AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
July 26, 1999, by and among GLOBAL PHARMACEUTICAL CORPORATION, a Delaware
corporation ("Buyer"), and IMPAX PHARMACEUTICALS, INC., a California corporation
("Seller").
WHEREAS, the Boards of Directors of Buyer and Seller deem it
advisable and in the best interests of each corporation and its respective
stockholders that Buyer and Seller combine in order to advance the long-term
business interests of Buyer and Seller;
WHEREAS, the combination of Buyer and Seller shall be effected
by the terms of this Agreement and in accordance with the General Corporation
Law of the State of Delaware (the "GCL") and the California Corporations Code
("California Code") through a merger of Seller into Buyer, as a result of which
the stockholders of Seller will become stockholders of Buyer (the "Merger"); and
WHEREAS, for Federal income tax purposes, it is intended that
the Merger shall qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
below, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 Effective Time. Subject to the provisions of this
Agreement, Seller and Buyer shall duly execute originals of (i) the Agreement of
Merger in the form attached hereto as Exhibit A, (the "Agreement of Merger");
and (ii) such Certificates of merger or related documents, in such form as is
required by the applicable provisions of the GCL and the California Code
("Certificates of Merger"). The Merger shall be consummated when a duly executed
and certified copy of the Agreement of Merger, if required, along with the
Certificates of Merger, have been filed with the Department of State of the
State of Delaware and the Secretary of State of the State of California in
accordance with the GCL and the California Code. When used in this Agreement,
the "Effective Time" shall mean such time as is the latest of such filings to
occur.
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SECTION 1.02 Closing. The closing of the Merger (the
"Closing") will take place at 10:00 a.m., Eastern Standard Time, on a date to be
specified by the parties (the "Closing Date"), which shall be no later than the
second business day after satisfaction or waiver of the conditions set forth in
Article VII hereof (other than the conditions with respect to the documents to
be delivered at the Closing), at the offices of Fulbright & Jaworski L.L.P., 666
Fifth Avenue, New York, NY 10103, unless another date, place or time is agreed
to in writing by the parties.
SECTION 1.03 Effects of the Merger. At the Effective Time (i)
the separate corporate existence of Seller shall cease and Seller shall be
merged with and into Buyer (Seller is sometimes referred to below as the
"Constituent Corporation" and Buyer following the Merger is sometimes referred
to below as the "Surviving Corporation"), (ii) the Certificate of Incorporation
of Buyer in effect immediately prior to the Effective Time shall be amended and
restated in full, substantially as set forth in Exhibit B to this Agreement, and
shall be the Certificate of Incorporation of the Surviving Corporation, unless
and until further amended as provided by law and such Certificate of
Incorporation; (iii) the Bylaws of Buyer as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation; and (iv) the
corporate headquarters for the Surviving Corporation shall be moved to 30831
Huntwood Avenue, Hayward, California 94544. The Merger shall have the effects
set forth in the GCL and the California Code.
SECTION 1.04 Directors. The respective directors of the Seller
and Buyer shall resign immediately prior to the Effective Time and the initial
directors of the Surviving Corporation shall be elected in accordance with
Section 6.09 hereof and shall hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, from the Effective Time
until their respective successors are duly elected or appointed and qualified.
SECTION 1.05 Officers. The respective officers of the Seller
and Buyer shall resign immediately prior to the Effective Time and the initial
officers of the Surviving Corporation shall be appointed by the initial
directors of the Surviving Corporation (elected in accordance with Sections 1.04
and 6.09 hereof) and shall hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, from the Effective Time
until their respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Seller Capital Stock. As of the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of any shares of the common stock of Seller ("Seller Common Stock"),
or of any shares of Series A Preferred Stock of Seller ("Seller Series A"),
Series B Preferred Stock of Seller ("Seller Series B"), Series C Preferred Stock
("Seller Series C") and Series D Preferred Stock of Seller ("Seller Series D")
(collectively referred to as "Seller Preferred Stock," and, together with the
Seller Common Stock, the"Seller Stock"):
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(a) Exchange Multiplier for Seller Common Stock, Seller
Series A and Seller Series B. Subject to Section
2.04, each issued and outstanding share of Seller
Common Stock, Seller Series A and Seller Series B
(other than any shares of Seller Common Stock, Seller
Series A and Seller Series B which are held by
shareholders who are dissenting shareholders pursuant
to Sections 1300 through 1312 of the California Code)
shall be converted into the right to receive 3.3358
(the "Seller Common Exchange Multiplier") fully paid
and non-assessable shares of Buyer's Common Stock,
$.01 par value per share ("Buyer Common Stock").
All such shares of Seller Common Stock, Seller Series
A and Seller Series B when so converted shall no
longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and
each holder of a certificate representing any such
shares shall cease to have any rights with respect
thereto, except the right to receive the shares of
Buyer Common Stock and any cash in lieu of fractional
shares of Buyer Common Stock to be issued or paid in
consideration therefor upon the surrender of such
certificate in accordance with Section 2.04, without
interest.
(b) Exchange Multiplier for Seller Series C. Subject to
Section 2.04, each issued and outstanding share of
Seller Series C (other than any shares of Seller
Series C which are held by shareholders who are
dissenting shareholders pursuant to Sections 1300
through 1312 of the California Code) shall be
converted into the right to receive 5.8490 (the
"Seller C Exchange Multiplier") fully paid and
non-assessable shares of Buyer Common Stock.
All such shares of Seller Series C when so converted
shall no longer be outstanding and shall
automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate
representing any such shares shall cease to have any
rights with respect thereto, except the right to
receive the shares of Buyer Common Stock and any cash
in lieu of fractional shares of Buyer Common Stock to
be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with
Section 2.04, without interest.
(c) Exchange Multiplier for Seller Series D. Subject to
Section 2.04, each issued and outstanding share of
Seller Series D (other than any shares of Seller
Series D which are held by shareholders who are
dissenting shareholders pursuant to Sections 1300
through 1312 of the California Code) shall be
converted into the right to receive 0.05 (the "Seller
Preferred Exchange Multiplier") fully paid and
non-assessable shares of Buyer's Series 1 Convertible
Preferred Stock, $.01 par value per share ("Buyer
Series 1 Preferred Stock"), having the designations,
rights and preferences set forth in the Amended and
Restated
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Certificate of Incorporation referred to in Section
1.03(ii) hereof and set forth as Exhibit B hereto.
All such shares of Seller Series D when so converted
shall no longer be outstanding and shall
automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate
representing any such shares shall cease to have any
rights with respect thereto, except the right to
receive the shares of Buyer Series 1 Preferred Stock
and any cash in lieu of fractional shares of Buyer
Series 1 Preferred Stock to be issued or paid in
consideration therefor upon the surrender of such
certificate in accordance with Section 2.04, without
interest.
(d) Adjustments to Conversion. The Seller Common Exchange
Multiplier, Seller C Exchange Multiplier and Seller
Preferred Exchange Multiplier (collectively, the
"Seller Exchange Multipliers") shall be adjusted to
reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or
distribution of securities convertible into Buyer
Common Stock, Buyer Preferred Stock (as hereinafter
defined) or Seller Common Stock or Seller Preferred
Stock), reorganization, recapitalization or other
like change with respect to Buyer Common Stock,
Seller Common Stock, Seller Preferred Stock or Buyer
Preferred Stock occurring after the date hereof and
prior to the Effective Time.
Buyer Common Stock and Buyer Series 1 Preferred Stock shall
collectively be referred to herein as "Buyer Stock."
SECTION 2.02 Conversion of Buyer Capital Stock. As of the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of any shares of the Series C Convertible Preferred Stock, $.01 par
value per share, of Buyer (the "Buyer Series C Preferred") or the Series D
Convertible Preferred Stock, $.01 par value per share, of Buyer (the "Buyer
Series D Preferred" and, together with the Buyer Series C Preferred, the "Buyer
Preferred Stock"):
(a) Cancellation of Treasury Stock. All shares of Buyer
Stock that are owned directly or indirectly by Buyer
as treasury stock shall be cancelled and retired and
shall cease to exist and no stock of Buyer or other
consideration shall be delivered in exchange
therefor.
(b) Exchange Multiplier for Buyer Series C Preferred.
Subject to Section 2.04, each issued and outstanding
share of Buyer Series C Preferred (other than shares
to be cancelled in accordance with Section 2.02(a)
and any shares of Buyer Series C Preferred which are
held by shareholders who are dissenting shareholders
pursuant to Section 262 of the Delaware GCL) shall be
converted into the right to receive fifty (50) (the
"Buyer Series C Exchange
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Multiplier") fully paid and non-assessable shares of
Buyer Common Stock (subject to anti-dilution
protection as set forth in the Certificate of
Designations, Rights and Preferences of the Buyer
Series C Preferred).
All such shares of Buyer Series C Preferred when so
converted shall no longer be outstanding and shall
automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate
representing any such shares shall cease to have any
rights with respect thereto, except the right to
receive the shares of Buyer Common Stock and any cash
in lieu of fractional shares of Buyer Common Stock to
be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with
Section 2.04, without interest.
(c) Exchange Multiplier for Buyer Series D Preferred.
Subject to Section 2.04, each issued and outstanding
share of Buyer Series D Preferred (other than shares
to be cancelled in accordance with Section 2.02(a)
and any shares of Buyer Preferred Stock which are
held by shareholders who are dissenting shareholders
pursuant to Section 262 of the Delaware GCL) shall be
converted into the right to receive one (the "Buyer
Series D Exchange Multiplier") fully paid and
non-assessable shares of Buyer Series 1 Preferred
Stock.
All such shares of Buyer Series D Preferred when so
converted shall no longer be outstanding and shall
automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate
representing any such shares shall cease to have any
rights with respect thereto, except the right to
receive the shares of Buyer Series 1 Preferred Stock
and any cash in lieu of fractional shares of Buyer
Series 1 Preferred Stock to be issued or paid in
consideration therefor upon the surrender of such
certificate in accordance with Section 2.04, without
interest.
(d) Adjustments to Conversion. The Buyer Series C
Exchange Multiplier and Buyer Series D Exchange
Multiplier shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of
securities convertible into Buyer Common Stock, Buyer
Preferred Stock, Seller Common Stock or Seller
Preferred Stock), reorganization, recapitalization or
other like change with respect to Buyer Common Stock,
Seller Common Stock, Seller Preferred Stock or Buyer
Preferred Stock occurring after the date hereof and
prior to the Effective Time.
All shares of Buyer Common Stock that are outstanding as of the Effective Time
shall remain outstanding.
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SECTION 2.03 Dissenting Shares. Notwithstanding anything to
the contrary contained in this Agreement, in the event appraisal rights are
available to the holders of Buyer Stock, Buyer Preferred Stock or Seller Stock
pursuant to applicable law, any shares of Buyer Stock, Buyer Preferred Stock or
Seller Stock held by a person who objects to the Merger and who complies with
all of the provisions of applicable law concerning the rights of such person to
dissent from the Merger and to require appraisal of such person's shares of
Buyer Stock, Buyer Preferred Stock or Seller Stock, as the case may be (the
"Dissenting Shares"), shall not be converted into the right to receive shares of
Buyer Stock pursuant to Sections 2.01 and 2.02 of this Agreement but shall
become the right to receive such consideration as may be determined to be due to
the holder of such Dissenting Shares pursuant to applicable law; provided,
however, that the Dissenting Shares held by a person at the Effective Time who
shall, after the Effective Time, withdraw the demand for appraisal or lose the
right to appraisal, in either case pursuant to applicable law, shall be deemed
to have converted, as of the Effective Time, his or her shares of Buyer Stock,
Buyer Preferred Stock or Seller Stock, as the case may be, into shares of Buyer
Stock pursuant to Sections 2.01 and 2.02 of this Agreement.
SECTION 2.04 Exchange of Certificates. The procedures for
exchanging outstanding shares of Seller Common Stock, Seller Preferred Stock and
Buyer Preferred Stock for Buyer Common Stock and Buyer Series 1 Preferred Stock
pursuant to the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, Buyer shall
deposit with a bank or trust company designated by
Buyer and Seller (the "Exchange Agent"), for the
benefit of the holders of shares of Seller Stock and
Buyer Preferred Stock for exchange in accordance with
this Section 2.04, through the Exchange Agent, (i)
certificates representing the shares of Buyer Stock
(such shares of Buyer Stock, together with cash in
lieu of fractional shares and any dividends or
distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") issuable pursuant
to Sections 2.01 and 2.02, less shares of Buyer Stock
deposited in the Escrow, as set forth below, in
exchange for outstanding shares of Seller Stock and
Buyer Preferred Stock and (ii) cash, as required, in
an amount sufficient to make payments of cash in lieu
of fractional shares, if any, required pursuant to
Section 2.04(e).
(b) Subject to the provisions of Section 2.03, as of the
Effective Time, all holders of Seller Stock (the
"Seller Stockholders," who are listed on Exhibit C
attached hereto, which shall be updated at the
Closing) shall be required to deposit an aggregate of
1,690,274 shares of Buyer Common Stock and 17,000
shares of Buyer Series 1 Preferred Stock to be
received by them in the Merger into an escrow account
(the "Escrow"), which shares shall be held and
distributed in accordance with the terms of an Escrow
Agreement (the "Escrow Agreement") to be entered into
by and among Buyer, the Seller Stockholders, the
Seller Stockholder Agent (as defined herein) and the
Exchange Agent or such other party as the parties may
mutually agree upon,
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as escrow agent (the "Escrow Agent"), in
substantially the form attached hereto as Exhibit D.
(c) As of the Effective Time, Buyer shall deposit or
cause to be deposited with the Escrow Agent
certificates (issued in the name of the Escrow Agent
or its nominee) representing the Buyer Common Stock
deposited in the Escrow and Buyer Series 1 Preferred
Stock deposited in the Escrow (together, the "Escrow
Shares"), for the purpose of securing the
indemnification obligations of the Seller
Stockholders set forth in this Agreement. The Escrow
Shares shall be held by the Escrow Agent under the
Escrow Agreement pursuant to the terms thereof and
shall be disbursed in accordance with the terms of
the Escrow Agreement. The adoption of this Agreement
and the approval of the Merger by the Seller
Stockholders shall constitute approval of the Escrow
Agreement and of all of the arrangements relating
thereto, including without limitation the placement
of the Escrow Shares in escrow and the appointment of
the Seller Stockholder Agent (as defined herein). Any
shares of Buyer Stock or other equity securities
issued or distributed by Buyer (including shares
issued upon a stock split) ("New Shares") in respect
of Buyer Stock in the Escrow which have not been
released from the Escrow shall be added to the Escrow
and become a part thereof. New Shares issued in
respect of Buyer Stock which have been released from
the Escrow shall not be added to the Escrow, but
shall be distributed to the holders thereof. When and
if cash dividends on Buyer Stock in the Escrow shall
be declared and paid, they shall not be added to the
Escrow, but shall be paid to those on whose behalf
such Buyer Stock is held who, at the Effective Time,
held Seller Stock. Each Seller Stockholder shall have
voting rights with respect to the shares of Buyer
Stock contributed to the Escrow on behalf of such
Seller Stockholder (and on any voting securities
added to the Escrow in respect of such shares of
Buyer Stock) so long as such shares of Buyer Stock or
other voting securities are held in the Escrow. As
the record holder of such shares, the Escrow Agent
shall vote such shares in accordance with the
instructions of the Seller Stockholders having the
beneficial interest therein and shall promptly
deliver copies of all proxy solicitation materials to
such Seller Stockholders. Buyer shall show the Buyer
Stock contributed to the Escrow Fund as issued and
outstanding on its balance sheet.
(d) Exchange Procedures. Promptly after the Effective
Time, Buyer shall instruct the Exchange Agent and the
Exchange Agent shall mail to each holder of record of
a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares
of Seller Stock and Buyer Preferred Stock (the
"Certificates") whose shares of Seller Stock and
Buyer Preferred Stock were converted pursuant to
Sections 2.01 and 2.02 into the right to receive
shares of Buyer Stock (i) a letter of transmittal
(which shall specify
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that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent,
and shall be in such form and have such other
provisions as Buyer and Seller may reasonably
specify) and (ii) instructions for effecting the
surrender of the Certificates in exchange for
certificates representing shares of Buyer Stock (plus
cash in lieu of fractional shares, if any, of Buyer
Stock as provided below). Upon surrender of a
Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be mutually
appointed by Buyer and Seller, together with such
letter of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in
exchange therefor a certificate representing that
number of whole shares of Buyer Stock which such
holder has the right to receive pursuant to the
provisions of this Article II after taking into
account all the shares of Seller Stock or Buyer
Preferred Stock then held by such holder under all
such Certificates so surrendered, and the Certificate
so surrendered shall immediately be cancelled. In the
event of a transfer of ownership of Seller Stock or
Buyer Preferred Stock which is not registered in the
transfer records of Seller, or Buyer, as the case may
be, a certificate representing the proper number of
shares of Buyer Stock may be issued to a transferee
if the Certificate representing such Seller Stock or
Buyer Preferred Stock is presented to the Exchange
Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this
Section 2.04, each Certificate shall be deemed at any
time after the Effective Time to represent only the
right to receive upon such surrender the certificate
representing shares of Buyer Stock and cash in lieu
of any fractional shares of Buyer Stock as
contemplated by this Section 2.04.
(e) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made
after the Effective Time with respect to Buyer Stock
with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate
with respect to the shares of Buyer Stock to which
such holder is entitled until the holder of record of
such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be
paid to the record holder of the certificates
representing whole shares of Buyer Stock issued in
exchange therefor, without interest, (i) at the time
of such surrender, the amount of any cash payable in
lieu of a fractional share of Buyer Stock to which
such holder is entitled pursuant to subsection (g)
below and the amount of dividends or other
distributions with a record date after the Effective
Time which would otherwise have been previously paid
with respect to such whole shares of Buyer Stock and
(ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date
after the Effective Time but prior to
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surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Buyer
Stock.
(f) No Further Ownership Rights in Seller Stock. All
shares of Buyer Stock issued upon the surrender for
exchange of Certificates in accordance with the terms
hereof (including any cash paid pursuant to
subsection (c) or (g) of this Section 2.04) shall be
deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Seller Stock
or Buyer Preferred Stock, as the case may be, and
from and after the Effective Time there shall be no
further registration of transfers on the stock
transfer books of the Surviving Corporation of the
shares of Seller Stock or Buyer Preferred Stock which
were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as
provided in this Section 2.04.
(g) No Fractional Shares. No certificate or scrip
representing fractional shares of Buyer Stock shall
be issued upon the surrender for exchange of
Certificates, and such fractional share interests
will not entitle the owner thereof to vote or to any
other rights of a stockholder of Buyer.
Notwithstanding any other provision of this
Agreement, each holder of shares of Seller Stock or
Buyer Preferred Stock exchanged pursuant to the
Merger who would otherwise have been entitled to
receive a fraction of a share of Buyer Stock (after
taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such
fractional part of a share of Buyer Stock multiplied
by the Average Stock Price.
"Average Stock Price" means the average of the daily
closing prices of Buyer Common Stock on the Nasdaq
SmallCap Market for the twenty consecutive trading
days ending on the second trading day immediately
prior to the Closing Date. With regard to the Buyer
Preferred Stock, the "Average Stock Price" shall be
determined by multiplying the number of shares of
Buyer Common Stock issuable upon conversion of each
share of Buyer Preferred Stock by the Average Stock
Price for the Buyer Common Stock.
(h) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the
stockholders of Seller or Buyer, as the case may be,
for 180 days after the Effective Time shall be
delivered to Buyer, upon demand, and any stockholders
of Seller or Buyer, as the case may be, who have not
previously complied with this Section 2.04 shall
thereafter look only to Buyer for payment of their
claim for such Buyer Stock, any cash in lieu of
fractional shares of Buyer Stock and any dividends or
distributions with respect to Buyer Stock.
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(i) No Liability. To the extent permitted by applicable
law, neither Buyer nor Seller shall be liable to any
holder of shares of Seller Stock, Buyer Preferred
Stock or Buyer Stock, as the case may be, for such
shares (or dividends or distributions with respect
thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar
law.
(j) Withholding Rights. Each of Buyer and the Surviving
Corporation shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to
this Agreement to any holder of shares of Seller
Stock or Buyer Preferred Stock such amounts as it is
required to deduct and withhold with respect to the
making of such payment under the Code, or any
provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Surviving
Corporation or Buyer, as the case may be, such
withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of
the shares of Seller Stock or Buyer Preferred Stock
in respect of which such deduction and withholding
was made by Surviving Corporation or Buyer, as the
case may be.
(k) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and the
posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against
it with respect to such Certificate (unless such
requirement to post a bond shall be waived by the
Surviving Corporation), the Exchange Agent will issue
in exchange for such lost, stolen or destroyed
Certificate the shares of Buyer Stock and any cash in
lieu of fractional shares, and unpaid dividends and
distributions on shares of Buyer Stock deliverable in
respect thereof pursuant to this Agreement.
SECTION 2.05 Conversion of Options. At the Effective Time,
each option granted by Seller to purchase shares of Seller Common Stock ("Seller
Stock Option") which is outstanding and unexercised immediately prior thereto
shall cease to represent a right to acquire shares of Seller Common Stock and
shall be converted automatically into an option to purchase the number of whole
shares of Buyer Common Stock (rounded down, if applicable) equal to the number
of whole shares of Seller Common Stock subject to such option multiplied by the
Seller Common Exchange Multiplier, at a price per share of Buyer Common Stock
equal to (i) the exercise price for the shares of Seller Common Stock
purchasable pursuant to such Seller Stock Option immediately prior to the
Effective Time divided by (ii) the Seller Common Exchange Multiplier, and shall
otherwise be subject to the terms of the Seller Employee Plans (as defined in
Section 3.11) pursuant to which such options were issued and the agreements
evidencing grants thereunder or, at the option of the Surviving Corporation, may
as otherwise be contained in any Buyer Option Plan. Subject to the foregoing,
the adjustment provided herein with respect to any options which are "incentive
stock
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options" (as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") shall be and is intended to be effected in a manner which
is consistent with Section 424(a) of the Code. Subject to the adjustments noted
herein, the duration and other terms of the option shall be the same as the
original option except that all references to (i) Seller Common Stock shall be
deemed to be references to Buyer Common Stock and (ii) the Company shall be
deemed to be references to Buyer. Further, any and all vesting or performance
requirements or conditions affecting any outstanding restricted stock,
performance stock, stock option, stock appreciation right, phantom stock, bonus,
award, right, grant or any other arrangement with any director or employee of
Seller shall be based on the terms of the respective Seller Employee Plan and
the agreements evidencing grants thereunder or, at the option of the Surviving
Corporation, may as otherwise be contained in any Buyer Option Plan. This
Section 2.05 is intended to be for the benefit of holders of options to purchase
the Common Stock of Seller.
SECTION 2.06 Conversion of Warrants. At the Effective Time,
each warrant granted by Seller to purchase shares of Seller Common Stock
("Seller Warrant)" which is outstanding and unexercised immediately prior
thereto shall cease to represent a right to acquire shares of Seller Common
Stock and shall be converted automatically into a warrant to purchase the number
of whole shares of Buyer Common Stock (rounded down as applicable) equal to the
number of whole shares of Seller Common Stock subject to such warrant multiplied
by the Seller Common Exchange Multiplier, at a price per share of Buyer Common
Stock equal to (i) the exercise price for the shares of Seller Common Stock
purchasable pursuant to such Seller Warrant immediately prior to the Effective
Time divided by (ii) the Seller Common Exchange Multiplier, and shall otherwise
be subject to the terms of the agreements evidencing grants of such Seller
Warrants and shall thereupon be assumed by Buyer. Subject to the adjustments
noted herein, the duration and other terms of the warrant shall be the same as
the original warrant except that all references to (i) Seller Common Stock shall
be deemed to be references to Buyer Common Stock and (ii) the Company or Seller
shall be deemed to be references to the Surviving Corporation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that the statements
contained in this Article III are true and correct, except as set forth herein
and in the disclosure schedules delivered by Seller to Buyer on or before the
date of this Agreement (the "Seller Disclosure Schedules"). The Seller
Disclosure Schedules shall be arranged in individual schedules corresponding to
the numbered paragraphs set forth below and the disclosure in any schedules
shall qualify other schedules in this Article III only to the extent that it is
reasonably apparent from a reading of such disclosure that it also qualifies or
applies to such other schedules. Without limiting the foregoing, 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 concerns the existence of the document or
the other item itself).
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SECTION 3.01 Organization of Seller. Seller, which is a
corporation is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
to own, lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the business, properties, financial
condition or results of operations of Seller taken as a whole (a "Seller
Material Adverse Effect"); provided, however, that for purposes of this
Agreement, the following events, shall not be taken into account in determining
whether there has been or would be a "Seller Material Adverse Effect" on or with
respect to Seller taken as a whole: (A) changes, events or occurrences in the
United States securities markets which are not specific to Seller, (B) changes,
events or occurrences in the world economy which are not specific to the Seller,
(C) the existence of this Agreement or the transactions contemplated hereby or
the announcement thereof, (D) any changes in generally accepted accounting
principles ("GAAP") and (E) changes, events or occurrences relating to the
pharmaceutical industry in general, and not specifically to Seller. Except as
set forth on Schedule 3.01, Seller does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any corporation, partnership, joint venture or other
business association or entity, excluding securities in any publicly traded
company held for investment by Seller and comprising less than five percent (5%)
of the outstanding stock of such company. Except as set forth on Schedule 3.01,
the Seller does not own or control (directly or indirectly), or own or hold any
right to acquire, any stock, partnership interest, joint venture interest,
equity participation or other security or interest in any other entity,
corporation, partnership, trust or any other business association.
SECTION 3.02 Seller Capital Structure; Irrevocable Proxy and
Voting Agreement. (a) The authorized capital stock of Seller consists of (i)
15,000,000 shares of Seller Common Stock, and (ii) 15,000,000 shares of Seller
Preferred Stock. The Seller Preferred Stock has been designated into the
following series: 1,600,000 shares of Seller Series A, 500,000 shares of Seller
Series B, 600,000 shares of Seller Series C and 3,400,000 shares of Seller
Series D. As of June 30, 1999, (i) 2,147,362 shares of Seller Common Stock,
1,580,000 shares of Seller Series A, 428,600 shares of Seller Series B, 519,631
shares of Seller Series C, and 3,400,000 shares of Seller Series D were issued
and outstanding, all of which are validly issued, fully paid and nonassessable,
and (ii) no shares of Seller Common Stock or Seller Preferred Stock were held in
the treasury of Seller. Schedule 3.02 shows (i) the ownership of the Seller
Stock and (ii) the number of shares of Seller Common Stock reserved for future
issuance pursuant to stock options and warrants granted and outstanding as of
the date hereof, and the plans under which such options were granted, if
applicable (collectively, the "Seller Stock Plans"). All shares of Seller Stock
subject to issuance as specified above are duly authorized and, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, shall be validly issued, fully paid and nonassessable. There are no
bonds, debentures, notes or other indebtedness of Seller having the right to
vote (or convertible into securities having the right to vote) on any matters on
which shareholders of Seller may vote. There are no obligations, contingent or
otherwise, of Seller to repurchase, redeem or otherwise acquire any shares of
Seller Common Stock, Seller Preferred Stock, or to provide funds to or make any
material investment (in the form of a loan, capital contribution or otherwise)
in any other entity.
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(b) Except as set forth on Schedule 3.02 or as reserved for
future grants of options under Seller Stock Plans, there are no equity
securities of any class of Seller, or any security exchangeable or convertible
into or exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth on Schedule 3.02, there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which Seller is a party or by which Seller is bound (including
under letters of intent, whether binding or nonbinding) obligating Seller to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity interests of Seller or obligating Seller
to grant, extend, accelerate the vesting of, otherwise modify or amend or enter
into any such option, warrant, equity security, call, right, commitment or
agreement except under Seller Stock Plans. Schedule 3.02 sets forth a complete
list of all outstanding warrants of the Seller and Seller has provided to Buyer
true and correct copies of each of such warrants. To the knowledge of Seller,
there are no voting trusts, proxies or other voting agreements or understandings
with respect to the shares of capital stock or other equity interests of Seller.
(c) No consent of the holders of any stock options granted
pursuant to Seller Stock Plans ("Seller Stock Options") is required in
connection with the conversion of the Seller Stock Options into options to
acquire Buyer Common Stock in accordance with Section 2.05.
(d) On or prior to the date hereof, the Seller shall have
delivered to the Buyer an irrevocable proxy and voting agreement (the
"Irrevocable Proxy and Voting Agreement") substantially in the form of Exhibit E
hereto executed by the following stockholders of Seller: Dr. Larry Hsu, Dr.
Charles Hsiao, Chemical Company of Malaysia Berhad, President (BVI)
International Investment Holdings Ltd., and China Development Industrial Bank
Inc.
SECTION 3.03 Authority; No Conflict; Required Filings and
Consents. (a) Seller 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 all agreements, documents,
certificates or instruments being delivered pursuant to or in connection with
the transactions contemplated by this Agreement (the "Transaction Documents")
and the consummation of the transactions contemplated hereby by Seller have been
duly authorized by all necessary corporate action on the part of Seller, subject
only to the approval of the Merger by Seller's stockholders under Section 1101
of the California Code; the vote of Seller's stockholders required to approve
this Agreement and the Merger is (i) a majority of the outstanding shares of
Seller Common Stock, (ii) a majority of the outstanding shares of Seller Series
A, Seller Series B and Seller Series C, voting together as one class, and (iii)
a majority of the outstanding shares of Seller Series D, each on the record date
for the Seller Meeting (as defined in Section 3.21), at which a quorum is
present. This Agreement has been duly executed and delivered by Seller and
constitutes the valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles (the "Bankruptcy and Equity Exception").
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(b) The execution and delivery of this Agreement by Seller
does not, and the consummation of the transactions contemplated hereby will not,
(i) conflict with, or result in any violation or breach of, any provision of the
Articles of Incorporation or Bylaws of Seller, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Seller is a party or by which it or any of its properties or
assets may be bound, or (iii) conflict with, violate, or cause the termination
of any permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Seller or any of its properties
or assets, except in the case of (ii) and (iii) for any such conflicts,
violations, defaults, terminations, cancellations or accelerations which are
not, individually or in the aggregate, reasonably likely to have a Seller
Material Adverse Effect.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") or person or entity is required by or with respect to Seller in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except as set forth in Schedule 3.03
hereto or for (i) the filing of the Certificate of Merger with the Department of
State of the State of California, (ii) the filing of the Proxy Statement (as
defined in Section 3.21 below) with the Securities and Exchange Commission (the
"SEC") in accordance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the laws of any foreign country and (iv) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not materially interfere with the operations of any
material facility of Seller or otherwise be reasonably likely to have a Seller
Material Adverse Effect.
SECTION 3.04 Financial Statements. Schedule 3.04 contains the
following financial statements for the Seller: audited balance sheets and
statements of operations, stockholders' equity and cash flows as of, and for the
fiscal years ended, December 31, 1996, 1997 and 1998, and compiled balance
sheet, statement of operations, stockholder's equity and cash flow statement as
of, and for the three month period ended March 31, 1999. The materials included
and to be included in Schedule 3.04 hereto are sometimes collectively referred
to herein as the "Financial Statements." The compiled balance sheet of Seller as
of March 31, 1999 is referred to herein as the "Seller Balance Sheet."
Each of the Financial Statements is true, complete and correct in all
material respects, consistent with the books and records of the Seller and in
accordance with generally accepted accounting principles consistently applied
(except as may be indicated in the notes thereto) and fairly presents the
Seller's financial condition, assets, liabilities and retained earnings as of
their respective dates and the statements of operations, stockholders' equity
and cash flows for the periods related
14
thereto, except that the interim compiled Financial Statements lack footnote
disclosure, and were or are subject to normal and recurring year-end
adjustments, which were not or are not expected to be material in amount. The
statements of operations included or to be included in the Financial Statements
do not contain any material items of special or non-recurring income or other
income not earned in the ordinary course of business except as expressly
specified on Schedule 3.04 as attached hereto on the date hereof.
SECTION 3.05 No Undisclosed Liabilities. Except as set forth
on the Seller Balance Sheet or on Schedule 3.05 and except for normal or
recurring liabilities incurred since March 31, 1999, in the ordinary course of
business consistent with past practices, Seller does not have any liabilities,
either accrued, contingent or otherwise (whether or not required to be reflected
in financial statements in accordance with GAAP), and whether due or to become
due, which individually or in the aggregate are reasonably likely to have a
Seller Material Adverse Effect.
SECTION 3.06 Absence of Certain Changes or Events. Since the
date of the Seller Balance Sheet, Seller has conducted its businesses only in
the ordinary course and in a manner consistent with past practice and, since
such date, there has not been (i) any change in the financial condition, results
of operations, business or properties of Seller, that has had, or is reasonably
likely to have, a Seller Material Adverse Effect; (ii) any damage, destruction
or loss (whether or not covered by insurance) with respect to Seller that has
had, or is reasonably likely to have, a Seller Material Adverse Effect; (iii)
any material change by Seller in its accounting methods, principles or practices
to which Buyer has not previously consented in writing; (iv) any revaluation by
Seller of any of its assets that has had, or is reasonably likely to have, a
Seller Material Adverse Effect; or (v) any other action or event that would have
required the consent of Buyer pursuant to Section 5.01 of this Agreement had
such action or event occurred after the date of this Agreement.
SECTION 3.07 Taxes. (a) For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Affiliated Group" shall mean any affiliated group within
the meaning of Section 1504 of the Code or any similar group defined under a
similar provision of state, local or foreign law, including, but not limited to,
any combined, consolidated or unitary group.
(ii) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(iii) "IRS" shall mean the Internal Revenue Service.
(iv) "Tax" or "Taxes" shall mean any and all federal, state,
local, foreign and other taxes, levies, fees, imposts, duties and charges of
whatever kind (including any interest, penalties or additions to the tax imposed
in connection therewith or with respect thereto), including, without limitation,
taxes imposed on, or measured by, income, franchise, profits, or gross receipts,
and also ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation,
15
utility, severance, production, excise, stamp, occupation, premium, windfall
profits, transfer, gains taxes, and custom duties. Taxes shall include any
liability for Taxes as a successor-in-interest or transferee of another entity,
or by reason of liability for Taxes pursuant to Treasury Regulation Section
1.1502-6 or any analogous or similar state, local or foreign law or regulation.
(v) "Tax Return" shall mean returns, reports, information
statements, and other documentation (including any additional or supporting
material) filed or maintained, or required to be filed or maintained, in
connection with the calculation, determination, assessment or collection of any
Tax.
(b) Except as set forth on Schedule 3.07:
(i) All Tax Returns required to be filed by or on
behalf of Seller have been properly prepared and duly and timely filed with the
appropriate taxing authorities in all jurisdictions in which such Tax Returns
are required to be filed (after giving effect to any valid extensions of time in
which to make such filings), and all such Tax Returns were true, complete and
correct in all material respects.
(ii) All Taxes payable by or on behalf of Seller or
in respect of its income, assets or operations (including interest and
penalties) have been fully and timely paid, and adequate reserves or accruals
for Taxes have been provided in Seller's books and records with respect to any
period for which Tax Returns have not yet been filed or for which Taxes are not
yet due and owing.
(iii) Seller has not executed or filed with any
taxing authority any agreement, waiver or other document or arrangement
extending or having the effect of extending the period for assessment or
collection of Taxes (including, but not limited to, any applicable statute of
limitation), and no power of attorney with respect to any Tax matter is
currently in force.
(iv) Seller has complied in all material respects
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and has duly and timely withheld from employee salaries,
wages and other compensation and has paid over to the appropriate taxing
authorities all amounts required to be so withheld and paid over for all periods
under all applicable laws.
(v) Buyer has received complete copies of (A) all
U.S. federal, state and foreign income or franchise Tax Returns of Seller
relating to the taxable periods beginning after December 31, 1994 and (B) any
audit report issued within the last three years relating to Taxes due from or
with respect to Seller, or its income, assets or operations.
(vi) No claim has been made by a taxing authority in
a jurisdiction where Seller does not file Tax Returns such that it is or may be
subject to taxation by that jurisdiction.
16
(vii) All deficiencies asserted or assessments made
as a result of examinations by any taxing authority of the Tax Returns of or
covering or including Seller have been fully paid, and there are no other audits
or investigations by any taxing authority or proceedings in progress, nor has
Seller or any of its shareholders received any written notice from any taxing
authority that it intends to conduct such an audit or investigation. No issue
has been raised in writing by a U.S. federal, state, local or foreign taxing
authority in any current or prior examination which, by application of the same
or similar principles, could reasonably be expected to result in a proposed
deficiency for any subsequent taxable period.
(viii) Neither Seller, nor any other person on behalf
of Seller has (A) filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by Seller, (B) 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 Seller or
has any knowledge that the Internal Revenue Service has proposed any such
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 Seller, or has otherwise taken any
action that would have the effect of deferring any liability for Taxes from any
taxable period ending on or before the Closing to any taxable period ending
thereafter, (C) executed or entered into 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 Seller, or (D) requested any
extension of time within which to file any Tax Return, which Tax Return has
since not been filed.
(ix) No property owned by Seller 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.
(x) Seller is not a party to any tax sharing or
similar agreement or arrangement (whether or not written) pursuant to which it
will have any obligation to make any payments after the Closing.
(xi) There is no contract, agreement, plan or
arrangement covering any person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by Buyer or any
of its Affiliates by reason of Section 280G of the Code.
(xii) Seller has substantial authority for the
treatment of or has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of
the Code) on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income tax within the
meaning of Section 6662(d) of the Code.
17
(xiii) Seller is not subject to any private letter
ruling of the Internal Revenue Service or comparable rulings of other taxing
authorities.
(xiv) There are no liens as a result of any unpaid
Taxes upon any of the assets of Seller.
(xv) All material Tax elections of Seller are set
forth on Schedule 3.07. Seller has no elections in effect for U.S. federal
income tax purposes under Sections 108, 168, 338, 441, 463, 1017, 1033 or 4977
of the Code.
(xvi) Seller has never been a member of any
Affiliated Group for tax purposes. Seller has no liability for Taxes of any
person under section 1.1502-6 of the Treasury regulations under the Code (or any
similar provision of state, local or foreign law), as a transferee or successor
or otherwise. Seller 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 or transparent entity for any tax purpose.
(xvii) Seller has not been a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(xviii) Seller does not have a permanent
establishment in any foreign country, as defined in any applicable Tax treaty or
convention.
SECTION 3.08 Ownership of Properties; Condition of Property.
(a) Schedule 3.08 contains a true and complete list of all real property leased
by Seller pursuant to leases providing for the occupancy of facilities
(collectively "Seller Material Lease(s)") and the location of the premises. With
respect to each such Seller Material Lease and except as set forth on the
Schedule 3.08: (i) the lease is legal, valid, binding, enforceable against
Seller subject to the Bankruptcy and Equity Exception, and in full force and
effect; (ii) the lease will continue to be legal, valid, binding, enforceable
and in full force and effect immediately following the Closing in accordance
with the terms thereof as in effect prior to the Closing; (iii) neither Seller
nor, to the knowledge of Seller, any other party to the lease or sublease is in
breach or default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination, modification
or acceleration thereunder; and (iv) Seller has not assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold
or subleasehold; except, in the case of clauses (i) through (iv) that the same
is not reasonably likely to have a Seller Material Adverse Effect. Seller does
not own any real property.
(b) All machinery, equipment and other tangible assets used by
the Seller are in fair or good operating condition and repair, reasonable wear
and tear excepted, are usable in the ordinary course of business and are
adequate and suitable for the uses to which they are being put, except where the
failure to be in such condition or so usable and suitable would not have a
Seller
18
Material Adverse Effect. None of such items requires any repairs or replacement
except for maintenance in the ordinary course of business or such other repairs
or replacements which are not material, individually or in the aggregate, in
nature or cost. All such assets and property are located at the 30831 Huntwood
Avenue premises in Hayward, California or as otherwise identified on Schedule
3.08 hereto.
(c) The Seller is not contemplating any capital expenditure in
excess of $100,000 individually or in the aggregate which has not been disclosed
to Buyer in writing.
SECTION 3.09 Agreements, Contracts and Commitments. The Seller
has not entered into and is not bound by any material contract, agreement,
relationship or commitment, written or oral, including without limitation any
obligations for money borrowed or under leases, other than those identified on
Schedule 3.09 hereto (the "Seller Material Contracts"); true, correct and
complete copies of all Seller Material Contracts previously have been furnished
to Buyer. Except as set forth on Schedule 3.09, the Seller is not in default,
and no event has occurred which with the giving of notice or the passage of time
or both would constitute a default by the Seller or, to the best of Seller's
knowledge, any other party under any Seller Material Contract or any other
material obligation owed by the Seller and, to the best of Seller's knowledge,
no event has occurred which with the giving of notice or the passage of time or
both would constitute a default by any other party to any such Seller Material
Contract or obligation. Except as set forth on Schedule 3.09, the continuation,
validity and effectiveness of all Seller Material Contracts will in no way be
affected by the transactions contemplated hereby; and there are no negotiations
pending to revise the terms of any such Seller Material Contracts. Except as set
forth on Schedule 3.09, the Seller is not party to or bound by any contract,
agreement, relationship or commitment, whether or not deemed material, which in
any way restricts or purports to restrict the ability of Seller to acquire any
property or assets or conduct their respective business or provide services to
any person or entity anywhere in the world.
SECTION 3.10 Litigation. Except as set forth on Schedule 3.10,
there is no claim, counter-claim, action, suit, order, proceeding or
investigation pending or to the knowledge of the Seller, threatened against or
involving the Seller, or pending or, to the knowledge of the Seller, threatened
against any of the respective officers, directors or key employees of the Seller
with respect to business activities on behalf of the Seller with respect to or
affecting the Seller, its accounts, business, properties, assets or rights, or
relating to the transactions contemplated hereby, before any court, agency,
regulatory, administrative or other governmental body or officer or before any
arbitrator, nor, to the knowledge of the Seller, is there any reasonable basis
for any such claim, action, suit, proceeding or governmental, administrative or
regulatory investigation. The Seller is not directly subject to or affected by
any order, judgment, decree or ruling of any court or governmental agency. The
Seller has not received any written opinion or memorandum of legal advice from
legal counsel to the effect that any of them are exposed to any liability which
may be material to the business, prospects, results of operations, financial
condition or assets of the Seller. Except as set forth on Schedule 3.10, the
Seller is not engaged in any legal action to recover monies due it or for
damages sustained by it, and none of the assets of the Seller nor any of its
business practices are in any manner,
19
directly or indirectly, affected by injunction of any court or governmental,
administrative or regulatory agency, body or officer.
SECTION 3.11 Employee Benefit Plans. (a) Schedule 3.11 sets
forth all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, equity, incentive, deferred compensation,
supplemental retirement, change in control, retiree health or welfare, fringe,
dependent care, flexible spending or severance plans, programs or agreements,
for the benefit of, or relating to, any current or former employee, director or
independent contractor of Seller or any entity which is, or has been, a member
(an "ERISA Affiliate") of (i) a controlled group of corporations, (ii) a group
of trades or businesses (whether or not incorporated) under common control with
Seller, or (iii) an affiliated service group, all within the meaning of Section
414 of the Code or Section 4001(a)(14) of ERISA, of which includes the Seller
(together, the "Seller Employee Plans").
(b) With respect to each Seller Employee Plan, Seller has
delivered to Buyer, a true and correct copy of (i) the most recent annual report
(Form 5500) filed with the IRS (and the related financial statement), (ii) such
Seller Employee Plan and any amendments or summary plan descriptions with
respect thereto, (iii) each trust agreement and group annuity contract, if any,
relating to such Seller Employee Plan, (iv) the most recent actuarial report or
valuation relating to a Seller Employee Plan subject to Title IV of ERISA, and
(v) the most recent determination letter issued by the Internal Revenue Service,
as well as any other determination letter, private letter ruling, opinion letter
or prohibited transaction exemption issued by the Internal Revenue Service or
the Department of Labor within the last six years and any application therefor
which is currently pending.
(c) Except as set forth on Schedule 3.11, neither the Seller,
nor any of its ERISA Affiliates (i) has ever maintained or been obligated to
contribute to a single employer, multiple employer or multi-employer pension
plan (within the meaning of Section 3(2) of ERISA) which is or was covered by
Title IV of ERISA or by Section 302 of ERISA or 412 of the Code, and (ii) has
incurred or may incur any direct or indirect liability under Title IV of ERISA
or Section 302 of ERISA or Section 412 of the Code. With respect to the Seller
Employee Plans, individually and in the aggregate, no event has occurred, and
there exists no condition or set of circumstances in connection with which
Seller could be subject to any liability that is reasonably likely to have a
Seller Material Adverse Effect under ERISA, the Code or any other applicable
law.
(d) With respect to the Seller Employee Plans, individually
and in the aggregate, there are no funded benefit obligations for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
properly footnoted, in either case, in accordance with GAAP, on the financial
statements of Seller.
(e) The Seller and its ERISA Affiliates have complied in all
respects with the provisions of Section 4980B of the Code with respect to each
Seller Employee Plan which is a group health plan within the meaning of Section
5001(b)(1) of the Code. Seller does not maintain or
20
contribute to, nor is it obligated under any plan, contract, policy or
arrangement providing health or death benefits (whether or not insured) to
current or former employees or other personnel beyond the termination of their
employment or other services.
(f) Except as set forth on Schedule 3.11 and except as
provided for in this Agreement, Seller is not a party to any oral or written (i)
agreement with any current or former officer or other key employee of Seller,
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving Seller of the nature
contemplated by this Agreement, (ii) agreement with any current or former
officer of Seller providing any term of employment or compensation guarantee
extending for a period longer than eighteen months from the date hereof and for
the payment of compensation in excess of $100,000 per annum, or (iii) agreement
or plan, including any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting or funding of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
(g) There are no pending or, to Seller's knowledge, threatened
claims, actions, suits, termination proceedings, or investigations by any
Governmental Entity against or involving any Seller Benefit Plan. Any Seller
Benefit Plan intended to be qualified under Section 401(a) of the Code has
received a determination letter from the Internal Revenue Service to that effect
(which has not been revoked) and nothing has occurred since the date of the most
recent determination letter that would adversely affect such qualification.
SECTION 3.12 Salaries. Schedule 3.12 contains a true, complete
and correct list setting forth (i) the names, job descriptions/titles, current
compensation rate (including but not limited to salary, commission and bonus
compensation), date of hire, vacation accrual rate of all individuals presently
employed by the Seller indicating whether they are employed on a salaried,
hourly or piecework basis, and (ii) the names and total annual compensation for
all independent contractors who render services on a regular basis to the Seller
whose current annual compensation is or is expected to be in excess of $20,000.
Except as set forth on Schedule 3.12, there has been no increase in the
compensation of any of the foregoing individuals or independent contractors
since June 30, 1999. There has not been any promise by the Seller to the
employees listed on Schedule 3.12 orally or in writing of any bonus or increase
in compensation, whether or not legally binding, except for increases in the
ordinary course of business consistent with past compensation practices of the
Seller. Except as set forth on Schedule 3.12, the Seller has not made any
prepayments of salaries, bonuses or any other amounts due to any of its
employees or former employees. All obligations to employees, whether for
salaries, commissions, bonuses, vacation or otherwise, which are required to be
accrued on the Financial Statements in accordance with generally accepted
accounting principles consistently applied have been accrued on the Financial
Statements in accordance with generally accepted accounting principles
consistently applied.
21
SECTION 3.13 Personnel Agreements, Plans and Arrangements.
Except as listed in Schedule 3.13, the Seller is not a party to or obligated
with respect to any (a) outstanding contracts with current or former employees,
agents, consultants, advisers, salespeople, sales representatives, distributors,
sales agents, independent contractors, or dealers, or (b) collective bargaining
agreements or contracts with any labor or trade union, employee bargaining
agency or other representative of employees or any employee benefits provided
for by any such agreement, true, correct and complete copies of which previously
have been furnished to Buyer. No strike, picketing, slow-down, work stoppage,
lock-out, union organizational activity or other similar occurrence has occurred
or is pending or, to the knowledge of the Seller, is threatened against the
Seller. Except as disclosed on Schedule 3.13, the Seller has complied in all
material respects with all applicable laws relating to the employment of labor,
including but not limited to provisions thereof relating to wages, hours,
vacation pay, equal opportunity, collective bargaining and the payment,
deduction and remittance of all amounts required to be deducted and/or remitted
in respect of wages and salaries and of other Taxes and such deductions are
consistent with past practices and in accordance with generally accepted
accounting principles consistently applied and consistent with the Financial
Statements and either remitted same to the legally constituted authorities
entitled to receive payment thereof or has reserved for same in its accounts and
an amount of cash equal to the amount of such reserve has been set aside for
payment thereof. Seller is not liable for any arrears of wages or any taxes or
penalties with respect to the foregoing. Seller has not entered into and is not
obligated to enter into any agreement relating to the payment of vacation pay to
any employee, and Seller does not have any obligation to any employees to
provide them with pay for vacation time other than as required by generally
applicable provisions of law. Seller has not received notice from any employee
of the Seller that any such employee is terminating his or her employment with
the Seller, nor to the best knowledge of the Seller does any employee intend to
terminate his or her employment with the Seller as a result of the transactions
contemplated hereby. There are no administrative charges or court complaints
pending or, to the knowledge of the Seller, threatened against the Seller
concerning alleged employment discrimination or any other matters relating to
the employment of labor. No trade union, counsel of trade unions, employee
bargaining agency or affiliated bargaining agent (i) holds bargaining rights
with respect to any of the employees of the Seller by way of certification,
interim certification, voluntary recognition, designation or successor right,
(ii) has applied to be certified as the bargaining agent of the employees of the
Seller, or (iii) has applied to have Seller declared a related employer pursuant
to the provision of applicable law. Except as set forth in Schedule 3.13, to the
knowledge of the Seller, no claim, injunction, fact, event or condition exists
which would give rise to a material claim by any employee or former employee
(including dependents and spouses thereof and other individuals covered
thereunder) of the Seller under any workers compensation laws, regulations,
requirements or programs.
SECTION 3.14 Customers. Schedule 3.14 is a complete list by
dollar volume of billings (within the fiscal year ended December 31, 1998) of
the Sellers' customers. Except as set forth on Schedule 3.14, since December 31,
1998, none of the customers who individually represent greater than 5% of the
Seller's billings has canceled or otherwise terminated, or, to the knowledge of
the Seller, threatened to cancel or otherwise terminate, its relationship with
the Seller or materially reduced, or to the knowledge of the Seller, threatened
to materially reduce, its business with the
22
Seller. Seller has not received any notice and has no knowledge or reason to
believe that any customer who individually represents more than 5% of either
Seller's annual billings intends to cancel or otherwise modify its relationship
with Seller on account of the transactions contemplated hereby or otherwise.
SECTION 3.15 Interest of the Companies in Customers, etc.
Except as set forth in Schedule 3.15, Seller does not have any direct or
indirect interest in any competitor, supplier or customer of the Seller or in
any person from whom or to whom the Seller leases any real or personal property
or in any other person with whom the Seller has any business relationship.
Schedule 3.15 also describes, (i) all management, administrative, computer,
telephone or other services provided by any of the Seller's Affiliates, and all
such services provided by the Seller to any of such persons and entities, and
(ii) all other contracts, agreements, arrangements or transactions (including
the purchase and sale of inventory, supplies and other goods) between either
Seller, on the one hand, and any of such individuals or entities on the other
hand, currently in effect, including, without limitation any agreement or
arrangement relating to indebtedness to or from any of such individuals or
entities, in each case setting forth the terms thereof if not effected on an
arm's-length basis.
SECTION 3.16 Books and Records. All the books, records and
accounts of Seller are in all material respects accurate and complete,
accurately reflect in all material respects, all matters normally entered into
the books, records or accounts maintained by similar businesses, are in all
material respects in accordance with all laws, regulations and rules applicable
to the Seller and accurately present and reflect in all material respects all of
the transactions described therein. The Seller has accounting controls
sufficient to ensure that its transactions are in all material respects executed
in accordance with its management's general or specific authorization.
SECTION 3.17 Insurance Policies. Schedule 3.17 is a correct
and complete list and description, including policy numbers, of all insurance
policies owned or held by the Seller or otherwise covering the Seller, its
employees or assets. Such policies are in full force and effect, and the Seller
is not in default under any of them. To the knowledge of the Seller, such
insurance is of the kind and in the amount not less than customarily obtained by
corporations or other entities of established reputation engaged in the same or
similar business and similarly situated. Seller has not received any notices of
non-renewal, cancellation or intent to cancel, not renew or increase premiums or
deductibles with respect to such insurance policies nor, to the knowledge of the
Seller, is there any basis for any such action. Schedule 3.17 also contains a
list of all pending claims with any insurance company (other than health,
medical and dental insurance claims of employees) and any instances within the
previous three years of a denial of coverage of the Seller by any insurance
company.
SECTION 3.18 Bank Accounts. Schedule 3.18 contains a complete
and correct list of each bank and brokerage firm in which the Seller has an
account or safe deposit box, the number of each such account or box and the
names of all persons authorized to draw thereon or to have access thereto.
23
SECTION 3.19 Compliance With Laws. Seller has complied with,
is not in violation of, and has not received any notices of violation with
respect to, any federal, state or local statute, law or regulation or any
judgment, decree or order of any Governmental Entity with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which, individually or in the aggregate, have
not had and are not reasonably likely to have a Seller Material Adverse Effect.
Seller has in effect all federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, notices, permits
and rights ("Approvals") necessary for it to own lease or operate its properties
and assets and to carry on its business as now conducted and there has occurred
no default under any such Approval, or failure to obtain such Approval, which
would in the aggregate have a Seller Material Adverse Effect.
SECTION 3.20 Accounting and Tax Matters. To its knowledge,
after consulting with its tax advisors, neither Seller nor any of its Affiliates
(as defined in Section 6.10) has taken or agreed to take any action which would
prevent the Merger from constituting a transaction qualifying as a
reorganization under 368(a) of the Code.
SECTION 3.21 Registration Statement; Proxy
Statement/Prospectus. The information to be supplied by Seller for inclusion in
the proxy statement and registration statement on Form S-4 pursuant to which
shares of Buyer Common Stock issued in the Merger will be registered under the
Securities Act (the "Registration Statement"), shall not at the time the
Registration Statement is filed with the SEC and at the time the Registration
Statement is declared effective by the SEC contain any untrue statement of a
material fact or omit to state any material fact required to be stated in the
Registration Statement or necessary in order to make the statements in the
Registration Statement, in light of the circumstances under which they were
made, not misleading. The information supplied by Seller for inclusion in the
proxy statement/prospectus to be sent to the stockholders of Seller in
connection with the meeting of Seller's stockholders to consider this Agreement
and the Merger (the "Seller Meeting") (the " Proxy Statement") shall not, on the
date the Proxy Statement is first mailed to stockholders of Seller, at the time
of the Seller Meeting and at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Seller Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
Seller or any of its Affiliates, officers or directors should be discovered by
Seller which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement, Seller shall promptly inform Buyer. The
Proxy Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by Seller with respect to
statements made or incorporated by reference therein based on information
supplied by Buyer specifically for inclusion or incorporation by reference in
the Proxy Statement.
24
SECTION 3.22 Labor Matters. Seller is not a party to or
otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor, as of
the date hereof, is Seller the subject of any material proceeding asserting that
Seller has committed an unfair labor practice or is seeking to compel it to
bargain with any labor union or labor organization nor, as of the date of this
Agreement, is there pending or, to the knowledge of Seller, threatened, any
material labor strike, dispute, walkout, work stoppage, slow- down or lockout
involving Seller.
SECTION 3.23 Year 2000 Compliance. The computer systems of
Seller (including, without limitation, all software, hardware, workstations and
related components, automated devices, embedded chips and other date sensitive
equipment such as security systems, alarms, elevators and HVAC systems) are Year
2000 Compliant or will be Year 2000 Compliant by September 30, 1999, except to
the extent that any failure to be Year 2000 Compliant, either individually or in
the aggregate, would not have a Seller Material Adverse Effect. The term "Year
2000 Compliant" as used herein means that the computer systems are (i) capable
of recognizing, processing, managing, representing, interpreting, and
manipulating correctly date related data for dates earlier and later than
January 1, 2000, including, but not limited to, calculating, comparing, sorting,
storing, tagging and sequencing, without resulting in or causing logical or
mathematical errors or inconsistencies in any user-interface functionalities or
otherwise, including data input and retrieval, data storage, data fields,
calculations, reports, processing, or any other input or output, (ii) have the
ability to provide data recognition for any data element without limitation
(including, but not limited to, date-related data represented without a century
designation, date-related data whose year is represented by only two digits and
date fields assigned special values), (iii) have the ability to automatically
function into and beyond the year 2000 without human intervention and without
any change in operations associated with the advent of the year 2000, (iv) have
the ability to correctly interpret data, dates and time into and beyond the year
2000, (v) have the ability not to produce noncompliance in existing information,
nor otherwise corrupt such data into and beyond the year 2000, (vi) have the
ability to correctly process after January 1, 2000 data containing dates before
that date, and (vii) have the ability to recognize all "leap years," including
February 29, 2000.
Seller does not believe that the lack of ability of its computer
systems to properly interface with internal and external applications and
systems of third parties with whom the Seller exchanges data electronically
(including without limitation customers, clients, suppliers, service providers,
subcontractors, processors, converters, shippers, warehousemen, outsources, data
processors, regulatory agencies and banks) will have a Seller Material Adverse
Effect.
SECTION 3.24 Legal Compliance. (a) Seller's manufacturing,
distribution and marketing practices are in compliance in all material respects
with all applicable federal and state laws, rules, regulations, orders,
licenses, judgments, writs, injunctions, decrees or demands, including, without
limitation, laws and regulations administered by the Food and Drug
Administration ("FDA") and the Drug Enforcement Administration ("DEA").
25
(b) Seller possesses all material FDA new drug applications,
abbreviated new drug applications, and new animal drug applications as are
currently legally required and are necessary for the conduct of its business as
now being conducted, a list of which is attached hereto as Schedule 3.24, true
and correct copies of which have been provided to the Buyer by the Seller.
(c) Seller has not used the services of any person debarred
under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. ss.
335(a)(b). Neither the Seller, nor its respective officers, employees, agents or
affiliates, has been convicted of any crime or engaged in any conduct for which
debarment is mandated by 21 U.S.C. ss. 335a(a) or authorized by 21 U.S.C. ss.
335a(b).
(d) Seller is in substantial compliance with all Federal and
state laws applicable to the manufacture, processing, packing, testing and sale
of pharmaceutical products to the extent such laws are applicable to it, all
rules and regulations of the FDA and the DEA to the extent such rules and
regulations are applicable to it, and each new drug application ("NDA") and
abbreviated new drug application ("ANDA") in which Seller has sold any product
on or after March 31, 1999, except where the failure to be in such compliance
would not have a Seller Material Adverse Effect. All manufacturing operations
conducted by or for the benefit of the Seller have been and are being conducted
in substantial compliance with the current Good Manufacturing Practice
regulations set forth in 21 C.F.R. Parts 210 and 211.
(e) As to each drug of the Seller for which a NDA or ANDA has
been approved by the FDA, which drugs are described on Schedule 3.24, the
applicant and all persons performing operations covered by the application are
in substantial compliance with 21 U.S.C.ss.ss. 355 or 357, 21 C.F.R. parts 314
or 430 et. seq., respectively, and all terms and conditions of the application,
except where the failure to be in such compliance would not have a Seller
Material Adverse Effect.
(f) The Seller is in substantial compliance with all
applicable registration and listing requirements set forth in 21 U.S.C. ss. 360
and 21 C.F.R. Part 207. To the extent required, the Seller has obtained
registrations from the DEA and are in substantial compliance with all such
registrations and all applicable regulations promulgated by the DEA.
(g) Neither the Seller, nor its officers, employees, or agents
have made an untrue statement of material fact or fraudulent statement to the
FDA or the DEA, failed to disclose a material fact required to be disclosed to
the FDA or the DEA, or committed an act, made a statement, or failed to make a
statement that could reasonably be expected to provide a basis for the FDA 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).
(h) The Seller has made available to Buyer copies of any and
all notices of inspectional observations (FD 483's), establishment inspection
reports, warning letters and any other documents received from or issued by the
FDA or the DEA within the last three years that indicate
26
or suggest lack of compliance with the FDA or the DEA regulatory requirements by
the Seller, or persons covered by product applications or otherwise performing
services for the benefit of the Seller.
(i) Seller has not received any written notice that the FDA or
the DEA has commenced, or threatened to initiate, any action to withdraw its
approval or request the recall of any product of the Seller or commenced or
threatened to initiate, any action to enjoin production at any facility owned or
used by the Seller or any of the Seller's facilities, commenced or threatened to
initiate the withdrawal of approval of any NDA, ANDA or new animal drug
application ("NADA") or any establishment or other registration or commenced or
threatened to initiate any civil penalty, seizure or criminal action.
(j) As to each article of drug or consumer product currently
manufactured and/or distributed by the Seller, which products are described on
Schedule 3.24, such article is not adulterated or misbranded within the meaning
of the FDCA, 21 U.S.C. ss.ss. 301c et. seq.
(k) As to each drug referred to in (b), the Seller, and its
officers, employees, agents and affiliates have included or caused to be
included in the application for such drug, where required, the certification
described in 21 U.S.C. ss. 335a(k) (1) and the list described in 21 U.S.C. ss.
335a(k)(2), and such certification and such list was in each case true and
accurate when made and remained true and accurate thereafter.
(l) Seller represents and warrants that all testing it has
conducted or has had conducted for it by third parties complies in all respects
with the requirements of Good Clinical Practice, Informed Consent, and all
requirements relating to protection of human subjects found in 21 C.F.R. ss. 50,
and that all nonclinical laboratory testing complies with the requirements of 21
C.F.R. ss. 58.
(m) As to each application or abbreviated application
submitted to, but not approved by, the FDA, and not withdrawn by the Seller, or
applicants acting on its behalf as of the date of this Agreement, the Seller has
complied in all material respects with the requirements of 21 U.S.C. ss.ss. 355
and 357 and 21 C.F.R. Parts 312, 314 and 430 et. seq. and has provided, or will
provide, all additional information and taken, or will take, all additional
action requested by the FDA in connection with the application.
SECTION 3.25 Environmental and Safety Matters.
Except as set forth on Schedule 3.25,
(a) Except as would not have an Environmental Material Adverse
Effect, as hereinafter defined, Seller has operated in compliance with all
applicable limitations, restrictions, conditions, standards, prohibitions,
requirements and obligations of Environmental Laws and related orders of any
court or other governmental authority;
27
(b) Except as would not have an Environmental Material Adverse
Effect, there are not any existing, pending or, to the knowledge of the Seller,
threatened actions, suits, claims, investigations, inquiries or proceedings by
or before any court or any other governmental entity directed against the Seller
that pertain or relate to (1) any remedial obligations under any applicable
Environmental Law, (2) violations by Seller of any Environmental Law, (3)
personal injury or property damage claims relating to a release, discharge or
disposal of Hazardous Materials or other Environmental Conditions, or (4)
response, removal, or remedial costs under the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation
and Recovery Act ("RCRA"), or any similar state laws;
(c) With respect to permits and licenses, (1) all licenses,
permits, consents, or other approvals required under Environmental Laws that are
necessary to the operations of the Seller have been obtained and are in full
force and effect and the Seller is unaware of any basis for revocation or
suspension of any such licenses, permits, consents or other approvals; (2) to
the best of the Seller's knowledge, no Environmental Laws impose any obligation
upon Buyer, as a result of any transaction contemplated hereby, requiring prior
notification to any governmental entity of the transfer of any permit, license,
consent, or other approval which is necessary to the operations of Seller's
properties and Assets; and (3) except as would not have an Environmental
Material Adverse Effect, Seller has conducted its operations in compliance with
such permits, licenses, consents, or approvals, and at the production levels or
emission levels specified in such permits, licenses, consents, or approvals;
(d) To the knowledge of the Seller, no portion of any of the
properties owned or operated by Seller is listed on the National Priorities List
("NPL") or the Comprehensive Environmental Response, Compensation, and Liability
Information System ("CERCLIS") list under CERCLA, or any similar ranking or
listing under any state law;
(e) To the knowledge of Seller, all Hazardous Materials
generated by the Seller have been transported by carriers, or stored, treated
and disposed of by treatment, storage and disposal facilities, authorized or
maintaining valid permits under all applicable Environmental Laws;
(f) To the knowledge of Seller, no person has disposed or
released any Hazardous Materials on, at, or under the properties owned or
operated by Seller, except in compliance with laws, or except as would not have
an Environmental Material Adverse Effect;
(g) Seller is not aware of any Environmental Remediation Costs
that are required or are planned to be expended relating to the operations of
Seller for which Seller reasonably anticipates payment or accrual; and
(h) Except as would not have an Environmental Material Adverse
Effect, no facts or circumstances exist which could reasonably be expected to
result in any liability to the Seller with respect to the current or past
business and operations of the Seller in connection with (i) any release,
28
transportation or disposal of any Hazardous Materials, or (ii) any action taken
or omitted that was not in full compliance with or was in violation of any
applicable Environmental Law.
The following terms shall have the meanings indicated below:
"Environmental Condition" or "Environmental Conditions" means
any pollution, contamination, degradation, damage or injury caused by, related
to, arising from, or in connection with the generation, handling, use,
treatment, storage, transportation, disposal, discharge, release, or emission of
any "Hazardous Materials."
"Environmental Law" or "Environmental Laws" means all health,
safety, and environmental laws, rules, regulations, statutes, ordinances,
decrees or orders of any governmental entity relating to (i) the control of any
potential pollutant or protection of the air, water or land, (ii) solid, gaseous
or liquid waste generation, handling, treatment, storage, disposal or
transportation, and (iii) exposure to hazardous, toxic or other substances
alleged to be harmful, and includes without limitation, (1) the terms and
conditions of any license, permit, approval, or other authorization by any
governmental entity, and (2) judicial, administrative, or other regulatory
decrees, judgments, and orders of any governmental entity. The term
"Environmental Laws" shall include, but not be limited to the following statutes
and the regulations promulgated thereunder: the Clean Air Act, 42 U.S.C. ss.
7401 et seq., the Clean Water Act, 33 U.S.C. ss. 1251 et seq., RCRA, 42 U.S.C.
ss. 6901 et seq., the Superfund Amendments and Reauthorization Act, 42 U.S.C.
ss. 11011 et seq., the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.,
the Water Pollution Control Act, 33 U.S.C. ss. 1251 et seq., the Safe Drinking
Water Act, 42 U.S.C. ss. 300f et seq., CERCLA, 42 U.S.C. ss. 9601 et seq., and
any state, county, or local regulations similar thereto.
"Environmental Liabilities" means any and all liabilities,
responsibilities, claims, suits, losses, costs (including remediation, removal,
response, abatement, clean-up, investigative, and/or monitoring costs and any
other related costs and expenses), other causes of action recognized now or at
any later time, damages, settlements, expenses, charges, assessments, liens,
penalties, fines, prejudgment and post-judgment interest, attorney fees and
other legal fees (a) pursuant to any agreement, order, notice, requirement,
responsibility, or directive (including directives embodied in Environmental
Laws), injunction, judgment or similar documents (including settlements) arising
out of or in connection with any Environmental Laws, or (b) pursuant to any
claim by a governmental entity or other person or entity for personal injury,
property damage, damage to natural resources, remediation, or similar costs or
expenses incurred or asserted by such entity or person pursuant to common law or
statute.
"Environmental Material Adverse Effect" shall mean any
Environmental Liabilities that are reasonably expected to exceed $50,000 per
occurrence, or $100,000 in the aggregate.
"Environmental Remediation Costs" shall mean all costs and
expenses relating to activities or actions to (i) clean up or remove Hazardous
Materials from the environment, (ii) prevent or minimize the movement, leaching,
or migration of Hazardous Materials into the environment, (iii)
29
mitigate the release or threatened release of Hazardous Materials into the
environment, or the injury or damage from such release, or (iv) comply with the
requirements of any Environmental Laws or permits. Environmental Remediation
Costs include, without limitation, costs and expenses payable in connection with
the foregoing for legal, engineering, or other related services; for
investigation, testing, sampling, and monitoring; for boring, excavation, and
construction; for removal, modification or replacement of equipment or
facilities; for labor and material; and for proper storage, treatment or
disposal of Hazardous Materials.
"Hazardous Materials" means any (i) toxic or hazardous
materials or substances; (ii) solid wastes, including asbestos, polychlorinated
biphenyls, mercury, buried contaminants, chemicals, flammable or explosive
materials; (iii) radioactive materials; (iv) petroleum wastes and spills or
releases of petroleum products; and (v) any other chemical, pollutant,
contaminant, substance or waste that is regulated by any governmental entity
under any Environmental Law.
SECTION 3.26 Conduct of the Businesses. Except as set forth on
Schedule 3.26, since March 31, 1999, the Seller has conducted its businesses
only in the ordinary course of business consistent with past custom and
practice, and has incurred no liabilities or obligations whatsoever other than
in the ordinary course of business consistent with past custom and practice and
there has been no material adverse change in the respective assets, condition
(financial or otherwise), results of operations, employee or customer relations,
business activities or business prospects of the Seller nor does the Seller know
of any such change which is threatened, nor has there been any damage,
destruction or loss materially adversely affecting any of the respective assets,
or the business condition (financial or otherwise), results of operations,
prospects or activities of the Seller, whether or not covered by insurance.
Without limitation of the foregoing and except as set forth on Schedule 3.26,
since March 31, 1999, the Seller has not:
(a) voluntarily or involuntarily sold, transferred,
abandoned, surrendered, subjected to a lien or
otherwise disposed of any assets or property rights
except in the ordinary course of business consistent
with past custom or practice;
(b) changed any accounting principles, methods or
practices utilized by them or changed any of their
depreciation rates or amortization policies or rates;
(c) made any loan or advance to any party in excess of
$5,000 other than in the ordinary course of business;
(d) issued, redeemed or purchased any stock, bond or
corporate security or declared or made any payment or
distribution on or with respect to their capital
stock;
(e) incurred debt, liabilities, or obligations of any
nature, whether accrued, absolute, contingent,
direct, indirect, perfected or otherwise, and whether
due
30
or to become due, except debt, liabilities or
obligations incurred, and liabilities under contracts
entered into, in the ordinary course of business
consistent with past custom and practice;
(f) waived any rights of substantial value; or
(g) entered into any other material transaction, or
committed to any of the foregoing.
SECTION 3.27 Intellectual Property. Except as set forth on
Schedule 3.27:
(a) the Seller owns and possesses all right, title and
interest in and to, or has a valid license to use,
all of the Seller Proprietary Rights (as defined
below) necessary for the operation of the business as
presently conducted and none of such Seller
Proprietary Rights have been abandoned by the Seller;
(b) no claim by any third party contesting the validity,
enforceability, use or ownership of any such Seller
Proprietary Rights has been made, is currently
outstanding or is threatened, and to the knowledge of
the Seller there is no reasonable basis for any such
claim;
(c) neither the Seller nor any registered agent of the
Seller has received any notice of, nor is the Seller
aware of any reasonable basis for an allegation of,
any infringement or misappropriation by, or conflict
with, any third party with respect to such Seller
Proprietary Rights, nor has the Seller, or any
registered agent received any claim of infringement
or misappropriation of or other conflict with any
Seller Proprietary Rights of any third party;
(d) to the knowledge of the Seller, the Seller has not
infringed, misappropriated or otherwise violated any
proprietary rights of any third parties, and the
Seller is not aware of any infringement,
misappropriation or conflict which will occur as a
result of the continued operation of the Seller as
presently operated and as contemplated to be operated
or as a result of the consummation of the
transactions contemplated hereby; and
(e) all employees who have contributed to or participated
in the conception and/or development of all or any
part of the Seller Proprietary Rights which are not
licensed to the Seller from a third party either (1)
have been party to a "work-for-hire" arrangement or
agreement with the Seller, in accordance with
applicable federal and state law, that has accorded
the Seller's full, effective, exclusive, and original
ownership of all tangible and intangible property
thereby arising, or (2) have executed appropriate
instruments of assignment in favor of the Seller as
assignee that have conveyed to the Seller
31
full, effective and exclusive ownership of all
tangible and intangible property thereby arising.
(f) the Seller Proprietary Rights are to the knowledge of
the Seller valid and subsisting and were procured
honestly and in good faith. Specifically, Seller
represents that as to all patents and patent
applications and all copyright registrations that
there has been no inequitable conduct and that Seller
has fulfilled its duty of candor and good faith to
the Patent and Trademark Office.
As used herein, the term "Seller Proprietary Rights" means all
proprietary information of the Seller, including all patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice), all trademarks, service marks, trade dress,
trade names, corporate names, domain names, copyrights, all trade secrets,
confidential information, ideas, formulae, compositions, know-how, processes and
techniques, drawings, specifications, designs, logos, plans, improvements,
proposals, technical and computer data, documentation and software, financial,
business and marketing plans, and related information and all other proprietary,
industrial or intellectual property rights relating to the business of the
Seller.
The consummation of the transactions contemplated by this
Agreement will not adversely affect the right of the Surviving Corporation to
continue to use the Seller Proprietary Rights. To the extent that registration
of any Proprietary Right is useful or required by law, such Seller Proprietary
Right has been duly and validly registered or filed, and any fees that are
necessary to maintain in force any Seller Proprietary Rights or registrations
thereof have been paid. Schedule 3. 27 sets forth a list and description of the
copyrights, trademarks, service marks, trade dress and trade names used or held
by the Seller and, where appropriate, the date, serial or registration number,
and place of any registration thereof.
SECTION 3.28 Products Liability. Seller has not received any
written notice relating to, nor does the Seller have knowledge of any facts or
circumstances which could reasonably give rise to, any claim involving any
product manufactured, produced, distributed or sold by or on behalf of the
Seller resulting from an alleged defect in design, manufacture, materials or
workmanship, or any alleged failure to warn, or from any breach of implied
warranties or representations, other than notices or claims that have been
settled or resolved by the Seller prior to the date of this Agreement.
SECTION 3.29 No Existing Discussions. As of the date hereof,
Seller has terminated all discussions or negotiations with any third party with
respect to a Seller Acquisition Proposal (as defined in Section 6.01(a)).
SECTION 3.30 Anti-Takeover Laws. Seller has taken or at or
prior to the Closing will have taken, all actions necessary such that no "fair
price", "business combination", "control share acquisition", or similar statute
will be applicable to the transactions contemplated by this Agreement.
32
SECTION 3.31 No Misrepresentation. None of the representations
and warranties of the Seller set forth in this Agreement or any of the
Transaction Documents contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading. To the knowledge of the Seller, there is no material
fact or information which has not been disclosed to Buyer in writing which
materially adversely affects or could reasonably be anticipated to materially
adversely affect the business, condition (financial or otherwise), property or
assets of the Seller or the ability of the Seller to consummate the transactions
contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that the statements
contained in this Article IV are true and correct, except as set forth herein in
the disclosure schedule delivered by Buyer to Seller on or before the date of
this Agreement (the "Buyer Disclosure Schedules"). The Buyer Disclosure
Schedules shall be arranged in individual schedules corresponding to the
numbered paragraphs contained in this Article IV and the disclosure in any
schedules shall qualify other schedules in this Article IV only to the extent
that it is reasonably apparent from a reading of such disclosure that it also
qualifies or applies to such other schedules. Without limiting the generality of
the foregoing, 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 concerns the
existence of the document or the other item itself).
SECTION 4.01 Organization of Buyer. Buyer is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, properties, financial condition or results of
operations of Buyer (a "Buyer Material Adverse Effect"); provided, however, that
for purposes of this Agreement, the following events shall not be taken into
account in determining whether there has been or would be a "Buyer Material
Adverse Effect" on or with respect to Buyer: (A) changes, events or occurrences
in the United States securities markets which are not specific to Buyer, (B)
changes, events or occurrences in the world economy which are not specific to
the Buyer, (C) the existence of this Agreement or the transactions contemplated
hereby or the announcement thereof, (D) any changes in GAAP, and (E) changes,
events or occurrences relating to the pharmaceutical industries in general, and
not specifically to Buyer. The Buyer does not own or control (directly or
indirectly), or own or hold any right to acquire, any stock, partnership
interest, joint venture interest, equity participation or other security or
interest in any other entity, corporation, partnership, trust or any other
business association. Except as set forth in the Buyer SEC Reports (as defined
in Section 4.04(a)) filed prior to the date hereof and with respect to
acquisitions of third parties of which Buyer advises Seller after the closing
33
thereof, Buyer does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any corporation, partnership, joint venture or other business association,
or entity, excluding securities in any publicly traded company held for
investment by Buyer and comprising less than five percent (5%) of the
outstanding stock of such company.
SECTION 4.02 Buyer Capital Structure. (a) The authorized
capital stock of Buyer consists of (i) 17,000,000 shares of Common Stock, par
value $.01 per share ("Buyer Common Stock"), (ii) 60,000 shares of Series A
Convertible Preferred Stock, par value $.01 per share ("Buyer Series A
Preferred"), (iii) 50,000 shares of Series B Convertible Preferred Stock, par
value $.01 per share ("Buyer Series B Preferred"), (iv) 9,000 shares of Series C
Convertible Preferred Stock, par value $.01 per share ("Buyer Series C
Preferred"), (v) 50,000 shares of Series D Convertible Preferred Stock, par
value $.01 per share ("Buyer Series D Preferred"). It is intended that prior to
the Effective Time, Buyer will file the amendment and restatement to its
Certificate of Incorporation referred to in Section 1.03 (ii) hereof, creating
authorized capital of 320,000 shares of Series 1 Convertible Preferred Stock,
par value $.01 per share ("Buyer Series 1 Preferred Stock"). As of June 30,
1999, there were 7,254,053 shares of Buyer Common Stock, 9,000 shares of Buyer
Series C Preferred and 50,000 shares of Buyer Series D Preferred issued and
outstanding, all of which issued and outstanding shares are validly issued,
fully paid and nonassessable, and (ii) no shares of currently issued Common
Stock of Buyer, Buyer Series A Preferred, Buyer Series B Preferred, Buyer Series
C Preferred and Buyer Series D Preferred were held in the treasury of Buyer.
Buyer Series A Preferred, Buyer Series B Preferred, Buyer Series C Preferred,
Buyer Series D Preferred and Buyer Series 1 Preferred Stock are sometimes
hereinafter collectively referred to as "Buyer Preferred Stock Series". Schedule
4.02 shows the ownership of the Buyer Common Stock and Buyer Preferred Stock
Series by officers, directors and all shareholders who own more than five
percent (5%) of the outstanding stock of the Seller. 832,837 shares of Buyer
Common Stock are reserved for future issuance pursuant to stock options granted
and outstanding as of June 30, 1999 under Buyer's 1995 Stock Incentive Plan (the
"Buyer Stock Plan"), 1,375,000 shares of Buyer Common Stock are reserved for
future issuance under warrants granted and outstanding as of June 30, 1999
("Buyer Warrants") and 2,950,000 shares of Buyer Common Stock are reserved for
future issuance upon conversion of outstanding shares of Buyer Series C
Preferred and Buyer Series D Preferred. No material change in such
capitalization has occurred between June 30, 1999 and the date of this
Agreement. All shares of Buyer Common Stock subject to issuance as specified
above are duly authorized and, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall be
validly issued, fully paid and nonassessable. There are no bonds, debentures,
notes or other indebtedness of Buyer having the right to vote (or convertible
into securities having the right to vote) on any matters on which shareholders
of Buyer may vote. The shares of Buyer Common Stock and Buyer Series 1 Preferred
Stock to be issued in the Merger will, when issued in accordance with the terms
of this Agreement, be validly issued, fully paid and nonassessable. Except with
respect to the Buyer Series 1 Preferred Stock, 9,000 shares of Buyer Series C
Preferred and 50,000 shares of Buyer Series D Preferred, there are no
obligations, contingent or otherwise, of Buyer to repurchase, redeem or
otherwise acquire any shares of Buyer
34
Common Stock or Buyer Preferred Stock Series, or to provide funds or to make any
material investment (in the form of a loan, capital contribution or otherwise)
in any other entity.
(b) Except as set forth in this Section 4.02 or as reserved
for future grants of options under the Buyer Stock Plan, there are no equity
securities of any class of Buyer, or any security exchangeable into or
exercisable or convertible for such equity securities, issued, reserved for
issuance or outstanding. There are no options, warrants, equity securities,
calls, rights, commitments or agreements of any character to which Buyer is a
party or by which such entity is bound (including under letters of intent,
whether binding or nonbinding) obligating Buyer to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of
Buyer or other equity interest of Buyer or obligating Buyer to grant, extend,
accelerate the vesting of, otherwise modify or amend or enter into any such
option, warrant, equity security, call, right, commitment or agreement except
under the Buyer Stock Plan or Buyer Warrants, or in connection with
acquisitions. To the knowledge of Buyer, there are no voting trusts, proxies or
other voting agreements or understandings with respect to the shares of capital
stock of Buyer or other equity interests of Buyer.
SECTION 4.03 Authority; No Conflict; Required Filings and
Consents. (a) Buyer has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Buyer subject only to the approval of
the Merger by Buyer's stockholders under the GCL; the vote of Buyer's
stockholders required to approve this Agreement and the Merger is a majority of
the outstanding shares of Buyer Common Stock and Buyer Preferred Stock Series
voting as a single class and a majority of the outstanding shares of Buyer
Series D Preferred voting as a single class on the record date for the Buyer
Meeting (as defined below) at which a quorum is present. This Agreement has been
duly executed and delivered by Buyer and constitutes the valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
subject to the Bankruptcy and Equity Exception.
(b) The execution and delivery of this Agreement by Buyer does
not, and the consummation of the transactions contemplated by this Agreement
will not, (i) conflict with, or result in any violation or breach of, any
provision of the Certificate of Incorporation or Bylaws of Buyer, (ii) result in
any violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any material benefit) under, or
require a consent or waiver under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which Buyer is a party or by which any of its
properties or assets may be bound, or (iii) conflict with, violate, or cause the
termination of any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Buyer or any
of its properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which are not, individually or in the aggregate, reasonably likely to have a
Buyer Material Adverse Effect.
35
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or person or
entity is required by or with respect to Buyer in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except as set forth on Schedule 4.03 or for (i) the filing
of the Registration Statement with the SEC in accordance with the Securities
Act, (ii) the filing of the Certificate of Merger with the Department of State
of the State of Delaware, (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country, (iv) the
approval by the Nasdaq SmallCap Market of the listing of the shares of Buyer
Common Stock to be issued in the transactions contemplated by this Agreement,
and (v) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not interfere with the
operation of any facility of Buyer or otherwise be reasonably likely to have a
Buyer Material Adverse Effect.
SECTION 4.04 SEC Filings; Financial Statements. (a) Since the
date of its initial public offering, Buyer has filed all forms, reports and
documents, including the exhibits thereto, required to be filed by Buyer with
the SEC under the Securities Act or the Exchange Act (these forms, reports and
documents are referred to collectively as "Buyer SEC Reports"). The Buyer SEC
Reports (i) at the time filed complied in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Buyer SEC Reports or necessary in
order to make the statements in such Buyer SEC Reports, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case,
any related notes) contained in the Buyer SEC Reports is true, complete and
correct in all material respects, and complied as to form in all material
respects with the applicable published rules and regulations of the SEC with
respect thereto, was prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and fairly presented the consolidated
financial position of Buyer as of the dates and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in
amount. The unaudited balance sheet of Buyer as of March 31, 1999 is referred to
herein as the "Buyer Balance Sheet."
SECTION 4.05 No Undisclosed Liabilities. Except as disclosed
in the Buyer SEC Reports or in press releases that have been made public by
Buyer and are available at Nasdaq's website at http://www.nasdaq.com ("Buyer
Releases") filed prior to the date hereof, and except for normal or recurring
liabilities incurred since March 31, 1999 in the ordinary course of business
consistent with past practices, Buyer does not have any liabilities, either
accrued, contingent or otherwise (whether or not required to be reflected in
financial statements in accordance with GAAP),
36
and whether due or to become due, which individually or in the aggregate, are
reasonably likely to have a Buyer Material Adverse Effect.
SECTION 4.06 Absence of Certain Changes or Events. Except as
disclosed in the Buyer SEC Reports filed prior to the date hereof or Buyer
Releases, since the date of the Buyer Balance Sheet, Buyer has conducted its
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any change in the
financial condition, results of operations, business or properties of Buyer that
has had, or is reasonably likely to have, a Buyer Material Adverse Effect; (ii)
any damage, destruction or loss (whether or not covered by insurance) with
respect to Buyer that has had, or is reasonably likely to have, a Buyer Material
Adverse Effect; (iii) any material change by Buyer in its accounting methods,
principles or practices to which Seller has not previously consented in writing;
(iv) any revaluation by Buyer of any of its assets that has had, or is
reasonably likely to have, a Buyer Material Adverse Effect; or (v) any other
action or event that would have required the consent of Seller pursuant to
Section 5.02 of this Agreement had such action or event occurred after the date
of this Agreement.
SECTION 4.07 Taxes. Except as set forth on Schedule 4.07:
(a) All Tax Returns required to be filed by or on behalf of
Buyer have been properly prepared and duly and timely filed with the appropriate
taxing authorities in all jurisdictions in which such Tax Returns are required
to be filed (after giving effect to any valid extensions of time in which to
make such filings), and all such Tax Returns were true, complete and correct in
all material respects.
(b) All Taxes payable by or on behalf of Buyer or in respect
of its income, assets or operations (including interest and penalties) have been
fully and timely paid, and adequate reserves or accruals for Taxes have been
provided in Buyer's books and records with respect to any period for which Tax
Returns have not yet been filed or for which Taxes are not yet due and owing.
(c) Buyer has not executed or filed with any taxing authority
any agreement, waiver or other document or arrangement extending or having the
effect of extending the period for assessment or collection of Taxes (including,
but not limited to, any applicable statute of limitation), and no power of
attorney with respect to any Tax matter is currently in force.
(d) Buyer has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has duly and timely withheld from employee salaries, wages and
other compensation and has paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws.
(e) Seller has received complete copies of (A) all U.S.
federal, state and foreign income or franchise Tax Returns of Buyer relating to
the taxable periods beginning after December
37
31, 1994 and (B) any audit report issued within the last three years relating to
Taxes due from or with respect to Buyer, or its income, assets or operations.
(f) No claim has been made by a taxing authority in a
jurisdiction where Buyer does not file Tax Returns such that it is or may be
subject to taxation by that jurisdiction.
(g) All deficiencies asserted or assessments made as a result
of examinations by any taxing authority of the Tax Returns of or covering or
including Buyer have been fully paid, and there are no other audits or
investigations by any taxing authority or proceedings in progress, nor has Buyer
received any written notice from any taxing authority that it intends to conduct
such an audit or investigation. No issue has been raised in writing by a U.S.
federal, state, local or foreign taxing authority in any current or prior
examination which, by application of the same or similar principles, could
reasonably be expected to result in a proposed deficiency for any subsequent
taxable period.
(h) Neither Buyer, nor any other person on behalf of Buyer has
(A) filed a consent pursuant to Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by Buyer, (B)
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 Buyer or has any knowledge that the
Internal Revenue Service has proposed any such 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 Buyer, or has otherwise taken any action that would
have the effect of deferring any liability for Taxes from any taxable period
ending on or before the Closing to any taxable period ending thereafter, (C)
executed or entered into 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 Buyer, or (D) requested any extension of time within
which to file any Tax Return, which Tax Return has since not been filed.
(i) No property owned by Buyer 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.
(j) Buyer is not a party to any tax sharing or similar
agreement or arrangement (whether or not written) pursuant to which it will have
any obligation to make any payments after the Closing.
(k) There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by Buyer or any of its
Affiliates by reason of Section 280G of the Code.
38
(l) Buyer has substantial authority for the treatment of or
has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Section
6662(d) of the Code.
(m) Buyer is not subject to any private letter ruling of the
Internal Revenue Service or comparable rulings of other taxing authorities.
(n) There are no liens as a result of any unpaid Taxes upon
any of the assets of Buyer.
(o) All material Tax elections of Buyer are set forth on
Schedule 4.07. Buyer has no elections in effect for U.S. federal income tax
purposes under Sections 108, 168, 338, 441, 463, 1017, 1033 or 4977 of the Code.
(p) Buyer has never been a member of any Affiliated Group for
tax purposes. Buyer has no any liability for Taxes of any person under section
1.1502-6 of the Treasury regulations under the Code (or any similar provision of
state, local or foreign law), as a transferee or successor or otherwise. Buyer
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 or
transparent entity for any tax purpose.
(q) Buyer has not been a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(r) Buyer does not have a permanent establishment in any
foreign country, as defined in any applicable Tax treaty or convention.
SECTION 4.08 Agreements, Contracts and Commitments. Except as
delivered to Seller or as set forth on Schedule 4.08, there are no contracts,
agreements or commitments that are required to be filed as an exhibit under
subheading (10) - Material Contracts of Item 601 of Regulation S-B of the
federal securities laws and the rules and regulations thereunder. The Buyer has
not entered into and is not bound by any material contract, agreement,
relationship or commitment, written or oral, including without limitation, any
obligations for money borrowed or under leases other than those identified on
Schedule 4.08 ("Buyer Material Contracts"). Buyer is not in default, and no
event has occurred which with the giving of notice or the passage of time or
both would constitute a default by the Buyer or, to the best of Buyer's
knowledge, any other party under any Buyer Material Contract or any other
material obligation owed by Buyer and, to the best of Buyer's knowledge, no
event has occurred which with the giving of notice or the passage of time or
both would constitute a default by any other party to any such Buyer Material
Contract or obligation. Each Buyer Material Contract that has not expired, by
its terms is in full force and effect, and no party to any of the Buyer Material
Contracts will have the right to terminate such contract as a result
39
of the transactions contemplated by this Agreement. Except for employment
agreements, none of the Buyer Material Contracts is currently being renegotiated
in any material respect, and Buyer has no knowledge that any Buyer Material
Contract will be subject to a voluntary or regulatory ordered renegotiation
within 12 months after the date of this Agreement. Buyer is not party to or
bound by any contract, agreement, relationship or commitment, whether or not
deemed material, which in any way restricts or purports to restrict the ability
of Buyer to acquire any property or assets or conduct its business or provide
services to any person or entity anywhere in the world.
SECTION 4.09 Litigation. Except as set forth on Schedule 4.09,
there is no claim, counter-claim, action, suit, order, proceeding or
investigation pending or to the knowledge of the Buyer, threatened against or
involving the Buyer, or pending or, to the knowledge of the Buyer, threatened
against any of its officers, directors or key employees of the Buyer with
respect to business activities on behalf of the Buyer with respect to or
affecting the Buyer, its accounts, business, properties, assets or rights, or
relating to the transactions contemplated hereby, before any court, agency,
regulatory, administrative or other governmental body or officer or before any
arbitrator, nor, to the knowledge of the Buyer, is there any reasonable basis
for any such claim, action, suit, proceeding or governmental, administrative or
regulatory investigation. The Buyer is not directly subject to or affected by
any order, judgment, decree or ruling of any court or governmental agency. The
Buyer has not received any written opinion or memorandum of legal advice from
legal counsel to the effect that any of them are exposed to any liability which
may be material to the business, prospects, results of operations, financial
condition or assets of the Buyer. Except as set forth on Schedule 4.09, the
Buyer is not engaged in any legal action to recover monies due it or for damages
sustained by it, and none of the assets of the Buyer nor any of their respective
business practices are in any manner, directly or indirectly, affected by
injunction of any court or governmental, administrative or regulatory agency,
body or officer.
SECTION 4.10 Compliance With Laws. Buyer has complied with, is
not in violation of, and has not received any notices of violation with respect
to, any federal, state or local statute, law or regulation or any judgment,
decree or order of any Governmental Entity with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Buyer Material Adverse Effect. Buyer has all
Approvals necessary for it to own, lease or operate its properties and to carry
on its business as now conducted and there has occurred no default under any
such Approval, or failure to obtain such Approval, which would in the aggregate
have a Buyer Material Adverse Effect.
SECTION 4.11 Accounting and Tax Matters. To its knowledge,
after consulting with its tax advisors, neither Buyer nor any of its Affiliates
has taken or agreed to take any action which would prevent the Merger from
constituting a transaction qualifying as a reorganization under Section 368(a)
of the Code.
SECTION 4.12 Registration Statement; Proxy
Statement/Prospectus. The information in the Registration Statement (except for
information supplied by Seller for inclusion in
40
the Registration Statement, as to which Buyer makes no representation) shall not
at the time the Registration Statement is filed with the SEC and at the time the
Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances under
which they were made, not misleading. The information supplied by Buyer for
inclusion in the Proxy Statement shall not, on the date the Proxy Statement is
first mailed to stockholders of Seller, at the time of the Seller Meeting, or to
the stockholders of Buyer in connection with the meeting of Buyer's stockholders
to consider this Agreement and Plan of Merger (the "Buyer Meeting") and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Proxy Statement not false or misleading; or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Seller Meeting
or Buyer Meeting which has become false or misleading. If at any time prior to
the Effective Time any event relating to Buyer or any of its Affiliates,
officers or directors should be discovered by Buyer which should be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement, Buyer shall promptly inform Seller. The Registration Statement will
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder, except that
no representation is made by Buyer with respect to statements made or
incorporated by reference therein based on information supplied by Seller
specifically for inclusion or incorporation by reference in the Registration
Statement.
SECTION 4.13 Year 2000 Compliance. The computer systems of
Buyer (including, without limitation, all software, hardware, workstations and
related components, automated devices, embedded chips and other date sensitive
equipment such as security systems, alarms, elevators and HVAC systems) are Year
2000 Compliant or will be Year 2000 Compliant by September 30, 1999, except to
the extent that any failure to be Year 2000 Compliant, either individually or in
the aggregate, would not have a Buyer Material Adverse Effect. The term "Year
2000 Compliant" as used herein means that the computer systems are (i) capable
of recognizing, processing, managing, representing, interpreting, and
manipulating correctly date related data for dates earlier and later than
January 1, 2000, including, but not limited to, calculating, comparing, sorting,
storing, tagging and sequencing, without resulting in or causing logical or
mathematical errors or inconsistencies in any user-interface functionalities or
otherwise, including data input and retrieval, data storage, data fields,
calculations, reports, processing, or any other input or output, (ii) have the
ability to provide data recognition for any data element without limitation
(including, but not limited to, date-related data represented without a century
designation, date-related data whose year is represented by only two digits and
date fields assigned special values), (iii) have the ability to automatically
function into and beyond the year 2000 without human intervention and without
any change in operations associated with the advent of the year 2000, (iv) have
the ability to correctly interpret data, dates and time into and beyond the year
2000, (v) have the ability not to produce noncompliance in existing information,
nor otherwise corrupt such data into and beyond the year
41
2000, (vi) have the ability to correctly process after January 1, 2000 data
containing dates before that date, and (vii) have the ability to recognize all
"leap years," including February 29, 2000.
The computer systems of Buyer have the ability to properly
interface and will continue to properly interface with internal and external
applications and systems of third parties with whom Buyer exchanges data
electronically (including without limitation customers, clients, suppliers,
service providers, subcontractors, processors, converters, shippers,
warehousemen, outsources, data processors, regulatory agencies and banks)
whether or not they have achieved Year 2000 Compliance.
SECTION 4.14 [Reserved].
SECTION 4.15 Legal Compliance. (a) Buyer's manufacturing,
distribution and marketing practices are in compliance in all material respects
with all applicable federal and state laws, rules, regulations, orders,
licenses, judgments, writs, injunctions, decrees or demands, including, without
limitation, laws and regulations administered by the FDA and the DEA.
(b) Buyer possesses all material FDA new drug applications,
abbreviated new drug applications, and new animal drug applications as are
currently legally required and are necessary for the conduct of its business as
now being conducted, a list of which is attached hereto as Schedule 4.15(b),
true and correct copies of which have been provided to the Seller by the Buyer.
(c) Other than the May 25, 1993 "Richlyn Order," there are no
adverse orders, judgments, writs, injunctions, decrees, or demands of any court
or administrative body, domestic or foreign, or of any governmental agency or
instrumentality, domestic or foreign, outstanding against the Buyer.
(d) Buyer has not used the services of any person debarred
under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. ss.
335(a)(b). Neither the Buyer, nor its officers, employees, agents or affiliates,
has been convicted of any crime or engaged in any conduct for which debarment is
mandated by 21 U.S.C. ss. 335a(a) or authorized by 21 U.S.C. ss. 335a(b).
(e) Buyer is in substantial compliance with all Federal and
state laws applicable to the manufacture, processing, packing, testing and sale
of pharmaceutical products to the extent such laws are applicable to it, all
rules and regulations of the FDA and the DEA to the extent such rules and
regulations are applicable to it, and each NDA and ANDA in which Buyer has sold
any product on or after March 31, 1999, except where the failure to be in such
compliance would not have a Buyer Material Adverse Effect. All manufacturing
operations conducted by or for the benefit of the Buyer have been and are being
conducted in substantial compliance with the current Good Manufacturing Practice
regulations set forth in 21 C.F.R. Parts 210 and 211
(f) As to each drug of the Buyer for which a NDA or ANDA has
been approved by the FDA, which drugs are described on Schedule 4.15(f), the
applicant and all persons performing
42
operations covered by the application are in substantial compliance with 21
U.S.C.ss.ss. 355 or 357, 21 C.F.R. parts 314 or 430 et. seq., respectively, and
all terms and conditions of the application, except where the failure to be in
such compliance would not have a Buyer Material Adverse Effect.
(g) The Buyer is in substantial compliance with all applicable
registration and listing requirements set forth in 21 U.S.C. ss. 360 and 21
C.F.R. Part 207. To the extent required, the Buyer has obtained registrations
from the DEA and is in substantial compliance with all such registrations and
all applicable regulations promulgated by the DEA.
(h) Neither the Buyer nor its officers, employees, or agents
have made an untrue statement of material fact or fraudulent statement to the
FDA or the DEA, failed to disclose a material fact required to be disclosed to
the FDA or the DEA, or committed an act, made a statement, or failed to make a
statement that could reasonably be expected to provide a basis for the FDA 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).
(i) The Buyer has made available to Seller copies of any and
all notices of inspectional observations (FD 483's), establishment inspection
reports, warning letters and any other documents received from or issued by the
FDA or the DEA within the last three years that indicate or suggest lack of
compliance with the FDA or the DEA regulatory requirements by the Buyer or
persons covered by product applications or otherwise performing services for the
benefit of the Buyer.
(j) The Buyer has not received any written notice that the FDA
or the DEA has commenced, or threatened to initiate, any action to withdraw its
approval or request the recall of any product of the Buyer or commenced or
threatened to initiate, any action to enjoin production at any facility owned or
used by the Buyer or any of the Buyer's facilities, commenced or threatened to
initiate the withdrawal of approval of any NDA, ANDA or NADA or any
establishment or other registration or commenced or threatened to initiate any
civil penalty, seizure or criminal action.
(k) As to each article of drug or consumer product currently
manufactured and/or distributed by the Buyer, which products are described on
Schedule 4.15(k), such article is not adulterated or misbranded within the
meaning of the FDCA, 21 U.S.C. ss.ss. 301c et. seq.
(l) As to each drug referred to in (b), the Buyer, and its
officers, employees, agents and affiliates have included or caused to be
included in the application for such drug, where required, the certification
described in 21 U.S.C. ss. 335a(k) (1) and the list described in 21 U.S.C. ss.
335a(k)(2), and such certification and such list was in each case true and
accurate when made and remained true and accurate thereafter.
(m) Buyer represents and warrants that all testing it has
conducted or has had conducted for it by third parties complies in all respects
with the requirements of Good Clinical Practice, Informed Consent, and all
requirements relating to protection of human subjects found in
43
21 C.F.R. ss. 50, and that all nonclinical laboratory testing complies with the
requirements of 21 C.F.R. ss. 58.
(n) As to each application or abbreviated application
submitted to, but not approved by, the FDA, and not withdrawn by the Buyer, or
applicants acting on its behalf as of the date of this Agreement, the Buyer has
complied in all material respects with the requirements of 21 U.S.C. ss.ss. 355
and 357 and 21 C.F.R. Parts 312, 314 and 430 et. seq. and has provided, or will
provide, all additional information and taken, or will take, all additional
action requested by the FDA in connection with the application.
SECTION 4.16 Environmental and Safety Matters.
Except as set forth on Schedule 4.16,
(a) Except as would not have an Environmental Material Adverse
Effect, Buyer has operated in compliance with all applicable limitations,
restrictions, conditions, standards, prohibitions, requirements and obligations
of Environmental Laws and related orders of any court or other governmental
authority;
(b) Except as would not have an Environmental Material Adverse
Effect, there are not any existing, pending or, to the knowledge of the Buyer,
threatened actions, suits, claims, investigations, inquiries or proceedings by
or before any court or any other governmental entity directed against the Buyer
that pertain or relate to (1) any remedial obligations under any applicable
Environmental Law, (2) violations by Buyer of any Environmental Law, (3)
personal injury or property damage claims relating to a release, discharge or
disposal of Hazardous Materials or other Environmental Conditions, or (4)
response, removal, or remedial costs under CERCLA, RCRA, or any similar state
laws;
(c) With respect to permits and licenses, (1) all licenses,
permits, consents, or other approvals required under Environmental Laws that are
necessary to the operations of the Buyer have been obtained and are in full
force and effect and the Buyer is unaware of any basis for revocation or
suspension of any such licenses, permits, consents or other approvals; (2) to
the best of the Buyer's knowledge, no Environmental Laws impose any obligation
upon Buyer, as a result of any transaction contemplated hereby, requiring prior
notification to any governmental entity of the transfer of any permit, license,
consent, or other approval which is necessary to the operations of the Buyer's
properties and Assets; and (3) except as would not have an Environmental
Material Adverse Effect, Buyer has conducted its operations in compliance with
such permits, licenses, consents, or approvals, and at the production levels or
emission levels specified in such permits, licenses, consents, or approvals;
(d) To the knowledge of the Buyer, no portion of any of the
properties owned or operated by Buyer is listed on the NPL or the CERCLIS list
under CERCLA, or any similar ranking or listing under any state law;
44
(e) To the knowledge of Buyer, all Hazardous Materials
generated by the Buyer have been transported by carriers, or stored, treated and
disposed of by treatment, storage and disposal facilities, authorized or
maintaining valid permits under all applicable Environmental Laws;
(f) To the knowledge of Buyer, no person has disposed or
released any Hazardous Materials on, at, or under the properties owned or
operated by Buyer, except in compliance with laws, or except as would not have
an Environmental Material Adverse Effect;
(g) Buyer is not aware of any Environmental Remediation Costs
that are required or are planned to be expended relating to the operations of
Buyer for which Buyer reasonably anticipates payment or accrual; and
(h) Except as would not have an Environmental Material Adverse
Effect, no facts or circumstances exist which could reasonably be expected to
result in any liability to the Buyer with respect to the current or past
business and operations of the Buyer in connection with (i) any release,
transportation or disposal of any Hazardous Materials, or (ii) any action taken
or omitted that was not in full compliance with or was in violation of any
applicable Environmental Law.
SECTION 4.17 Intellectual Property. Except as set forth on
Schedule 4.17:
(a) the Buyer owns and possesses all right, title and
interest in and to, or has a valid license to use,
all of the Buyer Proprietary Rights (as defined
below) necessary for the operation of the business as
presently conducted and none of such Buyer
Proprietary Rights have been abandoned by the Buyer;
(b) no claim by any third party contesting the validity,
enforceability, use or ownership of any such Buyer
Proprietary Rights has been made, is currently
outstanding or is threatened, and to the knowledge of
the Buyer there is no reasonable basis for any such
claim;
(c) neither the Buyer nor any registered agent of the
Buyer has received any notice of, nor is the Buyer
aware of any reasonable basis for an allegation of,
any infringement or misappropriation by, or conflict
with, any third party with respect to such Buyer
Proprietary Rights, nor has the Buyer, or any
registered agent received any claim of infringement
or misappropriation of or other conflict with any
Buyer Proprietary Rights of any third party;
(d) to the knowledge of the Buyer, the Buyer has not
infringed, misappropriated or otherwise violated any
Buyer Proprietary Rights of any third parties, and
the Buyer is not aware of any infringement,
misappropriation or conflict which will occur as a
result of the continued operation of the Buyer as
presently operated and as contemplated to be operated
or as a result of the consummation of the
transactions contemplated hereby; and
45
(e) all employees who have contributed to or participated
in the conception and/or development of all or any
part of the Buyer Proprietary Rights which are not
licensed to the Buyer from a third party either (1)
have been party to a "work-for-hire" arrangement or
agreement with the Buyer, in accordance with
applicable federal and state law, that has accorded
the Buyer's full, effective, exclusive, and original
ownership of all tangible and intangible property
thereby arising, or (2) have executed appropriate
instruments of assignment in favor of the Buyer as
assignee that have conveyed to the Buyer full,
effective and exclusive ownership of all tangible and
intangible property thereby arising.
(f) The Buyer Proprietary Rights are to the knowledge of
the Buyer valid and subsisting and were procured
honestly and in good faith. Specifically, Buyer
represents that as to all patents and patent
applications and all copyright registrations that
there has been no inequitable conduct and that Buyer
has fulfilled its duty of candor and good faith to
the Patent and Trademark Office.
As used herein, the term "Buyer Proprietary Rights" means all
proprietary information of the Buyer, including all patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice), all trademarks, service marks, trade dress,
trade names, corporate names, domain names, copyrights, all trade secrets,
confidential information, ideas, formulae, compositions, know-how, processes and
techniques, drawings, specifications, designs, logos, plans, improvements,
proposals, technical and computer data, documentation and software, financial,
business and marketing plans, and related information and all other proprietary,
industrial or intellectual property rights relating to the business of the
Buyer.
The consummation of the transactions contemplated by this
Agreement will not adversely affect the right of Buyer or the Surviving Company
to continue to use the Buyer Proprietary Rights. To the extent that registration
of any Proprietary Right is useful or required by law, such Proprietary Right
has been duly and validly registered or filed, and any fees that are necessary
to maintain in force any Buyer Proprietary Rights or registrations thereof have
been paid. Schedule 4.17 sets forth a list and description of the copyrights,
trademarks, service marks, trade dress and trade names used or held by the Buyer
and, where appropriate, the date, serial or registration number, and place of
any registration thereof.
SECTION 4.18 Products Liability. The Buyer has not received
any written notice relating to, nor does the Buyer have knowledge of any facts
or circumstances which could reasonably give rise to, any claim involving any
product manufactured, produced, distributed or sold by or on behalf of the Buyer
resulting from an alleged defect in design, manufacture, materials or
workmanship, or any alleged failure to warn, or from any breach of implied
warranties or representations, other than notices or claims that have been
settled or resolved by the Buyer prior to the date of this Agreement.
46
SECTION 4.19 Ownership of Properties; Condition of Property.
(a) Schedule 4.19 contains a true and complete list of all real property owned
or leased by Buyer pursuant to leases providing for the occupancy of facilities
(collectively "Buyer Material Lease(s)") and the location of the premises. With
respect to each such Buyer Material Lease: (i) the lease is legal, valid,
binding, enforceable against Buyer subject to the Bankruptcy and Equity
Exception, and in full force and effect; (ii) the lease will continue to be
legal, valid, binding, enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect prior to
the Closing; (iii) neither Buyer nor, to the knowledge of Buyer, any other party
to the lease or sublease is in breach or default, and no event has occurred
which, with notice or lapse of time, would constitute a breach or default or
permit termination, modification or acceleration thereunder; and (iv) Buyer has
not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in the leasehold or subleasehold; except, in the case of clauses
(i) through (iv) that the same is not reasonably likely to have a Buyer Material
Adverse Effect.
(b) All machinery, equipment and other tangible assets used by
the Buyer are in fair or good operating condition and repair, reasonable wear
and tear excepted, are usable in the ordinary course of business and are
adequate and suitable for the uses to which they are being put, except where the
failure to be in such condition or so usable and suitable would not have a Buyer
Material Adverse Effect.
(c) The Buyer is not contemplating any capital expenditure in
excess of $100,000 individually or in the aggregate which has not been disclosed
to Seller in writing.
SECTION 4.20 Employee Benefit Plans. (a) Schedule 4.20 sets
forth all employee benefit plans (as defined in Section 3(3) of ERISA) and all
bonus, stock option, stock purchase, equity, incentive, deferred compensation,
supplemental retirement, change in control, retiree health or welfare, fringe,
dependent care, flexible spending or severance plans, programs or agreements,
for the benefit of, or relating to, any current or former employee, director or
independent contractor of Buyer or any entity which is, or has been, a member
(an "ERISA Affiliate") of (i) a controlled group of corporations, (ii) a group
of trades or businesses (whether or not incorporated) under common control with
Buyer, or (iii) an affiliated service group, all within the meaning of Section
414 of the Code or Section 4001(a) (14) of ERISA, of which includes the Buyer
(together, the "Buyer Employee Plans").
(b) With respect to each Buyer Employee Plan, Buyer has
delivered to Seller, a true and correct copy of (i) the most recent annual
report (Form 5500) filed with the IRS (and the related financial statement),
(ii) such Buyer Employee Plan and any amendments or summary plan descriptions
with respect thereto, (iii) each trust agreement and group annuity contract, if
any, relating to such Buyer Employee Plan, (iv) the most recent actuarial report
or valuation relating to a Buyer Employee Plan subject to Title IV of ERISA, and
(v) the most recent determination letter issued by the Internal Revenue Service,
as well as any other determination letter, private letter ruling,
47
opinion letter or prohibited transaction exemption issued by the Internal
Revenue Service or the Department of Labor within the last six years and any
application therefor which is currently pending.
(c) Except as set forth on Schedule 4.20, neither the Buyer,
nor any of its ERISA Affiliates (i) has ever maintained or been obligated to
contribute to a single employer, multiple employer or multi-employer pension
plan (within the meaning of Section 3(2) of ERISA) which is or was covered by
Title IV of ERISA or by Section 302 of ERISA or 412 of the Code, and (ii) has
incurred or may incur any direct or indirect liability under Title IV of ERISA
or Section 302 of ERISA or Section 412 of the Code. With respect to the Buyer
Employee Plans, individually and in the aggregate, no event has occurred, and
there exists no condition or set of circumstances in connection with which Buyer
could be subject to any liability that is reasonably likely to have a Buyer
Material Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Buyer Employee Plans, individually and
in the aggregate, there are no funded benefit obligations for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
properly footnoted, in either case, in accordance with GAAP, on the financial
statements of Buyer.
(e) The Buyer and its ERISA Affiliates have complied in all
respects with the provisions of Section 4980B of the Code with respect to each
Buyer Employee Plan which is a group health plan within the meaning of Section
5001(b)(1) of the Code. Buyer does not maintain or contribute to, nor is it
obligated under any plan, contract, policy or arrangement providing health or
death benefits (whether or not insured) to current or former employees or other
personnel beyond the termination of their employment or other services.
(f) Except as set forth on Schedule 4.20 and except as
provided for in this Agreement, Buyer is not a party to any oral or written (i)
agreement with any current or former officer or other key employee of Buyer, the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving Buyer of the nature contemplated
by this Agreement, (ii) agreement with any current or former officer of Buyer
providing any term of employment or compensation guarantee extending for a
period longer than eighteen months from the date hereof and for the payment of
compensation in excess of $100,000 per annum, or (iii) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting or funding of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(g) There are no pending or, to Buyer's knowledge, threatened
claims, actions, suits, termination proceedings, or investigations by any
Governmental Entity against or involving any Buyer Benefit Plan. Any Buyer
Benefit Plan intended to be qualified under Section 401(a) of the Code has
received a determination letter from the Internal Revenue Service to that effect
(which has
48
not been revoked) and nothing has occurred since the date of the most recent
determination letter that would adversely affect such qualification.
SECTION 4.21 Salaries. Schedule 4.21 contains a true, complete
and correct list setting forth (i) the names, job descriptions/titles, current
compensation rate (including but not limited to salary, commission and bonus
compensation) and date of hire of all individuals presently employed by the
Buyer indicating whether they are employed on a salaried, hourly or piecework
basis, and (ii) the names and total annual compensation for all independent
contractors who render services on a regular basis to the Buyer whose current
annual compensation is or is expected to be in excess of $20,000. Except as set
forth on Schedule 4.21, there has been no increase in the compensation of any of
the foregoing individuals or independent contractors since June 30, 1999. Since
June 30, 1999, there has not been any promise by the Buyer to the employees
listed on Schedule 4.21 orally or in writing of any bonus or increase in
compensation, whether or not legally binding, except for increases in the
ordinary course of business consistent with past compensation practices of the
Buyer or in accordance with contracts and bonus programs in effect on the date
hereof. Except as set forth on Schedule 4.21, the Buyer has not made any
prepayments of salaries, bonuses or any other amounts due to any of its
employees or former employees. All obligations to employees, whether for
salaries, commissions, bonuses, vacation or otherwise, which are required to be
accrued on the Financial Statements in accordance with generally accepted
accounting principles consistently applied have been accrued on the Financial
Statements in accordance with generally accepted accounting principles
consistently applied.
SECTION 4.22 Personnel Agreements, Plans and Arrangements.
Except as listed in Schedule 4.22, the Buyer is not a party to or obligated with
respect to any (a) outstanding contracts with current or former employees,
agents, consultants, advisers, salespeople, sales representatives, distributors,
sales agents, independent contractors, or dealers, or (b) collective bargaining
agreements or contracts with any labor or trade union, employee bargaining
agency or other representative of employees or any employee benefits provided
for by any such agreement, true, correct and complete copies of which previously
have been furnished to Buyer. No strike, picketing, slow-down, work stoppage,
lock-out, union organizational activity or other similar occurrence has occurred
or is pending or, to the knowledge of the Buyer, is threatened against the
Buyer. Except as disclosed on Schedule 4.22, the Buyer has complied in all
material respects with all applicable laws relating to the employment of labor,
including but not limited to provisions thereof relating to wages, hours,
vacation pay, equal opportunity, collective bargaining and the payment,
deduction and remittance of all amounts required to be deducted and/or remitted
in respect of wages and salaries and of other Taxes and such deductions are
consistent with past practices and in accordance with generally accepted
accounting principles consistently applied and consistent with the Financial
Statements and either remitted same to the legally constituted authorities
entitled to receive payment thereof or has reserved for same in its accounts and
an amount of cash equal to the amount of such reserve has been set aside for
payment thereof. Buyer is not liable for any arrears of wages or any taxes or
penalties with respect to the foregoing. Buyer has not entered into and is not
obligated to enter into any agreement relating to the payment of vacation pay to
any employee, and Buyer does not have any obligation to any employees to provide
them with pay for vacation time other than as
49
required by generally applicable provisions of law. Buyer has not received
notice from any employee of the Buyer that any such employee is terminating his
or her employment with the Buyer, nor to the best knowledge of the Buyer does
any employee intend to terminate his or her employment with the Buyer as a
result of the transactions contemplated hereby. There are no administrative
charges or court complaints pending or, to the knowledge of the Buyer threatened
against the Buyer concerning alleged employment discrimination or any other
matters relating to the employment of labor. No trade union, counsel of trade
unions, employee bargaining agency or affiliated bargaining agent (i) holds
bargaining rights with respect to any of the employees of the Buyer by way of
certification, interim certification, voluntary recognition, designation or
successor right, (ii) has applied to be certified as the bargaining agent of the
employees of the Buyer, or (iii) has applied to have Buyer declared a related
employer pursuant to the provision of applicable law. Except as set forth in
Schedule 4.22, to the knowledge of the Buyer, no claim, injunction, fact, event
or condition exists which would give rise to a material claim by any employee or
former employee (including dependents and spouses thereof and other individuals
covered thereunder) of the Buyer under any workers compensation laws,
regulations, requirements or programs.
SECTION 4.23 Customers. Schedule 4.23 is a complete list of
the Buyers' customers. Except as set forth on Schedule 4.23, since December 31,
1998, none of the customers who individually represent greater than 5% of the
Buyer's billings has canceled or otherwise terminated, or, to the knowledge of
the Buyer, threatened to cancel or otherwise terminate, its relationship with
the Buyer or materially reduced, or to the knowledge of the Buyer, threatened to
materially reduce, its business with the Buyer. Buyer has not received any
notice and has no knowledge or reason to believe that any customer who
individually represents more than 5% of either Buyer's annual billings intends
to cancel or otherwise modify its relationship with Buyer on account of the
transactions contemplated hereby or otherwise.
SECTION 4.24 Interest of the Companies in Customers, etc.
Except as set forth in Schedule 4.24, Buyer does not have any direct or indirect
interest in any competitor, supplier or customer of the Buyer or in any person
from whom or to whom the Buyer leases any real or personal property or in any
other person with whom the Buyer has any business relationship. Schedule 4.24
also describes, (i) all management, administrative, computer, telephone or other
services provided by any of the Buyer's Affiliates, and all such services
provided by the Buyer to any of such persons and entities, and (ii) all other
contracts, agreements, arrangements or transactions (including the purchase and
sale of inventory, supplies and other goods) between either Buyer, on the one
hand, and any of such individuals or entities on the other hand, currently in
effect, including, without limitation any agreement or arrangement relating to
indebtedness to or from any of such individuals or entities, in each case
setting forth the terms thereof if not effected on an arm's-length basis.
SECTION 4.25 Books and Records. All the books, records and
accounts of Buyer are in all material respects accurate and complete, accurately
reflect in all material respects, all matters normally entered into the books,
records or accounts maintained by similar businesses, are in all material
respects in accordance with all laws, regulations and rules applicable to the
Buyer and
50
accurately present and reflect in all material respects all of the transactions
described therein. The Buyer has accounting controls sufficient to ensure that
its transactions are in all material respects executed in accordance with its
management's general or specific authorization.
SECTION 4.26 Insurance Policies. Schedule 4.26 is a correct
and complete list and description, including policy numbers, of all insurance
policies owned or held by the Buyer or otherwise covering the Buyer, its
respective employees or assets. Such policies are in full force and effect, and
the Buyer is not in default under any of them. To the knowledge of the Buyer,
such insurance is of the kind and in the amount not less than customarily
obtained by corporations or other entities of established reputation engaged in
the same or similar business and similarly situated. Buyer has not received any
notices of non-renewal, cancellation or intent to cancel, not renew or increase
premiums or deductibles with respect to such insurance policies nor, to the
knowledge of the Buyer, is there any basis for any such action. Schedule 4.26
also contains a list of all pending claims with any insurance company (other
than health, medical and dental insurance claims of employees) and any instances
within the previous three years of a denial of coverage of the Buyer by any
insurance company.
SECTION 4.27 Bank Accounts. Schedule 4.27 contains a complete
and correct list of each bank and brokerage firm in which the Buyer has an
account or safe deposit box, the number of each such account or box and the
names of all persons authorized to draw thereon or to have access thereto.
SECTION 4.28 Labor Matters. Buyer is not a party to or
otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor, as of
the date hereof, is Buyer the subject of any material proceeding asserting that
Buyer has committed an unfair labor practice or is seeking to compel it to
bargain with any labor union or labor organization nor, as of the date of this
Agreement, is there pending or, to the knowledge of Buyer, threatened, any
material labor strike, dispute, walkout, work stoppage, slow-down or lockout
involving Buyer.
SECTION 4.29 Conduct of the Businesses. Except as set forth on
Schedule 4.29, since March 31, 1999, the Buyer has conducted its businesses only
in the ordinary course of business consistent with past custom and practice, and
has incurred no liabilities or obligations whatsoever other than in the ordinary
course of business consistent with past custom and practice and there has been
no material adverse change in the respective assets, condition (financial or
otherwise), results of operations, employee or customer relations, business
activities or business prospects of the Buyer nor does the Buyer know of any
such change which is threatened, nor has there been any damage, destruction or
loss materially adversely affecting any of the respective assets, or the
business condition (financial or otherwise), results of operations, prospects or
activities of the Buyer, whether or not covered by insurance. Without limitation
of the foregoing and except as set forth on Schedule 4.29, since March 31, 1999,
the Buyer has not:
51
(a) voluntarily or involuntarily sold, transferred,
abandoned, surrendered, subjected to a lien or
otherwise disposed of any assets or property rights
except in the ordinary course of business consistent
with past custom or practice;
(b) changed any accounting principles, methods or
practices utilized by them or changed any of their
depreciation rates or amortization policies or rates;
(c) made any loan or advance to any party in excess of
$5,000 other than in the ordinary course of business;
(d) issued, redeemed or purchased any stock, bond or
corporate security or declared or made any payment or
distribution on or with respect to their capital
stock;
(e) incurred debt, liabilities, or obligations of any
nature, whether accrued, absolute, contingent,
direct, indirect, perfected or otherwise, and whether
due or to become due, except debt, liabilities or
obligations incurred, and liabilities under contracts
entered into, in the ordinary course of business
consistent with past custom and practice;
(f) waived any rights of substantial value; or
(g) entered into any other material transaction, or
committed to any of the foregoing.
SECTION 4.30 Anti-Takeover Laws. Buyer has taken or at or
prior to the Closing will have taken, all actions necessary such that no "fair
price", "business combination", "control share acquisition", or similar statute
will be applicable to the transactions contemplated by this Agreement.
SECTION 4.31 Opinion of Financial Advisor. The financial
advisor of Buyer has delivered to the Board of Directors of Buyer an opinion
dated the date of approval by such Board of Directors of the terms hereof to the
effect that the Seller Exchange Multipliers in the Merger are fair to the
holders of Buyer Common Stock from a financial point of view.
SECTION 4.32 No Existing Discussions. As of the date hereof,
Buyer has terminated all discussions or negotiations with any third party with
respect to a Buyer Acquisition Proposal (as defined in Section 6.02(a)).
SECTION 4.33 No Misrepresentation. None of the representations
and warranties of the Buyer set forth in this Agreement or any of the
Transaction Documents contains any untrue statement of a material fact or omits
to state a material fact necessary to make the
52
statements contained herein or therein not misleading. To the knowledge of the
Buyer, there is no material fact or information which has not been disclosed to
Seller in writing which materially adversely affects or could reasonably be
anticipated to materially adversely affect the business, condition (financial or
otherwise), property or assets of the Buyer or the ability of the Buyer to
consummate the transactions contemplated hereby.
ARTICLE V
CONDUCT OF BUSINESS
SECTION 5.01 Covenants of Seller. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, Seller agrees as to itself (except to the
extent that Buyer shall otherwise consent in writing), to carry on its business
in the usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, to pay or perform its other obligations when
due, and, to the extent consistent with such business, use all reasonable
efforts consistent with past practices and policies to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, and others having business dealings with it. Except as
expressly contemplated by this Agreement, Seller shall not, without the written
consent of Buyer:
(a) 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, or split,
combine or reclassify any of its capital stock;
(b) Accelerate, amend or change the period of
exercisability of options or restricted stock or
authorize cash payments in exchange for any such
options except as required by the terms of any
employee stock plans or any related agreements in
effect as of the date of this Agreement, purchase any
shares of Seller Stock; provided, however, that the
outstanding options of any and all directors of
Seller which will not be directors of the Surviving
Corporation shall be converted as of the Effective
Time into five-year warrants to purchase shares of
Buyer Common Stock equal to the number of whole
shares of Seller Common Stock subject to such option
multiplied by the Seller Common Exchange Multiplier,
at a price per share of Buyer Common Stock equal to
(i) the exercise price for the shares of Seller
Common Stock purchasable pursuant to such Seller
Stock Option immediately prior to the Effective Time
divided by (ii) the Seller Common Exchange
Multiplier;
(c) Issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its
capital stock or securities convertible into shares
of its capital
53
stock, 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 securities, other than (i) the
grant of options consistent with past practices to
existing or new employees and directors, which
options represent in the aggregate the right to
acquire no more than 50,000 shares (net of
cancellations) of Seller Common Stock, or (ii) the
issuance of shares of Seller Common Stock pursuant to
the exercise of options and warrants outstanding on
the date of this Agreement;
(d) Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial
equity interest in or substantial portion of the
assets of, or by any other manner, any business or
any corporation, partnership or other business
organization or division, or otherwise acquire or
agree to acquire any assets (other than inventory and
other items in the ordinary course of business);
(e) Sell, lease, license, mortgage or otherwise encumber
or otherwise dispose of any of its material
properties or assets in an amount in excess of
$10,000 except as required to carry on Seller's
business in the usual, regular and ordinary course
and as set forth on Schedule 5.01(e);
(f) Except to the extent required under applicable law,
and except for amendments as may be requested by the
Internal Revenue Service in connection with a
determination letter request, (i) increase or agree
to increase the compensation payable or to become
payable to its officers or employees, except for
increases in salary or wages of employees in
accordance with past practices, (ii) grant any
additional severance or termination pay to, or enter
into any employment or severance agreements with, any
employees or officers, except to the extent
consistent with past practice, (iii) enter into any
collective bargaining agreement, or (iv) establish,
adopt, enter into or amend any bonus, profit sharing,
thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation,
employment, termination, severance or other plan,
trust, fund, policy or arrangement for the benefit of
any directors, officers or employees or pay any
bonuses except for bonuses paid pursuant to the
Seller's spot bonus plan or FDA submission bonus
plan, in each case which are consistent in nature and
amount with Seller's past practice or in accordance
with contracts in effect on the date hereof and which
in no event shall exceed $150,000 in the aggregate;
(g) Amend or propose to amend its charter or bylaws;
54
(h) Incur any indebtedness for borrowed money other than
pursuant to credit agreements in effect as of the
date hereof or indebtedness in the form of deferred
purchase price;
(i) Initiate, compromise, or settle any material
litigation or arbitration proceeding;
(j) Except in the ordinary course of business, modify,
amend or terminate any Seller Material Contract or
waive, release or assign any material rights or
claims;
(k) Make any Tax election, settle or compromise any Tax
liability or amend any Tax return;
(l) Change its methods of accounting as in effect at
December 31, 1998;
(m) Make or commit to make any capital expenditures that
exceed the capital forecast furnished by Seller to
Buyer;
(n) Make any cash disbursement exceeding $100,000 for any
single item or related series of items except as
expressly set forth in Schedule 5.01(n) or except as
consistent with the capital forecast furnished by
Seller to Buyer provided, however, that Seller shall
be entitled to incur such reasonable expenditures up
to $250,000 in the aggregate as shall be required to
obtain building permits and architectural drawings
and to conduct preliminary work in connection with
the construction of a manufacturing facility at its
current facility;
(o) Invest funds in debt securities or other instruments
in each case maturing more than one year after the
date of investment;
(p) Adopt, implement or amend any stockholder rights plan
that could have the effect of impeding or restricting
the consummation of the transactions contemplated
hereby; or
(q) Take, or agree in writing or otherwise to take, any
of the actions described in Sections (a) through (p)
above.
SECTION 5.02 Covenants of Buyer. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, Buyer agrees as to itself (except to the
extent that Seller shall otherwise consent in writing), to carry on its business
in the usual, regular and ordinary course in substantially the same manner as
previously
55
conducted, to pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, to pay or perform its other obligations when due, and,
to the extent consistent with such business, use all reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, and others having business dealings with it. Except as expressly
contemplated by this Agreement, Buyer shall not without the written consent of
Seller:
(a) 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, or split,
combine or reclassify any of its capital stock;
(b) Accelerate, amend or change the period of
exercisability of options or restricted stock or
authorize cash payments in exchange for any such
options except as required by the terms of any
employee stock plans or any related agreements in
effect as of the date of this Agreement or, purchase
any shares of Buyer Stock; provided, however, that
the outstanding options of any and all directors of
Buyer which will not be directors of the Surviving
Corporation shall be converted into five-year
warrants to purchase an equal number of shares of
Buyer Common Stock at an equal exercise price;
(c) Issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its
capital stock or securities convertible into shares
of its capital stock, 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
securities, other than (i) the grant of options
consistent with past practices to existing or new
employees and directors, which options represent in
the aggregate the right to acquire no more than
50,000 shares (net of cancellations) of Buyer Common
Stock, or (ii) the issuance of shares of Buyer Common
Stock pursuant to the exercise of options and
warrants outstanding on the date of this Agreement;
(d) Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial
equity interest in or substantial portion of the
assets of, or by any other manner, any business or
any corporation, partnership or other business
organization or division, or otherwise acquire or
agree to acquire any assets (other than inventory and
other items in the ordinary course of business);
(e) Sell, lease, license, mortgage or otherwise encumber
or otherwise dispose of any of its material
properties or assets in an amount in excess of
$10,000 except as required to carry on Buyer's
business in the usual, regular and ordinary course;
56
(f) Except to the extent required under applicable law,
and except for amendments as may be requested by the
Internal Revenue Service in connection with a
determination letter request, (i) increase or agree
to increase the compensation payable or to become
payable to its officers or employees, except for
increases in salary or wages of employees in
accordance with past practices, (ii) grant any
additional severance or termination pay to, or enter
into any employment or severance agreements with, any
employees or officers, except to the extent
consistent with past practice, (iii) enter into any
collective bargaining agreement, or (iv) establish,
adopt, enter into or amend any bonus, profit sharing,
thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation,
employment, termination, severance or other plan,
trust, fund, policy or arrangement for the benefit of
any directors, officers or employees or pay any
bonuses except for bonuses based on the performance
of Buyer and its employees during the Buyer's fiscal
year ended December 31, 1999 which are consistent in
nature and amount with Buyer's bonus payments for its
prior year or in accordance with contracts or
specific bonus programs in effect on the date hereof
and which in no event shall exceed $150,000 in the
aggregate;
(g) Amend or propose to amend its charter or bylaws,
except as contemplated by this Agreement;
(h) Incur any indebtedness for borrowed money other than
pursuant to credit agreements in effect as of the
date hereof or indebtedness in the form of deferred
purchase price;
(i) Initiate, compromise, or settle any material
litigation or arbitration proceeding;
(j) Except in the ordinary course of business, modify,
amend or terminate any Buyer Material Contract or
waive, release or assign any material rights or
claims;
(k) Make any Tax election, settle or compromise any Tax
liability or amend any Tax return;
(l) Change its methods of accounting as in effect at
December 31, 1998;
(m) Make or commit to make any capital expenditures that
exceed the capital forecast furnished by Buyer to
Seller;
(n) Make any cash disbursement exceeding $100,000 for any
single item or related series of items except as
expressly set forth in Schedule 5.02(n) or except as
consistent with the capital forecast furnished by
Buyer to Seller;
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(o) Invest funds in debt securities or other instruments
in each case maturing more than one year after the
date of investment;
(p) Adopt, implement or amend any stockholder rights plan
that could have the effect of impeding or restricting
the consummation of the transactions contemplated
hereby; or
(q) Take, or agree in writing or otherwise to take, any
of the actions described in Sections (a) through (p)
above.
SECTION 5.03 Cooperation. Subject to compliance with
applicable law, from the date hereof until the Effective Time, each of Buyer and
Seller shall confer on a regular and frequent basis with one or more
representatives of the other party to report on the general status of ongoing
operations and shall promptly provide the other party or its counsel with copies
of all filings made by such party with any Governmental Entity in connection
with this Agreement, the Merger and the transactions contemplated hereby and
thereby.
SECTION 5.04 Confidentiality. The parties acknowledge that
Buyer and Seller have previously executed a Confidentiality Agreement dated as
of May 13, 1998 (the "Confidentiality Agreement"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms,
except as expressly modified herein.
SECTION 5.05 Notices of Certain Events. Each of Buyer and
Seller shall give prompt notice to the 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 Merger; (ii) any notice of other
communication from any Governmental Entity in connection with the Merger; and
(iii) any actions, suits, claims, investigations or proceedings commenced or, to
its knowledge, threatened against, relating to or involving or otherwise
affecting the Buyer or Seller that relate to the consummation of the Merger.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 No Solicitation by Seller. (a) Seller shall not,
directly or indirectly, through any officer, director, employee, financial
advisor, representative or agent of such party solicit, initiate, or encourage
(including by the way of furnishing non-public information) any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer to acquire all or any Substantial part of the business or
properties of the Seller or any Substantial part of the capital stock of the
Seller whether by merger, consolidation, business combination, purchase of
Substantial assets, tender offer or otherwise, whether for cash, securities or
any other consideration
58
or combination thereof, other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as a "Seller Acquisition Proposal"); provided, however, that if the
Board of Directors of Seller determines in good faith, based on the advice of
outside counsel and of an investment banker, that failure to do so would be
reasonably likely to constitute a breach of its fiduciary duties to Seller's
stockholders under applicable law, Seller, in response to a written Seller
Acquisition Proposal that (i) was unsolicited or that did not otherwise result
from a breach of this section, and (ii) is more favorable, as determined by the
Board of Directors in good faith, than the transaction contemplated by this
Agreement (a "Seller Superior Proposal"), may (x) furnish information with
respect to Seller to the person who made such Seller Acquisition Proposal
pursuant to a customary confidentiality agreement and (y) participate in
negotiations regarding such Seller Acquisition Proposal. The term "Substantial"
as used in this Section 6.01 means (i) 10% or more of the capital stock of
Seller or (ii) the assets of Seller representing 10% or more of the consolidated
assets of Seller as set forth on the Seller Balance Sheet or generating 10% or
more of Seller's consolidated revenue, operating profit or net income for the
period ended March 31, 1999.
The Board of Directors of Seller shall not (1) withdraw or
modify, in a manner adverse to Buyer, its approval or recommendation of this
Agreement or the Merger unless there is a Seller Superior Proposal outstanding,
(2) approve or recommend, or propose to approve or recommend, a Seller
Acquisition Proposal that is not a Seller Superior Proposal or (3) cause Seller
to enter into any letter of intent, agreement in principle or other agreement
with respect to a Seller Acquisition Proposal unless, in the case of (3), the
Board of Directors of Seller (x) shall have determined in good faith, based on
the advice of outside counsel, that failure to do so would be reasonably likely
to constitute a breach of its fiduciary duties to Seller's stockholders under
applicable law, (y) shall then terminate this Agreement pursuant to the
termination provisions of Section 8.01 and (z) shall then pay to Buyer the fees
and expenses set forth in Section 8.03.
(b) Seller shall notify Buyer immediately after receipt by
Seller (or its advisors) of any Seller Acquisition Proposal or any request for
information in connection with a Seller Acquisition Proposal or for access to
the properties, books or records of Seller by any person or entity that informs
Seller that it is considering making, or has made, a Seller 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.
SECTION 6.02 No Solicitation by Buyer. (a) Buyer shall not,
directly or indirectly, through any officer, director, employee, financial
advisor, representative or agent of such party solicit, initiate, or encourage
(including by the way of furnishing non-public information) any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer to acquire all or any Substantial part of the business or
properties of the Buyer or any Substantial part of the capital stock of the
Buyer, whether by merger, consolidation, business combination, purchase of
Substantial assets, tender offer or otherwise, whether for cash, securities or
any other consideration or combination thereof, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as a "Buyer Acquisition
59
Proposal"); provided, however, that if the Board of Directors of Buyer
determines in good faith, based on the advice of outside counsel and of an
investment banker, that failure to do so would be reasonably likely to
constitute a breach of its fiduciary duties to Buyer's stockholders under
applicable law, Buyer, in response to a written Buyer Acquisition Proposal that
(i) was unsolicited or that did not otherwise result from a breach of this
section, and (ii) is more favorable, as determined by the Board of Directors in
good faith, than the transaction contemplated by this Agreement (a "Buyer
Superior Proposal"), may (x) furnish non-public information with respect to
Buyer to the person who made such Buyer Acquisition Proposal pursuant to a
customary confidentiality agreement and (y) participate in negotiations
regarding such Buyer Acquisition Proposal. The term "Substantial" as used in
this Section 6.02 means (i) 10% or more of the capital stock of Buyer or any
Subsidiary or (ii) the assets of Buyer representing 10% or more of the assets of
Buyer as set forth on the Buyer Balance Sheet or generating 10% or more of
Buyer's revenue, operating profit or net income for the period ended March 31,
1999.
The Board of Directors of Buyer shall not (1) withdraw or
modify, in a manner adverse to Buyer, its approval or recommendation of this
Agreement or the Merger unless there is a Buyer Superior Proposal outstanding,
(2) approve or recommend, or propose to approve or recommend, a Buyer
Acquisition Proposal that is not a Buyer Superior Proposal or (3) cause Buyer to
enter into any letter of intent, agreement in principle or other agreement with
respect to a Buyer Acquisition Proposal unless, in the case of (3), the Board of
Directors of Buyer (x) shall have determined in good faith, based on the advice
of outside counsel, that failure to do so would be reasonably likely to
constitute a breach of its fiduciary duties to Buyer's stockholders under
applicable law, (y) shall then terminate this Agreement pursuant to the
termination provisions of Section 8.01 and (z) shall then pay to Seller the fees
and expenses set forth in Section 8.03.
(b) Buyer shall notify Seller immediately after receipt by
Buyer (or its advisors) of any Buyer Acquisition Proposal or any request for
information in connection with a Buyer Acquisition Proposal or for access to the
properties, books or records of Buyer by any person or entity that informs Buyer
that it is considering making, or has made, a Buyer 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.
SECTION 6.03 Proxy Statement/Prospectus; Registration
Statement. As promptly as practical after the execution of this Agreement, Buyer
and Seller shall prepare and file with the SEC the Proxy Statement, and Buyer
shall prepare and file with the SEC the Registration Statement, in which the
Proxy Statement will be included as a prospectus, provided that Buyer may delay
the filing of the Registration Statement until the Proxy Statement is cleared by
the SEC. Buyer and Seller shall use all reasonable efforts to cause the
Registration Statement to become effective as soon after such filing as
practicable. Buyer and Seller shall make all necessary filings with respect to
the Merger under the Securities Act, the Exchange Act, applicable state blue sky
laws and the rules and regulations thereunder. Buyer and Seller shall mail the
Proxy Statement to their respective shareholders as soon as possible after the
Registration Statement is declared effective.
60
SECTION 6.04 Access to Information. Upon reasonable notice,
Seller and Buyer shall each afford to the officers, employees, accountants,
counsel and other representatives of the other, access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records. During such period, (i) Buyer shall
furnish promptly to the Seller (a) a copy of each report, schedule, registration
statement and document filed or received by it during such period pursuant to
the requirements of federal securities laws and (b) all other information
concerning its business, properties and personnel as Seller may reasonably
request and (ii) Seller shall furnish promptly to Buyer (a) all information
relating to commitments, contracts, titles and financial and operating data or
otherwise pertaining to the business and affairs of Seller and (b) all other
information concerning its business, properties and personnel as Buyer may
reasonably request. Unless otherwise required by law, the parties will hold any
such information which is nonpublic in confidence in accordance with the
Confidentiality Agreement. No information or knowledge obtained in any
investigation pursuant to this Section 6.04 or otherwise shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Merger.
SECTION 6.05 Stockholder Meetings. (a) The Seller, acting
through its Board of Directors, shall, subject to and according to applicable
law and its Articles of Incorporation and Bylaws, promptly and duly call, give
notice of, convene and hold as soon as practicable following the date on which
the Registration Statement becomes effective the Seller Meeting for the purpose
of voting to approve and adopt this Agreement and the Merger (the "Seller Voting
Proposal"). The Board of Directors of the Seller shall (i) recommend approval
and adoption of the Seller Voting Proposal by the stockholders of the Seller and
include in the Proxy Statement such recommendation and (ii) take all reasonable
and lawful action to solicit and obtain such approval; provided, however, that
the Board of Directors of Seller may withdraw such recommendation as permitted
by Section 6.01.
(b) The Buyer, acting through its Board of Directors, shall,
subject to and according to applicable law and its Certificate of Incorporation
and Bylaws, promptly and duly call, give notice of, convene and hold as soon as
practicable following the date on which the Registration Statement becomes
effective the Buyer Meeting for the purpose of voting to approve and adopt this
Agreement and the Merger (the "Buyer Voting Proposal"). The Board of Directors
of the Buyer shall (i) recommend approval and adoption of the Buyer Voting
Proposal by the stockholders of the Buyer and include in the Proxy Statement
such recommendation and (ii) take all reasonable and lawful action to solicit
and obtain such approval; provided, however, that the Board of Directors of
Buyer may withdraw such recommendation as permitted by Section 6.02. In
connection with seeking, and subject to, Buyer Stockholder Approval of the
Merger, Buyer shall seek approval of its stockholders to amend and restate its
Certificate of Incorporation as set forth in Exhibit B hereto and (ii) approve
the new Equity Incentive Plan referred to in Section 7.03(h) hereof.
SECTION 6.06 Legal Conditions to Merger. (a) Seller and Buyer
shall use their respective best efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary and proper
under applicable law to consummate and make effective
61
the transactions contemplated hereby as promptly as practicable, (ii) obtain
from any Governmental Entity or any other third party any consents, licenses,
permits, waivers, approvals, authorizations, or orders required to be obtained
or made by Seller or Buyer in connection with the authorization, execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby including, without limitation, the Merger, and (iii) as promptly as
practicable, make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act and the Exchange Act, and any other applicable federal or
state securities laws and (B) any other applicable law. Seller and Buyer shall
cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents to the non-filing party and its
advisors prior to filing and, if requested, to discuss and, if appropriate,
accept all reasonable additions, deletions or changes suggested in connection
therewith. Seller and Buyer shall use their respective best efforts to furnish
to each other all information required for any application or other filing to be
made pursuant to the rules and regulations of any applicable law (including all
information required to be included in the Proxy Statement and the Registration
Statement) in connection with the transactions contemplated by this Agreement.
(b) Buyer and Seller agree to cooperate and to use their
respective best efforts to obtain any government clearances or approvals
required for Closing under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, the Sherman Act, as amended, the Clayton Act, as amended, the Federal
Trade Commission Act, as amended, and any other Federal, state or foreign law
or, regulation or decree designed to prohibit, restrict or regulate actions for
the purpose or effect of monopolization or restraint of trade (collectively
"Antitrust Laws"), to respond to any government requests for information under
any Antitrust Law, and to contest and resist any action, including any
legislative, administrative or judicial action, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) (an "Order") that restricts, prevents or
prohibits the consummation of the Merger or any other transactions contemplated
by this Agreement under any Antitrust Law. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one another,
in connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or on behalf of any party
hereto in connection with proceedings under or relating to any Antitrust Law.
Buyer and Seller shall mutually direct any proceedings or negotiations with any
Governmental Entity relating to any of the foregoing, and shall afford each
other a reasonable opportunity to participate therein. Notwithstanding anything
to the contrary in this Section 6.06, neither Seller nor Buyer shall be required
to (i) divest any of their respective businesses, product lines or assets, or to
take or agree to take any other action or agree to any limitation, or (ii) take
any action under this Section 6.06 if the United States Department of Justice or
the United States Federal Trade Commission authorizes its staff to seek a
preliminary injunction or restraining order to enjoin consummation of the
Merger.
(c) Each of Seller and Buyer shall give any notices to third
parties, and use their reasonable efforts to obtain any third party consents
related to or required in connection with the Merger that are (A) necessary to
consummate the transactions contemplated hereby, (B) disclosed
62
or required to be disclosed in the Seller Disclosure Schedules or the Buyer
Disclosure Schedules, as the case may be, or (C) required to prevent a Seller
Material Adverse Effect or a Buyer Material Adverse Effect from occurring prior
to or after the Effective Time.
SECTION 6.07 Public Disclosure. Buyer and Seller shall consult
with each other before issuing any press release or otherwise making any public
statement with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement prior to such consultation,
except as, in the reasonable judgment of the Board of Directors of either Buyer
or Seller, may be required by law or the rules and regulations of Nasdaq.
SECTION 6.08 Reorganization. Buyer and Seller shall each use
its best efforts to cause the Merger to be treated as a tax-free reorganization
within the meaning of Section 368(a) of the Code.
SECTION 6.09 Board of Directors and Officers. The Seller and
Buyer agree that in connection with the Merger, at the Effective Time the
Surviving Corporation's Board of Directors will be expanded to consist of ten
members. As set forth in the Stockholder's Agreement, in connection with seeking
Stockholder Approval of the Merger, the current members of the board of
directors of the Buyer will propose the election of two directors (the "Buyer
Designees"), the current members of the board of directors of the Seller will
propose the election of three directors (the "Seller Designees") and the current
members of the boards of directors of both Buyer and Seller shall propose the
election of Barry R. Edwards, Charles Hsiao and Larry Hsu (the "Inside
Directors"). The current members of the board of directors of Buyer shall
designate one board observer and the current members of the board of directors
of Seller shall designate one board observer (together, the "Board Observers")
and the current members of the boards of directors of both Buyer and Seller
shall propose the election of two persons mutually agreeable to Buyer and Seller
which shall be independent directors (the "Independent Directors"). All such
Buyer Designees, Seller Designees, Inside Directors and Independent Directors,
to the extent elected, shall be elected effective as of the Effective Time. In
addition to the foregoing, promptly following the Effective Time, the Board of
Directors of the Surviving Corporation will elect the following persons as
officers of the Surviving Corporation: (i) Charles Hsiao, Ph.D., as its Chairman
of the Board and Co-Chief Executive Officer; (ii) Mr. Barry R. Edwards, as its
Co-Chief Executive Officer; and (iii) Larry Hsu, Ph.D., as its President and
Chief Operating Officer. Additionally, a Scientific and Medical Advisory
Committee will be established to provide advice regarding new product concepts.
SECTION 6.10 Affiliate Agreements. Upon the execution of this
Agreement, Seller will provide Buyer with a list of those persons who are, in
Seller's reasonable judgment, "affiliates" of Seller, respectively, within the
meaning of Rule 145 promulgated under the Securities Act ("Rule 145") (each such
person who is an "affiliate" of Seller within the meaning of Rule 145 is
referred to as an "Affiliate"). Seller shall provide Buyer such information and
documents as Buyer shall reasonably request for purposes of reviewing such list
and shall notify Seller in writing regarding any change in the identity of its
Affiliates prior to the Closing Date. Seller shall have delivered or caused to
be delivered to Buyer, prior to or promptly following the execution of this
Agreement, from
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each of its Affiliates, an executed Affiliate Agreement, in substantially the
form appended hereto as Exhibit F (collectively, the "Affiliate Agreements").
Buyer shall be entitled to place appropriate legends on the certificates
evidencing any Buyer Common Stock to be received by such Affiliates of Seller
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Buyer Common Stock, consistent with
the terms of the Affiliate Agreements (provided that such legends or stop
transfer instructions shall be removed, two years after the Effective Date, upon
the request of any stockholder that is not then an Affiliate of Buyer).
SECTION 6.11 Nasdaq SmallCap Market Listing. Buyer shall use
its best efforts to cause the shares of Buyer Common Stock to be issued in the
Merger to be listed on the Nasdaq SmallCap Market, subject to official notice of
issuance, on or prior to the Closing Date.
SECTION 6.12 Stock Plans and Warrants. (a) As soon as
practicable after the Effective Time, Buyer shall deliver to the participants in
the Seller Stock Plans appropriate notice setting forth such participants'
rights pursuant thereto and the grants pursuant to the Seller Stock Plans shall
continue in effect on the same terms and conditions (subject to the adjustments
required by Section 2.05 after giving effect to the Merger).
(b) Buyer shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Buyer Common Stock for delivery
under Seller Stock Plans assumed in accordance with Section 2.05. As soon as
practicable after the Effective Time, Buyer shall file a registration statement
on Form S-8 (or any successor or other appropriate forms), or another
appropriate form with respect to the shares of Buyer Common Stock subject to
such options and shall use its best efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
(c) Buyer shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Buyer Common Stock for delivery
upon exercise of the warrants referred to in the provisos of Sections 5.01(b)
and 5.02(b) hereof. As soon as practicable after the Effective Time, Buyer shall
file a registration statement on Form S-3 (or any successor or other appropriate
forms), or another appropriate form with respect to the shares of Buyer Common
Stock subject to such warrants and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such warrants remain outstanding.
SECTION 6.13 Certain Employee Benefit Plan Obligations. Buyer
and Seller shall continue to provide their respective standard health plans and
benefits (including medical insurance, life insurance and disability plans)
available to their respective employees until after the Closing Date, and in the
ordinary course of business, the Surviving Company shall arrange for standard
health plans and benefits to its employees.
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SECTION 6.14 Indemnification, Exculpation and Insurance. (a)
Buyer agrees that all rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the Effective Time now existing
in favor of the current or former directors, officer, employees or agents of
Seller as provided in their respective Articles or Certificates of Incorporation
or by-laws (or comparable organizational documents) and any indemnification
agreements or arrangements of Seller shall be assumed by Buyer, shall survive
the Merger and shall continue in full force and effect, without amendment, for
six years after the Effective Time; provided, however, that all rights to
indemnification in respect of any claim asserted or made within such period
shall continue until the final disposition of such claim. Buyer shall pay any
expenses of any indemnified person under this Section 6.14 in advance of the
final disposition of any action, proceeding or claim relating to any such act or
omission to the fullest extent permitted under applicable law upon receipt from
the applicable indemnified person to whom advances are to be advanced of any
undertaking to repay such advances required under applicable law, but only to
the extent any such indemnified person would otherwise have been entitled to
such advance payments from Seller in the absence of the transactions
contemplated hereby. Buyer shall cooperate in the defense of any such matter. In
addition, from and after the Effective Time, directors or officers of Seller who
become directors or officers of Buyer will be entitled to the same indemnity
rights and protections as are afforded to other directors and officers of Buyer.
(b) In the event that either of the Surviving Corporation or
Buyer or any of their respective successors or assigns (i) consolidates with or
merges with or into any other person and is not the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers or
conveys all or substantially all of its properties and assets to any person,
then, and in each such case, proper provision will be made so that the
successors and assigns of Buyer or the Surviving Corporation, as applicable,
will assume the obligations thereof set forth in this Section 6.14.
(c) The provisions of this Section 6.14 (i) are intended to be
for the benefit of, and will be enforceable by, each indemnified party, his or
her heirs and his or her representatives and (ii) are in addition to , and not
in substitution for, any other rights to indemnification or contribution that
any such person may have by contract or otherwise.
(d) For six years after the Effective Time, Buyer or the
Surviving Corporation shall maintain in effect the Buyer's current directors'
and officers' liability insurance covering acts or omissions occurring prior to
the Effective Time with respect to those persons who are currently covered by
the Buyers' directors' and officers' liability insurance policy on terms with
respect to such coverage and amount no less favorable in the aggregate to
Buyer's directors and officers currently covered by such insurance than those of
such policy in effect on the date hereof; provided that the Surviving
Corporation may substitute therefor policies containing terms with respect to
coverage and amount no less favorable to such directors or officers.
(e) Buyer and Seller shall cause the Surviving Corporation or
any successor thereto to comply with their respective obligations under this
Section 6.14.
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SECTION 6.15 Brokers or Finders. Each of Buyer and Seller
represents, as to itself and its Affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement and the parties
shall hold each other harmless with respect to any such fee which may be
asserted in the future.
SECTION 6.16 Letters from Seller's Accountants. Seller shall
use best efforts to cause to be delivered to Buyer and Seller a letter of
PricewaterhouseCoopers LLP, Seller's independent auditors, dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to Buyer, in form reasonably satisfactory to
Buyer and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement.
SECTION 6.17 Letter from Buyer's Accountants. Buyer shall use
best efforts to cause to be delivered to Seller and Buyer a letter of
PricewaterhouseCoopers LLP, Buyer's independent auditors, dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to Seller, in form reasonably satisfactory to
Seller and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement.
SECTION 6.18 Control of Operations. Nothing contained in this
Agreement shall give Buyer, directly or indirectly, the right to control or
direct the operations of the Seller prior to the Effective Time. Nothing
contained in this Agreement shall give Seller, directly or indirectly, the right
to control or direct the operations of Buyer prior to the Effective Time. Prior
to the Effective Time, each of Buyer and Seller shall exercise, consistent with
the terms and conditions of this Agreement, complete control and supervision
over its respective operations.
SECTION 6.19 Seller Tax Returns After Closing. The Surviving
Corporation shall be responsible for the preparation and filing of any Tax
Return that is required to be filed after the Closing and that includes the
operations, assets or activities of Seller for Tax periods ending on or prior to
the Closing. To the extent not adequately accrued or reserved for on the books
and records of Seller, the Stockholders shall pay to Buyer the amount of such
Taxes of Seller with respect to such periods no later than fifteen (15) days
prior to the date payment for such Taxes are due.
SECTION 6.20 Seller's Voting Proxies. Concurrently with the
execution and delivery of this Agreement, Seller shall deliver to Buyer
Irrevocable Proxy and Voting Agreements substantially in the form attached
hereto as Exhibit E, evidencing approval of this Agreement, and the Merger
contemplated herein, signed by at least (i) a majority of the outstanding shares
of Seller Common Stock, (ii) a majority of the outstanding shares of Seller
Series A, Seller Series B and Seller Series C, voting together as one class, and
(iii) a majority of the outstanding shares of Seller Series D.
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SECTION 6.21 Conversion Letters. Concurrently with the
execution and delivery of this Agreement:
(a) Buyer shall have received a copy of a letter from the
holders of at least a majority of the Seller Series
A, Seller Series B, Seller Series C and Seller Series
D agreeing to convert at the Effective Time each
respective class of stock in accordance with the
terms of this Agreement; and
(b) Seller shall have received a copy of a letter from
the holders of at least a majority of the Buyer
Series C Preferred and Buyer Series D Preferred Stock
agreeing to convert at the Effective Time each
respective class of stock in accordance with the
terms of this Agreement.
ARTICLE VII
CONDITIONS TO MERGER
SECTION 7.01 Conditions to Each Party's Obligation To Effect
the Merger. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. (i) The Seller Voting Proposal
shall have been approved and adopted by the
affirmative vote of the holders of (1) a majority of
the shares of Seller Common Stock, (2) a majority of
the shares of Seller Series A, Seller Series B and
Seller Series C, voting together as one class, and
(3) a majority of the shares of Seller Series D, all
as outstanding on the record date for the Seller
Meeting, at which a quorum is present and (ii) the
Buyer Voting Proposal shall have been approved and
adopted by the affirmative vote of the holders of a
majority of the shares of Buyer Common Stock and
Buyer Preferred Stock, voting as a single class, and
the holders of a majority of the Series D Preferred
Stock, voting as a class, all as outstanding on the
record date for the Buyer Meeting, at which a quorum
is present. Buyer shall have adopted, and shall have
received Stockholder Approval of the adoption of, the
Equity Incentive Plan referred to in Section 7.03(h)
hereof and the amended and restated Certificate of
Incorporation attached hereto as Exhibit B.
(b) Approvals. Other than the filing provided for by
Section 1.01, all authorizations, consents, orders or
approvals of, or declarations or filings with, or
expirations of waiting periods, including those
imposed by any Governmental Entity, the failure of
which to file, obtain or occur is reasonably likely
to have a Buyer Material Adverse Effect or Seller
Material Adverse Effect shall have been filed, been
obtained or occurred.
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(c) Registration Statement. The Registration Statement
shall have become effective under the Securities Act
and shall not be the subject of any stop order or
proceedings seeking a stop order.
(d) No Injunctions. No Governmental Entity or federal,
state or foreign court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or
entered any order, executive order, stay, decree,
judgment or injunction (each an "Order") or statute,
rule, regulation which is in effect and which has the
effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(e) Nasdaq SmallCap Market Listing. The shares of Buyer
Common Stock to be issued in the Merger shall have
been approved for listing on the Nasdaq SmallCap
Market, subject only to official notice of issuance.
SECTION 7.02 Additional Conditions to Obligations of Buyer.
The obligations of Buyer to effect the Merger are subject to the satisfaction of
each of the following conditions, any of which may be waived in writing
exclusively by Buyer:
(a) Representations and Warranties. The representations
and warranties of Seller set forth in this Agreement
shall be true and correct as of the date of this
Agreement and (except to the extent such
representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as
of the Closing Date, except for, (i) changes
contemplated by this Agreement and (ii) where the
failures to be true and correct (without giving
effect as to any limitation as to "materiality" or
"Seller Material Adverse Effect"), individually or in
the aggregate, have not had and are not reasonably
likely to have a Seller Material Adverse Effect or a
material adverse effect upon the ability of Seller to
consummate the transactions contemplated hereby; and
Buyer shall have received a certificate signed on
behalf of Seller by the President and the Chief
Financial Officer of Seller to such effect.
(b) Performance of Obligations of Seller. Seller shall
have performed in all material respects all
obligations required to be performed by it under this
Agreement at or prior to the Closing Date; and Buyer
shall have received a certificate signed on behalf of
Seller by the President and the Chief Financial
Officer of Seller to such effect.
(c) Permits and Licenses. All permits, licenses, product
approval applications and other governmental
authorizations required for Buyer to conduct Seller's
business in the same manner as conducted prior to the
Effective Time and as contemplated to be conducted
subsequent to the Merger shall be in full force and
effect, and any necessary approvals for the continued
effectiveness of such
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permits, licenses, applications and authorizations
subsequent to the Effective Time shall have been
obtained; except where the lack of such permits,
licenses, applications and other governmental
authorizations or approvals for same shall not have,
individually or in the aggregate, a Seller Material
Adverse Effect.
(d) Dissenting Shareholders. The holders of not more than
10% of the outstanding aggregate value of the Seller
Common Stock and Seller Preferred Stock (value based
on the number of shares of Buyer Common Stock such
holders would have received upon the consummation of
the Merger) shall have perfected dissenter's rights
under applicable law.
(e) Stockholder's Agreement. The Seller Stockholders set
forth on Schedule 7.02(e) hereto and the persons set
forth on Schedule 7.02(e) hereto shall have entered
into a Stockholders' Agreement, substantially in the
form of Exhibit G hereto, pursuant to which such
persons will agree to vote their shares of Buyer
Stock in favor of the election as directors of the
Surviving Corporation of (i) the Buyer Designees,
(ii) the Seller Designees, (iii) the Inside
Directors, and (iv) the Outside Directors, as well as
the appointment of the Board Observers, for a period
of three years after the Effective Date.
(f) Fairness Opinion. Buyer shall have received from
Gruntal & Co. L.L.C. ("Gruntal") an opinion, dated
within two business days of the date of the Proxy
Statement, to the effect that, as of the date
thereof, the consideration to be paid in the Merger
is fair, from a financial point of view, to Buyer and
the stockholders of Buyer, and Gruntal shall not have
withdrawn such opinion on or prior to the Closing
Date.
(g) Irrevocable Proxy and Voting Agreements. The
Irrevocable Proxy and Voting Agreements shall be in
full force and effect.
(h) General Corporate Opinion. Buyer shall have received
the written opinion of Law Offices of Laurie Miller,
counsel to Seller, as to the due organization of
Seller and the corporate authority of Seller to enter
into this Agreement and that the shares of Seller
Stock to be acquired in the Merger have been duly
authorized, validly issued and are fully paid and
non-assessable shares of the capital stock of Seller
and such other matters as shall be mutually agreed
upon between Buyer and Seller.
(i) Environmental Assessment. Buyer shall have received a
satisfactory Phase I Environmental Report on Seller's
Hayward, California premises, dated June 9, 1997.
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(j) Consents. Buyer shall have received all consents
required for the consummation of the Merger under any
agreement, contract or license described in any
exhibit or schedule hereto or referred to herein, or
for the continued enjoyment by the Surviving
Corporation of the benefits of any such agreement,
contract or license after the Merger, shall have been
obtained. With respect to any contract or agreement,
the assignment of which by its terms requires prior
consent of the parties thereto, if such consent is
not obtained prior to the Closing Date, and if Buyer
waives, in its sole discretion, the requirement that
such consent be obtained prior to the Closing Date,
the Seller shall deliver to Buyer written
documentation setting forth arrangements for the
transfer of the economic benefits of such contract or
agreement to Company as of the Effective Time under
terms and conditions acceptable to Buyer.
(k) Election of Directors. The stockholders of the
Surviving Corporation shall have elected the
directors in accordance with Section 6.09 hereof and
the Stockholder's Agreement.
(l) Election of Officers. Buyer shall have received the
written consent of the Board of Directors of the
Surviving Corporation, electing the officers
designated in Section 6.09 hereof.
(m) Hsiao Employment Agreement. Buyer shall have received
a copy of an Employment Agreement, between the
Surviving Corporation and Dr. Charles Hsiao,
substantially in the form attached hereto as Exhibit
H, duly executed by each of the Surviving Corporation
and Dr. Hsiao.
(n) Hsu Employment Agreement. Buyer shall have received a
copy of an Employment Agreement, between the
Surviving Corporation and Dr. Larry Hsu,
substantially in the form attached hereto as Exhibit
I, duly executed by each of the Surviving Corporation
and Dr. Hsu.
(o) Edwards Employment Agreement. Buyer shall have
received a copy of an Employment Agreement, between
the Surviving Corporation and Barry R. Edwards,
substantially in the form attached hereto as Exhibit
J, duly executed by each of the Surviving Corporation
and Mr. Edwards.
(p) Escrow Agreements. Buyer shall have received executed
Escrow Agreements from the Escrow Agent and each of
the Seller Stockholders, substantially in the form
attached hereto as Exhibit D.
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SECTION 7.03 Additional Conditions to Obligations of Seller.
The obligation of Seller to effect the Merger is subject to the satisfaction of
each of the following conditions, any of which may be waived, in writing,
exclusively by Seller:
(a) Representations and Warranties. The representations
and warranties of Buyer set forth in this Agreement
shall be true and correct as of the date of this
Agreement and (except to the extent such
representations speak as of an earlier date) as of
the Closing Date as though made on and as of the
Closing Date, except for, (i) changes contemplated by
this Agreement and (ii) where the failures to be true
and correct (without giving effect as to any
limitation as to "materiality" or "Buyer Material
Adverse Effect", individually or in the aggregate,
have not had and are not reasonably likely to have a
Buyer Material Adverse Effect or a material adverse
effect upon the ability of Buyer to consummate the
transactions contemplated hereby; and Seller shall
have received a certificate signed on behalf of Buyer
by the Chief Executive Officer and the Chief
Financial Officer of Buyer to such effect.
(b) Performance of Obligations of Buyer. Buyer shall have
performed in all material respects all obligations
required to be performed by it under this Agreement
at or prior to the Closing Date, and Seller shall
have received a certificate signed on behalf of Buyer
by the chief executive officer and the chief
financial officer of Buyer to such effect.
(c) Permits and Licenses. All permits, licenses, product
approval applications and governmental authorization
required for Buyer to conduct Seller's business in
the same manner as conducted prior to the Effective
Time and as contemplated to be conducted subsequent
to the Merger shall be in full force and effect, and
any necessary approvals for the continued
effectiveness of such permits, licenses, applications
and authorizations subsequent to the Effective Time
shall have been obtained; except where lack of such
permits, licenses, applications and other
governmental authorizations or approvals for same
shall not have, individually or in the aggregate, a
Seller Material Adverse Effect.
(d) Dissenting Shareholders. The holders of not more than
10% of the outstanding aggregate value of the Buyer
Common Stock and Buyer Preferred Stock (value based
in the case of Buyer Preferred Stock on the number of
shares of Buyer Common Stock such holders would have
received upon the consummation of the Merger) shall
have perfected dissenter's rights under applicable
law.
(e) General Corporate Opinion. Seller shall have received
the written opinion of Fulbright & Jaworski L.L.P.,
counsel to Buyer, as to the due organization of
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Buyer and the corporate authority of Buyer to enter
into this Agreement and that the shares of Buyer
Common Stock to be issued in the Merger have been
duly authorized, validly issued and are fully paid
and non-assessable shares of the capital stock of
Buyer and such other matters as shall be mutually
agreed upon between Buyer and Seller.
(f) Stockholder's Agreement. The stockholders of Buyer
set forth on Schedule 7.03(f) hereto shall have
entered into a Stockholder's Agreement, substantially
in the form of Exhibit G hereto, pursuant to which
such persons will agree to vote their shares of Buyer
Stock in favor of the election as directors of the
Surviving Corporation of (i) the Buyer Designees,
(ii) the Seller Designees, (iii) the Inside
Directors, and (iv) the Outside Directors, as well as
the appointment of the Board Observers, for a period
of three years after the Effective Date.
(g) Consents. Seller shall have received all consents
required for the consummation of the Merger under any
agreement, contract or license described in any
exhibit or schedule hereto or referred to herein, or
for the continued enjoyment by the Surviving
Corporation of the benefits of any such agreement,
contract or license after the Merger, shall have been
obtained. With respect to any contract or agreement,
the assignment of which by its terms requires prior
consent of the parties thereto, if such consent is
not obtained prior to the Closing Date, and if Buyer
waives, in its sole discretion, the requirement that
such consent be obtained prior to the Closing Date,
the Buyer shall deliver to Seller written
documentation setting forth arrangements for the
transfer of the economic benefits of such contract or
agreement to Company as of the Effective Time under
terms and conditions acceptable to Buyer.
(h) Adoption of New Equity Plan. Buyer's Board of
Directors, and its shareholders shall have duly
adopted an Equity Incentive Plan, mutually agreeable
to Buyer and Seller, with 3,000,000 shares of Buyer's
Common Stock reserved for issuance thereunder, and
Seller shall have received an officer's certificate
from Buyer, duly signed by the President and Chief
Executive Officer of Buyer to such effect.
(i) Election of Directors. The stockholders of the
Surviving Corporation shall have elected the
directors in accordance with Section 6.09 hereof and
the Stockholder's Agreement.
(j) Election of Officers. Seller shall have received the
written consent of the Board of Directors of the
Surviving Corporation, electing the officers
designated in Section 6.09 hereof.
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(k) Hsiao Employment Agreement. Seller shall have
received a copy of an Employment Agreement, between
the Surviving Corporation and Dr. Charles Hsiao,
substantially in the form attached hereto as Exhibit
H, duly executed by each of the Surviving Corporation
and Dr. Hsiao.
(l) Hsu Employment Agreement. Seller shall have received
a copy of an Employment Agreement, between the
Surviving Corporation and Dr. Larry Hsu,
substantially in the form attached hereto as Exhibit
I, duly executed by each of the Surviving Corporation
and Dr. Hsu.
(m) Edwards Employment Agreement. Seller shall have
received a copy of an Employment Agreement, between
the Surviving Corporation and Barry R. Edwards,
substantially in the form attached hereto as Exhibit
J, duly executed by each of the Surviving Corporation
and Mr. Edwards.
(n) Environmental Assessment. Seller shall have received
a Phase I Environmental Report on Buyer's
Philadelphia, Pennsylvania premises showing no
Environmental Conditions which would be reasonably
likely to have a Buyer Material Adverse Effect.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01 Termination. This Agreement may be terminated at
any time prior to the Effective Time (with respect to Sections 8.01(b) through
8.01(g), by written notice by the terminating party to the other party), whether
before or after approval of the matters presented in connection with the Merger
by the stockholders of Seller or Buyer:
(a) by mutual written consent of Buyer and Seller; or
(b) by either Buyer or Seller if the Merger shall not
have been consummated by November 30, 1999 (the
"Outside Date") (provided that the right to terminate
this Agreement under this Section 8.01(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); or
(c) by either Buyer or Seller if a court of competent
jurisdiction or other Governmental Entity shall have
issued a nonappealable final order, decree or ruling
or taken any other nonappealable final action, in
each case having the
73
effect of permanently restraining, enjoining or
otherwise prohibiting the Merger; or
(d) by (i) Buyer or Seller if at the Seller Meeting
(including any adjournment or postponement), the
requisite vote of the stockholders of Seller in favor
of the Seller Voting Proposal shall not have been
obtained or (ii) by Buyer or Seller if at the Buyer
Meeting (including any adjournment or postponement),
the requisite vote of the stockholders of Buyer in
favor of the Buyer Voting Proposal shall not have
been obtained (provided that the right to terminate
this Agreement under this Section 8.01(d) shall not
be available to any party seeking termination who at
the time is in breach of or has failed to fulfill its
obligations under this Agreement); or
(e) (i) by Buyer, if (aa) the Board of Directors of
Seller shall have withdrawn or modified its
recommendation of this Agreement or the Merger; (bb)
after the receipt by Seller of a Seller Acquisition
Proposal, Buyer requests in writing that the Board of
Directors of Seller reconfirm its recommendation of
this Agreement or the Merger and the Board of
Directors of Seller fails to do so within 10 business
days after its receipt of Buyer's request; (cc) the
Board of Directors of Seller shall have recommended
to the stockholders of Seller a Seller Acquisition
Proposal; (dd) a tender offer or exchange offer for
10% or more of the outstanding shares of Seller
Common Stock is commenced (other than by Buyer or an
Affiliate of Buyer) and the Board of Directors of
Seller recommends that the stockholders of Seller
tender their shares in such tender or exchange offer;
or (ee) for any reason Seller fails to call and hold
the Seller Meeting by the Outside Date; or
(ii) by Seller, if (aa) the Board of Directors of
Buyer shall have withdrawn or modified its
recommendation of this Agreement or the Merger; (bb)
after the receipt by Buyer of a Buyer Acquisition
Proposal, Seller requests in writing that the Board
of Directors of Buyer reconfirm its recommendation of
this Agreement or the Merger and the Board of
Directors of Buyer fails to do so within 10 business
days after its receipt of Seller's request; (cc) the
Board of Directors of Buyer shall have recommended to
the stockholders of Buyer a Buyer Acquisition
Proposal; (dd) a tender offer or exchange offer for
10% or more of the outstanding shares of Buyer Common
Stock is commenced (other than by Buyer or an
Affiliate of Buyer) and the Board of Directors of
Buyer recommends that the stockholders of Buyer
tender their shares in such tender or exchange offer;
or (ee) for any reason Buyer fails to call and hold
the Buyer Meeting by the Outside Date; or
(f) by Buyer or Seller, if there has been a breach of any
representation, warranty, covenant or agreement on
the part of the other party set forth in this
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Agreement, which breach (i) causes the conditions set
forth in Section 7.02(a) or (b) (in the case of
termination by Buyer) or 7.03(a) or (b) (in the case
of termination by Seller) not to be satisfied, and
(ii) shall not have been cured within 5 days
following receipt by the breaching party of written
notice of such breach from the other party; or
(g) by Seller if the Board of Directors of Seller shall
have withdrawn or modified its recommendation of this
Agreement or the Merger because it has accepted a
Seller Superior Proposal and Seller has paid Buyer's
expenses pursuant to Section 8.03(b); or
(h) by Buyer if the Board of Directors of Buyer shall
have withdrawn or modified its recommendation of this
Agreement or the Merger because it has accepted a
Buyer Superior Proposal and Buyer has paid Seller's
expenses pursuant to Section 8.03(c).
SECTION 8.02 Effect of Termination. In the event of
termination of this Agreement as provided in Section 8.01, this Agreement shall
immediately become void and there shall be no liability or obligation on the
part of Buyer or Seller, or their respective officers, directors, stockholders
or Affiliates, except as set forth in Sections 5.04 and 8.03; provided that any
such termination shall not limit liability for any wilful breach of this
Agreement; and provided further that the provisions of Sections 5.04 and 8.03 of
this Agreement and the Confidentiality Agreement shall remain in full force and
effect and survive any termination of this Agreement.
SECTION 8.03 Fees and Expenses. (a) Except as set forth in
this Section 8.03, all fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, whether or not the Merger is consummated; provided,
however, that Seller and Buyer shall share equally all fees and expenses, other
than attorneys' fees, incurred with respect to the printing and filing of the
Proxy Statement (including any related preliminary materials) and the
Registration Statement (including financial statements and exhibits) and any
amendments or supplements.
(b) Seller shall pay Buyer up to $500,000 as reimbursement for
expenses of Buyer actually incurred relating to the transactions contemplated by
this Agreement prior to termination (including, but not limited to, fees and
expenses of Buyer's counsel, accountants and financial advisors, but excluding
any discretionary fees paid to such financial advisors), upon the termination of
this Agreement by Buyer pursuant to (i) Section 8.01(e) (i); (ii) Section
8.01(b) as a result of the failure to satisfy the condition set forth in Section
7.02(a); (iii) Section 8.01(f), as a result of Seller's breach of any
representation, warranty, covenant or agreement; or (iv) Section 8.01(g).
(c) Buyer shall pay Seller up to $500,000 as reimbursement for
expenses of Seller actually incurred relating to the transactions contemplated
by this Agreement prior to termination (including, but not limited to fees and
expenses of Seller's counsel, accountants and financial advisors,
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but excluding any discretionary fees paid to such financial advisors), upon the
termination of this Agreement by Seller pursuant to (i) 8.01(e)(ii); (ii)
Section 8.01(b) as a result of the failure to satisfy the condition set forth in
Section 7.03(a); (iii) Section 8.01(f), as a result of Buyer's breach of any
representation, warranty, covenant or agreement; or (iv) Section 8.01(h).
(d) In addition to the expenses specified above, Seller shall
pay Buyer a termination fee of $500,000 upon the earliest to occur of the
following events:
(i) the termination of this Agreement by Buyer
pursuant to Section 8.01(e)(i) or by Seller pursuant
to Section 8.01(g); or
(ii) the termination of this Agreement by Buyer
pursuant to Section 8.01(f) after a willful breach by
Seller of this Agreement, provided at the time of
such breach, Seller shall have received a Seller
Acquisition Proposal.
(e) In addition to the expenses specified above, Buyer shall
pay Seller a termination fee of $500,000 upon the earliest to occur of the
following events:
(i) the termination of this Agreement by Seller
pursuant to Section 8.01(e)(ii) or by Buyer pursuant
to Section 8.01(h);
(ii) the termination of this Agreement by Seller
pursuant to Section 8.01(f) after a willful breach by
Buyer of this Agreement, provided at the time of such
breach, Buyer shall have received a Buyer Acquisition
Proposal; or
(iii) the termination of the Agreement by Seller
pursuant to Section 8.01(d) as a result of the
failure to receive the requisite vote for approval of
the Buyer Voting Proposal by the stockholders of
Buyer at the Buyer Meeting if, at the time of such
failure, there shall have been announced a Buyer
Acquisition Proposal relating to Buyer which shall
not have been absolutely and unconditionally
withdrawn and abandoned.
(f) In addition to the fees and expenses specified above,
Buyer shall pay Seller a termination fee of $500,000 in the event of termination
of this Agreement by Buyer or Seller pursuant to Section 8.01(d)(ii).
(g) The expenses and fees, if applicable, payable pursuant to
Section 8.03(b), 8.03(c), or 8.03(d) shall be paid within ten (10) business days
after the first to occur of the events described in Section 8.03(b), 8.03(c), or
8.03(d); provided that in no event shall Buyer or Seller, as the case may be, be
required to pay the expenses and fees, if applicable, to the other, if,
immediately prior to the termination of this Agreement, the party to receive the
expenses and fees, if applicable, was in material breach of its obligations
under this Agreement.
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SECTION 8.04 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 by the stockholders of Seller or of Buyer, but, after
any such approval, no amendment shall be made which by law requires further
approval by such stockholders without such further approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
SECTION 8.05 Extension; Waiver. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed, (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 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 shall be valid only if set forth in a written instrument signed on behalf
of such party.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 General. From and after the Closing, the parties
shall indemnify each other as provided in this Article IX. For the purposes of
this Article IX, each party shall be deemed to have remade all of its
representations and warranties contained in this Agreement at the Closing with
the same effect as if originally made at the Closing; provided, however, that
the Seller Disclosure Schedules and the Buyer Disclosure Schedules may be
updated at the Closing by Buyer or Seller, as the case may be, and the indemnity
provided hereunder shall be applicable with respect to the matters set forth
therein, as so updated. No disclosure contained in the updated Seller Disclosure
Schedules or the Buyer Disclosure Schedules, as the case may be, shall be deemed
a waiver of Buyer's or the Seller's representations and warranties made on the
date hereof with respect to the conditions to closing set forth in Sections
7.01, 7.02 and 7.03 hereof; provided, however, that any updates contained in the
Seller Disclosure Schedules or the Buyer Disclosure Schedules that were
permitted pursuant to Section 9.01 hereof shall not give either party the right
to terminate this Agreement pursuant to Article VIII hereof.
SECTION 9.02 Certain Definitions. As used in this Article IX,
the following terms shall have the indicated meanings:
(a) "Damages" shall mean all liabilities, assessments,
levies, losses, fines, penalties, damages, costs and
expenses, including, without limitation, reasonable
fees and expenses of attorneys, accountants and other
professionals, actually sustained or incurred by an
Indemnified Party in connection with the defense or
investigation of any claim (after giving effect to
any insurance proceeds actually received by an
Indemnified Party and it
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being understood that to the extent any such Damages
have been reserved for by the Seller or Buyer on the
Financial Statements or the Interim Financial
Statements in accordance with GAAP, the amount of
such reserve shall be deducted from the Damages
sustained by a Buyer Indemnitee or Seller Indemnitee,
as the case may be).
(b) "Indemnified Party" shall mean a party hereto who is
entitled to indemnification from another party hereto
pursuant to this Article IX.
(c) "Indemnifying Party" shall mean a party hereto who is
required to provide indemnification under this
Article IX to another party hereto.
(d) "Third Party Claims" shall mean any claims for
Damages which are asserted or threatened by a party
other than the parties hereto, their successors and
permitted assigns, against any Indemnified Party or
to which an Indemnified Party is subject.
SECTION 9.03 (a) The Seller Stockholder's Indemnification
Obligations. Each of the Seller Stockholders shall jointly and severally
indemnify, save and keep the Surviving Corporation, each of its subsidiaries (if
any) and their respective successors and permitted assigns (each a "Buyer
Indemnitee" and collectively the "Buyer Indemnitees") harmless against and from
all Damages sustained or incurred by any Buyer Indemnitee, as a result of or
arising out of: (i) any inaccuracy in or breach of any representation and
warranty made by the Seller to the Buyer herein or in any Transaction Documents;
(ii) any breach by the Seller, or the Seller Stockholders' Agent of, or failure
of the Seller, or the Seller Stockholders' Agent to comply with, any of the
covenants or obligations under this Agreement or the Transaction Documents to be
performed by the Seller or the Seller Stockholders' Agent (including without
limitation the Seller Stockholders' obligations under this Article IX); (iii)
any and all Environmental Liabilities arising out of or in connection with: (aa)
any and all Environmental Conditions, known or unknown, existing on or prior to
the Closing Date on, at, or underlying any properties owned or operated by the
Seller, (bb) any acts or omissions of the Sellers relating to the operation of
the business on or prior to the Closing Date resulting in a violation or alleged
violation of Environmental Laws, or (cc) the on-site or off-site handling,
storage, treatment or disposal of any Hazardous Materials generated by the
Seller on or prior to the Closing Date; and (iv) except to the extent of the
reserve for Taxes established on the books and records of Seller, any and all
Taxes that may be imposed upon or assessed against Buyer or any of its
Affiliates with respect to Taxes of Seller for any Pre-Closing Period.
(b) The Buyer Indemnification Obligations. The Surviving
Corporation shall indemnify, save and keep the Seller Stockholders and their
respective successors and permitted assigns (each a "Seller Indemnitee" and
collectively the "Seller Indemnitees") harmless against and from all Damages
sustained or incurred by any Seller Indemnitee, as a result of or arising out
of: (i) any inaccuracy in or breach of any representation and warranty made by
the Buyer to the Seller herein or in any Transaction Documents; (ii) any breach
by the Buyer of, or failure of the Buyer to comply
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with, any of the covenants or obligations under this Agreement or the
Transaction Documents to be performed by the Buyer (including without limitation
the Buyer's obligations under this Article IX); (iii) any and all Environmental
Liabilities arising out of or in connection with: (aa) any and all Environmental
Conditions, known or unknown, existing on or prior to the Closing Date on, at,
or underlying any properties owned or operated by the Buyer, (bb) any acts or
omissions of the Buyers relating to the operation of the business on or prior to
the Closing Date resulting in a violation or alleged violation of Environmental
Laws, or (cc) the on-site or off-site handling, storage, treatment or disposal
of any Hazardous Materials generated by the Buyer on or prior to the Closing
Date; and (iv) except to the extent of the reserve for Taxes established on the
books and records of Buyer, any and all Taxes that may be imposed upon or
assessed against Seller or any of its Affiliates with respect to Taxes of Buyer
for any Pre-Closing Period.
(c) For purposes of calculating the Tax liabilities pursuant
to Section 9.03(a)(iv) and 9.03(b)(iv), (i) the allocation of Taxes for a
Straddle Period between the Pre-Closing Period and the Post- Closing Period
shall be made on the basis of an interim Closing of the books as of the end of
the Closing Date; (ii) any Tax resulting from any transaction undertaken
pursuant to or contemplated by this Agreement is attributable to the Pre-Closing
Period; and (iii) in the case of any franchise Taxes based on capitalization,
debt or shares of stock authorized, issued and outstanding and ad valorem Taxes,
attributable to a Straddle Period, the portion of such Taxes attributable to the
Pre-Closing Period shall be the pro rata portion of the amount of such Taxes
based on the number of days in the period ending on the Closing Date. For
purposes of this Agreement, (x) "Pre-Closing Period" means a taxable period or
portion thereof that ends on or prior to the Closing Date. If a taxable period
begins on or prior to the Closing Date and ends after the Closing Date, then the
portion of the taxable period that ends on (and includes) the Closing Date shall
constitute a Pre- Closing Period; (y) "Post-Closing Period" means any taxable
period or portion thereof that is not a Pre-Closing Period; and (z) "Straddle
Period" means a taxable period beginning on or prior to the Closing Date and
ends after the Closing Date.
SECTION 9.04 Limitation on Indemnification Obligations;
Offset; Reservation of Stock. (a) All representations and warranties contained
in this Agreement shall survive the Closing for a period of eighteen months from
the Effective Date (the "Survival Period"). A claim by a Buyer Indemnitee or
Seller Indemnitee for indemnification under this Article IX must be asserted
within the Survival Period.
(b) Notwithstanding anything to the contrary contained herein,
(i) an Indemnified Party shall only be entitled to indemnification pursuant to
Section 9.03 hereof once such Indemnified Party's aggregate claims for
indemnification exceed $100,000, but after such claims exceed such amount, such
Indemnified Party shall be entitled to seek indemnification for all
indemnification claims from the first dollar of Damages; (ii) the
indemnification obligations of the Seller Stockholders pursuant to Section
9.03(a) hereof shall be limited to the amount deposited by the Seller
Stockholders into the Escrow and the Buyer Indemnities shall not be entitled to
pursue any claims for indemnification against the Seller Stockholders directly
or personally and the sole recourse of the Buyer Indemnities shall be to make
claims against the Escrow in accordance with the terms of the
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Escrow Agreement; and (iii) the indemnification obligations of the Surviving
Corporation pursuant to Section 9.03(b) hereof shall be limited to 1,020,405
shares of Common Stock of the Surviving Corporation, and the Seller Indemnities
shall not be entitled to pursue any claims for indemnification against the
Surviving Corporation except pursuant to, and the sole recourse of the Seller
Indemnities shall be to make claims in accordance with, the terms of this
Article IX.
(c) Any claim by the Buyer Indemnitees against the Seller
Stockholders for recovery of indemnifiable damages shall be paid to the
Surviving Corporation in accordance with the terms of the Escrow Agreement. Any
such payment shall be based on the value of the Escrow Shares, based on the
Average Value of such shares on the date of the final determination of the
claim. "Average Value" shall mean the average of the daily closing prices of
Buyer Common Stock on the Nasdaq Small Cap Market for the ten consecutive
trading days ending on the second trading day immediately prior to the date of
the final determination of the claim.
(d) Any claim by the Seller Indemnities against the Buyer for
recovery of indemnifiable damages shall be payable only in shares of Buyer
Common Stock. The Buyer hereby agrees that it will keep 1,020,405 shares of its
Buyer Common Stock (the "Reserved Shares") reserved and available in order to
indemnify the Seller Indemnitees to the extent required pursuant to this Article
IX. In the event that any Reserved Shares are issued, they shall be issued at a
price equal to the Average Value (as defined in subparagraph (c) above) of such
shares on the date of the final determination of the indemnification claim.
SECTION 9.05 Cooperation. Subject to the provisions of Section
9.07, the Indemnified Party shall have the right, at its own expense to
participate in the defense of any Third Party Claim, and if said right is
exercised, the parties shall cooperate in the investigation and defense of said
Third Party Claim.
SECTION 9.06 Subrogation. The Indemnifying Party shall not be
entitled to require that any action be brought against any other person before
action is brought against it hereunder by the Indemnified Party and shall not be
subrogated to any right of action until it has paid in full or successfully
defended against the Third Party Claim for which indemnification is sought.
SECTION 9.07 Indemnification Claims Procedures. (a) Promptly
following the receipt of notice by an Indemnified Party of a Third Party Claim
which the Indemnified Party believes may result in a demand against the Escrow
or the Reserved Shares, as the case may be, the Indemnified Party shall notify
the Indemnifying Party (which may be the Seller Stockholder Agent, in the case
of notification to the Seller Indemnitees) of such claim in accordance with the
provisions of the Escrow Agreement. The party receiving the notice of the Third
Party Claim shall notify the other party hereto of such Third Party Claim. The
failure to give such notice shall not relieve the Indemnifying Party of its
obligations under this Agreement except to the extent that the Indemnifying
Party is substantially prejudiced as a result of the failure to give such
notice. Within fifteen (15) business days after receipt of the notice by the
Indemnifying Party pursuant to the preceding sentence, the Indemnifying Party
shall notify the Indemnified Party whether it elects to control the defense of
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the Third Party Claim and whether it believes, in good faith, that it has
justifiable cause to contest its obligation to indemnify the Indemnified Party
in respect to the claims asserted therein (and if so, the justification
therefor). If the Indemnifying Party elects to undertake the defense of such
Third Party Claim, it shall do so at its own expense with counsel of its own
choosing, without prejudice to the right of the Indemnifying Party thereafter to
contest its obligation to indemnify the Indemnified Party in respect to the
claims asserted therein. If the Indemnifying Party elects not to defend the
Third Party Claim or fails to pursue such Third Party Claim diligently, the
Indemnified Party shall have the right to undertake, conduct and control the
defense of such Third Party Claim through counsel of its own choosing. If the
Indemnified Party elects to undertake and control the defense in accordance with
this Section 9.07, the Indemnified Party may defend against such claim or
litigation in such manner as it may deem appropriate, including, but not limited
to, settling such claim or litigation, after giving notice of the same to the
Indemnifying Party, on such terms as the Indemnified Party may deem appropriate.
In any action by the Indemnified Party seeking indemnification from the
Indemnifying Party in accordance with the provisions of this Section 9.07(a),
the Indemnifying Party shall not be entitled to question the manner in which the
Indemnified Party defended such claim or litigation or the amount of or nature
of any such settlement. Notwithstanding the foregoing, the Indemnifying Party
shall not forfeit its right to contest its obligation to indemnify hereunder by
not defending the party who may be entitled to such indemnification. The party
that litigates or contests the Third Party Claim shall keep the other party
fully advised of the progress and disposition of such claim.
(b) In the event the Indemnifying Party elects not to
undertake the defense of the Third Party Claim or fails to pursue diligently the
defense of such a claim and the Indemnified Party litigates or otherwise
contests or settles the Third Party Claim, then, provided that a final
determination has been made that the Indemnified Party is entitled to
indemnification hereunder, the Indemnifying Party shall promptly reimburse the
Indemnified Party for all amounts paid to settle such claim or all amounts paid
in satisfaction of a judgment against the Indemnified party in contesting such
claim and in providing its right to indemnification hereunder, all in accordance
with the provisions of this Article IX. Notwithstanding the foregoing, no
settlement of any Third Party Claim without the prior written consent of the
Indemnifying Party shall be determinative of the validity of any claim that the
Indemnified Party is entitled to indemnification hereunder.
(c) No Third Party Claim will be settled by the Indemnifying
Party without the prior written consent of the Indemnified Party, which consent
will not be unreasonably withheld; provided, however, that if such claim asserts
that the Indemnifying Party is jointly and severally liable and the Indemnified
Party shall be fully released from all liability relating to such third Party
Claim in connection with such settlement, the Indemnifying Party shall not be
required to obtain the consent of the Indemnified Party. If, however, the
Indemnified party refuses to consent to a bona fide offered settlement which the
Indemnifying party wishes to accept, the Indemnified Party may continue to
pursue such Third Party Claim free of any participation by the Indemnifying
Party, at the sole expense of the Indemnified Party. In such event, the
Indemnifying Party shall pay to the Indemnified Party the amount of the offer of
settlement which the Indemnified Party refused to accept, plus the costs and
expenses incurred by the Indemnified Party prior to the date the Indemnifying
Party notifies the Indemnified Party of the offer of settlement, all in
accordance with the terms of this Article IX, and,
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upon the payment or receipt of such amount, as the case may be, the Indemnifying
Party shall have no further liability with respect to such Third Party Claim.
The Indemnifying party shall be entitled to recover from the Indemnified Party
any additional expenses incurred by such Indemnifying Party as a result of the
decision of the Indemnified Party to pursue the matter.
(d) The Seller Stockholders and Seller hereby acknowledge and
agree that the Seller Stockholders will control the Surviving Corporation after
the Merger. Such parties further acknowledge and agree that the indemnification
rights set forth in Section 9.03(a) shall be for the benefit of all stockholders
of the Buyer and the Surviving Corporation and the duties and responsibilities
of the foregoing parties with respect to the Surviving Corporation are to act in
the best interest of all shareholders of the Surviving Corporation.
SECTION 9.08 Seller Stockholder Agent. (a) In the event that
the Merger is approved, effective upon such vote, and without further act of any
Seller Stockholder, a committee (the "Committee") consisting of Dr. Larry Hsu
and Dr. Charles Hsiao shall be appointed as agents and attorneys-in-fact
(collectively, the "Seller Stockholder Agent") for each Seller Stockholder
(except such Seller Stockholders, if any, as shall have perfected their
dissenter rights under applicable law). The Seller Stockholder Agent, for and on
behalf of Seller Stockholders, shall have the power to take any and all actions
required to be taken by the Seller Stockholders pursuant to this Agreement or
the Escrow Agreement including, without limitation, the power to give and
receive notices and communications, to enter into and perform the Escrow
Agreement, to make claims for indemnification against Buyer, to authorize
delivery to Buyer of Buyer Common Stock or Preferred Stock or other property
from the Escrow Fund in satisfaction of claims by Buyer, to object to such
deliveries, 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
appropriate or in the judgment of Seller Stockholder Agent for the
accomplishment of the foregoing. The Seller Stockholder Agent shall act by
unanimous vote or unanimous written action or consent of the members of the
Committee. Effective upon the approval of this Agreement by the Seller
Stockholders, the Seller Stockholders individually shall have no power or
authority to take any actions against Buyer or otherwise pursuant to this
Agreement or the Escrow Agreement, and all actions of the Seller Stockholders,
whether pursuant to this Agreement or the Escrow Agreement, must be taken solely
by the Seller Stockholder Agent.
(b) Buyer shall have no liability of any kind to any Seller
Stockholder as a result of or arising out of any action taken or not taken by
the Seller Stockholder Agent at any time under this Agreement or the Escrow
Agreement and each Seller Stockholder hereby releases Buyer from any such
liability. Buyer may conclusively rely, without any obligation of investigation
or inquiry of any kind, on any action taken by the Seller Stockholder Agent as
having been fully authorized and approved by all necessary action by each Seller
Stockholder (except such Seller Stockholders, if any, as shall have perfected
their dissenter rights under applicable law).
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ARTICLE X
MISCELLANEOUS
SECTION 10.01 Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements of Buyer and Seller
in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive for a period of eighteen months following the Effective Time. The
Confidentiality Agreements shall survive the execution and delivery of this
Agreement.
SECTION 10.02 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) or by Federal Express to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Buyer, to
Global Pharmaceutical Corporation
Castor & Kensington Avenues
Philadelphia, PA 19124
Attn: President
with a copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103
Attn: Sheldon G. Nussbaum, Esq.
(b) if to Seller, to
Impax Pharmaceuticals, Inc.
30831 Huntwood Avenue
Hayward, CA 94544
Attn: President
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with a copy to:
Law Offices of Laurie Miller
1735 E. Bayshore Road, Suite 29A
Redwood City, CA 94063
Attn: Laurie A. Miller, Esq.
SECTION 10.03 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 10.04 Counterparts. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two 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 10.05 Entire Agreement; No Third Party Beneficiaries.
This Agreement (including the documents and the instruments referred to herein)
(a) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as specifically provided in Section 9.01
(with respect to Sections 2.01, 2.02, 2.03, 6.10, 6.11, 6.13, 6.14, 6.21 and
this Article X) are not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder; provided that the
Confidentiality Agreements shall remain in full force and effect until the
Effective Time. Each party hereto agrees that, except for the representations
and warranties contained in this Agreement, neither Seller nor Buyer makes any
other representations or warranties, and each hereby disclaims any other
representations and warranties made by itself or any of its officers, directors,
employees, agents, financial and legal advisors or other representatives, with
respect to the execution and delivery of this Agreement or the transactions
contemplated hereby, notwithstanding the delivery or disclosure to the other or
the other's representatives of any documentation or other information with
respect to any one or more of the foregoing.
SECTION 10.06 Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of New York without
regard to any applicable conflicts of law.
SECTION 10.07 Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties provided that Buyer may assign its rights
hereunder to a Subsidiary of Buyer. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
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SECTION 10.08 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 10.09 Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of California or in any California state
court, this being in addition to any other remedy to which they are entitled at
law or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any court of the United States located in
the State of California or of any California state court in the event any
dispute arises out of this Agreement or the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action relating to this Agreement in any court
other than a court of the United States located in the State of California or a
California state court.
SECTION 10.10 No Rule of Construction. The parties agree that,
because all parties participated in negotiating and drafting this Agreement, no
rule of construction shall apply to this Agreement which construes ambiguous
language in favor of or against any party by reason of that party's role in
drafting this Agreement.
SECTION 10.11 Attorney's Fees. In the event that any action or
proceeding, including arbitration, is commenced by either party hereto for the
purpose of enforcing any provision of this Agreement, the successful or
prevailing party shall recover reasonable attorney's fees and other costs
incurred in such action or proceeding.
IN WITNESS WHEREOF, Buyer and Seller have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
IMPAX PHARMACEUTICALS, INC.
By: /s/ Charles Hsiao
-------------------------------------
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GLOBAL PHARMACEUTICAL CORPORATION
By: /s/ Barry R. Edwards
---------------------------------------
86