of each such selling Holder
hereunder shall be limited to an amount equal to the proceeds to such Holder
from the sale of such Holder's Registrable Securities as contemplated herein.
(g) Each Person entitled to indemnification under this Section 5.15
(a "Registration Indemnified Person") shall give notice to the party required to
provide indemnification (the "Registration Indemnifying Person") promptly after
such Registration Indemnified Person has actual knowledge of any claim as to
which indemnity may be sought and shall permit the Registration Indemnifying
Person to assume the defense of any such claim and any litigation resulting
therefrom, provided that counsel for the Registration Indemnifying Person who
conducts the defense of such claim or any litigation resulting
43
therefrom shall be approved by the Registration Indemnified Person (whose
approval shall not unreasonably be withheld), and the Registration Indemnified
Person may participate in such defense at such party's expense (unless the
Registration Indemnified Person has reasonably concluded that there may be a
conflict of interest between the Registration Indemnifying Person and the
Registration Indemnified Person in such action, in which case the fees and
expenses of one counsel for such Registration Indemnified Person(s) shall be at
the expense of the Registration Indemnifying Person), and provided further that
the failure of any Registration Indemnified Person to give notice as provided
herein shall not relieve the Registration Indemnifying Person of its obligations
under this Section 5.15 except to the extent the Registration Indemnifying
Person is materially prejudiced thereby. No Registration Indemnifying Person, in
the defense of any such claim or litigation, shall (except with the consent of
each Registration Indemnified Person) consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Registration Indemnified Person of a
release from all liability in respect to such claim or litigation. Each
Registration Indemnified Person shall furnish such information regarding itself
or the claim in question as a Registration Indemnifying Person may reasonably
request in writing and as shall be reasonably required in connection with the
defense of such claim and litigation resulting therefrom.
(h) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which the Parent or any Holder
makes a claim for indemnification pursuant to this Section 5.15 but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding that this Section 5.15 provides for indemnification, in such
case, then the Parent and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative fault
of the Parent on the one hand and of the Holder on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations or, if the
allocation provided herein is not permitted by applicable law, in such
proportion as shall be permitted by applicable law and reflect as nearly as
possible the allocation provided herein. The relative fault of the Parent on the
one hand and of the Holder on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Parent on the one hand or by the Holder on the
other, and each party's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided, however,
that in any such case (i) no Holder will be required to contribute any amount in
excess of the proceeds received by such Holder from the sale of Registrable
Securities pursuant to the Registration Statement; and (ii) no Person guilty of
fraudulent misrepresentation within the meaning of Section 11(f) of the
Securities Act will be entitled to contribution from any Person or entity who
was not guilty of such fraudulent misrepresentation.
Section 5.16 Indemnification and Insurance.
(a) The Company shall, and from and after the Effective Time, the
Surviving Corporation (the Company and the Surviving Corporation being referred
to in this Section 5.16 as the "Indemnifying Party") shall, indemnify, defend
and hold harmless each Person who is now, or has been at any time prior to the
date of this Agreement or who becomes prior to the Effective Time, an officer,
director or employee of Company (the "Indemnified Party") against all losses,
claims, damages, costs, expenses, liabilities or judgments or amounts that are
paid in settlement with the approval of the Indemnifying Party (which approval
shall not be unreasonably withheld) of or in connection with any Proceeding
based in whole or in part on or arising in whole or in part out of the fact that
such Person is or was a director, officer or employee of Company, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after, the Effective Time,
44
including, without limitation, all losses, claims, damages, costs, expenses,
liabilities or judgments based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Agreement or the transactions contemplated
hereby, in each case to the full extent a corporation is permitted under
applicable law to indemnify its own directors, officers and employees, as the
case may be. Any Indemnified Party wishing to claim indemnification under this
Section 5.16(a) shall promptly notify the Indemnifying Party upon learning of
any such Proceeding, but the failure to so notify shall not relieve the
Indemnifying Party of any liability it may have to such Indemnified Party if
such failure does not materially prejudice the Indemnifying Party. The
Indemnifying Party may, at its own expense: (i) participate in the defense of
any Proceeding; or (ii) at any time during the course of any such Proceeding,
assume the defense thereof, unless the Indemnified Parties (or any of them)
determine in good faith (after consultation with legal counsel) that there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of the Indemnifying Party and any of
such Indemnified Parties, provided that the Indemnifying Party's counsel shall
be reasonably satisfactory to the Indemnified Parties. If the Indemnifying Party
assumes such defense, the Indemnified Parties shall have the right (but not the
obligation) to participate in the defense thereof and to employ counsel, at
their own expense, separate from the counsel employed by the Indemnifying Party.
Whether or not the Indemnifying Party chooses to assume the defense of any such
claim, suit, action or proceeding, the Indemnifying Party and Parent shall
cooperate in the defense thereof. If the Indemnifying Party fails to so assume
the defense thereof, the Indemnified Parties may retain counsel reasonably
satisfactory to the Indemnifying Party and the Indemnifying Party shall pay the
reasonable fees and expenses of such counsel promptly after statements therefor
are received; provided that the Indemnified Parties on whose behalf expenses are
advanced provide any undertaking contemplated by Section 317(f) of the
California Law in the case of a claim prior to the Effective Time and by Section
145(e) of the Delaware Law in the case of a claim after the Effective Time.
Neither Parent nor the Surviving Corporation shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld). The Indemnified Parties as a group may retain only one law firm (in
addition to local counsel) to represent them with respect to a single action
unless any Indemnified Party determines in good faith (after consultation with
legal counsel) that there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more Indemnified Parties.
(b) From and after the Effective Time, the Surviving Corporation
will fulfill, assume and honor in all respects the obligations of Company
pursuant to Company's Articles of Incorporation and any indemnification
agreement between Company and any of Company's directors and officers existing
and in force as of the Effective Time.
(c) The obligations of Parent and the Surviving Corporation under
this Section 5.16 are subject to the conditions that each Indemnified Party
shall comply with the reasonable requests of the Indemnifying Party and Parent
in defending or settling any action hereunder and that any Indemnified Party
shall approve any proposed settlement of any such action if (i) such settlement
involves no finding or admission of any liability by any Indemnified Party and
(ii) the sole relief provided in connection with such settlement is monetary
damages that are paid in full by the Indemnifying Party.
(d) If the Surviving Corporation does not have sufficient capital to
comply with its obligations under Section 5.16, Parent shall provide the
Surviving Corporation with such capital.
(e) Notwithstanding anything herein to the contrary, no Indemnified
Party (including without limitation any Company Indemnified Person) shall be
entitled to make any claim for indemnification against Parent, the Surviving
Corporation or any of their respective Affiliates by reason of the fact that it,
he or she was a shareholder, director, officer, employee or agent of any such
entity or was serving at the request of any such entity as a partner, trustee,
director, officer, employee or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in
45
settlement, losses, expenses or otherwise and whether such claim is pursuant to
any statute, charter document, bylaw, agreement or otherwise) with respect to
any action, suit, proceeding, complaint, claim or demand brought by any Parent
Indemnified Person against such Indemnified Party (whether such action, suit,
proceeding, complaint, claim or demand is pursuant to this Agreement, applicable
law or otherwise).
Section 5.17 Conversion of Company Preferred Stock. Company shall use its
reasonable best efforts to ensure that all outstanding Company Preferred Stock
shall have been converted into Company Common Stock in accordance with the
Articles of Incorporation of Company.
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall be
approved and adopted by the Company Shareholders by the requisite vote
under California Law and the Company's Articles of Incorporation.
(b) No Injunctions or Restraints: Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall
be and remain in effect, nor shall any Proceeding brought by an
administrative agency or commission or other Governmental Entity, domestic
or foreign, seeking any of the foregoing be pending, which would have a
Material Adverse Effect on either Parent or on Parent combined with the
Surviving Corporation after the Effective Time, nor shall there be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger, which makes the consummation
of the Merger illegal.
(c) Governmental Approval. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been
terminated or shall have expired. Parent, Company and Merger Sub and their
respective Subsidiaries shall have timely obtained from each Governmental
Entity all other approvals, waivers and consents, if any, necessary for
consummation of or in connection with the Merger and the several
transactions contemplated hereby, including such approvals, waivers and
consents as may be required under the Securities Act and under state
securities or "blue sky" laws, other than filings and approvals relating
to the Merger or affecting Parent's ownership of Company or any of its
properties if failure to obtain such approval, waiver or consent would not
have a Material Adverse Effect on Parent after the Effective Time.
Section 6.2 Additional Conditions to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Parent:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties of Company in this Agreement that is
expressly qualified by a reference to materiality shall be true and
correct in all respects as so qualified, and each of the representations
and
46
warranties of Company in this Agreement that is not so qualified shall be
true and correct in all material respects, each as of the date when made
and at and as of the Closing, except for such changes as are permitted by
this Agreement and except to the extent a representation or warranty
speaks only as of an earlier date, which shall be true and correct as of
such date.
(b) Performance of Obligations. Company shall have performed and
complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by
it as of the Closing.
(c) Certificate of Officers. Parent and Merger Sub shall have
received a certificate executed on behalf of Company by the chief
executive officer and chief financial officer of Company certifying that
the conditions set forth in Section 6.2(a), (b) and (g) have been
satisfied.
(d) Third Party Consents. All consents or approvals of
non-Governmental Entities required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement shall
have been obtained and shall be in full force and effect, except where the
failure to obtain such consents or approvals individually or in the
aggregate would not have a Material Adverse Effect on Company.
(e) No Governmental Litigation. There shall not be pending or
threatened any suit, action or proceeding by any Governmental Entity, and
neither Parent nor Company shall have received any communication from any
Governmental Entity in which such Governmental Entity indicates the
probability of commencing any Proceeding or taking any other action, (i)
challenging the acquisition by Parent or Merger Sub of any shares of
Company Common Stock, seeking to restrain or prohibit the consummation of
the Merger, or seeking to place limitations on the ownership of shares of
Company Common Stock (or shares of common stock of the Surviving
Corporation) by Parent or Merger Sub or seeking to obtain from Company,
Parent or Merger Sub any damages that are material in relation to Company,
(ii) seeking to prohibit or materially limit the ownership or operation by
Company, Parent or any of Parent's Subsidiaries of any material portion of
any business or of any assets of Company, Parent or any of Parent's
Subsidiaries, or to compel Company, Parent or any of Parent's Subsidiaries
to divest or hold separate any material portion of any business or of any
assets of Company, Parent or any of Parent's Subsidiaries, as a result of
the Merger or (iii) seeking to prohibit Parent or any of its Subsidiaries
from effectively controlling in any material respect the business or
operations of Company.
(f) Escrow Agreement. Parent, Merger Sub, Company, Escrow Agent and
the Shareholders' Agent shall have entered into the Escrow Agreement
contemplated by Article VIII in substantially the form attached hereto as
Exhibit 6.2(f) (the "Escrow Agreement").
(g) No Material Adverse Change. No event, occurrence or development
shall have occurred since the date of this Agreement and be continuing
which has had or would be reasonably likely to result in any change,
effect, event, occurrence or state of facts (or any development that has
had or is reasonably likely to have any change or effect) that,
individually or in the aggregate, has had or would have a Material Adverse
Effect on Company.
(h) Investor Representation Statement; Number of Shareholders. Each
of the Company's shareholders shall have delivered to Parent a signed
Investor Representation Statement and each such Statement shall be in full
force and effect, and there shall be no more than thirty-five (35) Company
Shareholders who are (i) U.S. persons as defined under Regulation
47
S under the Securities Act ("U.S. Person") and (ii) not "accredited
investors" as defined in Rule 501 under the Securities Act.
(i) Purchaser Representative. There shall be a Purchaser
Representative (as defined in Regulation D under the Securities Act),
reasonably satisfactory to Parent, representing each holder of Company
Capital Stock who is a U.S. Person and not an "accredited investor" as
defined in Rule 501 under the Securities Act, and such Purchaser
Representative shall have executed and delivered documentation reasonably
satisfactory to Parent.
(j) Offer Letters and Non-Competition and Non-Solicitation
Agreements. The employees of Company set forth on Schedule 5.13(a) shall
have accepted employment with Merger Sub pursuant to the terms of an offer
letter substantially in the form attached hereto as Exhibit 5.13(a), and
shall have entered into Non-Competition and Non-Solicitation Agreements
substantially in the form attached as Exhibit 5.13(b).
(k) Dissenters' Rights. Not more than five percent (5%) of the
Company Capital Stock Outstanding immediately prior to the Effective Time
shall be eligible as Dissenters' Shares.
(l) Conversion of Preferred Stock. All shares of Company Preferred
Stock shall have converted into Company Common Stock in accordance with
Company's Articles of Incorporation prior to the Effective Time.
(m) Options and Warrants. All Company Options and Company Warrants
outstanding on the Closing Date shall be cancelled as provided in Section
5.9.
(n) Opinion. Counsel for Company shall have delivered to Parent an
opinion in substantially the form attached hereto as Exhibit 6.2(n).
(o) Lockup Agreements. Each Company Shareholder who will receive
shares of Parent Common Stock at the Effective Time having a value (based
on the Average Closing Price) of $50,000 or more shall have entered into a
"lock-up" agreement in substantially the form attached hereto as Exhibit
6.2(o).
(p) Waiver of Severance Payment. Andrew Barnes shall have executed
such documentation as Parent may reasonably request to evidence the waiver
of payments in the nature of compensation as specified in Section 280G of
the Code and the proposed regulations thereunder (such as severance
payments, the acceleration of the vesting of options, the lapse of
repurchase rights with respect to shares of restricted stock and
forgiveness of promissory notes) to the extent the approval by Company
Shareholders necessary to exempt such payments and transactions from the
provisions of Section 280G of the Code is not obtained.
Section 6.3 Additional Conditions to Obligations of Company. The
obligations of Company to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Company:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties of Parent and Merger Sub in this Agreement
that is expressly qualified by a reference to materiality shall be true
and correct in all respects as so qualified, and each of the
representations and warranties of Parent and Merger Sub in this Agreement
that is not so qualified shall be true and correct in all material
respects, each as of the date when made and at
48
and as of the Closing, except for such changes as are permitted by this
Agreement and except to the extent a representation or warranty speaks
only as of an earlier date, which shall be true and correct as of such
date.
(b) Performance of Obligations. Parent and Merger Sub shall have
performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by them as of the Closing.
(c) Certificate of Officers. Company shall have received a
certificate executed on behalf of Parent and Merger Sub by the chief
executive officer and chief financial officer of Parent and Merger Sub,
respectively, certifying that the conditions set forth in Sections 6.3(a),
(b) and (d) have been satisfied.
(d) No Material Adverse Change. No event, occurrence or development
shall have occurred since the date of this Agreement and be continuing
which has had or would be reasonably likely to result in any change,
effect, event, occurrence or state of facts (or any development that has
had or is reasonably likely to have any change or effect) that,
individually or in the aggregate, has had or would have a Material Adverse
Effect on Parent.
(e) Nasdaq Listing. The Parent Common Stock to be issued in the
Merger shall have been authorized for listing on the Nasdaq National
Market upon official notice of issuance.
(f) Opinion of Counsel. Counsel for Parent shall have delivered to
Company an opinion in substantially the form of Exhibit 6.3(f).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the Company Shareholders (with
respect to Sections 7.1(b), (c) and (d), by written notice by the terminating
party to the other party):
(a) by the mutual written consent of Parent and Company;
(b) by either Parent or Company if the Merger shall not have been
consummated by March 31, 2001, provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of or resulted in the failure of the Merger to occur on
or before such date;
(c) by either Parent or Company if a court of competent jurisdiction
or other Governmental Entity shall have issued a nonappealable final
order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, except if the party relying on such order, decree or ruling or
other action has not complied with its obligations under this Agreement;
(d) by either Parent or Company if they are not in material breach
of their obligations under this Agreement and if there has been a breach
of any representation, warranty, covenant or agreement on the part of the
other party set forth in this Agreement, which breach (i) causes the
conditions set forth in Section 6.1 or 6.2 (in the case of termination by
Parent) or Section 6.1 or
49
6.3 (in the case of termination by Company) not to be satisfied and (ii)
shall not have been cured within twenty (20) business days following
receipt by the breaching party of written notice of such breach from the
other party.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, there shall be no liability or obligation
on the part of Parent, Company, Merger Sub or their respective officers,
directors or stockholders, except to the extent that such termination results
from the breach by a party of any of its representations, warranties or
covenants set forth in this Agreement; provided that the provisions of Section
7.1 shall remain in full force and effect and survive any termination of this
Agreement. Notwithstanding the foregoing, if (a) (i) Company or Parent shall
terminate this Agreement pursuant to Section 7.1(b) because the Company
Shareholders do not approve the Merger or (ii) Parent terminates this Agreement
pursuant to Section 7.1(d) hereof, and (b) in either such case a bona fide
Acquisition Proposal shall have been communicated to the Company's Board of
Directors or publicly disclosed or has been made directly to the Company's
Shareholders or any person has publicly announced or communicated to the
Company's Board of Directors an intention (whether or not conditional) to make a
bona fide Acquisition Proposal, then Company shall pay to Parent an amount equal
to $2,000,000 (the "Termination Fee"), payable by wire transfer of immediately
available funds, such payment to be made immediately following termination of
this Agreement. Simultaneously with the payment of the Termination Fee, Company
shall reimburse Parent for all of its documented out-of-pocket expenses incurred
in connection with this Agreement and the transactions contemplated hereby
(including documented fees and expenses of accountants, attorneys and financial
advisors) up to an aggregate of $500,000 (the "Expenses"). Acceptance by Parent
of the Termination Fee and the Expenses shall constitute conclusive evidence
that this Agreement has been validly terminated and upon payment of such amount
Company shall be fully released and discharged from any liability or obligation
resulting from or under this Agreement. Company acknowledges that the agreements
contained in this Section 7.2 are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent would
not enter into this Agreement. If Parent shall successfully bring an action to
enforce its rights under this Section 7.2, Company shall reimburse Parent for
its reasonable fees and expenses in connection therewith and shall pay Parent
interest on the Termination Fee and Expenses from the date the Termination Fee
becomes payable to the date of payment at the prime rate in effect on the date
the Termination Fee became payable as published in The Wall Street Journal.
Section 7.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger to the Company Shareholders; provided, however, that after any such
approval, there shall be made no amendment that by law requires further approval
by the Company Shareholders without such approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 7.4 Extension, Waiver. At any time prior to the Effective Time,
the parties hereto, to the extent legally allowed, may (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive,
to the extent permitted by applicable law, compliance with any of the agreements
or conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shay be valid only if set forth in a written
instrument signed on behalf of such party.
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ARTICLE VIII
ESCROW AND INDEMNIFICATION
Section 8.1 Escrow Fund.
(a) At the Closing, the Escrow Shares shall be registered in the
name of, and be deposited, together with the Escrow Cash, with U.S. Bank Trust
National Association (or other institution selected by Parent with the
reasonable consent of Company) as escrow agent (the "Escrow Agent"), such
deposit and any deposit pursuant to Section 8.1(b) to constitute the "Escrow
Fund" and to be governed by the terms set forth herein and in the Escrow
Agreement. The Escrow Fund shall be available to compensate Parent pursuant to
the indemnification obligations of the Company Shareholders.
(b) Dividends, whether paid in cash, shares of Parent Common Stock
or other securities, and other distributions of any kind declared with respect
to the Escrow Shares shall be deposited with the Escrow Agent pursuant to
Section 8.1(a) hereof and shall be part of the Escrow Fund. Each Company
Shareholder will have voting rights with respect to the Escrow Shares deposited
in the Escrow Fund with respect to such shareholder so long as such Escrow
Shares are held in escrow, and Parent will take all reasonable steps necessary
to allow the exercise of such rights. While the Escrow Shares remain in the
Escrow Agent's possession pursuant to this Agreement, the Company Shareholders
will retain and will be able to exercise all other incidents of ownership of
said Escrow Shares which are not inconsistent with the terms and conditions of
this Agreement.
Section 8.2 Indemnification.
(a) Survival of Representations and Warranties. All representations
and warranties made by Company, Parent or Merger Sub herein, or in any
certificate, schedule or exhibit delivered pursuant hereto, shall survive the
Closing and continue in full force and effect until the second anniversary of
the Closing Date; provided, however, that the representations and warranties
contained in Sections 2.10, 2.16 and 2.17 shall survive until 30 days after the
expiration of the applicable statute of limitations period and any extensions
thereof and the representations and warranties contained in Section 2.4 shall
survive indefinitely.
(b) Indemnification by Company Shareholders. Subject to the
limitations set forth in this Article VIII, the Company Shareholders will
indemnify and hold harmless Parent and the Surviving Corporation and its
respective officers, directors, agents, attorneys and employees, and each
Person, if any, who controls or may control Parent or the Surviving Corporation
within the meaning of the Securities Act (hereinafter "Parent Indemnified
Persons") from and against any and all losses, costs, damages, liabilities and
expenses arising from claims, demands, actions, causes of action, including,
without limitation, legal fees, (collectively, "Damages") incurred or sustained
by Parent Indemnified Persons as a result of:
(i) any inaccuracy or breach of, or any claim by a third party
alleging facts that, if true, would mean Company has breached, any
representation or warranty by Company contained herein or under any
other agreement executed and delivered by the parties in furtherance
of the transactions described herein (without regard to any
materiality qualifier contained in such representation or warranty);
or
(ii) a breach by Company of any covenant or other agreement
contained herein or under any other agreement executed and delivered
by the parties in furtherance of the transactions described herein.
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Except as provided in the next paragraph, the sole recourse of the Parent
Indemnified Persons shall be against the Escrow Fund and claims against the
Escrow Fund shall be the sole and exclusive remedy of Parent Indemnified Persons
for any Damages hereunder.
The Company, Parent and the Surviving Corporation acknowledge that
such Damages, if any, would relate to unresolved contingencies existing at the
Effective Time, which if resolved at the Effective Time would have led to a
reduction in the Merger Consideration. The total liability for Damages resulting
from breaches of representations and warranties contained in Sections 2.4, 2.7,
2.10, 2.16 and 2.17 shall be the total amount of the Merger Consideration and
the Contingent Payments (if and when paid) and, to the extent the Escrow Fund is
not sufficient to satisfy such indemnification obligation, Parent may, in
addition to any other remedies it may have, offset such obligation against any
Contingent Payments due hereunder. Nothing in this Agreement shall limit the
liability in amount or otherwise (i) of Company for any breach of any
representation, warranty or covenant if the Merger does not close, (ii) of any
Company Shareholder in connection with any breach by such shareholder of any
representation or covenant in the Investor Representation Statement or Voting
Agreement delivered pursuant hereto or (iii) of Company or any Company
Shareholder with respect to fraud, criminal activity or intentional breach of
any covenant contained in this Agreement.
(c) Indemnification by Parent and Merger Sub. Subject to the
limitations set forth in this Article VIII, Parent hereby agrees to indemnify,
defend and hold harmless the Company Shareholders and their respective officers,
directors, agents, attorneys and employees (hereinafter "Company Indemnified
Persons") from and against any and all Damages incurred or sustained by Company
Indemnified Persons as a result of:
(i) any inaccuracy or breach of, or any claim by a third party
alleging facts that, if true, would mean Parent or Merger Sub has
breached, any representation or warranty by it contained herein or
under any other agreement executed and delivered by the parties in
furtherance of the transactions described herein (without regard to
any materiality qualifier contained in such representation or
warranty); or
(ii) a breach by Parent or Merger Sub of any covenant or other
agreement contained herein (other than the covenants and agreements
set forth in Section 5.15, which are specifically covered in Section
5.15) or under any other agreement executed and delivered by the
parties in furtherance of the transactions described herein.
The sole recourse of the Company Indemnified Persons from any Damages shall be
indemnification under this Article VIII. The aggregate indemnification
obligations of Parent and Merger Sub hereunder shall not exceed $1,000,000,
provided however that there shall be no limitation on liability of Parent or
Merger Sub for (i) any breach of any representation, warranty or covenant if the
Merger does not close or (ii) fraud, criminal activity or intentional breach of
any covenant contained in this Agreement.
(d) Threshold for Claims. No claim for Damages arising out of any
misrepresentation or breach of the representations and warranties shall be made
under Article VIII unless the aggregate of Damages exceeds $20,000 for which
claims are made hereunder by the Company Indemnified Persons or Parent
Indemnified Persons, as the case may be, in which case the Company Indemnified
Person or Parent Indemnified Person, as the case may be, shall be entitled to
seek compensation for all Damages without regard to the limitation set forth in
this Section 8.2(d).
52
Section 8.3 Escrow Period: Release From Escrow.
(a) As promptly as practicable after Parent files its Annual Report
on Form 10-K with the SEC for the year ended December 31, 2001 (the "Parent
10-K"), the Escrow Agent shall release from escrow to the Company Shareholders
their pro rata portion of the Escrow Fund remaining; provided, however, that a
portion of the Escrow Fund which, in the reasonable judgment of Parent, subject
to the objection of the Shareholders' Agent and the subsequent arbitration of
the matter in the manner provided in Section 8.7 hereof, is necessary to satisfy
any unsatisfied claims specified in any Escrow Claim Certificate theretofore
delivered to the Escrow Agent on or prior to the date the Parent 10-K is filed
with the SEC with respect to facts and circumstances existing on or prior to
such date, shall remain in the Escrow Fund until such claims have been resolved.
Any portion of the Escrow Fund retained pursuant to the proviso in the first
sentence of this Section 8.3(a) shall be released to Company Shareholders or
released to Parent (as appropriate) promptly upon resolution of each specific
indemnification claim involved. Escrow Shares and Escrow Cash shall be released
to the respective Company Shareholders in proportion to their respective share
of the Merger Consideration. Parent will take such action as may be necessary to
cause such certificates to be issued in the names of the appropriate Persons.
Certificates representing Escrow Shares so issued that are subject to resale
restrictions under applicable securities laws will bear a legend to that effect.
No fractional shares shall be released and delivered from Escrow to the Company
Shareholders. In lieu of any fraction of an Escrow Share to which a Company
Shareholder would otherwise be entitled, such holder will receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of such
fraction multiplied by the average of the closing prices of Parent Common Stock
as reported on the Nasdaq National Market during the twenty trading days ending
one day prior to the date such shares are released from the Escrow Fund.
(b) No Escrow Shares or any beneficial interest therein may be
pledged, sold, assigned or transferred, including by operation of law, by any
Company Shareholder or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of any such shareholder, prior to
the delivery to such shareholder of his pro rata portion of the Escrow Shares by
the Escrow Agent as provided herein.
(c) The Escrow Agent is hereby granted the power to effect any
transfer of Escrow Shares contemplated by this Agreement. Parent will cooperate
with the Escrow Agent in promptly issuing stock certificates to effect such
transfers.
Section 8.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on
or before the date of filing of the Parent 10-K of a certificate signed by any
officer of Parent (an "Escrow Claim Certificate") stating that with respect to
the indemnification obligations of the Company Shareholders set forth in Section
8.2, Damages exist and specifying in reasonable detail the individual items of
such Damages included in the amount so stated, the date each such item was paid,
properly accrued or arose, and the nature of the misrepresentation, breach of
warranty, covenant or claim to which such item is related, the Escrow Agent
shall, subject to the provisions of this Article VIII, deliver to Parent out of
the Escrow Fund, as promptly as practicable, cash equal to the amount of such
Damages. Notwithstanding the foregoing, the Shareholders' Agent may elect to pay
all or a portion of the Damages in shares of Parent Common Stock if Parent and
Shareholders' Agent agree that payment in shares of Parent Common Stock will not
jeopardize the treatment of the Merger as a reorganization under Section 368(a)
of the Code, it being agreed that if Parent and Shareholders' Agent cannot reach
agreement regarding the use of shares of Parent Common Stock to pay the Damages,
then Parent's determination shall be final and binding on the parties. In the
event the amount of Damages exceeds the amount of Escrow Cash available for the
payment of Damages and Parent determines that payment of Damages in shares of
Parent Common Stock will jeopardize the treatment of the Merger as a
reorganization under Section 368(a) of the Code, then Shareholders' Agent shall
arrange for the sale, on behalf of the Company Shareholders, of
53
such number of the Escrow Shares as is necessary to pay the Damages to Parent in
cash. For purposes of this Section 8.4, the Parent Common Stock delivered to
Parent from the Escrow Fund shall be valued at the average of the closing prices
of Parent Common Stock as reported on the Nasdaq National Market during the
twenty trading days ending one day prior to the date such shares of Parent
Common Stock are delivered to Parent.
Section 8.5 Objections to Claims.
(a) At the time of delivery of any Escrow Claim Certificate to the
Escrow Agent, a duplicate copy of such Escrow Claim Certificate shall be
delivered to the Shareholders' Agent and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no delivery of Parent Common Stock
and/or cash pursuant to Section 8.4 hereof unless the Escrow Agent shall have
received written authorization from the Shareholders' Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of the Parent Common Stock and/or cash in accordance with
Section 8.4 hereof, provided that no such payment or delivery may be made if the
Shareholders' Agent shall object in a written statement to the claim made in the
Escrow Claim Certificate, and such statement shall have been delivered to the
Escrow Agent and to Parent prior to the expiration of such thirty (30) day
period; and provided further that if Shareholders' Agent shall only object to a
portion of the claim, the Escrow Agent shall pay to Parent the uncontested
portion of the claim.
(b) In case the Shareholders' Agent shall so object in writing to
any claim or claims by Parent made in any Escrow Claim Certificate, which
objection shall state in reasonable detail the basis for such objection, Parent
shall have thirty (30) days to respond in a written statement to the objection
of the Shareholders' Agent. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agent and Parent shall attempt in
good faith for sixty (60) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Shareholders' Agent and
Parent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Parent Common Stock or other property from the Escrow Fund in
accordance with the terms thereof.
Section 8.6 Claims by Company Indemnitees.
(a) Subject to the provisions of this Article VIII, upon receipt by
Parent of a certificate signed by the Shareholders' Agent (an "Agent
Certificate") that with respect to the indemnification obligations of Parent and
Merger Sub set forth in Section 8.2, Damages exist and specifying in reasonable
detail the individual items of Damages included in the amount so stated, the
date each item was paid or properly accrued or arose, and the nature of the
misrepresentation, breach of warranty or covenant or other claim to which such
item is related, the Parent shall, subject to the provisions of this Article
VIII, deliver to the Shareholders' Agent as promptly as practicable cash, shares
of Parent Common Stock, or a combination thereof, equal to such Damages;
provided that in the event Parent elects to issue shares of Parent Common Stock
it shall deliver an undertaking to Shareholders' Agent to register such shares
for resale under the Securities Act in accordance with Section 5.15 hereof; and
provided further that Parent shall issue shares of Parent Common Stock (subject
to Section 1.13 hereof) to the extent Parent reasonably determines that the
payment in cash Stock will jeopardize the treatment of the Merger as a
reorganization under Section 368(a) of the Code.
(b) Parent shall have thirty (30) days after delivery of an Agent
Certificate to object to any claim or claims made by such Agent Certificate in a
written statement delivered to Shareholders' Agent, which objection shall state
in reasonable detail the basis for such objection. In case Parent shall so
object in writing to any claim or claims made by the Shareholders' Agent in the
Agent Certificate, the
54
Shareholders Agent shall have thirty (30) days to respond in a written statement
to the objection of Parent. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agent and Parent shall attempt in
good faith for sixty (60) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Shareholders' Agent and
Parent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties. Parent shall, if agreed in such memorandum,
make payment for claims or other disposition as agreed in such memorandum and
such performance shall satisfy all of Parent's obligations as to such claim.
Section 8.7 Resolution of Conflicts and Arbitration.
(a) If no agreement can be reached after good faith negotiation
between the parties pursuant to Sections 8.5 or 8.6, either Parent or the
Shareholders' Agent may, by written notice to the other, demand arbitration of
the matter unless the amount of the Damages is at issue in pending litigation
with a third party, in which event arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration; and in either such
event the matter shall be settled by arbitration conducted by one arbitrator.
Parent and the Shareholders' Agent shall agree on the arbitrator; provided,
however, that if Parent and the Shareholders' Agent cannot agree on the
arbitrator, either Parent or the Shareholders' Agent can request that the
American Arbitration Association select the arbitrator. The arbitrator shall set
a limited time period and establish procedures designed to reduce the cost and
time for discovery while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrator, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrator shall
rule upon motions to compel or limit discovery and shall have the authority to
impose sanctions, including attorneys' fees and costs, to the same extent as a
court of law or equity, should the arbitrator determine that discovery was
sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the arbitrator
shall be written, shall be in accordance with applicable law and with this
Agreement, and shall be supported by written findings of fact and conclusions of
law which shall set forth the basis for the decision of the arbitrator. The
decision of the arbitrator as to the validity and amount of any claim in such
Escrow Claim Certificate or Agent Certificate shall be binding and conclusive
upon the parties to this Agreement, and notwithstanding anything in Article VIII
hereof, the Escrow Agent and the parties shall be entitled to act in accordance
with such decision and the Escrow Agent shall be entitled to make or withhold
payments out of the Escrow Fund in accordance therewith.
(b) Judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction. Any such arbitration shall be held in
New York, New York if commenced by the Shareholders' Agent and in San Diego,
California if commenced by Parent, in each case under the commercial rules then
in effect of the American Arbitration Association. For purposes of this Section
8.7(b), in any arbitration hereunder in which any claim or the amount thereof
stated in the Escrow Claim Certificate or Agent Certificate, as the case may be,
is at issue, the party seeking indemnification shall be deemed to be the
non-prevailing party unless the arbitrator awards the party seeking
indemnification more than one-half (1/2) of the amount in dispute, in which case
the Person against whom indemnification is sought shall be deemed to be the
non-prevailing party. The non-prevailing party to an arbitration shall pay its
own expenses, the fees of the arbitrator and the expenses, including attorneys'
fees and costs, reasonably incurred by the other party to the arbitration.
Section 8.8 Shareholders' Agent.
(a) Andrew Barnes shall be constituted and appointed as agent
("Shareholders' Agent") for and on behalf of the Company Shareholders to give
and receive notices and communications, to authorize delivery to Parent of the
Parent Common Stock and/or cash from the Escrow Fund in satisfaction of claims
by Parent, to object to such deliveries, to make claims on behalf of the Company
55
Shareholders pursuant to Section 8.6, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to, such claims, and to take all
actions necessary or appropriate in the judgment of the Shareholders' Agent for
the accomplishment of the foregoing. Such agency may be changed by the holders
of a majority in interest of the Escrow Fund from time to time upon not less
than 10 days' prior written notice to Parent. No bond shall be required of the
Shareholders' Agent, and the Shareholders' Agent shall receive no compensation
for his services. Notices or communications to or from the Shareholders' Agent
shall constitute notice to or from each of the Company Shareholders.
(b) The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholders' Agent while acting in good faith and in the
exercise of reasonable judgment and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Company
Shareholders shall severally indemnify the Shareholders' Agent and hold him
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder, as the same may be modified, amended or supplemented.
(c) The Shareholders' Agent may rely on and shall be protected in
relying on or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Shareholders' Agent shall not be liable for other parties' forgeries, fraud or
false representations.
(d) The Shareholders' Agent shall have reasonable access to
information about Parent and the reasonable assistance of Parent's officers and
employees for purposes of performing his duties and exercising his rights
hereunder, provided that the Shareholders' Agent shall treat confidentially and
not disclose any nonpublic information from or about Parent and its Subsidiaries
to anyone (except on a need to know basis to individuals who agree to treat such
information confidentially).
(e) At the Closing, the Company shall deposit $20,000 with the
Escrow Agent to pay the expenses incurred by the Shareholders' Agent in
connection with this Agreement. The Company Shareholders shall be responsible
for any expenses of or incurred by Shareholders' Agent in excess of $20,000.
Section 8.9 Actions of the Shareholders' Agent. A decision, act, consent
or instruction of the Shareholders' Agent shall constitute a decision of all
Company Shareholders and shall be final, binding and conclusive upon each such
Company Shareholder, and the Escrow Agent and Parent may rely upon any decision,
act, consent or instruction of the Shareholders' Agent as being the decision,
act, consent or instruction of each and every such Company Shareholder. The
Escrow Agent and Parent are hereby relieved from any liability to any Person for
any acts done by them in accordance with such decision, act, consent or
instruction of the Shareholders' Agent.
Section 8.10 Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Shareholders' Agent of such claim, and the
Shareholders' Agent and the Company Shareholders shall be entitled, at their
expense, to participate in any defense of such claim with the consent of Parent,
which shall not be unreasonably withheld. Parent shall have the right in its
sole discretion to settle any such claim. In the event that the Shareholders'
Agent has consented to any such settlement, the Shareholders' Agent shall have
no power or authority to object under Section 8.5 or any other provision of this
Article VIII to the amount of any claim by Parent against the Escrow Fund for
indemnity with respect to such settlement.
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ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed duly delivered if delivered personally (upon
receipt), or three (3) business days after being mailed by registered or
certified mail, postage prepaid (return receipt requested), or one (1) business
day after it is sent by commercial overnight courier service, or upon
transmission, if sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
(a) if to Parent or Merger Sub, to:
Bio-Technology General Corp.
70 Wood Avenue South
Iselin, New Jersey 08830
Attention: General Counsel
Fax: (732)-632-8800
Tel: (732) 632-8810
with a copy to (which shall not constitute notice):
Fulbright & Jaworski, L.L.P.
666 Fifth Avenue
New York, N.Y. 10103
Attention: Carl E. Kaplan, Esq.
Fax: (212) 318-3400
Tel: (212) 318-3000
(b) if to Company, to:
Myelos Corporation
4940 Carroll Canyon Road
San Diego, CA 92121
Attention: President
Fax: (858) 657-1038
Tel: (858) 657 1040
with a copy to (which shall not constitute notice):
Heller Ehrman White & McAuliffe LLP
275 Middlefield Road
Menlo Park, CA 94025
Attention: Jeffrey Selman, Esq.
Fax: (650) 324-0638
Tel: (650) 324-7000
57
(c) if to Shareholders' Agent, to:
13306 Landfair Road
San Diego, CA 92130
Fax: (858) 481-0355
Tel: (858) 481-7917
with a copy to (which shall not constitute notice):
Heller Ehrman White & McAuliffe LLP
275 Middlefield Road
Menlo Park, CA 94025
Attention: Jeffrey Selman, Esq.
Fax: (650) 324-0638
Tel: (650) 324-7000
Section 9.2 Definitions. For purposes of this Agreement:
(a) an "Affiliate" of any Person means another Person that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, such first Person;
(b) any reference to a party's "knowledge" means such party's actual
knowledge after reasonable inquiry of officers, directors and other
employees of such party reasonably believed to have knowledge of such
matters;
(c) any reference to any event, change, condition or effect being
"material" with respect to any entity or group of entities means any
material event, change, condition or effect related to the financial
condition, properties, assets (including intangible assets), liabilities,
business, operations or results of operations of such entity or group of
entities;
(d) "Material Adverse Effect" means, with respect to any Person, any
change, effect, event, occurrence or state of facts (or any development
that has had or is reasonably likely to have any change or effect) that is
materially adverse to the business, financial condition, results of
operations or prospects of such Person and its Subsidiaries, taken as a
whole, or which would prevent or materially delay the consummation of the
transactions contemplated hereby; provided, however, none of the following
shall be deemed in themselves, either alone or in combination, to
constitute, and none of the following shall be taken into account in
determining whether there has been a Material Adverse Effect: (i) any
change in the market price or trading volume of the capital stock of such
Person after the date hereof, (ii) changes, events or occurrences in the
United States securities markets which are not specific to such Person,
(iii) any adverse change, event, development or effect arising from or
relating to general business or economic conditions which is not specific
to such Person and its Subsidiaries, (iv) any failure by such Person to
meet internal forecasts or projections or published revenue or earnings
predictions for any period ending (or for which revenues or earnings are
released) on or after the date of this Agreement, and (vi) any adverse
change, event, development or effect arising from or relating to any
change in GAAP;
(e) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
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(f) "Subsidiary" of any Person means, with respect to such Person,
any corporation, partnership, joint venture or other legal entity of which
such Person (either alone or through or together with any other
subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holders of which are generally entitled to vote
for the election of the Board of Directors or other governing body of such
corporation or other legal entity.
Section 9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.4 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Company Disclosure Schedule and the Parent Disclosure
Schedule, (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms, (b) except as set forth in Section 9.9,
are not intended to confer upon any other Person any rights or remedies
hereunder, and (c) shall not be assigned by operation of law or otherwise
without the written consent of the other party.
Section 9.5 Severability. In the event that any provision of this
Agreement, or the application thereof becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other Persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
Section 9.6 Remedies Cumulative. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
Section 9.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to parties residing in New York, without regard applicable principles
of conflicts of law.
Section 9.8 Waiver of Jury Trial.
(a) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH
MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
(b) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
59
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) IT UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (iii) IT MAKES SUCH WAIVER
VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 9.8.
Section 9.9 Rules of Construction. The captions in this Agreement,
including but not limited to specific section number references included in the
Disclosure Schedules, are for convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions hereof. 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. Any
reference in this Agreement to a "day" or number of "days" (without the explicit
qualification of "business") shall be interpreted as a reference to a calendar
day or number of calendar days. If any action or notice is to be taken or given
on or by a particular calendar day, and such calendar day is not a business day,
then such action or notice shall be deferred until, or may be taken or given on,
the next business day. References to the term "business day" shall mean any day
which is not a Saturday, Sunday or day on which banks in New York, New York are
authorized or required by law to close. The disclosure of any matter in the
Disclosure Schedules hereto shall expressly not be deemed to constitute an
admission by Company, Parent or Merger Sub, or to otherwise imply, that any such
matter is material for the purposes of this Agreement. The mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate to
disclose an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The parties have participated jointly, and have been represented
by counsel, in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. The parties intend that
each representation, warranty and covenant contained herein shall have
independent significance. If any party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
Section 9.10 Third Party Beneficiaries. The directors and officers of
Company and Company Shareholders shall be third party beneficiaries as to
provisions herein (Sections 1.12, 5.15 and 5.16, as applicable) intended to
benefit them.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
60
IN WITNESS WHEREOF, Company, Parent and Merger Sub have caused this
Agreement to be executed and delivered by each of them or their respective
officers thereunto duly authorized, all as of the date first written above.
MYELOS CORPORATION
By: /s/ Andrew Barnes
-----------------------------------------
Andrew Barnes
President and Chief Executive Officer
BIO-TECHNOLOGY GENERAL CORP.
By: /s/ Sim Fass
-----------------------------------------
Sim Fass
Chairman and Chief Executive Officer
MYLS ACQUISITION CORP.
By: /s/ Sim Fass
-----------------------------------------
Sim Fass
President
61
Exhibit 1.1
CERTIFICATE OF MERGER
Of
MYELOS CORPORATION
(a California Corporation)
Into
MYLS ACQUISITION CORP.
(a Delaware corporation)
Pursuant to Section 252 of the
State of Delaware General Corporation Law
The undersigned, being the Surviving corporation, hereby sets forth as
follows:
FIRST: The name of the Surviving corporation is MYLS Acquisition
Corp.; its state of incorporation is Delaware.
SECOND: The name of the Non-Surviving corporation is Myelos
Corporation; its state of incorporation is California.
THIRD: An Agreement and Plan of Reorganization has been approved,
adopted, certified, executed and acknowledged by each constituent corporation in
accordance with Section 252 of the State of Delaware General Corporation Law.
FOURTH: The Surviving Corporation shall be re-named Myelos
Corporation.
FIFTH: The Certificate of Incorporation of MYLS Acquisition Corp.
shall be the Certificate of Incorporation of the Surviving corporation and is
hereby amended by replacing Article FIRST in its entirety with the following:
"FIRST: The name of the Corporation is Myelos Corporation."
- 1 -
SIXTH: The executed Agreement and Plan of Reorganization is on file
at the principal place of business of the Surviving corporation; the address of
said principal place of business is as follows: 70 Wood Avenue South, Iselin,
New Jersey, 08830.
SEVENTH: A copy of the Agreement and Plan of Reorganization will be
furnished by the Surviving corporation, on request and without cost, to any
stockholder of any constituent corporation.
EIGHTH: The Non-Surviving corporation is currently authorized to
issue 50,000,000 shares of common stock with no par value and 13,312,256 shares
of preferred stock no par value.
NINTH: This Certificate of Merger shall be effective upon filing.
IN WITNESS WHEREOF, this certificate is hereby executed the ___ day of
________, 2001.
MYLS ACQUISITION CORP.
By:___________________________
Name:
Title:
- 2 -
Exhibit 1.13
CERTIFICATE OF DESIGNATIONS
of
SERIES B PREFERRED STOCK
of
BIO-TECHNOLOGY GENERAL CORP.
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
------------
Bio-Technology General Corp., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on __________, 200_ adopted the
following resolution creating a series of _______ shares of Preferred Stock
designated as "Series B Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of the
Certificate of Incorporation, a series of Preferred Stock, par value $.01
per share, of the Corporation be and hereby is created, and that the
designation and number of shares thereof and the voting and other powers,
preferences and relative, participating, optional or other rights of the
shares of such series and the qualifications, limitations and restrictions
thereof are as follows:
Series B Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series B Preferred Stock" (the "Series B Preferred Stock"), and
the number of shares initially constituting the Series B Preferred Stock shall
be ________.
Section 2. Dividends and Distributions. The holders of the outstanding
shares of Series B Preferred Stock shall be entitled to receive, pari passu with
the holders of the Common Stock, par value $0.01 per share (the "Common Stock"),
dividends (whether in the form of cash, stock other than Common Stock, evidences
of indebtedness or other property) declared and paid on shares of the Common
Stock, in an amount equal to the product determined by multiplying the amount of
such dividend by ________(1), subject to adjustment as provided in the next
sentence. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
- ----------
(1) Will represent the number determined by dividing $1,000 (the liquidation
amount) by the average closing price as determined pursuant to the applicable
provisions of Section 1.12 of the Merger Agreement.
1
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount to which holders of shares of Series B Preferred
Stock were entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event. So long as any shares of the
Series B Preferred Stock are outstanding, no dividends or other distributions
shall be declared, paid or distributed, or set aside for payment or
distribution, on the Common Stock unless, in each case, the dividend required by
this Section 2 to be declared on the Series B Preferred Stock shall have been
declared. The holders of Series B Preferred Stock shall not be entitled to
receive any dividends except as provided in the previous sentence.
Section 3. Liquidation.
(a) In the event of any voluntary or involuntary liquidation,
winding up or dissolution of the Corporation, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to be paid, pari passu with
the holders of the Common Stock, for each share held, out of the assets of the
Corporation legally available for distribution to its stockholders, an amount
equal to the lesser of (i) $1,000 per share plus an amount equal to all declared
but unpaid dividends thereon to the date of payment (the "Liquidation Amount"),
or (ii) an amount equal to the product determined by multiplying the amount to
be received in respect of each share of Common Stock by ________(2), subject to
adjustment as provided in the second sentence of Section 2 above. Except as
provided in the preceding sentence, holders of the Series B Preferred Stock
shall not be entitled to any distribution in the event of any liquidation,
winding up or dissolution of the Corporation.
(b) For the purposes of this Section 3, any transaction or series of
transactions (as a result of a tender offer, merger, consolidation or otherwise
in which all holders of Common Stock are given the opportunity to participate)
that results in, or that is in connection with, (i) any person or "group"
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), acquiring "beneficial ownership" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 51% or more of
the then issued and outstanding shares of Common Stock, without giving effect to
the issuance of shares under any security convertible into, exchangeable for or
evidencing the right to purchase or otherwise receive any shares of Common
Stock, or (ii) the sale, lease, exchange, conveyance, transfer or other
disposition (for cash, shares of stock, securities or other consideration) of
all or substantially all of the property or assets of the Corporation to any
person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act),
shall be deemed to be a liquidation of the Corporation under Section 3(a).
Section 4. Redemption. The Corporation shall redeem the shares of Series B
Preferred Stock on ______________, 2021(3) (the "Redemption Date") in cash in an
amount equal to the Liquidation Amount. If the funds of the Corporation legally
available for redemption of shares of Series B Preferred Stock on the Redemption
Date are insufficient to redeem the total number of outstanding shares of Series
B Preferred Stock, the holders of shares of Series B Preferred Stock shall share
ratably in any funds legally available for redemption of such shares according
to the respective amounts that would be payable with respect to the full number
of shares owned by them if all such outstanding shares were redeemed in
- ----------
(2) Will represent the number determined by dividing $1,000 (the liquidation
amount) by the average closing price as determined pursuant to the applicable
provisions of Section 1.12 of the Merger Agreement.
(3) Twenty years and one day from Closing Date.
2
full. At any time thereafter when additional funds of this corporation are
legally available for the redemption of such shares of Series B Preferred Stock,
such funds will be used at the earliest permissible time to redeem the balance
of such shares, or such portion thereof for which funds are then legally
available.
Section 5. Voting Rights. The holders of Series B Preferred Stock shall
not be entitled or permitted to vote on any matter required or permitted to be
voted upon by the stockholders of the Corporation, except as otherwise required
by Delaware law.
Section 6. Limitation on Transfer of Shares.
(a) Shares of Series B Preferred Stock are not transferable, except
(i) in the case of an individual, (A) by will or the laws of descent and
distribution or (B) to a trust solely for the benefit of such person or his
immediate family, the estate or legal representatives of such person and any
partnership, corporation or other entity wholly-owned by such person, (ii) in
the case of a partnership, upon its liquidation to any of its partners (limited
or general), the estates of such partners, any liquidating trust for the benefit
of the partners of such partnership and, if any partner is itself a partnership,
its partners (limited and general) upon its liquidation, and if any such partner
is itself a corporation or limited liability company, its stockholders or
members, respectively, upon its liquidation, and (iii) in the case of a limited
liability company, any of its members or economic owners upon its liquidation.
(b) All certificates for shares of Series B Preferred Stock issued
by the Corporation shall conspicuously bear the following legend:
"The Certificate of Designation (the "Certificate") of the Series B
Preferred Stock of the Corporation prohibits the sale, transfer or other
disposition of the shares of Series B Preferred Stock represented by this
certificate except in certain limited circumstances set forth in the
Certificate. The Company reserves the right to refuse the transfer of such
securities except in the circumstances set forth in the Certificate. The
Corporation will furnish without charge to the holder of record of this
certificate a copy of the Certificate, containing the above-referenced
restrictions on transfer of stock, upon written request to the Corporation
at its principal place of business."
Section 7. Fractional Shares. The Series B Preferred Stock shall be
issuable in whole shares or in any fraction of a share that is one
one-thousandths (1/1000ths) of a share or any integral multiple of such fraction
which shall entitle the holder, in proportion to such holder's fractional
shares, to receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Series B Preferred Stock.
Section 8. Ranking. The Series B Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Corporation's Preferred Stock, unless the Board of
Directors shall specifically determine otherwise in fixing the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series and the qualifications, limitations and restrictions
thereof.
3
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its President and attested by its Secretary this __ day of
________, 20__.
BIO-TECHNOLOGY GENERAL CORP.
By:
-----------------------------------
Name:
Title: President
Attest:
- --------------------------
Name:
Title: Secretary
4
Exhibit 5.3
INVESTOR REPRESENTATION STATEMENT
Reference is made to Section 5.3 of the Agreement and Plan of
Reorganization among Parent Corporation, a Delaware corporation ("Parent"),
Merger Sub, a Delaware corporation and a wholly-owned subsidiary of Parent
("Merger Sub"), and Company, Inc., a California corporation ("Company"), dated
as of February 21, 2001 (the "Reorganization Agreement"). Capitalized terms used
herein that are not otherwise defined have the meanings assigned to them in the
Reorganization Agreement.
WHEREAS, the Reorganization Agreement provides for the acquisition of the
Company by Parent for consideration consisting of cash and unregistered shares
of Parent Common Stock; and
WHEREAS, it is a condition to Parent's obligation to acquire the Company
that each Company Shareholder execute and deliver an Investor Representation
Statement;
NOW THEREFORE, in order to induce Parent to acquire the Company and in
consideration of Parent's acquisition of the Company, the undersigned
Shareholder of Company hereby agrees as follows:
1. Securities Act Matters. The undersigned Shareholder hereby represents
and warrants to Parent as follows:
1.1 Shareholder acknowledges that its representations and warranties
contained herein are being relied upon by Parent as a basis for the exemption of
the issuance of the shares of Parent Common Stock (the "Shares") to the
undersigned in the Merger from the registration requirements of the Securities
Act and any applicable state securities laws.
1.2 Shareholder understands that (i) the Shares to be issued in the
Merger have not been registered, and as of the Effective Time will not be
registered, under the Securities Act or any state securities laws by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act and applicable state securities laws
and (ii) the Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and applicable
state securities laws or is exempt from such registration, and that only
Parent can take action to register such Shares.
1.3 Shareholder is acquiring the Shares for its own account and not
with a view to, or for sale in connection with, directly or indirectly,
any distribution thereof that would require registration under the
Securities Act or applicable state securities laws or would otherwise
violate the Securities Act or such state securities laws.
1.4 Shareholder has relied upon independent investigations made by
it or its representatives and is fully familiar with the business, results
of operations, financial condition, prospects and other affairs of Parent
and realizes that the Shares are a speculative investment involving a high
degree of risk for which there is no assurance of any return. It has such
knowledge and experience in financial and business affairs, including
investing in companies similar to Parent, and is capable of determining
the information necessary to make an informed investment decision, of
requesting such information from Parent, and of utilizing the information
that it has received from Parent to evaluate the merits and risks of its
investment in the Shares. It
1
is able to bear the economic risk of its investment in the Shares and
understands that it must do so for an indefinite period of time.
1.5 Shareholder and its attorneys, accountants, investment and
financial advisors, if any, have had the opportunity to review the books
and records of Parent and have been provided access to such information as
it or its advisors, if any, have requested.
1.6 Shareholder has received and carefully reviewed copies of (a)
the Reorganization Agreement, including all Exhibits and Schedules
attached thereto, and (b) the following documents filed by Parent with the
Securities and Exchange Commission: (i) Parent's Annual Report on Form
10-K for the year ended December 31, 1999, as amended; (ii) Parent's
Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
2000, June 30, 2000 and September 30, 2000; (iii) Parent's proxy statement
dated August 4, 2000; and (iv) Parent's Current Report on Form 8-K dated
February 21, 2001, announcing the Company's financial results for the year
ended December 31, 2000, Parent's execution of the Reorganization
Agreement. Shareholder acknowledges that in connection with the
transactions contemplated by the Reorganization Agreement, neither Parent
nor anyone acting on its behalf or any other person has made, and such
Shareholder is not relying upon, any representations, statements or
projections concerning Parent, its present or projected results of
operations, financial condition, prospects, present or future plans,
acquisition plans, products and services, or the value of the Parent
Common Stock or Parent's business or any other matter in relation to
Parent's business or affairs. Such Shareholder and its attorneys,
accountants, investment and financial advisors, if any, have had an
opportunity to discuss Parent's business, management, financial affairs
and prospects with its management, to review Parent's facilities, and to
obtain such additional information concerning such Shareholder's
investment in the Shares in order for such Shareholder to evaluate its
merits and risks, and such Shareholder has determined that the Shares are
a suitable investment for such Shareholder and that at this time such
Shareholder could bear a complete loss of his or her investment.
1.7 Shareholder is aware that no governmental authority has passed
upon or made any finding or determination concerning the fairness of the
transactions contemplated by the Reorganization Agreement or the adequacy
of the disclosure of the exhibits and schedules thereto and the Parent SEC
Documents, and that it must forego the security, if any, that such a
review would provide.
1.8 Shareholder understands and acknowledges that neither the United
States Internal Revenue Service nor any other governmental authority has
been asked to rule on the Tax consequences of the transactions
contemplated by the Reorganization Agreement and, accordingly, in making
its decision to approve the transactions contemplated by the
Reorganization Agreement, it has relied upon the investigations of its own
Tax and business advisers in addition to its own independent
investigations as to, and that it and its advisors have fully considered,
all of the Tax consequences of the transactions contemplated by the
Reorganization Agreement.
1.9 Shareholder has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act, which permits limited
resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about Parent, and
compliance with applicable requirements regarding the holding period and
the amount of securities to be sold and the manner of sale, and that such
rule may not be available for resale of the Shares.
2
1.10 In making its decision to approve the transactions contemplated
by the Reorganization Agreement, Shareholder and its professional tax and
business advisors have been given the opportunity to discuss the Company's
business, management, financial affairs and prospects with the Company's
management, and they have had the opportunity to review the Company's
facilities, to examine all relevant documents and to ask questions of, and
to receive answers from, the Company or any person(s) acting on the
Company's behalf concerning the terms and conditions of the transactions
contemplated by the Reorganization Agreement or any other matter set forth
in the Reorganization Agreement and the schedules and exhibits thereto,
and to obtain any additional information necessary to verify the accuracy
of the information set forth therein, and to evaluate the Company and its
investment in Company Common Stock. Shareholder desires no further
information for such evaluation.
1.11 Shareholder is either an "accredited investor" pursuant to Rule
501 under the Securities Act, as indicated in Appendix A hereto, or has
engaged a "Purchaser Representative" (as such term is defined in Rule 501
under the Securities Act) to advise it in connection with the transactions
contemplated by the Reorganization Agreement, as indicated on the
signature page hereto.
1.12 Shareholder understands that the Shares will bear the following
legend (or a substantially similar legend):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE
SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
2. Registration of Shares.
2.1 The undersigned acknowledges that Parent has agreed to register
the Shares for resale under the Securities Act as set forth in Section 5.15 of
the Reorganization Agreement. In connection therewith, the undersigned agrees to
provide Parent with such information as Parent may reasonably request in order
to facilitate the registration of the Shares.
2.2 In consideration of Parent's agreement to register the Shares,
the undersigned agrees that it will suspend further open market offers and sales
of Shares whenever the undersigned receives a Suspension Notice from Parent, and
will not resume such open market offers and sales until it receives a Resumption
Notice.
2.3 The undersigned hereby agrees that if it intends to sell Shares
pursuant to the Registration Statement, it will give at least three (3) business
days' prior written notice to Parent of any such proposed sale of Shares
pursuant to the Registration Statement (which notice may cover sales to be made
within a ten (10) business day period from the date of Parent's response) and
not to make such sale (i) unless such three (3) business days elapse without
response from Parent, (ii) unless Parent responds within three (3) business days
after receiving notice that such sale is not prohibited because the Registration
Statement is current or (iii) in the event Parent responds by stating that an
amendment to the Registration Statement or supplement to the prospectus must be
filed in order to cause the prospectus
3
included in such Registration Statement, as then in effect, not to include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing, until Parent notifies the
undersigned that the Registration Statement has been amended or the prospectus
supplemented as required, which Parent has agreed to do as soon as reasonably
practicable subject to the first two sentences of Section 5.15(c) of the
Reorganization Agreement. Parent has agreed in the Reorganization Agreement to
use commercially reasonable efforts to respond to any notice of proposed sale as
soon as reasonably practicable after receiving such notice of proposed sale. No
prior notice of sale shall be required to the extent the undersigned is selling
Shares other than pursuant to the Registration Statement. Any notice hereunder
may be given by facsimile to Parent at (732)-632-8810, to the attention of the
General Counsel, with receipt confirmed by telephone (732) 632-8800. For
purposes hereof, (i) the term "business day" means any day that the Nasdaq
National Market is open for trading and (ii) in determining the three (3)
business day prior notice requirement, such period shall commence on the
business day the notice is received by Parent if such notice is received by
Parent by 12:00 noon New York City time or on the next business day if received
by Parent after such time.
2.4 In consideration of Parent's agreement to indemnify the
undersigned in connection with the registration of the Shares, as more fully set
forth in Section 5.15(e) of the Reorganization Agreement, the undersigned agrees
as follows:
(a) To the fullest extent permitted by law, the undersigned
will indemnify the Parent, each Person, if any, who controls the Parent
within the meaning of the Securities Act or the Exchange Act, each
underwriter of Parent Common Stock and their respective affiliates,
officers, directors, partners, successors and assigns (each a "Parent
Indemnitee") against any actions, claims, losses, damages, liabilities and
expenses to which they or any of them may become subject under the
Securities Act, the Exchange Act or under any other statute or at common
law or otherwise, and, except as hereinafter provided, will promptly
reimburse each Parent Indemnitee for any legal or other expenses
reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities
or actions arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact in any Registration Statement and any
prospectus filed pursuant to Section 5.15 of the Reorganization Agreement
or any post-effective amendment thereto, or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, which untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with information furnished in
writing to the Parent by the undersigned specifically for use in
connection with such registration statement, prospectus or post-effective
amendment; provided, however, that the obligations of the undersigned
hereunder shall be limited to an amount equal to the proceeds to the
undersigned from the sale of the undersigned's Shares.
(b) The undersigned will comply with the indemnification
procedures set forth in Section 5.15(g) of the Reorganization Agreement.
(c) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which the Parent
makes a claim for indemnification pursuant to Section 5.15(f) of the
Reorganization Agreement and Section 2.4(a) hereof but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced
in such case notwithstanding that Section 5.15(f) of the Reorganization
Agreement and Section 2.4(a) hereof provides for indemnification, in such
case, then the
4
undersigned will contribute to the aggregate losses, claims, damages or
liabilities to which it may be subject (after contribution from others) in
such proportion as is appropriate to reflect the relative fault of the
Parent on the one hand and the undersigned on the other in connection with
the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations or,
if the allocation provided herein is not permitted by applicable law, in
such proportion as shall be permitted by applicable law and reflect as
nearly as possible the allocation provided herein. The relative fault of
the Parent on the one hand and of the undersigned on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Parent on the one hand or by the undersigned on the other, and each
party's relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided, however, that
in any such case (i) the undersigned will not be required to contribute
any amount in excess of the proceeds received by the undersigned from the
sale of Shares pursuant to the Registration Statement; and (ii) no Person
guilty of fraudulent misrepresentation within the meaning of Section 11(f)
of the Securities Act will be entitled to contribution from any Person or
entity who was not guilty of such fraudulent misrepresentation.
3. Escrow Matters. The undersigned shall, jointly and severally with
Parent and the other Company Shareholders, indemnify, defend and save harmless
the Escrow Agent and its directors, officers, agents and employees (the
"indemnitees") from all loss, liability or expense (including the fees and
expenses of in house or outside counsel) arising out of or in connection with
(i) the Escrow Agent's execution and performance of the Escrow Agreement, except
in the case of any indemnitee to the extent that such loss, liability or expense
is due to the negligence or willful misconduct of such indemnitee, or (ii) its
following any instructions or other directions from the Parent or the
Shareholders' Agent, except to the extent that its following any such
instruction or direction is expressly forbidden by the terms of the Escrow
Agreement. The undersigned hereto acknowledges that the foregoing indemnities
shall survive the resignation or removal of the Escrow Agent or the termination
of the Escrow Agreement.
4. Shareholders' Agent.
4.1 The undersigned hereby constitutes and appoints Andrew Barnes as
agent ("Shareholders' Agent") for and on behalf of the undersigned to give and
receive notices and communications, to authorize delivery to Parent of the
Parent Common Stock and/or cash from the Escrow Fund in satisfaction of claims
by Parent, to object to such deliveries, to make claims on behalf of the Company
Shareholders pursuant to Section 8.6 of the Reorganization Agreement, to agree
to, negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to, such
claims, and to take all actions necessary or appropriate in the judgment of the
Shareholders' Agent for the accomplishment of the foregoing. Such agency may be
changed by the holders of a majority-in-interest of the Escrow Fund from time to
time upon not less than 10 days' prior written notice to Parent. No bond shall
be required of the Shareholders' Agent, and the Shareholders' Agent shall
receive no compensation for his services. Notices or communications to or from
the Shareholders' Agent shall constitute notice to or from the undersigned.
4.2 The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholders' Agent while acting in good faith and in the
exercise of reasonable judgment and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The
undersigned shall indemnify the Shareholders' Agent and hold him harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on the part of the Shareholders' Agent and arising out of or in connection
with the acceptance or administration of his duties under the Reorganization
Agreement, as the same may be modified, amended or supplemented.
5
4.3 The Shareholders' Agent may rely on and shall be protected in
relying on or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Shareholders' Agent shall not be liable for other parties' forgeries, fraud or
false representations.
4.4 Shareholder hereby agrees to reimburse Shareholders' Agent the
undersigned's pro-rata share of any out-of-pocket fees and expenses incurred by
the Shareholders' Agent which exceed the Expense Fund (as defined in the Escrow
Agreement).
5. TINs. Shareholder represents that its correct Taxpayer Identification
Number ("TIN") assigned by the Internal Revenue Service or any other taxing
authority is set forth below its signature. Shareholder understands that all
interest or other income earned under the Escrow Agreement in respect of the
Escrow Fund shall be allocated and/or paid to the Company Shareholders in
accordance with their percentage interests and reported by the recipient to the
Internal Revenue Service or any other taxing authority. The Escrow Agent shall
report and, as required, withhold any taxes it determines may be required by any
law or regulation in effect at the time of the distribution and remit such taxes
to the appropriate authorities.
6
IN WITNESS WHEREOF, the undersigned Shareholder has executed this
Agreement as of the ___ day of ____________, 2001.
SHAREHOLDER
________________________________
Address: __________________________________
__________________________________
__________________________________
TIN __________________________________
Name, Address and Affiliation of Purchaser Representative: _____________________
_____________________
_____________________
_____________________
_____________________
7
Appendix A
Definition of Accredited Investor
An "accredited investor" is a person that falls within one or more of the
following categories:
|_| A bank, as defined in Section 3(a)(2) of the Securities Act of
1933, as amended (the "Act"), whether acting in its individual or
fiduciary capacity;
|_| A savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Act, whether acting in its individual or
fiduciary capacity;
|_| A broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934;
|_| An insurance company as defined in Section 2(13) of the Act;
|_| An investment company registered under the Investment Company
Act of 1940;
|_| A business development company as defined in Section 2(a)(48) of
the Investment Company Act of 1940;
|_| A small business investment company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958;
|_| A plan established and maintained by a state, its political
subdivision or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, with assets in excess of
$5,000,000;
|_| An employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 in which the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of such Act, which
is either a bank, savings and loan association, insurance company or
registered investment advisor, or an employee benefit plan with total
assets in excess of $5,000,000 or, if a self-directed plan, the investment
decisions are made solely by persons who are accredited investors;
|_| A private business development company as defined in Section
202(a)(22) or the Investment Advisors Act of 1940;
|_| An organization described in Section 501(c)(3) of the Internal
Revenue Code, a corporation, a Massachusetts or similar business trust, or
a partnership, not formed for the specific purpose of acquiring the
Shares, with total assets in excess of $5,000,000;
|_| A director or executive officer of Parent;
|_| A natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of this purchase exceeds
$1,000,000;
|_| A natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current
year;
|_| A trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in SEC Rule
506(b)(2)(ii); or
|_| An entity in which all of the equity owners are accredited
investors.
8
Exhibit 5.13(a)
Date
Name
Address
City, State, Zip
Dear :
As we contemplate the merger of Myelos and BTGC, we at BTGC are enormously
excited about the opportunity that Myelos represents. Clearly, you will be a key
member of the team that advances Prosaptide through clinical development and
ultimately to the market.
I am very pleased to offer you the position of "Title" at Bio-Technology General
Corp. This offer is, of course, contingent upon and will become effective as of
the date of, BTGC's acquisition of Myelos. In your position, you will report
directly to "Name", "Title". You will be located at the current Myelos site.
Your compensation package will consist of a base salary of $XXX per year,
payable twice monthly. You will be granted an option to purchase XXX shares of
BTGC common stock at an exercise price equal to the closing market price on the
effective date of the acquisition. The right to exercise the option will vest in
annual increments of 25% of the total shares on each anniversary of the grant
date, and thus will be fully vested on the fourth anniversary of the grant. The
term of the option is ten years. You will also be eligible for an additional
stock option grant in 2001, as well as other grants in the future.
(BTGC may elect to grant bonuses to certain employees and has done so in
previous years. As "Title" , you will be eligible to participate in any
performance-related bonuses granted. The target percentage at your level is
approximately XX%. The actual award will depend on your individual performance
against objectives to be agreed between you and your supervisor and also on
BTGC's financial performance. )
Other benefits to which you will be entitled are medical, dental and vision
coverage, as well as life insurance and long-term disability. You may also elect
to participate in BTGC's 401K Plan and Employee Stock Purchase Plan (ESPP). The
ESPP allows employees to purchase BTGC stock at a minimum discount to market of
15%. If you elect to participate in the ESPP, your participation will begin with
the next three-month period.
In addition, you will receive three weeks (15 days) paid vacation, three paid
personal days, two paid floating holidays, and eight paid sick days, if needed,
per calendar year under BTGC's Paid Time Off policy. With respect to any
vacation you have accrued while an employee of Myelos, you may use one week of
accrued vacation during 2001 and BTGC will compensate you for the balance, if
any, at your new base compensation.
I trust that you are pleased with the terms of our offer and that you are
excited at the prospect of being an important contributor to the success of our
new joint venture. If you accept our offer, please so indicate by signing,
dating and returning one original of this letter to me by __________, 2001.
Sincerely,
Sim Fass
Chairman and Chief Executive Officer
I hereby accept the terms of the above offer of employment.
- ------------------------- ---------------------
Name Date
Exhibit 6.2(f)
ESCROW AGREEMENT
This Escrow Agreement is made as of this __ day of _______, 2001, by and
among U. S. Bank Trust National Association ("Escrow Agent"), Bio-Technology
General Corp., a Delaware corporation ("Parent"), and Andrew Barnes, as agent
("Shareholders' Agent") of the former shareholders of Myelos Corporation, a
California corporation ("Company"). Terms not otherwise defined herein shall
have the meaning set forth in the Reorganization Agreement (as defined below).
WITNESSETH
WHEREAS, Parent, MYLS Acquisition Corp, a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Company have entered into
an Agreement and Plan of Reorganization (the "Reorganization Agreement"), dated
as of February 21, 2001, providing for the merger of Company with and into
Merger Sub (the "Merger"); and
WHEREAS, pursuant to Article VIII of the Reorganization Agreement, a copy
of which is attached hereto as Annex A ("Article VIII"), an escrow fund (the
"Escrow Fund") will be established to compensate Parent for certain Damages (as
defined in Article VIII) arising out of any misrepresentation or breach or
default in connection with any of the representations, warranties, covenants and
agreements given or made by Company in the Reorganization Agreement, the Company
Disclosure Schedule or any exhibit or schedule to the Reorganization Agreement;
and
WHEREAS, the Shareholders' Agent has been constituted as agent for and on
behalf of the former shareholders of Company (individually a "Shareholder" and
collectively the "Shareholders") to undertake certain obligations specified in
Article VIII; and
WHEREAS, the Shareholders, as set forth on Annex B hereto, are the record
and beneficial owners of the Company Common Stock and each Shareholder will
receive Cash Merger Consideration and Stock Merger Consideration as set forth in
the Reorganization Agreement; and
WHEREAS, Article VIII provides for an Escrow Fund of 55,826 shares of
Parent Common Stock issued in the Merger and $500,000 in cash, such Escrow Fund
to be held by the Escrow Agent; and
WHEREAS, the parties hereto desire to set forth further terms and
conditions in addition to those set forth in the Reorganization Agreement
relating to the operation of the Escrow Fund.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, and intending to be legally bound, hereby agree as
follows:
1 Escrow and Escrow Fund. Pursuant to the Reorganization Agreement, Parent
shall, through its stock transfer agent (initially, American Stock Transfer &
Trust Company), deposit in escrow with the Escrow Agent, as escrow agent, within
five (5) business days after the Effective Time (as defined in the
Reorganization Agreement) of the Merger (a) a stock certificate or certificates
representing 55,826 shares of Parent Common Stock (the "Escrow Shares") which
shall be registered in the name of the Escrow Agent as nominee for the
beneficial owners of such shares, (b) cash in the amount of $500,000 (the
"Escrow Cash") and (c) cash in the amount of $20,000 (the "Expense Fund"). The
Escrow Shares and
Escrow Cash shall be held and distributed by the Escrow Agent in accordance with
the terms and conditions set forth in Article VIII and this Agreement, and the
Expense Fund shall be held and distributed by the Escrow Agent in accordance
with the terms and conditions of this Agreement. The number of Escrow Shares and
amount of Escrow Cash beneficially owned by each Shareholder, the address of
each Shareholder and the taxpayer identification number of each Shareholder are
set forth on Annex B attached hereto.
2 Rights and Obligations of the Parties. The Escrow Agent shall be
entitled to such rights and shall perform such duties of the escrow agent as set
forth herein and in Article VIII (collectively, the "Duties"), in accordance
with the terms and conditions of this Agreement and Article VIII. Parent,
Company and the Shareholders' Agent shall be entitled to their respective rights
and shall perform their respective duties and obligations as set forth herein
and in Article VIII, in accordance with the terms hereof and thereof. In the
event that the terms of this Agreement conflict in any way with the provisions
of Article VIII, Article VIII shall control.
3 Escrow Period. Subject to Section 4(c), the escrow period shall
terminate with respect to the Escrow Shares and the Escrow Cash on the date (the
"Escrow Termination Date") Parent's Annual Report on Form 10-K for the year
ended December 31, 2001 is filed with the Securities and Exchange Commission.
4 Duties of Escrow Agent. In addition to the Duties set forth in Article
VIII, the Duties of the Escrow Agent shall include the following:
(a) The Escrow Agent shall hold and safeguard the Escrow Shares,
Escrow Cash and Expense Fund during the Escrow Period, shall treat such
Escrow Fund and Expense Fund as a trust fund in accordance with the terms
of this Agreement and Article VIII and not as the property of Parent, and
shall hold and dispose of the Escrow Shares, Escrow Cash and Expense Fund
only in accordance with the terms hereof.
(b) The Escrow Shares shall be voted by the Escrow Agent on behalf
of the Shareholders in accordance with the instructions received by the
Escrow Agent from the Shareholders' Agent. In the absence of such
instructions, the Escrow Agent need not vote such shares.
(c) Promptly following the Escrow Termination Date, but not later
than five (5) business days following termination, the Escrow Agent shall
deliver to (i) each Shareholder that amount of Escrow Cash not required,
when combined with the Escrow Shares retained pursuant to clause (ii), to
satisfy any unsatisfied claims specified in any Officer's Certificate
theretofore delivered to the Escrow Agent prior to the Escrow Termination
Date with respect to facts and circumstances existing prior to the Escrow
Termination Date, and (ii) the Parent's stock transfer agent (initially
American Stock Transfer & Trust Company), for delivery to the
Shareholders, the proper number of Escrow Shares not required, when
combined with the cash retained pursuant to clause (i), to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore
delivered to the Escrow Agent prior to the Escrow Termination Date with
respect to facts and circumstances existing prior to the Escrow
Termination Date. As soon as all such claims for which Escrow Cash and
Escrow Shares have been retained at the Escrow Termination Date have been
resolved, the Escrow Agent shall deliver to such Shareholders all of the
Escrow Cash and Escrow Shares in the Escrow Fund and not required to
satisfy such claims and expenses. Each Shareholder shall receive a pro
rata amount of the Escrow Cash and Escrow Shares available for
distribution based on the applicable percentage set forth opposite the
name of each such Shareholder on Annex B, as calculated by the
Shareholders' Agent.
2
(d) Promptly following the Escrow Termination Date, but not later
than five (5) business days following termination, the Escrow Agent shall
deliver to the Parent any portion of the Expense Fund remaining.
(e) The Escrow Agent shall invest and reinvest the Escrow Cash and
Expense Fund in the triple "A" rated First American Prime Obligations
Money Fund (Class A). Each of Parent and Shareholders' Agent, on behalf of
the Shareholders, hereby confirms receipt of the First American Funds
prospectus, and acknowledges that the fund investment advisor and
custodian are subsidiaries of U.S. Bancorp, and investment in the fund
includes approval of the fund's fees and expenses as detailed in the
prospectus, including advisory and custodial fees and shareholder service
expenses (which may be so called 12b-1 shareholder service fees), which
fees and expenses are paid to the Escrow Agent, U.S. Bank National
Association or subsidiaries of U.S. Bancorp. The shares of the funds are
not deposits or obligations of, or guaranteed by, any bank, including U.S.
Bank National Association, U.S. Bank Trust National Association or any of
their affiliates, nor are they insured by the Federal Deposit Insurance
Commission, the Federal Reserve Board or any other agency. The investment
in the fund involves investment risk, including possible loss of
principal. A statement of citizenship will be provided if requested by
Escrow Agent. The Escrow Agent shall not be liable for losses, penalties
or charges incurred upon any sale or purchase of any such investment.
(f) Earnings on the Escrow Cash shall become part of the Escrow Cash
and Escrow Fund. All income earned on the Escrow Fund shall be allocable
to the Shareholders in accordance with the applicable percentage set forth
opposite their names on Annex B. For tax purposes, the Escrow Cash shall
be deemed property of the Shareholders and all earnings shall be the
income of the Shareholders. Parent and the Shareholders shall file Tax
Returns and the Escrow Agent shall file a Form 1099 consistent with such
treatment.
(g) Earnings on the Expense Fund shall not become part of the
Expense Fund, and shall be distributed to Parent when received by Escrow
Agent. For tax purposes, all earnings shall be the income of Parent.
Parent shall file Tax Returns and the Escrow Agent shall file a Form 1099
consistent with such treatment.
5 Distribution by Parent. Any cash dividends, dividends payable in
securities or other distributions of any kind in respect of the Escrow Shares
(but excluding any shares of Parent capital stock received upon a stock split or
stock dividend) shall be promptly distributed by the Escrow Agent to the
beneficial holder of the Escrow Shares to which such distribution relates. Any
shares of Parent Common Stock received by the Escrow Agent upon a stock split
made in respect of any securities in the Escrow Fund shall be added to the
Escrow Fund and become a part thereof. Any provision hereof or of Article VIII
shall be adjusted to appropriately reflect any stock split or reverse stock
split.
6 Taxpayer Identification Numbers. Payment of any interest earned on the
Escrow Cash and the Expense Fund invested in this escrow, or the distribution of
any other amounts under this escrow, will be subject to backup withholding
penalties unless a properly completed Internal Revenue Service Form W-8 or W-9
certification is submitted to the Escrow Agent by the Stockholder entitled to
receive such payment and Parent. Any Form W-8 or W-9 certification shall be
submitted to the Escrow Agent on or before the date hereof.
7 Exculpatory Provisions.
7.1 The Escrow Agent shall be obligated only for the performance of such
Duties as are specifically set forth herein and in Article VIII and may rely and
shall be protected in relying or refraining
3
from acting on any instrument reasonably believed to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent shall not
be liable for forgeries or false personations. The Escrow Agent shall not be
liable for any act done or omitted hereunder as escrow agent except for gross
negligence or willful misconduct. The Escrow Agent shall in no case or event be
liable for any representations or warranties of Company or Parent. Any act done
or omitted pursuant to the advice or opinion of counsel shall be conclusive
evidence of the good faith of the Escrow Agent.
7.2 The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law or arbitrations as provided in
Section 8.7 of the Reorganization Agreement, and is hereby expressly authorized
to comply with and obey orders, judgments or decrees of any court or rulings of
any arbitrators. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court or such ruling of any arbitrator, the Escrow
Agent shall not be liable to any of the parties hereto or to any other person by
reason of such compliance, notwithstanding any such order, judgment, decree or
arbitrators' ruling being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
7.3 The Escrow Agent shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for thereunder.
7.4 The Escrow Agent shall not be liable for the outlawing of any rights
under any statute of limitations with respect to the Agreement or any documents
deposited with the Escrow Agent.
8 Alteration of Duties. The Duties may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
9 Resignation and Removal of the Escrow Agent. The Escrow Agent may resign
as Escrow Agent at any time with or without cause by giving at least thirty (30)
days' prior written notice to each of Parent and the Shareholders' Agent, such
resignation to be effective thirty (30) days following the date such notice is
given. In addition, Parent and the Shareholders' Agent may jointly remove the
Escrow Agent as escrow agent at any time with or without cause, by an instrument
(which may be executed in counterparts) given to the Escrow Agent, which
instrument shall designate the effective date of such removal. In the event of
any such resignation or removal, a successor escrow agent which shall be a bank
or trust company organized under the laws of the United States of America or of
the State of California having (or if such bank or trust company is a member of
a bank holding company, its bank holding company has) a combined capital and
surplus of not less than $50,000,000, shall be appointed by the Shareholders'
Agent with the approval of Parent, which approval shall not be unreasonably
withheld. Any such successor escrow agent shall deliver to Parent and the
Shareholders' Agent a written instrument accepting such appointment, and
thereupon it shall succeed to all the rights and duties of the escrow agent
hereunder and shall be entitled to receive the Escrow Fund.
10 Further Instruments. If the Escrow Agent reasonably requires other or
further instruments in connection with performance of the Duties, the necessary
parties hereto shall join in furnishing such instruments.
11 Disputes. It is understood and agreed that should any dispute arise
with respect to the delivery and/or ownership or right of possession of the
Escrow Fund held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed to act in accordance with, and in reliance upon, the terms hereof
and of Article VIII.
4
12 Escrow Fees and Expenses.
12.1 Parent shall pay the Escrow Agent such fees as are established by the
Fee Schedule attached hereto as Annex C, and to the extent of unpaid fees and
expenses, may be deducted from the Escrow Fund.
12.2 Any out-of-pocket fees and expenses incurred by the Shareholders'
Agent shall be paid out of the Expense Fund; provided, however, that if the
out-of-pocket fees and expenses of the Shareholders' Agent exceed the Expense
Fund, such fees and expenses shall be paid by the Shareholders, and not by the
Parent or out of the Escrow Fund.
13 Indemnification. In consideration of the Escrow Agent's acceptance of
this appointment, the other parties hereto, jointly and severally, agree to
indemnify and hold the Escrow Agent harmless as to any liability incurred by it
to any person, firm or corporation by reason of its having accepted such
appointment or in carrying out the terms hereof and the Reorganization
Agreement, and to reimburse the Escrow Agent for all its costs and expenses,
including, among other things, counsel fees and expenses, reasonably incurred by
reason of any matter as to which an indemnity is paid; provided, however, that
no indemnity need be paid in case of the Escrow Agent's negligence, willful
misconduct or breach of this Agreement.
14 Waiver of Offset Rights. The Escrow Agent hereby waives any and all
rights to offset that it may have against the Escrow Fund or the Expense Fund
including, without limitation, claims arising as a result of any claims,
amounts, losses, liabilities, costs or expenses (collectively "Escrow Agent
Claims") that the Escrow Agent may be otherwise entitled to collect from any
party to this Agreement, other than Escrow Agent Claims arising under this
Agreement.
15 General.
15.1 Any notice given hereunder shall be in writing and shall be deemed
effective upon the earlier of personal delivery or the third day after mailing
by certified or registered mail, postage prepaid as follows:
To Parent: Bio-Technology General Corp.
70 Wood Avenue South
Iselin, New Jersey 08830
Attention: General Counsel
With a copy to (which shall not constitute notice):
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Carl E. Kaplan, Esq.
5
To Shareholders' Agent: Mr. Andrew Barnes
13306 Landfair Road
San Diego, CA 92130
With a copy to (which shall not constitute notice):
Heller Ehrman White & McAuliffe LLP
275 Middlefield Road Menlo Park, CA
94025-3506 Attention:
To the Escrow Agent: U.S. Bank Trust National Association
1420 5th Ave. 7th Floor
Seattle, WA 98101
Attention: Shirley Young
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above.
15.2 The Officer's Certificate as defined in Article VIII may be signed by
the President, any Senior Vice President or the Chief Financial Officer of
Parent.
15.3 The captions in this Escrow Agreement are for convenience only and
shall not be considered a part of or affect the construction or interpretation
of any provision of this Escrow Agreement.
15.4 This Escrow Agreement may be executed in any number of counterparts,
each of which when so executed shall constitute an original copy hereof, but all
of which together shall constitute one agreement.
15.5 No party may, without the prior express written consent of each other
party, assign this Escrow Agreement in whole or in part. This Escrow Agreement
shall be binding upon and inure to the benefit of the respective successors and
assigns of the parties hereto.
15.6 This Escrow Agreement shall be governed by and construed in
accordance with the laws of the State of New York as applied to contracts made
and to be performed entirely within the State of New York.
15.7 The parties to this Escrow Agreement hereby agree to submit to
personal jurisdiction in the State of New York.
[Remainder of Page Intentionally Left Blank]
6
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first above written.
BIO-TECHNOLOGY GENERAL CORP.
By:__________________________________
Name:
Title:
_____________________________________
Andrew Barnes
U.S. BANK TRUST NATIONAL ASSOCIATION
By:__________________________________
Name:
Title:
7
ANNEX A
ARTICLE VIII OF THE
AGREEMENT AND PLAN OF REORGANIZATION
Section 8.1 Escrow Fund.
(a) At the Closing, the Escrow Shares shall be registered in the name of,
and be deposited, together with the Escrow Cash, with U.S. Bank Trust National
Association (or other institution selected by Parent with the reasonable consent
of Company) as escrow agent (the "Escrow Agent"), such deposit and any deposit
pursuant to Section 8.1(b) to constitute the "Escrow Fund" and to be governed by
the terms set forth herein and in the Escrow Agreement. The Escrow Fund shall be
available to compensate Parent pursuant to the indemnification obligations of
the Company Shareholders.
(b) Dividends, whether paid in cash, shares of Parent Common Stock or
other securities, and other distributions of any kind declared with respect to
the Escrow Shares shall be deposited with the Escrow Agent pursuant to Section
8.1(a) hereof and shall be part of the Escrow Fund. Each Company Shareholder
will have voting rights with respect to the Escrow Shares deposited in the
Escrow Fund with respect to such shareholder so long as such Escrow Shares are
held in escrow, and Parent will take all reasonable steps necessary to allow the
exercise of such rights. While the Escrow Shares remain in the Escrow Agent's
possession pursuant to this Agreement, the Company Shareholders will retain and
will be able to exercise all other incidents of ownership of said Escrow Shares
which are not inconsistent with the terms and conditions of this Agreement.
Section 8.2 Indemnification.
(a) Survival of Representations and Warranties. All representations and
warranties made by Company, Parent or Merger Sub herein, or in any certificate,
schedule or exhibit delivered pursuant hereto, shall survive the Closing and
continue in full force and effect until the second anniversary of the Closing
Date; provided, however, that the representations and warranties contained in
Sections 2.10, 2.16 and 2.17 shall survive until 30 days after the expiration of
the applicable statute of limitations period and any extensions thereof and the
representations and warranties contained in Section 2.4 shall survive
indefinitely.
(b) Indemnification by Company Shareholders. Subject to the limitations
set forth in this Article VIII, the Company Shareholders will indemnify and hold
harmless Parent and the Surviving Corporation and its respective officers,
directors, agents, attorneys and employees, and each Person, if any, who
controls or may control Parent or the Surviving Corporation within the meaning
of the Securities Act (hereinafter "Parent Indemnified Persons") from and
against any and all losses, costs, damages, liabilities and expenses arising
from claims, demands, actions, causes of action, including, without limitation,
legal fees, (collectively, "Damages") incurred or sustained by Parent
Indemnified Persons as a result of:
(i) any inaccuracy or breach of, or any claim by a third party
alleging facts that, if true, would mean Company has breached, any
representation or warranty by Company contained herein or under any other
agreement executed and delivered by the parties in furtherance of the
transactions described herein (without regard to any materiality qualifier
contained in such representation or warranty); or
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(ii) a breach by Company of any covenant or other agreement
contained herein or under any other agreement executed and delivered by
the parties in furtherance of the transactions described herein.
Except as provided in the next paragraph, the sole recourse of the Parent
Indemnified Persons shall be against the Escrow Fund and claims against the
Escrow Fund shall be the sole and exclusive remedy of Parent Indemnified Persons
for any Damages hereunder.
The Company, Parent and the Surviving Corporation acknowledge that
such Damages, if any, would relate to unresolved contingencies existing at the
Effective Time, which if resolved at the Effective Time would have led to a
reduction in the Merger Consideration. The total liability for Damages resulting
from breaches of representations and warranties contained in Sections 2.4, 2.7,
2.10, 2.16 and 2.17 shall be the total amount of the Merger Consideration and
the Contingent Payments (if and when paid) and, to the extent the Escrow Fund is
not sufficient to satisfy such indemnification obligation, Parent may, in
addition to any other remedies it may have, offset such obligation against any
Contingent Payments due hereunder. Nothing in this Agreement shall limit the
liability in amount or otherwise (i) of Company for any breach of any
representation, warranty or covenant if the Merger does not close, (ii) of any
Company Shareholder in connection with any breach by such shareholder of any
representation or covenant in the Investor Representation Statement or Voting
Agreement delivered pursuant hereto or (iii) of Company or any Company
Shareholder with respect to fraud, criminal activity or intentional breach of
any covenant contained in this Agreement.
(c) Indemnification by Parent and Merger Sub. Subject to the limitations
set forth in this Article VIII, Parent hereby agrees to indemnify, defend and
hold harmless the Company Shareholders and their respective officers, directors,
agents, attorneys and employees (hereinafter "Company Indemnified Persons") from
and against any and all Damages incurred or sustained by Company Indemnified
Persons as a result of:
(i) any inaccuracy or breach of, or any claim by a third party
alleging facts that, if true, would mean Parent or Merger Sub has
breached, any representation or warranty by it contained herein or under
any other agreement executed and delivered by the parties in furtherance
of the transactions described herein (without regard to any materiality
qualifier contained in such representation or warranty); or
(ii) a breach by Parent or Merger Sub of any covenant or other
agreement contained herein (other than the covenants and agreements set
forth in Section 5.15, which are specifically covered in Section 5.15) or
under any other agreement executed and delivered by the parties in
furtherance of the transactions described herein.
The sole recourse of the Company Indemnified Persons from any Damages shall be
indemnification under this Article VIII. The aggregate indemnification
obligations of Parent and Merger Sub hereunder shall not exceed $1,000,000,
provided however that there shall be no limitation on liability of Parent or
Merger Sub for (i) any breach of any representation, warranty or covenant if the
Merger does not close or (ii) fraud, criminal activity or intentional breach of
any covenant contained in this Agreement.
(d) Threshold for Claims. No claim for Damages arising out of any
misrepresentation or breach of the representations and warranties shall be made
under Article VIII unless the aggregate of Damages exceeds $20,000 for which
claims are made hereunder by the Company Indemnified Persons or Parent
Indemnified Persons, as the case may be, in which case the Company Indemnified
Person or Parent Indemnified Person, as the case may be, shall be entitled to
seek compensation for all Damages without regard to the limitation set forth in
this Section 8.2(d).
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Section 8.3 Escrow Period: Release From Escrow.
(a) As promptly as practicable after Parent files its Annual Report on
Form 10-K with the SEC for the year ended December 31, 2001 (the "Parent 10-K"),
the Escrow Agent shall release from escrow to the Company Shareholders their pro
rata portion of the Escrow Fund remaining; provided, however, that a portion of
the Escrow Fund which, in the reasonable judgment of Parent, subject to the
objection of the Shareholders' Agent and the subsequent arbitration of the
matter in the manner provided in Section 8.7 hereof, is necessary to satisfy any
unsatisfied claims specified in any Escrow Claim Certificate theretofore
delivered to the Escrow Agent on or prior to the date the Parent 10-K is filed
with the SEC with respect to facts and circumstances existing on or prior to
such date, shall remain in the Escrow Fund until such claims have been resolved.
Any portion of the Escrow Fund retained pursuant to the proviso in the first
sentence of this Section 8.3(a) shall be released to Company Shareholders or
released to Parent (as appropriate) promptly upon resolution of each specific
indemnification claim involved. Escrow Shares and Escrow Cash shall be released
to the respective Company Shareholders in proportion to their respective share
of the Merger Consideration. Parent will take such action as may be necessary to
cause such certificates to be issued in the names of the appropriate Persons.
Certificates representing Escrow Shares so issued that are subject to resale
restrictions under applicable securities laws will bear a legend to that effect.
No fractional shares shall be released and delivered from Escrow to the Company
Shareholders. In lieu of any fraction of an Escrow Share to which a Company
Shareholder would otherwise be entitled, such holder will receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of such
fraction multiplied by the average of the closing prices of Parent Common Stock
as reported on the Nasdaq National Market during the twenty trading days ending
one day prior to the date such shares are released from the Escrow Fund.
(b) No Escrow Shares or any beneficial interest therein may be pledged,
sold, assigned or transferred, including by operation of law, by any Company
Shareholder or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of any such shareholder, prior to
the delivery to such shareholder of his pro rata portion of the Escrow Shares by
the Escrow Agent as provided herein.
(c) The Escrow Agent is hereby granted the power to effect any transfer of
Escrow Shares contemplated by this Agreement. Parent will cooperate with the
Escrow Agent in promptly issuing stock certificates to effect such transfers.
Section 8.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on
or before the date of filing of the Parent 10-K of a certificate signed by any
officer of Parent (an "Escrow Claim Certificate") stating that with respect to
the indemnification obligations of the Company Shareholders set forth in Section
8.2, Damages exist and specifying in reasonable detail the individual items of
such Damages included in the amount so stated, the date each such item was paid,
properly accrued or arose, and the nature of the misrepresentation, breach of
warranty, covenant or claim to which such item is related, the Escrow Agent
shall, subject to the provisions of this Article VIII, deliver to Parent out of
the Escrow Fund, as promptly as practicable, cash equal to the amount of such
Damages. Notwithstanding the foregoing, the Shareholders' Agent may elect to pay
all or a portion of the Damages in shares of Parent Common Stock if Parent and
Shareholders' Agent agree that payment in shares of Parent Common Stock will not
jeopardize the treatment of the Merger as a reorganization under Section 368(a)
of the Code, it being agreed that if Parent and Shareholders' Agent cannot reach
agreement regarding the use of shares of Parent Common Stock to pay the Damages,
then Parent's determination shall be final and binding on the parties. In the
event the amount of Damages exceeds the amount of Escrow Cash available for the
payment of Damages and Parent determines that payment of Damages in shares of
Parent Common Stock will jeopardize the treatment of the Merger as a
reorganization under Section 368(a) of the Code, then Shareholders' Agent shall
arrange for the sale , on behalf of the Company Shareholders, of
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such number of the Escrow Shares as is necessary to pay the Damages to Parent in
cash. For purposes of this Section 8.4, the Parent Common Stock delivered to
Parent from the Escrow Fund shall be valued at the average of the closing prices
of Parent Common Stock as reported on the Nasdaq National Market during the
twenty trading days ending one day prior to the date such shares of Parent
Common Stock are delivered to Parent.
Section 8.5 Objections to Claims.
(a) At the time of delivery of any Escrow Claim Certificate to the Escrow
Agent, a duplicate copy of such Escrow Claim Certificate shall be delivered to
the Shareholders' Agent and for a period of thirty (30) days after such
delivery, the Escrow Agent shall make no delivery of Parent Common Stock and/or
cash pursuant to Section 8.4 hereof unless the Escrow Agent shall have received
written authorization from the Shareholders' Agent to make such delivery. After
the expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of the Parent Common Stock and/or cash in accordance with Section 8.4
hereof, provided that no such payment or delivery may be made if the
Shareholders' Agent shall object in a written statement to the claim made in the
Escrow Claim Certificate, and such statement shall have been delivered to the
Escrow Agent and to Parent prior to the expiration of such thirty (30) day
period; and provided further that if Shareholders' Agent shall only object to a
portion of the claim, the Escrow Agent shall pay to Parent the uncontested
portion of the claim.
(b) In case the Shareholders' Agent shall so object in writing to any
claim or claims by Parent made in any Escrow Claim Certificate, which objection
shall state in reasonable detail the basis for such objection, Parent shall have
thirty (30) days to respond in a written statement to the objection of the
Shareholders' Agent. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agent and Parent shall attempt in
good faith for sixty (60) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Shareholders' Agent and
Parent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Parent Common Stock or other property from the Escrow Fund in
accordance with the terms thereof.
Section 8.6 Claims by Company Indemnitees.
(a) Subject to the provisions of this Article VIII, upon receipt by Parent
of a certificate signed by the Shareholders' Agent (an "Agent Certificate") that
with respect to the indemnification obligations of Parent and Merger Sub set
forth in Section 8.2, Damages exist and specifying in reasonable detail the
individual items of Damages included in the amount so stated, the date each item
was paid or properly accrued or arose, and the nature of the misrepresentation,
breach of warranty or covenant or other claim to which such item is related, the
Parent shall, subject to the provisions of this Article VIII, deliver to the
Shareholders' Agent as promptly as practicable cash, shares of Parent Common
Stock, or a combination thereof, equal to such Damages; provided that in the
event Parent elects to issue shares of Parent Common Stock it shall deliver an
undertaking to Shareholders' Agent to register such shares for resale under the
Securities Act in accordance with Section 5.15 hereof; and provided further that
Parent shall issue shares of Parent Common Stock (subject to Section 1.13
hereof) to the extent Parent reasonably determines that the payment in cash
Stock will jeopardize the treatment of the Merger as a reorganization under
Section 368(a) of the Code.
(b) Parent shall have thirty (30) days after delivery of an Agent
Certificate to object to any claim or claims made by such Agent Certificate in a
written statement delivered to Shareholders' Agent, which objection shall state
in reasonable detail the basis for such objection. In case Parent shall so
object in writing to any claim or claims made by the Shareholders' Agent in the
Agent Certificate, the Shareholders
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Agent shall have thirty (30) days to respond in a written statement to the
objection of Parent. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agent and Parent shall attempt in
good faith for sixty (60) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Shareholders' Agent and
Parent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties. Parent shall, if agreed in such memorandum,
make payment for claims or other disposition as agreed in such memorandum and
such performance shall satisfy all of Parent's obligations as to such claim.
Section 8.7 Resolution of Conflicts and Arbitration.
(a) If no agreement can be reached after good faith negotiation between
the parties pursuant to Sections 8.5 or 8.6, either Parent or the Shareholders'
Agent may, by written notice to the other, demand arbitration of the matter
unless the amount of the Damages is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration; and in either such event the
matter shall be settled by arbitration conducted by one arbitrator. Parent and
the Shareholders' Agent shall agree on the arbitrator; provided, however, that
if Parent and the Shareholders' Agent cannot agree on the arbitrator, either
Parent or the Shareholders' Agent can request that the American Arbitration
Association select the arbitrator. The arbitrator shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrator, to discover relevant information from the opposing
parties about the subject matter of the dispute. The arbitrator shall rule upon
motions to compel or limit discovery and shall have the authority to impose
sanctions, including attorneys' fees and costs, to the same extent as a court of
law or equity, should the arbitrator determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of the arbitrator shall be written,
shall be in accordance with applicable law and with this Agreement, and shall be
supported by written findings of fact and conclusions of law which shall set
forth the basis for the decision of the arbitrator. The decision of the
arbitrator as to the validity and amount of any claim in such Escrow Claim
Certificate or Agent Certificate shall be binding and conclusive upon the
parties to this Agreement, and notwithstanding anything in Article VIII hereof,
the Escrow Agent and the parties shall be entitled to act in accordance with
such decision and the Escrow Agent shall be entitled to make or withhold
payments out of the Escrow Fund in accordance therewith.
(b) Judgment upon any award rendered by the arbitrator may be entered in
any court having jurisdiction. Any such arbitration shall be held in New York,
New York if commenced by the Shareholders' Agent and in San Diego, California if
commenced by Parent, in each case under the commercial rules then in effect of
the American Arbitration Association. For purposes of this Section 8.7(b), in
any arbitration hereunder in which any claim or the amount thereof stated in the
Escrow Claim Certificate or Agent Certificate, as the case may be, is at issue,
the party seeking indemnification shall be deemed to be the non-prevailing party
unless the arbitrator awards the party seeking indemnification more than
one-half (1/2) of the amount in dispute, in which case the Person against whom
indemnification is sought shall be deemed to be the non-prevailing party. The
non-prevailing party to an arbitration shall pay its own expenses, the fees of
the arbitrator and the expenses, including attorneys' fees and costs, reasonably
incurred by the other party to the arbitration.
Section 8.8 Shareholders' Agent.
(a) Andrew Barnes shall be constituted and appointed as agent
("Shareholders' Agent") for and on behalf of the Company Shareholders to give
and receive notices and communications, to authorize delivery to Parent of the
Parent Common Stock and/or cash from the Escrow Fund in satisfaction of claims
by Parent, to object to such deliveries, to make claims on behalf of the Company
Shareholders
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pursuant to Section 8.6, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to, such claims, and to take all actions
necessary or appropriate in the judgment of the Shareholders' Agent for the
accomplishment of the foregoing. Such agency may be changed by the holders of a
majority in interest of the Escrow Fund from time to time upon not less than 10
days' prior written notice to Parent. No bond shall be required of the
Shareholders' Agent, and the Shareholders' Agent shall receive no compensation
for his services. Notices or communications to or from the Shareholders' Agent
shall constitute notice to or from each of the Company Shareholders.
(b) The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholder' Agent while acting in good faith and in the
exercise of reasonable judgment and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Company
Shareholders shall severally indemnify the Shareholders' Agent and hold him
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder, as the same may be modified, amended or supplemented.
(c) The Shareholders' Agent may rely on and shall be protected in relying
on or refraining from acting on any instrument reasonably believed to be genuine
and to have been signed or presented by the proper party or parties. The
Shareholders' Agent shall not be liable for other parties' forgeries, fraud or
false representations.
(d) The Shareholders' Agent shall have reasonable access to information
about Parent and the reasonable assistance of Parent's officers and employees
for purposes of performing his duties and exercising his rights hereunder,
provided that the Shareholders' Agent shall treat confidentially and not
disclose any nonpublic information from or about Parent and its Subsidiaries to
anyone (except on a need to know basis to individuals who agree to treat such
information confidentially).
(e) At the Closing, the Company shall deposit $20,000 with the Escrow
Agent to pay the expenses incurred by the Shareholders' Agent in connection with
this Agreement. The Company Shareholders shall be responsible for any expenses
of or incurred by Shareholders' Agent in excess of $20,000.
Section 8.9 Actions of the Shareholders' Agent. A decision, act, consent
or instruction of the Shareholders' Agent shall constitute a decision of all
Company Shareholders and shall be final, binding and conclusive upon each such
Company Shareholder, and the Escrow Agent and Parent may rely upon any decision,
act, consent or instruction of the Shareholders' Agent as being the decision,
act, consent or instruction of each and every such Company Shareholder. The
Escrow Agent and Parent are hereby relieved from any liability to any Person for
any acts done by them in accordance with such decision, act, consent or
instruction of the Shareholders' Agent.
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ANNEX B
SHAREHOLDERS
- --------------------------------------------------------------------------------
Percentage Interest Taxpayer
Name and Address in Escrow Fund ID Number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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ANNEX C
ESCROW AGENT FEE SCHEDULE
ESCROW AGENT FEE SCHEDULE
ACCEPTANCE FEE
The acceptance fee includes the review of all documents, Waived
initial set-up of the account, and other reasonably required
services up to and including the closing. This is a one-time
fee, payable at closing.
U.S. Bank Trust National Association reserves the right to
refer any or all escrow documents for legal review prior to
execution. Legal fees (billed on an hourly basis) and expenses
for this service will be to, and paid by, the customer. Where
appropriate and when requested by the customer, U.S. Bank
Trust National Association will provide advance estimates of
these legal fees.
ADMINISTRATION/AGENT FEES
Annual account administration fee covers the normal duties of $500
associated with the management of the account. Administration
fees are payable in advance and will not be prorated.
DIRECT OUT OF POCKET
Reimbursement of direct expenses associated with the At Cost
performance of our duties, including but not limited to
publications, legal, and travel expenses, and filing fees.
INDIRECT OUT OF POCKET
Charge for miscellaneous expenses such as fax, messenger
service, overnight mail, stationery, and postage (excluding
large mailings).
This charge is applied against your total Administration/Agent 0%
Fees, charged in advance, and will not be prorated.
EXTRAORDINARY SERVICES
Charge for duties or responsibilities of an unusual nature not
provided for in the indenture or otherwise set forth in this
schedule. A reasonable charge will be made based on the nature
of the service and the responsibility involved. These charges
will be billed as a flat fee or our hourly rate then in
effect, at our option.
Final account acceptance is subject to review of documents. Fees are based on
our understanding of the transaction and are subject to revision if the
structure is changed. In the event this transaction does not close, any related
out-of-pocket expenses will be billed to you at cost. Fees for any services not
specifically covered will be based on appraisal of services rendered.
With general reference to all of our charges, it should be understood that they
are subject to adjustment from time to time, upon written notification.
The fees in this schedule are the terms under which you agree to do business.
Closing the transaction constitutes agreement to this fee schedule, as does
payment of the invoice received after subsequent fee adjustment notification.
All fees are subject to Washington State sales tax (currently 8.6%).
Absent your instructions to sweep or otherwise invest balances, no interest,
earnings, or other compensation for uninvested balances will be paid to you.
C-1
Exhibit 6.2(o)
Bio-Technology General Corp.
70 Wood Avenue South
Iselin, New Jersey 08830
Gentlemen:
Reference is made to that certain Agreement and Plan of Reorganization,
dated as of February 21, 2001 (the "Reorganization Agreement"), by and among
Bio-Technology General Corp. ("Parent"), MYLS Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and Myelos
Corporation, a California corporation (the "Company"). Pursuant to the
transaction contemplated by the Reorganization Agreement, Merger Sub will be
merged with and into Company (the "Merger") and the undersigned will receive
cash and shares of common stock, par value $.01 per share, of Parent ("Parent
Common Stock") in the Merger (the shares of Parent Common Stock to be received
by the undersigned in the Merger being hereinafter referred to as the "Merger
Stock", it being agreed that Merger Stock shall not include shares of Parent
Common Stock received pursuant to Section 1.12 of the Reorganization Agreement).
In order to induce Parent to acquire the Company, the undersigned, during the
period commencing on the Effective Time (as such term is defined in the
Reorganization Agreement) and ending on the second anniversary of the Effective
Time:
(a) agrees not to, without the prior written consent of Parent, (i)
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Merger Stock or any securities convertible into
or exercisable or exchangeable for Merger Stock (including, without
limitation, shares of Merger Stock or securities convertible into or
exercisable or exchangeable for Merger Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission) or (ii) enter into
any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Merger Stock
(regardless of whether any of the transactions described in clause (i) or
(ii) is to be settled by the delivery of Merger Stock, or such other
securities, in cash or otherwise), otherwise than (1) as a bona fide gift
or gifts, or as a transfer or transfers for estate planning purposes,
provided the donee or donees, or transferee or transferees thereof agree
in writing to be bound by the terms of this agreement, (2) as a
distribution to partners or stockholders of the undersigned, provided that
the distributees thereof agree in writing to be bound by the terms of this
agreement or (3) sales in any three (3) month period of not more than the
greater of 6,000 shares or ten percent (10%) of the aggregate number of
shares of Merger Stock received by the undersigned in the Merger; and
(b) authorizes Parent to cause the transfer agent to decline to
transfer and/or to note stop transfer restrictions on the transfer books
and records of Parent with respect to any shares of Merger Stock for which
the undersigned is the record holder and, in the case of any such shares
or securities for which the undersigned is the beneficial but not the
record holder, agrees to cause the record holder to cause the transfer
agent to decline to transfer and/or to note stop transfer restrictions on
such books and records with respect to such shares or securities.
The undersigned hereby represents and warrants that (i) the undersigned has full
power and authority to enter into the agreements set forth herein, and that,
upon request, the undersigned will execute any additional documents necessary or
desirable in connection with the enforcement hereof and (ii) since
December 1, 2000 the undersigned has not sold a call option, or purchased a put
option, in each case relating to Parent Common Stock, or otherwise entered into
any swap or other arrangement that has the effect of transferring all or a
portion of the economic consequences associated with the ownership of any Merger
Stock (regardless of whether any such arrangement is to be settled by the
delivery of Merger Stock, or such other securities, in cash or otherwise). All
authority herein conferred or agreed to be conferred shall survive the death or
incapacity of the undersigned and any obligations of the undersigned shall be
binding upon the heirs, personal representatives, successors, and assigns of the
undersigned.
________________________________
Dated: __________, 2001
Name and Address (Please Print)
_______________________________
_______________________________
_______________________________
_______________________________
Social Security or Taxpayer Identification Number
_______________________________