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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
ASCENT PEDIATRICS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies: Common
Stock, par value $.00004 per share, and Series H Preferred Stock, par
value $.01 per share.
2. Aggregate number of securities to which transaction applies: 34,204,509
shares of Common Stock, including 17,147,692 shares of Common Stock
issuable upon the exercise of options and warrants; and 4,000 shares of
Series H Preferred Stock.
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined): The filing fee of $5,913
was calculated pursuant to Exchange Act Rules 0-11(a)(4) and (c)(1) by
multiplying 1/50th of 1% by the market value of the securities to be
received by the acquiring person in the transaction, based on a price of
$.455 per share of Common Stock of the Registrant which is the average of
the bid and the asked price of the Common Stock of the Registrant on
October 8, 2001, as reported on the Over-the-Counter Bulletin Board, and
a per unit price of approximately $3,518 per share of Series H Preferred
Stock, based on the redemption price of the Series H Preferred Stock.
4. Proposed maximum aggregate value of transaction: $29,635,051.
5. Total fee paid: $5,927.
[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1. Amount previously paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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ASCENT PEDIATRICS, INC.
187 BALLARDVALE STREET, SUITE B125
WILMINGTON, MASSACHUSETTS 01887
(978) 658-2500
, 2001
A MERGER PROPOSAL -- YOUR VOTE IS VERY IMPORTANT
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of Ascent Pediatrics, Inc. to be held at the offices of Hale and Dorr LLP, 26th
floor, 60 State Street, Boston, Massachusetts 02109, on
, 2001 at [TIME], local time.
At the special meeting, we will ask you to vote on the adoption and
approval of an agreement and plan of merger with Medicis Pharmaceutical
Corporation and a wholly-owned subsidiary of Medicis, and the proposed merger of
the wholly-owned subsidiary of Medicis with and into Ascent. Under the merger
agreement, we will become a wholly-owned subsidiary of Medicis.
If our stockholders adopt and approve the merger agreement and the merger
and the merger is consummated, then upon the consummation of the merger
- each outstanding share of common stock will be converted into the right
to receive an initial cash payment, additional contingent payments, if
earned, for the first five years following the effective time of the
merger and excess warrant proceeds, if any; and
- each outstanding share of Series H preferred stock will be converted into
the right to receive a cash payment.
The cash payments to be made with respect to the common stock and the
Series H preferred stock will be determined in accordance with formulas
described in detail in the accompanying proxy statement. We believe that,
assuming a closing of the merger on or about December 31, 2001, you will receive
approximately $0.40 per share for each depositary share held by you and
$3,518.45 per share for each share of Series H preferred stock held by you.
These amounts are only estimates and the actual amounts will be affected by:
- the actual date of the closing;
- the number of shares of common stock and Series H preferred stock then
outstanding;
- the number of depositary shares issuable upon the exercise of warrants
then outstanding;
- the principal amount of, and accrued and unpaid interest on, our
indebtedness then outstanding; and
- the expenses incurred by us in connection with the merger.
Accordingly, the actual amount per share that holders of depositary shares and
shares of Series H preferred stock will receive may be more or less than the
estimated amounts stated above.
The contingent payments for each year will be calculated based on the
amount by which net sales of our pediatric products in the year exceed $25.0
million. The maximum contingent payment that may be made in any year is
determined in accordance with a formula that limits any annual payment for such
year to a specified amount between approximately $10.5 million and approximately
$12.5 million. At the end of the five-year period, Medicis may be required to
make a final payment based on the amount by which aggregate net sales of our
pediatric products over the five-year period exceed $125.0 million. This final
payment cannot exceed an amount equal to approximately $50.0 million less the
sum of all annual contingent payments made by Medicis. All of these contingent
payments are subject to specified deductions and a right of setoff in favor of
Medicis. We are unable to determine the amount of any
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contingent payments that will be earned over the five-year period, if any. The
merger agreement provides that the right to receive contingent payments may not
be assigned or transferred, except by operation of law or by will or intestate
succession.
AFTER CAREFUL CONSIDERATION, OUR BOARD OF DIRECTORS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE MERGER, AND DETERMINED THAT THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE MERGER,
ARE ADVISABLE AND IN OUR BEST INTERESTS AND THE BEST INTERESTS OF OUR
STOCKHOLDERS. OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR
STOCKHOLDERS VOTE FOR THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER.
The accompanying proxy statement provides detailed information concerning
the special meeting and the proposed merger. Please consider all of this
information.
Your vote is very important. Whether or not you plan to attend the special
meeting, I urge you to complete, date, sign and promptly return the enclosed
voting instruction card to ensure that your shares will be voted at the meeting.
On behalf of our board of directors, I thank you for your support and urge
you to vote FOR the adoption and approval of the merger agreement and the
merger.
Sincerely,
/s/ EMMETT CLEMENTE, PH.D.
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Emmett Clemente, Ph.D.
President and Chairman of the Board
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The proxy statement is dated , 2001 and is first being mailed to
stockholders on or about , 2001.
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ASCENT PEDIATRICS, INC.
187 BALLARDVALE STREET, SUITE B125
WILMINGTON, MASSACHUSETTS 01887
(978) 658-2500
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 2001
We will hold a special meeting of the stockholders of Ascent Pediatrics,
Inc. at the offices of Hale and Dorr LLP, 26th Floor, 60 State Street, Boston,
Massachusetts 02109 on , 2001 at [TIME], local time, to consider and
act upon the following matters:
1. To consider and vote upon a proposal to adopt and approve an agreement
and plan of merger among Ascent, Medicis Pharmaceutical Corporation and
a wholly-owned subsidiary of Medicis, dated as of October 1, 2001, and
the transactions contemplated thereby. The merger agreement provides
that the Medicis subsidiary will merge with and into Ascent, and Ascent
will become a wholly-owned subsidiary of Medicis.
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Your board of directors has unanimously approved the merger agreement and
the merger and recommends that you vote for the adoption and approval of the
merger agreement and the merger. This proposal is more fully described in the
proxy statement that accompanies this notice, which you should read carefully
before voting. A copy of the merger agreement is attached as Annex A to the
accompanying proxy statement.
We have fixed the close of business on , 2001, as the record date
for the determination of our stockholders entitled to vote at the special
meeting or at any adjournment of the special meeting. Only holders of record at
the close of business on the record date may vote at the meeting. The
affirmative vote of the holders of a majority of the shares of our common stock
outstanding on the record date and of the holders of at least 80% of the shares
of Series H preferred stock outstanding on the record date is required to adopt
and approve the merger agreement and the merger.
All outstanding shares of our common stock are held by State Street Bank
and Trust Company, as the depositary pursuant to a depositary agreement. Each
outstanding depositary share evidences an interest in one share of our common
stock and is represented by a depositary receipt. Because the depositary acts
primarily as the instrument of the holders of depositary shares and because the
holders of depositary shares, through the depositary, enjoy substantially all of
the rights that a holder of common stock would enjoy, including voting rights,
references in the accompanying proxy statement to actions by or rights of the
holders of common stock and actions by or rights of the holders of depositary
shares generally have the same meaning.
You are cordially invited to attend the special meeting in person. However,
to ensure your representation at the special meeting, we urge you to complete,
date, sign and promptly return the enclosed voting instruction card in the
enclosed postage-prepaid envelope. You may revoke your voting instructions in
the manner described in the accompanying proxy statement at any time before your
shares have been voted at the meeting. Executed voting instruction cards with no
instructions directing how to vote the shares will be counted as an abstention
and the effect will be a vote "AGAINST" the merger
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agreement and the merger. If you fail to return a properly signed voting
instruction card, the effect will be the same as a vote "AGAINST" the merger
agreement and the merger.
By Order of the Board of Directors,
/s/ EMMETT CLEMENTE, PH.D.
--------------------------------------
Emmett Clemente, Ph.D.
President and Chairman of the Board
, 2001
YOUR VOTE IS IMPORTANT. TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE
SPECIAL MEETING, WE URGE YOU TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED VOTING INSTRUCTION CARD IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE,
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON. YOU MAY REVOKE
YOUR VOTING INSTRUCTIONS IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT AT ANY TIME BEFORE YOUR SHARES HAVE BEEN VOTED AT THE SPECIAL MEETING.
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TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE MERGER... 1
SUMMARY.................................. 3
The Companies.......................... 3
The Merger............................. 3
What Holders of Depositary Shares Will
Receive.............................. 3
What Holders of Series H Preferred
Stock Will Receive................... 4
Treatment of Stock Options............. 5
Treatment of Warrants.................. 5
Recommendation of Our Board of
Directors............................ 5
Vote Required.......................... 5
Opinion of Financial Advisor........... 6
Conditions to the Merger............... 6
No Solicitation by Ascent.............. 6
Termination of the Merger Agreement.... 7
Termination Fees....................... 8
Interests of Our Executive Officers and
Directors in the Merger.............. 8
Material United States Federal Income
Tax Considerations................... 10
Appraisal Rights....................... 11
Voting Agreement....................... 11
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS............. 12
THE SPECIAL MEETING...................... 13
General................................ 13
Date, Time and Place................... 13
Matters to be Considered at the Special
Meeting.............................. 13
Record Date............................ 13
Voting of Depositary Shares............ 13
Revocation of Voting Instructions...... 14
Vote Required.......................... 14
Quorum; Abstentions and Broker Non-
Votes................................ 14
Solicitation of Voting Instruction
Cards................................ 14
Recommendation of Our Board of
Directors............................ 15
THE MERGER............................... 16
Background of the Merger............... 16
Our Reasons for the Merger............. 18
Recommendation of Our Board of
Directors............................ 20
Opinion of Our Financial Advisor....... 20
</Table>
<Table>
<Caption>
PAGE
----
Interests of Our Executive Officers and
Directors in the Merger.............. 28
Regulatory Approvals................... 33
Material United States Federal Income
Tax Considerations................... 33
Dissenting Stockholders' Appraisal
Rights............................... 36
THE MERGER AGREEMENT..................... 40
General................................ 40
Conversion of Ascent Common Stock...... 40
Conversion of Series H Preferred
Stock................................ 43
Treatment of Stock Options............. 43
Treatment of Warrants.................. 44
Exchange of Certificates............... 44
Related Matters After the Merger....... 44
Representations and Warranties......... 45
Covenants of Ascent and Medicis........ 46
Conditions to Obligations to Effect the
Merger............................... 51
Termination; Termination Fees.......... 52
Setoff Right; Survival of
Representations and Warranties....... 54
Calculation Representative............. 54
Amendment.............................. 55
RELATED AGREEMENTS....................... 56
Voting Agreement....................... 56
Note Agreement......................... 56
Exclusive Remedy Agreement............. 57
MARKET PRICE INFORMATION FOR ASCENT...... 58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
HOLDERS AND MANAGEMENT OF ASCENT....... 59
STOCKHOLDER PROPOSALS.................... 62
WHERE YOU CAN FIND MORE INFORMATION...... 62
</Table>
<Table>
ANNEX A -- Merger Agreement
ANNEX B -- Opinion of Adams, Harkness &
Hill
ANNEX C -- Section 262 of Delaware
General Corporation Law
ANNEX D -- Voting Agreement
ANNEX E -- Note Agreement
ANNEX F -- Exclusive Remedy Agreement
</Table>
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT AM I VOTING FOR?
A: We are asking for your vote to adopt the merger agreement that we entered
into with Medicis Pharmaceutical Corporation pursuant to which a wholly-owned
subsidiary of Medicis will be merged with and into us and we will become a
wholly-owned subsidiary of Medicis.
Q: WHAT WILL I RECEIVE IF THE MERGER IS COMPLETED?
A: If our stockholders adopt and approve the merger agreement and the merger and
the merger is consummated, then upon the consummation of the merger:
- each outstanding share of common stock will be converted into the right to
receive an initial cash payment, additional contingent payments, if
earned, for the first five years following the effective time of the
merger and excess warrant proceeds, if any; and
- each outstanding share of Series H preferred stock will be converted into
the right to receive a cash payment.
The cash payments to be made with respect to the common stock and the Series
H preferred stock will be determined in accordance with formulas described
in detail in this proxy statement.
Q: DO YOU EXPECT THE MERGER TO BE COMPLETED SHORTLY AFTER THE SPECIAL MEETING?
A: Yes, assuming that our stockholders adopt and approve the merger agreement
and the merger.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will take place at the offices of Hale and Dorr LLP, 26th
floor, 60 State Street, Boston, Massachusetts 02109, on
, 2001 at [TIME], local time. Stockholders of record at the close
of business on [RECORD DATE] are entitled to notice of and to vote at the
meeting.
Q: WHAT DO I NEED TO DO NOW?
A: We urge you to read this proxy statement carefully, including its annexes,
and to consider how the merger affects you as a stockholder. You also may
want to review the documents referenced under "Where You Can Find More
Information."
Q: HOW ARE MY DEPOSITARY SHARES VOTED?
A: Each depositary share evidences an interest in one share of our common stock
and is represented by a depositary receipt. All outstanding shares of our
common stock are held by State Street Bank and Trust Company, as the
depositary, pursuant to a depositary agreement. You will be entitled to one
vote per depositary share that you own in the same manner and subject to the
same limitations as a holder of common stock. The record holders of
depositary shares on the record date will be entitled to instruct the
depositary, as to the exercise of the voting rights pertaining to the number
of shares of common stock represented by their respective depositary shares,
by completing, dating, signing and returning the enclosed voting instruction
card.
Q: HOW DO I VOTE?
A: You can vote in one of the following ways:
- Indicate on your voting instruction card how you want to vote, date, sign
and promptly return the enclosed voting instruction card in the enclosed
postage-prepaid envelope to ensure that your depositary shares will be
represented at the special meeting. If you sign and send in your voting
instruction card and do not indicate how you want to vote, the depositary
will abstain from voting your shares and the effect will be the same as a
vote AGAINST the adoption and approval of the merger agreement and the
merger; or
- Attend the special meeting and complete a voting instruction card at that
time.
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Q: IF MY BROKER HOLDS MY DEPOSITARY SHARES IN "STREET NAME," WILL MY BROKER VOTE
MY DEPOSITARY SHARES FOR ME?
A: Your broker will not vote your depositary shares for you unless you provide
your broker with instructions directing the depositary on how to vote. It is
important therefore that you follow your broker's directions on how to
instruct your broker to direct the depositary to vote your depositary shares.
Depositary shares held by your broker which it does not have the authority to
vote and does not vote are referred to as broker non-votes. Because the
holders of a majority of the outstanding shares of our common stock must
adopt and approve the merger agreement and the merger and the depositary will
not vote broker non-votes, broker non-votes will have the same effect as
votes AGAINST the adoption and approval of the merger agreement and the
merger.
Q: MAY I CHANGE MY VOTE?
A: Yes. You may change your vote at any time before the vote takes place at the
special meeting. You may do this in one of the following ways:
- you may send a written notice stating that you would like to revoke your
voting instructions; or
- you may complete and submit a new voting instruction card.
If you choose either of these two methods, you must submit your notice of
revocation or your new voting instruction card to us at our principal
offices, to the attention of our corporate secretary.
If you have instructed a broker to vote your depositary shares, you must
follow directions received from your broker to change your vote or to vote
at the special meeting.
Q: SHOULD I SEND IN MY DEPOSITARY RECEIPTS NOW?
A: No. If we complete the merger, we will send you written instructions on how
to receive the merger consideration for your depositary shares.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger agreement or the merger or would
like additional copies of this proxy statement, you should contact us as
follows:
Ascent Pediatrics, Inc.
187 Ballardvale Street, Suite B125
Wilmington, MA 01887
(978) 658-2500
Attention: Jennifer A. Marchand, Controller
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SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all the information that is important to you. To understand the
merger fully and for a complete description of the terms of the merger, you
should read carefully this entire proxy statement and the other documents to
which we refer. See "Where You Can Find More Information" on page 62. We have
included page references parenthetically to direct you to a more complete
description of the topics in this summary.
THE COMPANIES
ASCENT PEDIATRICS, INC.
We market pharmaceutical products specifically formulated for use by
children. We have devoted much of our resources to obtaining regulatory approval
and commercially launching Orapred(R) syrup, a liquid steroid for the treatment
of inflammation, and Primsol(R), a prescription antibiotic. Our principal
executive offices are located at 187 Ballardvale Street, Suite B125, Wilmington,
Massachusetts 01887 and our phone number is (978) 658-2500.
MEDICIS PHARMACEUTICAL CORPORATION/MPC MERGER CORP.
Medicis is a specialty pharmaceutical company and the leading independent
pharmaceutical company in the United States focusing primarily on the treatment
of dermatological conditions. Medicis develops and markets leading products for
major segments within dermatology, including acne, fungal infections, rosacea,
hyperpigmentation, photoaging, psoriasis, eczema, skin and skin-structure
infections, seborrheic dermatitis, head lice and cosmesis, or improvement in the
texture and appearance of skin. Medicis reported net revenues of $167,802,000
and net income of $40,420,000 for the fiscal year ended June 30, 2001 and
stockholders equity of $503,454,000 as of June 30, 2001.
MPC Merger Corp. is a newly formed Delaware corporation organized for the
sole purpose of effecting the merger. MPC Merger Corp. has not conducted any
prior business.
The principal executive offices of Medicis and MPC Merger Corp. are located
at 8125 North Hayden Road, Scottsdale, Arizona 85258, and the telephone number
for both is (602) 808-8800.
THE MERGER (PAGE 16)
Upon the consummation of the merger, MPC Merger Corp. will merge with and
into Ascent. We will become a wholly-owned subsidiary of Medicis. The merger
agreement is attached to this proxy statement as Annex A. We urge you to read
the merger agreement carefully and in its entirety as it is the legal document
that governs the merger.
WHAT HOLDERS OF DEPOSITARY SHARES WILL RECEIVE (PAGE 40)
INITIAL CASH PAYMENT
The initial cash payment for each depositary share will be determined by
deducting from the sum of $60.0 million and the aggregate consideration paid to
us upon the exercise of stock options and warrants between October 1, 2001 and
the closing of the merger, the following items:
- $28,999,126 in aggregate principal amount of, plus accrued and unpaid
interest on, our indebtedness outstanding as of the closing;
- a total of $1,675,000 to be paid at closing as retention payments to our
executive officers, including Emmett Clemente, Ph.D., our President and
Chairman, and certain other of our employees;
- a total of $300,000 to be paid at closing to two of our directors, Mr.
Robert Baldini and Mr. Joseph Ianelli, under our consulting agreements
with them;
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- the $3.0 million transaction fee payable to entities affiliated with FS
Private Investments pursuant to the fifth amendment to the securities
purchase agreement we entered into with entities affiliated with FS
Private Investments in December 2000 and in consideration of the
execution by such entities of the note agreement;
- transaction costs we incur in connection with the merger, including fees
of investment bankers and attorneys, to the extent such costs exceed $1.2
million; and
- approximately $14.0 million, plus unpaid and accumulated dividends,
payable upon conversion of the shares of Series H preferred stock in the
merger, assuming that we require the purchase of an additional 1,999
shares of Series H preferred stock prior to closing of the merger;
and dividing the resulting amount by the sum of the total number of shares of
common stock that are outstanding immediately prior to the effective time of the
merger and the total number of shares of common stock issuable upon exercise of
warrants with an exercise price per share of less than $0.40 immediately prior
to the effective time of the merger.
Assuming that the merger closes on or about December 31, 2001, we expect
that holders of depositary shares will receive approximately $0.40 per share in
cash. This per share amount is determined by subtracting $49,451,233, the total
estimated deductions listed above, from $60,482,000, which amount includes the
aggregate consideration that we estimate that we will receive from exercises of
stock options and warrants between October 1, 2001 and December 31, 2001, and
dividing the resulting amount by 27,566,422, which is the sum of the estimated
total number of shares of common stock to be outstanding immediately prior to
the effective time of the merger, including shares we estimate that we may issue
upon the exercise of options, and the estimated total number of shares of common
stock issuable upon the exercise of warrants with an exercise price per share of
less than $0.40 immediately prior to the effective time of the merger. The
actual amount per share that holders of depositary shares will receive may be
more or less than this estimated amount.
CONTINGENT PAYMENTS
The contingent payments for each year will be calculated based on the
amount by which net sales of our pediatric products in the year exceed $25.0
million. The maximum contingent payment that may be made in any year is
determined in accordance with a formula that limits any annual payment for such
year to a specified amount between approximately $10.5 million and approximately
$12.5 million. At the end of the five-year period, Medicis may be required to
make a final payment based on the amount by which aggregate net sales of our
pediatric products over the five-year period exceed $125.0 million. This final
payment cannot exceed an amount equal to approximately $50.0 million less the
sum of all annual contingent payments made by Medicis. All of these contingent
payments are subject to specified deductions and a right of setoff in favor of
Medicis. We are unable to determine the amount of any contingent payments that
will be earned over the five-year period, if any.
The merger agreement provides that the right to receive contingent payments
may not be assigned or transferred by holders of our common stock, except by
operation of law or by will or intestate succession.
WHAT HOLDERS OF SERIES H PREFERRED STOCK WILL RECEIVE (PAGE 43)
Holders of Series H preferred stock will receive only a cash payment in
exchange for their shares of Series H preferred stock at closing. For each share
of Series H preferred stock, each holder will receive an amount equal to the sum
of:
- the liquidation amount of such share, $1,000, plus unpaid and accumulated
dividends on such share as of the closing; and
- $10.0 million divided by the number of shares of Series H preferred stock
outstanding immediately prior to the effective time of the merger.
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Assuming that we consummate the merger on or about December 31, 2001, we
expect that holders of Series H preferred stock will receive approximately
$3,518.45 per share in cash.
TREATMENT OF STOCK OPTIONS (PAGE 43)
Prior to the effective time of the merger, each outstanding option granted
by us under our Amended and Restated 1992 Equity Incentive Plan, 1997 Director
Stock Option Plan, 1997 Employee Stock Purchase Plan, Amended and Restated 1999
Stock Incentive Plan and Amended and Restated 2000 California Stock Option Plan
will become fully vested and exercisable. Any options not exercised prior to the
effective time of the merger will be cancelled and will be of no further force
or effect.
TREATMENT OF WARRANTS (PAGE 44)
All outstanding warrants to purchase depositary shares may be exercised
before or after the effective time of the merger in accordance with their terms.
The holder of any warrants exercised after the effective time of the merger will
be entitled to receive the consideration that the holder would have received if
the warrant had been exercised prior to the effective time of the merger.
If at any time after the effective time of the merger a holder of warrants
exercises warrants having an exercise price per share that exceeds the total
cash consideration that the holder would have received prior to the time of
exercise as a holder of depositary shares, the amount by which the aggregate
exercise price paid by such holder exceeds the total cash consideration such
holder is due as of the time of exercise as a result of the merger will be
distributed to all stockholders then entitled to receive contingent payments as
excess warrant proceeds. In addition, following any such exercise of warrants,
the total number of shares of common stock deemed outstanding for purposes of
calculating the per share amount of a contingent payment shall be adjusted to
include the shares of common stock that would otherwise have been issued upon
such exercise of such warrants.
RECOMMENDATION OF OUR BOARD OF DIRECTORS (PAGE 20)
Our board of directors has voted unanimously to approve the merger
agreement and the merger. Our board of directors believes that the merger
agreement and the transactions contemplated by the merger agreement, including
the merger, are advisable and in our best interests and the best interest of our
stockholders and recommends that our stockholders vote FOR the proposal to adopt
and approve the merger agreement and the merger.
VOTE REQUIRED (PAGE 14)
Adoption and approval of the merger agreement and the merger requires the
affirmative approval of the holders of a majority of the shares of our common
stock outstanding as of the record date and the affirmative approval of the
holders of at least 80% of the shares of Series H preferred stock outstanding as
of the record date.
As of the record date, entities affiliated with FS Private Investments LLC
owned depositary shares representing approximately % of the outstanding
shares of common stock at such date and all of the outstanding shares of Series
H preferred stock. If these entities vote their shares in favor of the merger
agreement, the proposal to adopt and approve the merger agreement and the merger
will be approved. These entities have entered into a voting agreement with
Medicis pursuant to which these entities have agreed to vote the shares held by
them in favor of the merger agreement and the merger in general as described
under the section entitled "Related Agreements -- Voting Agreement."
Nevertheless, whether or not you plan to attend the annual meeting in person,
please date, sign and promptly return the enclosed voting instruction card,
which requires no postage if mailed in the United States.
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OPINION OF FINANCIAL ADVISOR (PAGE 20)
Adams, Harkness & Hill provided a fairness opinion, to the board of
directors on October 1, 2001, that, as of the date of such opinion, the
aggregate consideration payable under the merger agreement was fair, from a
financial point of view, to the holders of our common stock who are not also
holders of our indebtedness and who are not our officers or directors, such as
the entities affiliated with FS Private Investments. The full text of the
opinion, which sets forth assumptions made, matters considered and limitations
on the review undertaken in connection with the opinion, is attached to this
proxy statement as Annex B and is incorporated in this proxy statement by
reference. The opinion of Adams, Harkness & Hill does not constitute a
recommendation as to how any stockholder should vote with respect to the merger.
Holders of shares of common stock are urged to, and should, read the opinion in
its entirety.
The board of directors retained Adams, Harkness & Hill to assist it in its
evaluation of the proposed merger. Pursuant to the terms of Adams, Harkness &
Hill's engagement letter with the board of directors, we agreed to pay Adams,
Harkness & Hill a retainer fee of $50,000, a fee of $250,000 upon the delivery
of its written fairness opinion dated October 1, 2001, which fee was payable
regardless of the conclusions expressed in the opinion, and a success fee of
$225,000 payable upon the closing of the transaction. We have also agreed to
reimburse Adams, Harkness & Hill for all reasonable fees and disbursements of
its counsel and all of its reasonable travel and other out-of-pocket expenses
arising in connection with its engagement, and to indemnify Adams, Harkness &
Hill and its affiliates to the full extent permitted by law against liabilities
relating to or arising out of its engagement, except for liabilities found to
have resulted from the bad faith, willful misconduct or gross negligence of
Adams, Harkness & Hill.
CONDITIONS TO THE MERGER (PAGE 51)
The completion of the merger depends on the satisfaction of a number of
conditions, including the following conditions:
- our stockholders must have adopted and approved the merger agreement and
the merger;
- no event or events shall have occurred which, individually or in the
aggregate, would reasonably be expected to have a material adverse effect
on our business, properties, operations, financial condition and results
of operations taken as a whole or materially impair or delay our ability
to perform our material obligations under the merger agreement or to
consummate the merger;
- the number of dissenting shares of common stock may not comprise more
than 10% of the total outstanding shares of our common stock immediately
prior to the effective time of the merger; and
- other customary contractual conditions specified in the merger agreement.
In some circumstances, conditions to the merger may be waived by one or
more parties.
NO SOLICITATION BY ASCENT (PAGE 48)
We have agreed that, until termination of the merger agreement in
accordance with its terms, neither we nor any of our representatives will:
- initiate, solicit or knowingly encourage or facilitate any inquiries
relating to or the making of any acquisition proposal for us;
- continue, enter into or engage in any discussions or negotiations
concerning an acquisition proposal; or
- provide access to our properties, books and records or any confidential
information to any person relating to an acquisition proposal.
However, under specified conditions, we may provide access to properties,
books and records or confidential information to, or engage in discussions or
negotiations with, a third party relating to a bona fide unsolicited written
acquisition proposal that is a superior acquisition proposal.
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In addition, until termination of the merger agreement in accordance with
its terms, our board of directors may not withdraw or modify in a manner adverse
to Medicis its recommendation of the merger agreement or the merger, cause or
permit us to enter into any agreement relating to an alternative acquisition
proposal or adopt, approve or recommend an alternative acquisition proposal.
However, our board of directors may withdraw or modify its recommendation if it
determines in good faith, after consultation with its outside legal advisors,
that such action is legally required for our board of directors to comply with
its fiduciary duties to our stockholders under applicable law. Our board of
directors may also take such actions prior to the adoption and approval of the
merger agreement and the merger by our stockholders as it reasonably determines
to be necessary if it proposes to enter into an agreement relating to a superior
acquisition proposal, terminate the merger agreement and pay a $2.0 million
termination fee.
TERMINATION OF THE MERGER AGREEMENT (PAGE 52)
We and Medicis can mutually agree to terminate the merger agreement without
completing the merger, and either party can terminate the merger agreement if:
- the other party breaches representations, warranties or covenants in the
merger agreement which breach would, if uncured at the closing of the
merger, cause the terminating party's closing conditions not to be
satisfied and such breach is not cured within 20 business days of written
notice of such breach;
- the merger is not consummated by January 31, 2002, unless the failure to
complete the merger by such date is due to the terminating party's
failure to fulfill any obligation under the merger agreement;
- a governmental entity prohibits the merger, unless the terminating
party's failure to fulfill any obligation under the merger agreement was
the cause of, or resulted in, such prohibition; or
- the requisite vote of our stockholders in favor of the merger agreement
and the merger is not obtained at the special meeting.
Medicis may terminate the merger agreement if:
- our board of directors withdraws, modifies or changes its recommendation
to our stockholders with respect to the merger in a manner adverse to
Medicis, or recommends to our stockholders a third party acquisition
proposal;
- we enter into a definitive agreement with respect to a third party
acquisition proposal; or
- we willfully and materially breach any of our obligations with respect to
the special meeting or the solicitation of acquisition proposals under
the merger agreement.
We may terminate the merger agreement if prior to stockholder adoption and
approval of the merger agreement and the merger:
- we enter into an agreement with a third party who makes a superior
acquisition proposal;
- we pay the $2.0 million termination fee described below under
"-- Termination Fees";
- we comply with our obligations not to solicit third party acquisition
proposals;
- we provide Medicis with a written summary of the material terms and
conditions of such third party acquisition proposal three business days
prior to termination; and
- we make ourselves and our financial and legal advisors reasonably
available to negotiate an amendment to the merger agreement or a new
offer from Medicis, and Medicis does not propose an offer within three
business days of the date it receives the written summary of material
terms and conditions that is at least as favorable in our board of
directors good faith judgment to our stockholders from a financial point
of view as the pending superior acquisition proposal.
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TERMINATION FEES (PAGE 53)
We have agreed to pay Medicis a $2.0 million termination fee under the
merger agreement, and the entities affiliated with FS Private Investments have
agreed to pay Medicis a $3.0 million termination fee under the voting agreement,
upon the termination of the merger agreement if the merger agreement is
terminated:
- by either party because the requisite vote of our stockholders in favor
of the merger agreement and the merger is not obtained;
- by Medicis because our board of directors withdraws, modifies or changes
its recommendation to our stockholders in a manner adverse to Medicis or
recommends to our stockholders a third party acquisition proposal or we
enter into a definitive agreement with respect to a third party
acquisition proposal other than a Medicis acquisition proposal; or
- by us because we enter into an agreement with respect to a superior
acquisition proposal meeting the requirements set forth in the merger
agreement.
In addition, if the merger agreement is terminated by either party;
- because the merger is not completed before January 31, 2002;
- at the time of termination a third party has made and not withdrawn or
abandoned an acquisition proposal; and
- within 12 months after termination of the merger agreement, we consummate
or enter into a definitive agreement with respect to an acquisition
proposal,
we and FS Private Investments will pay our respective termination fees at
the time we consummate or enter into the definitive agreement for the
acquisition proposal.
INTERESTS OF OUR EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER (PAGE 28)
In considering the recommendation of our board of directors, you should be
aware of the interests that certain executive officers and certain directors
have in the merger that differ from the interest of stockholders. These include:
- Executive Retention Agreements -- Under executive retention agreements,
upon the consummation of the merger, we will pay Emmett Clemente, our
President and Chairman, $1,250,000, David Benn, our Vice President,
Marketing, $175,000 and Steven Evans, our Vice President, Sales,
$175,000. Medicis will deduct these payments from the initial payment. In
addition, if Medicis makes any contingent payment pursuant to the merger
agreement, we may become obligated to make additional payments under
these agreements. Medicis will deduct any retention payments that are due
under these agreements in respect of a contingent payment from the
calculation of such contingent payment.
- Clemente Employment Agreement -- Upon the consummation of the merger, in
the event that Dr. Clemente's employment is terminated by us without
"cause" or by Dr. Clemente for "good reason," as such terms are defined
in the employment agreement, Dr. Clemente will become entitled to
severance payments equal to his then annual base salary, which is
currently $223,000, for the one-year period commencing on the effective
date of termination and benefits for the 18-month period following the
effective date of termination. Following the consummation of the merger,
Dr. Clemente will have "good reason" to terminate his employment with us.
Medicis and Dr. Clemente have not yet determined the status of Dr.
Clemente's employment following the merger.
- Director Consulting Agreements -- Under consulting agreements with Mr.
Robert Baldini and Mr. Joseph Iannelli, two of our directors, we will pay
$225,000 to Mr. Baldini and $75,000 to Mr. Iannelli upon the consummation
of the merger.
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- Interests of FS Private Investments LLC -- Since May 1998, we have
engaged in a number of transactions with entities affiliated with FS
Private Investments LLC, under which we received significant financing.
Three of our directors, Mr. Brian Friedman, Mr. James Luikart and Mr.
Nicholas Daraviras, are the President, Executive Vice President and Vice
President, respectively, of FS Private Investments. As of the record
date, the entities affiliated with FS Private Investments held of
our depositary shares representing approximately % of the
outstanding depositary shares at such date, various debt instruments of
ours, all of the Series H preferred stock, and warrants to purchase
5,000,000 of our depositary shares. Upon the consummation of the merger
and in accordance with our agreements with FS Private Investments, the
entities affiliated with FS Private Investments will receive:
- approximately $ in cash upon conversion of their depositary
shares in the merger, plus associated rights to receive additional
contingent payments, if earned, and excess warrant proceeds, if any;
- approximately $14.0 million, plus unpaid and accumulated dividends, upon
conversion of their shares of Series H preferred stock in the merger,
assuming that we require the purchase of an additional 1,999 shares of
Series H preferred stock prior to closing;
- approximately $26,811,844 in principal, plus accrued and unpaid
interest, upon the redemption of our subordinated notes and convertible
subordinated notes held by them; and
- the $3.0 million transaction fee payable to entities affiliated with FS
Private Investments pursuant to the fifth amendment to the securities
purchase agreement we entered into with entities affiliated with FS
Private Investments in December 2000 and in consideration of the
execution by such entities of the note agreement.
- Interests of Flynn Partners -- Since May 1998, we have also engaged in a
number of transactions with Flynn Partners. One of our directors, Mr.
James Flynn, is general partner of Flynn Partners, which is a member of
FS Ascent Investments LLC, an affiliate of FS Private Investments. As of
the record date, Flynn Partners held of our depositary shares and
various debt instruments of ours. Upon the consummation of the merger and
in accordance with our agreements with Flynn Partners, Flynn Partners
will receive:
- approximately $ in cash upon conversion of its depositary
shares in the merger, plus associated rights to receive additional
contingent payments, if earned, and excess warrant proceeds, if any; and
- approximately $109,364 in principal, plus accrued and unpaid interest,
upon the redemption of our subordinated notes and convertible
subordinated notes held by it.
- Interests of Alpharma USPD Inc. One of our former directors, Mr. Thomas
L. Anderson, is president of Alpharma USPD Inc. Mr. Anderson resigned as
a director of Ascent on December 29, 2000 in connection with the
termination of our strategic alliance with Alpharma. As part of the
termination arrangement, we agreed that upon the consummation of any
change of control of Ascent, as defined in the agreement, we would pay to
Alpharma a fee equal to 2% of the aggregate consideration received by us
in such event to the extent the aggregate consideration is in excess of
$65.0 million. As a result, under the merger agreement, following the
payment of the first $5.0 million of the contingent payments, if any, to
our common stockholders Medicis will pay to Alpharma an amount equal to
2% of any further contingent payments earned and will deduct such amount
from the contingent payments to be made to our stockholders. In addition,
at the request of Medicis, Alpharma has agreed to extend the term of the
warehouse distribution agreement between us and Alpharma until June 30,
2002.
- Accelerated Vesting of Stock Options -- Pursuant to our stock plans, all
stock options held by our employees and directors will fully vest upon
consummation of the merger. Our executive officers and directors hold as
of October 1, 2001 unvested options to purchase 408,334 depositary
shares. Of
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these unvested options, options to purchase 70,000 depositary shares have
exercise prices that are less than $0.40 per share and options to
purchase 338,334 depositary shares have exercise prices that are equal to
or more than $0.40 per share. These options will vest upon consummation
of the merger to the extent that they do not vest sooner in accordance
with their normal vesting schedules. The holders of these options must
exercise these options prior to closing or not at all. These stock
options will terminate upon the consummation of the merger if they have
not been exercised prior to such time.
- Indemnification -- The merger agreement provides that Ascent, as the
surviving corporation in the merger, will indemnify our officers and
directors against matters existing or occurring at or prior to the
effective time of the merger for six years after the merger. Medicis has
also agreed to cause the surviving corporation to purchase additional
officers' and directors' liability insurance so as to increase the
existing coverage to total coverage of $20.0 million and to extend the
period of coverage to a date not less than six years after the effective
time of the merger. See the section entitled "The Merger
Agreement -- Covenants of Ascent and Medicis -- Director and Officer
Indemnification."
- Other Agreements with Medicis -- Certain of our directors and certain
entities affiliated with our directors, including entities affiliated
with FS Private Investments, have entered into agreements with Medicis in
connection with the merger, including a voting agreement, a note
agreement and an exclusive remedy agreement. See the section entitled
"Related Agreements -- Voting Agreement."
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS (PAGE 33)
Each holder of depositary shares generally will recognize capital gain or
loss for United States federal income tax purposes, upon the closing of the
merger, equal to the difference between:
- the sum of the amount of cash received by the holder upon the closing of
the merger and the fair market value, as of the closing date, of the
holder's right to receive contingent payments and excess warrant
proceeds, even if contingent payments and payments of excess warrant
proceeds are never earned or received; and
- the holder's adjusted tax basis in the depositary shares surrendered in
the merger.
Our financial advisor, Adams, Harkness & Hill, has estimated that the fair
market value of the right to receive contingent payments is equal to
approximately $0.07 per share of common stock. We believe that the fair market
value of the right to receive excess warrant proceeds is de minimis.
In addition, a holder of depositary shares generally will recognize gain
for United States federal income tax purposes upon the actual receipt of
contingent payments or excess warrant proceeds.
A holder of shares of Series H preferred stock generally will recognize
gain or loss for United States federal income tax purposes, upon the closing of
the merger, equal to the difference between:
- the amount of the cash payment received by the holder upon the closing of
the merger, except for any portion of the cash payment attributable to
unpaid and accumulated dividends on the Series H preferred stock; and
- the holder's adjusted tax basis in the Series H preferred stock
surrendered in the merger.
Any portion of the cash payment received by a holder of Series H preferred
stock attributable to unpaid and accumulated dividends on the Series H preferred
stock will be taxed as a distribution for purposes of the Internal Revenue Code.
Because we believe that we have no current or accumulated earnings and profits,
such portion generally should be treated as a nontaxable recovery of the
holder's adjusted tax basis to the extent of such tax basis, and any remaining
amount should be recognized by the holder as capital gain.
Tax matters are very complicated, and the tax consequences of the merger to
our stockholders will depend on each stockholder's individual circumstances. See
"The Merger -- Material United States Federal Income Tax Considerations." WE
URGE YOU TO CONSULT YOUR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER TO YOU.
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APPRAISAL RIGHTS
Holders of shares of common stock are entitled under the Delaware General
Corporation Law to appraisal rights in connection with the merger. If you
exercise appraisal rights, and follow the specified procedures, you can receive
the judicially determined fair value of the common stock represented by your
depositary shares rather than the consideration to be received in the merger.
The judicially determined fair value may be more or less than what you would
otherwise receive in the merger. To exercise appraisal rights a holder of
depositary shares must satisfy the following criteria:
- cause the depositary to provide written notice to us of such holder's
intention to exercise appraisal rights with respect to the shares of
common stock represented by such holder's depositary shares before the
vote is taken at the special meeting, even if the holder is not entitled
to vote at the special meeting;
- instruct the depositary to vote against the adoption and approval of the
merger agreement and the merger or to abstain from voting; and
- comply with other procedures of the Delaware General Corporation Law
including Section 262.
We encourage you to read carefully the section of this proxy statement
entitled "The Merger -- Dissenting Stockholders' Appraisal Rights" and Section
262 which is attached as Annex C to this proxy statement.
VOTING AGREEMENT
In connection with the signing of the merger agreement, Medicis entered
into a voting agreement with the entities affiliated with FS Private
Investments. As of the record date, these entities owned an aggregate of
depositary shares, or approximately % of the depositary shares at
such date, and all of the outstanding shares of Series H preferred stock.
Under the voting agreement, these entities agreed that, until the earlier
to occur of the closing of the merger and the termination of the merger
agreement, they would vote or cause to be voted the depositary shares and the
shares of Series H preferred stock held by them in favor of the adoption and
approval of the merger agreement and the merger. However, if we accept a
superior acquisition proposal meeting the requirements set forth in the merger
agreement, or our board of directors withdraws, modifies or changes its
recommendation to our stockholders in a manner adverse to Medicis, these
entities agreed that they would vote all of the shares of Series H preferred
stock held by them and such number of depositary shares held by them equaling
25% of the depositary shares issued and outstanding as of the record date in
favor of the adoption and approval of the merger agreement and the merger.
In addition, these entities agreed to pay to Medicis a $3.0 million fee if
we are required to pay Medicis a termination fee under the merger agreement.
We encourage you to read carefully the voting agreement which is attached
as Annex D to this proxy statement.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We believe this proxy statement and the documents that we incorporate by
reference herein contain "forward-looking statements" within the meaning of the
private Securities Litigation Reform Act of 1995. These statements are subject
to risks and uncertainties and are based on the beliefs and assumptions of our
management, based on information currently available to them. When we use words
such as "believes," "expects," "anticipates," "intends," "plans," "estimates,"
"should," "likely" or similar expressions, we are making forward-looking
statements. Forward-looking statements include the information concerning
possible or assumed future results of operations of Medicis or Ascent, as the
surviving corporation of the merger, set forth under:
- "Summary;"
- "The Merger -- Background of the Merger;"
- "The Merger -- Our Reasons for the Merger;"
- "The Merger -- Recommendation of Our Board of Directors;" and
- "The Merger -- Opinion of Our Financial Advisor."
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. Actual future results may differ
materially from those expressed in the forward-looking statements. Many of the
important factors that will determine these results are beyond our ability to
control or predict. You are cautioned not to put undue reliance on any
forward-looking statements. For those statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. We are under no duty to update any of these
forward-looking statements after the date of this proxy statement.
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THE SPECIAL MEETING
GENERAL
We are furnishing this proxy statement to stockholders of record in
connection with the solicitation of proxies by our board of directors for use at
the special meeting of the stockholders to be held on , 2001, and at
any adjournment or postponement of the meeting.
We are first furnishing this proxy statement to stockholders on or about
, 2001.
DATE, TIME AND PLACE
We will hold the special meeting on , 2001 at [TIME], local time,
at the offices of Hale and Dorr LLP, 26th floor, 60 State Street, Boston,
Massachusetts 02109.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, we will ask stockholders to:
- adopt and approve the merger agreement and the merger; and
- transact such other business as may properly come before the special
meeting.
RECORD DATE
Only stockholders of record at the close of business on , 2001
are entitled to notice of and to vote at the special meeting.
COMMON STOCK
On , 2001, shares of common stock were issued and
outstanding. All outstanding shares of common stock are held by State Street
Bank and Trust Company, as the depositary pursuant to a depositary agreement
among us, State Street Bank and Trust Company and Alpharma USPD Inc. dated
February 16, 1999, as amended. Each share of common stock is represented by one
depositary share. Only record holders of depositary shares at the close of
business on , 2001 will be entitled to instruct the depositary how to
vote such number of shares of our common stock represented by such holder's
depositary shares.
SERIES H PREFERRED STOCK
On , 2001 shares of Series H preferred stock were
issued and outstanding.
VOTING OF DEPOSITARY SHARES
The holders of depositary shares are entitled to one vote per depositary
share on all matters to be voted on by stockholders in the same manner and
subject to the same limitations as holders of shares of common stock. The record
holders of depositary shares on the record date will be entitled to instruct
State Street Bank and Trust Company, as depositary, as to the exercise of the
voting rights pertaining to the number of shares of common stock represented by
their respective depositary shares by completing, dating, signing and returning
the enclosed voting instruction card.
The depositary will endeavor, insofar as practicable, to vote the number of
shares of common stock represented by such depositary shares in accordance with
such instructions. We have agreed to take all action that may be deemed
necessary by the depositary in order to enable the depositary to do so. If no
choice is specified in a voting instruction card, the depositary will abstain
from voting your shares and the effect will be a vote against the adoption and
approval of the merger agreement and the merger.
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REVOCATION OF VOTING INSTRUCTIONS
A stockholder may revoke a voting instruction card at any time before its
exercise by delivery of a written revocation or a subsequently dated voting
instruction card to our corporate secretary. Attendance at the meeting will not
be sufficient to revoke a voting instruction card unless the stockholder gives
affirmative notice at the meeting that the stockholder intends to revoke the
voting instruction card.
VOTE REQUIRED
Adoption and approval of the merger agreement and the merger requires the
affirmative approval of the holders of a majority of the shares of our common
stock outstanding as of the record date and the affirmative approval of the
holders of at least 80% of the shares of Series H preferred stock outstanding as
of the record date.
As of the record date, entities affiliated with FS Private Investments
owned depositary shares representing approximately % of the outstanding
shares of common stock at such date and all of the outstanding shares of Series
H preferred stock. If these entities vote their shares in favor of the merger
agreement, the proposal to adopt and approve the merger agreement and the merger
will be approved. These entities have entered into a voting agreement with
Medicis in which these entities have agreed to vote the shares held by them in
favor of the merger agreement and the merger in general as described under the
section entitled "Related Agreements -- Voting Agreement." Nevertheless, whether
or not you plan to attend the annual meeting in person, please date, sign and
promptly return the enclosed voting instruction card, which requires no postage
if mailed in the United States.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The holders of a majority of the outstanding shares of common stock
entitled to vote at the special meeting must be present in person or represented
by proxy to constitute a quorum for the transaction of business. Abstentions are
counted for purposes of determining whether a quorum exists.
If you hold your depositary shares through a broker, bank or other nominee,
generally the nominee may only instruct the depositary to vote your depositary
shares in accordance with your instructions. However, if your broker, bank or
other nominee has not timely received your instructions, it may instruct the
depositary to vote on matters for which it has discretionary voting authority.
Brokers will not have discretionary voting authority to instruct the depositary
to vote on the proposal to adopt and approve the merger agreement and the
merger.
If a nominee cannot and does not instruct the depositary to vote on a
matter because it does not have discretionary voting authority, this is a
"broker non-vote" on that matter. Broker non-votes are counted as shares present
or represented at the special meeting for purposes of determining whether a
quorum exists. For purposes of the vote with respect to the merger agreement
required under the Delaware General Corporation Law, a failure to vote, an
abstention and a broker non-vote will each have the same legal effect as a vote
against the adoption and approval of the merger agreement and the merger.
SOLICITATION OF VOTING INSTRUCTION CARDS
We will pay the expenses of the solicitation for the special meeting,
including the cost of printing and distributing this proxy statement and the
form of voting instruction card. In addition to solicitation by mail, our
directors, officers and employees may solicit voting instruction cards in person
or by telephone, telecopier or other means of communication. These persons will
not receive additional compensation for solicitation of voting instruction
cards, but may be reimbursed for reasonable out-of-pocket expenses in connection
with this solicitation. We will also make arrangements with custodians, nominees
and fiduciaries for forwarding of solicitation materials to the beneficial
owners of shares, and we will reimburse these persons for reasonable expenses
incurred in connection with this solicitation.
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RECOMMENDATION OF OUR BOARD OF DIRECTORS
Our board of directors has determined that the merger agreement and the
transactions contemplated by the merger agreement, including the merger, are
advisable and in our best interests and the best interests of our stockholders.
Accordingly, our board of directors has unanimously approved the merger
agreement and the merger and has unanimously recommended that our stockholders
vote for the adoption and approval of the merger agreement and the merger. See
"The Merger -- Background of the Merger."
In considering the recommendation of the board of directors you should be
aware that our executive officers and some of our directors have interests in
the merger that are different from, or in addition to, those of our other
stockholders. See "The Merger -- Interests of Our Executive Officers and
Directors in the Merger."
The matters to be considered at the special meeting are of great importance
to our stockholders. Accordingly, we urge all stockholders to read and carefully
consider the information presented in this proxy statement, and to complete,
date, sign and promptly return the enclosed voting instruction card in the
enclosed postage-prepaid envelope.
YOU SHOULD NOT SEND ANY DEPOSITARY RECEIPTS WITH YOUR VOTING INSTRUCTION
CARDS. A TRANSMITTAL LETTER WITH INSTRUCTIONS FOR THE SURRENDER OF DEPOSITARY
RECEIPTS WILL BE MAILED TO HOLDERS OF DEPOSITARY SHARES PROMPTLY AFTER
COMPLETION OF THE MERGER. FOR MORE INFORMATION REGARDING THE PROCEDURES FOR
EXCHANGING DEPOSITARY RECEIPTS, SEE "THE MERGER AGREEMENT -- EXCHANGE OF
CERTIFICATES."
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THE MERGER
This section of the proxy statement describes material aspects of the
proposed merger, including the merger agreement. While we believe that the
description covers the material terms of the merger and the related
transactions, this summary may not contain all of the information that is
important to you. You should read this entire document and the other documents
referred to in this proxy statement carefully for a more complete understanding
of the merger.
BACKGROUND OF THE MERGER
On December 29, 2000, our board of directors authorized us to enter into a
loan agreement with FS Ascent Investments LLC, an affiliate of FS Private
Investments, and a fifth amendment to the securities purchase agreement
originally entered into in May 1998 with entities affiliated with FS Private
Investments, Flynn Partners and BancBoston Ventures. The entities affiliated
with FS Private Investments were, as of December 29, 2000, significant
stockholders of Ascent, and, as of the record date, together held a majority of
our outstanding depositary shares. The loan agreement and the fifth amendment
allowed us to borrow up to $6.25 million and to raise up to an additional $4.0
million through the issuance of shares of Series H preferred stock. Under the
terms of these agreements, we are required to redeem the note issued under the
loan agreement and the Series H preferred stock for an aggregate amount expected
to equal $20.25 million, plus accrued and unpaid interest and dividends, by, at
the latest, December 31, 2001, and we were required to seek promptly to engage
an investment bank to assist us in consummating a strategic transaction with a
third party.
During January, February and March 2001, Dr. Clemente and certain of our
directors engaged in discussions with a number of investment banks seeking to
engage them to assist us in consummating a strategic transaction. In addition,
Dr. Clemente and certain of our directors contacted nine pharmaceutical
companies, including Medicis, to explore their interest in engaging in a
strategic transaction with us. Of the nine companies contacted, only three
companies, including Medicis, expressed an interest in pursuing a transaction
with us, and the two companies other than Medicis did so on a basis that we
believed would likely result in less consideration than the consideration to be
paid by Medicis in the merger.
On June 28, 2001, as a result of the contacts made in the first three
months of 2001, our representatives met with representatives of Medicis. At this
meeting, the parties exchanged information regarding our business and the
business of Medicis. On July 18, 2001, a Medicis representative communicated to
us the preliminary interest of Medicis in exploring a potential acquisition with
us.
From July 18, 2001 through the first week of August 2001, our
representatives participated in a number of telephone conversations with
representatives of Medicis to discuss the general terms of an acquisition that
would be satisfactory to both parties.
During the second week of August 2001, our representatives participated in
numerous additional communications with representatives of Medicis to discuss
the general terms of the proposed acquisition and to establish a timetable for
proceeding with a possible transaction, including organizing diligence meetings.
At a regular meeting of our board of directors on August 8, 2001, Dr.
Clemente informed our board of directors that discussions were taking place with
Medicis regarding a possible acquisition. No formal vote was taken, but the
directors unanimously supported continuing the discussions.
At a special meeting of our board of directors on August 20, 2001, the
board discussed the general terms of a possible transaction with Medicis, as
well as the terms of a confidential disclosure agreement proposed to be entered
into between us and Medicis, which included a no-shop provision that would
prohibit us from soliciting third parties with respect to an acquisition of
Ascent until September 21, 2001. At the meeting, Hale and Dorr LLP, our outside
counsel, reviewed the board's fiduciary duties under the Delaware General
Corporation Law, and Dr. Clemente and Mr. Daraviras reviewed with the board the
status of discussions with other parties regarding such parties' interest in
acquiring Ascent. After this
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review, the board adopted a resolution authorizing us to enter into the
confidential disclosure agreement. On August 20, 2001, we and Medicis executed
the confidential disclosure agreement.
Commencing on August 22, 2001, representatives of Medicis, including its
financial advisor, accountants and outside counsel, Akin Gump Strauss Hauer &
Feld, L.L.P., conducted a due diligence investigation of us, which included
attending presentations from our management and reviewing documents made
available at the offices of Hale and Dorr LLP and at our offices.
On September 7, 2001, counsel for Medicis distributed drafts of a merger
agreement and a voting agreement to be executed by FS Private Investments and
affiliated entities for review by us, Hale and Dorr LLP and the entities
affiliated with FS Private Investments and their legal counsel. From this date
through October 1, 2001, Medicis, together with Akin Gump and its other
advisors, and we, together with Hale and Dorr LLP and our other advisors,
negotiated the various terms of the merger agreement and related documents. In
addition, we and our counsel and FS Private Investments and its counsel
negotiated the voting agreement and other ancillary agreements to which the
entities affiliated with FS Private Investments are parties with Medicis and its
counsel.
On September 17, 2001, our board of directors held a special meeting at
which it reviewed the status of the merger discussions with Medicis and the
earlier activities of Dr. Clemente and other directors to seek acquisition
proposals from other parties and discussed other strategic alternatives. As part
of the board meeting, at the suggestion of Hale and Dorr LLP, the directors
affiliated with FS Private Investments, Mr. Brian Friedman, Mr. James Luikart
and Mr. Nicholas Daraviras, withdrew from the meeting to permit the directors
not affiliated with FS Private Investments to meet separately. The non-FS
Private Investments directors discussed the differing interests of the entities
affiliated with FS Private Investments described in this proxy statement under
the section entitled "The Merger -- Interests of Our Executive Officers and
Directors in the Merger." Following this discussion, the non-FS Private
Investments directors, retained Morris, Nichols, Arsht & Tunnell to serve as
outside Delaware counsel in connection with the merger.
The non-FS Private Investments directors also authorized Dr. Clemente to
negotiate the engagement of Adams, Harkness & Hill to serve as financial advisor
to our board of directors in connection with the merger. The non-FS Private
Investments directors requested Dr. Clemente to specify to Adams, Harkness &
Hill that a principal aspect of their assignment was to participate in the
negotiation of the merger agreement and related documents with a view towards
protecting the interests of holders of depositary shares who are not affiliated
with FS Private Investments, to keep the non-FS Private Investments directors
apprised of the status of the negotiations and to seek instructions from the
non-FS Private Investments directors from time to time.
During the period between September 17, 2001 and October 1, 2001, we
convened special meetings of our board of directors on September 18, 2001,
September 24, 2001 and September 26, 2001 and convened special meetings of the
non-FS Private Investments directors on September 19, 2001, September 23, 2001,
September 24, 2001 and September 26, 2001. At these meetings, Dr. Clemente, Hale
and Dorr LLP, Morris, Nichols, Arsht & Tunnell and Adams, Harkness & Hill
reviewed in detail with the full board and the non-FS Private Investments
directors the status of the negotiations and the board's fiduciary duties. At
these meetings, the directors asked questions regarding all aspects of the
transaction.
During this period, the parties continued to negotiate the terms of the
merger agreement, including the calculation of the merger consideration,
termination rights and fees, and non-solicitation provisions, and the terms of
the related documentation. As part of the negotiations, Medicis asked that the
entities affiliated with FS Private Investments enter into a note agreement, a
copy of which is attached to this proxy statement as Annex E. Under the note
agreement, FS Ascent Investments LLC, one of the entities affiliated with FS
Private Investments, agreed that the maturity date of our 7.5% subordinated note
held by it and the redemption date for the Series H preferred stock held by it
would be extended beyond December 31, 2001 until the earliest of the
consummation of the merger, the termination of the merger agreement and January
31, 2002.
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On September 19, 2001, we entered into an amendment to our confidential
disclosure agreement with Medicis to extend the period covered by the no-shop
provision from September 21, 2001 until September 28, 2001. On September 26,
2001, we entered into a further amendment to our confidential disclosure
agreement with Medicis to extend the period covered by the no-shop provision
from September 28, 2001 until October 1, 2001.
On October 1, 2001, the parties completed their diligence reviews and
finalized the terms of the merger agreement and related agreements. Also on that
date, our board of directors held a special meeting to review the final terms of
the merger agreement and related documents and to consider the approval of the
merger agreement and these other documents. Our board of directors also
considered and discussed with management and our legal and financial advisors
the various strategic alternatives available to us, including the possibility of
remaining independent. At the meeting, Adams, Harkness & Hill presented an
analysis of the financial terms of the merger, including a discussion of
financial data and analyses used in evaluating the possible combination of
Medicis and us. After its presentation, Adams, Harkness & Hill provided an oral
opinion, later confirmed in writing, to the effect that, as of October 1, 2001
and based upon and subject to the various considerations set forth in its
opinion, the aggregate consideration in the merger was fair from a financial
point of view to the holders of our depositary shares who are not also holders
of our indebtedness and who are not our officers or directors.
Additionally, at this meeting Hale and Dorr LLP and Morris, Nichols, Arsht
& Tunnell made presentations regarding the significant terms of the merger
agreement, the voting agreement and related documents and reviewed with the
board its fiduciary duties in connection with the proposed transaction. Hale and
Dorr LLP also reviewed with the directors the interests that our executive
officers and directors and their affiliated entities have in the merger that
differ from the interests of the public holders of our depositary shares. During
the course of this meeting, the FS Private Investments directors withdrew for a
period to provide the non-FS Private Investments directors the opportunity to
separately discuss the merger agreement, the voting agreement and the related
documents together with Hale and Dorr LLP, Morris, Nichols, Arsht & Tunnell and
Adams, Harkness & Hill.
After the FS Private Investments directors rejoined the meeting, our board,
after considering the terms of the merger agreement and other related documents
and the various presentations, unanimously approved the merger agreement and the
related documents, concluding that the merger agreement and the transactions
contemplated by the merger agreement, including the merger, were advisable and
in our best interests and the best interests of our stockholders. Our board then
authorized our management to execute the merger agreement and related
agreements.
On the afternoon of October 1, 2001, Ascent, Medicis and Medicis'
wholly-owned subsidiary, executed the merger agreement and related agreements.
Subsequently, we and Medicis issued a joint press release announcing the
execution of the definitive merger agreement and related agreements.
OUR REASONS FOR THE MERGER
Our board of directors has unanimously approved the merger agreement and
the merger and recommends that our stockholders vote FOR the adoption and
approval of the merger agreement and the merger. In reaching its decision to
adopt and approve the merger agreement and the merger, our board of directors
consulted with our management and legal and financial advisors and considered
the following factors:
- our inability to continue as an operating concern without obtaining
additional financing or modifying the terms and conditions of our
existing financial obligations. In particular, in the absence of the
merger agreement and the payment deferrals provided for in the note
agreement, the terms of our 7.5% subordinated note and our Series H
preferred stock require that we repay such notes and redeem the Series H
preferred stock by no later than December 31, 2001 for an amount expected
to total $20.25 million, plus accrued and unpaid interest and dividends.
In addition, the terms of our other outstanding notes require that we pay
interest and dividends totaling $1,137,084 in
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December 2001. We also will require cash to fund ongoing operations. We
did not believe that we had sufficient cash resources available to meet
these considerable cash requirements;
- our inability to obtain outside financing due to our complicated capital
structure, the small float and illiquidity of our common stock and
current financial market conditions;
- our increasing reliance on a single product, Orapred(R), and the risks
relating to the continued commercial success of Orapred(R) from potential
generic competition;
- the timing and costs involved in developing, obtaining regulatory
approval for and commercializing our pediatric products that are in the
development phase, particularly given that we had suspended our
development programs for these products in the fourth quarter of 1999 due
to limitations on resources;
- the inclusion in the merger consideration to be paid to our common
stockholders of contingent payments, if earned, for the first five years
following the effective time of the merger. These contingent payments
provide our stockholders with the potential opportunity to benefit from
the application of Medicis' greater resources to the development,
commercialization, sales and marketing of our pediatric products;
- historical information concerning our and Medicis' respective businesses,
financial performance and condition, operations, management and
competitive position, including public reports concerning results of
operations during the most recent fiscal year and quarters for each
company filed with the Securities and Exchange Commission;
- our management's view of our financial condition, results of operations
and business before giving effect to the merger;
- current financial market conditions and historical market prices,
volatility and trading information with respect to our depositary shares;
- the terms of the merger agreement, including the parties' respective
representations, warranties and covenants and the conditions to the
parties' respective obligations;
- the terms of the voting agreement described under the section entitled
"Related Agreements -- Voting Agreement";
- the terms of the note agreement described under the section entitled
"Related Agreements -- Note Agreement", including the agreement by FS
Ascent Investments to extend the date on which we are required to repay
the principal amount of our 7.5% convertible note and the redemption date
of the Series H preferred stock to January 31, 2002, and the agreement by
the holders of our convertible subordinated notes to waive our obligation
to issue to them new warrants to purchase depositary shares upon the
redemption of these convertible subordinated notes;
- our management's view as to the potential for other third parties to
enter into strategic relationships with or to acquire us; and
- the financial presentation of Adams, Harkness & Hill, including the
opinion to our board of directors as to the fairness, from a financial
point of view and as of the date of the opinion, of the aggregate
consideration to holders of depositary shares who are not also holders of
our indebtedness and who are not our officers or directors and the
conclusion of Adams, Harkness & Hill that the merger is the most
appropriate means of preserving value for our stockholders, as described
below under the caption "-- Opinion of Our Financial Advisor."
Our board of directors also considered the provisions of the merger
agreement regarding our rights to consider and negotiate other strategic
transaction proposals, as well as the possible effects of the provisions
regarding termination fees and the termination fees in the voting agreement. Our
board of directors considered various alternatives to the merger, including
remaining as an independent company. Our board of directors believed that these
factors, including its review of the terms of the merger agreement and the
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voting agreement, supported our board's recommendation of the merger, when
viewed together with the risks and potential benefits of the merger.
Our board of directors also identified and considered a variety of
potentially negative factors in its deliberations concerning the merger,
including but not limited to:
- the risk that the potential benefits sought in the merger, including the
receipt of contingent payments based on future net sales of our pediatric
products under the merger agreement, might not be fully realized or
realized at all;
- our obligation to pay Medicis a termination fee of $2.0 million, and the
obligation of the entities affiliated with FS Private Investments to pay
a termination fee of $3.0 million, in the event of a termination of the
merger agreement for specified reasons;
- the possibility that the merger may not be completed, even if approved
and adopted by our stockholders; and
- the possibility that the merger might not be completed and the potential
adverse effect of the public announcement of the merger on:
- our significant customers, suppliers and other key relationships;
- our ability to attract and retain key management, marketing and
technical personnel; and
- our overall competitive position.
Our board of directors believed that these risks were outweighed by the
potential benefits of the merger. In view of the wide variety of factors
considered in connection with its evaluation of the merger and the complexity of
these matters, our board did not find it useful to and did not attempt to
quantify, rank or otherwise assign relative weights to these factors. In
addition, our board did not undertake to make any specific determination as to
whether any particular factor, or any aspect of any particular factor, was
favorable or unfavorable to our board's ultimate determination but rather our
board conducted an overall analysis of the factors described above, including
thorough discussions with and questioning of our management and legal and
financial advisors. In considering the factors described above, individual
members of our board may have given different weight to different factors.
RECOMMENDATION OF OUR BOARD OF DIRECTORS
After careful consideration, our board of directors unanimously approved
the merger agreement and the merger, and determined that the merger agreement
and the transactions contemplated by the merger agreement, including the merger,
are advisable and in our best interests and the best interests of our
stockholders. Our board of directors unanimously recommends that our
stockholders vote FOR the adoption and approval of the merger agreement and the
merger. In considering the recommendation of our board of directors with respect
to the merger agreement and the merger, our stockholders should be aware that
some of our directors and executive officers have interests in the merger that
are different from, or are in addition to, the interests of our stockholders
generally in the merger. Please see the section entitled "-- Interests of Our
Executive Officers and Directors in the Merger."
OPINION OF OUR FINANCIAL ADVISOR
Pursuant to an engagement letter dated September 19, 2001, Adams, Harkness
& Hill was retained by our board of directors to render a fairness opinion as to
the fairness, from a financial point of view, to our stockholders who are not
also holders of our indebtedness and who are not our officers or directors, such
as the entities affiliated with FS Private Investments, of the aggregate
consideration to be received by such stockholders in connection with the merger.
Adams, Harkness & Hill is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for corporate and other purposes. In particular,
Adams, Harkness & Hill has significant experience with
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independent committees of boards of directors and boards of directors in
circumstances similar to the merger. We selected Adams, Harkness & Hill to
advise us with respect to the merger and deliver an opinion to our board of
directors on the basis of such experience and the familiarity of Adams, Harkness
& Hill with us.
At the meeting of our board of directors on October 1, 2001, Adams,
Harkness & Hill rendered its opinion, in writing, that, as of that date, based
upon and subject to the various considerations set forth in the opinion, the
aggregate consideration to be received by stockholders who are not also holders
of our indebtedness and who are not our officers or directors was fair from a
financial point of view.
THE FULL TEXT OF THE OPINION OF ADAMS, HARKNESS & HILL DATED OCTOBER 1,
2001, WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW
UNDERTAKEN BY ADAMS, HARKNESS & HILL IN RENDERING ITS OPINION, IS ATTACHED AS
ANNEX B TO THIS PROXY STATEMENT AND IS INCORPORATED IN THIS PROXY STATEMENT BY
REFERENCE. WE URGE YOU TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. ADAMS,
HARKNESS & HILL'S OPINION IS DIRECTED TO OUR BOARD OF DIRECTORS AND ADDRESSES
ONLY THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY OUR STOCKHOLDERS WHO
ARE NOT ALSO HOLDERS OF OUR INDEBTEDNESS AND WHO ARE NOT OUR OFFICERS OR
DIRECTORS PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW AS OF
OCTOBER 1, 2001, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF OUR COMMON STOCK AS TO HOW TO VOTE
AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF ADAMS, HARKNESS & HILL SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
The following is a summary of the various sources of information and
valuation methodologies used by Adams, Harkness & Hill in arriving at its
opinion. To assess the fairness of the transaction, Adams, Harkness & Hill
employed analyses based on the following:
- valuation of the contingent consideration;
- absolute and relative stock price performance;
- public company peers' financial performance and relative valuations;
- relative valuation and transaction premiums associated with selected
precedent acquisitions; and
- discounted cash flow analysis.
In conducting its investigation and analysis and in arriving at its
opinion, Adams, Harkness & Hill reviewed the information and took into account
the investment, financial and economic factors it deemed relevant and material
under the circumstances. Adams, Harkness & Hill took the following actions in
its capacity as financial advisor to our board of directors:
- reviewed publicly-available information, including but not limited to our
recent filings with the Securities and Exchange Commission;
- reviewed internal financial information prepared by our management
concerning the current status of our business and our historical
financial performance;
- held discussions with members of our senior management concerning our
historical and current financial condition and operating results, as well
as our future prospects;
- compared the historical market prices and trading activity of our common
stock (depositary shares) with those of other publicly traded companies
that Adams, Harkness & Hill deemed relevant;
- reviewed a description of the process by which we approached several
pharmaceutical companies to inquire about their interest in a possible
strategic transaction with us;
- compared the proposed financial terms of the merger with the terms of
other change of control transactions that Adams, Harkness & Hill deemed
relevant, including certain transactions involving contingent payments
and earnouts;
- reviewed the merger agreement; and
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- reviewed relevant industry market research studies, investment research
reports for our competitors, and key economic and market indicators,
including interest rates and general stock market performance.
Other than as set forth above, Adams, Harkness & Hill did not review any
additional information in preparing its opinion that, independently, was
material to its analysis. Our board of directors did not place any limitation
upon Adams, Harkness & Hill with respect to the procedures followed or factors
considered by Adams, Harkness & Hill in rendering its opinion. In rendering its
opinion, Adams, Harkness & Hill assumed and relied upon the accuracy and
completeness of all of the financial and other information that was publicly
available or provided to Adams, Harkness & Hill by us, or on our behalf, and did
not independently verify such information. Adams, Harkness & Hill assumed, with
our board of directors' consent, that:
- all of our material assets and liabilities, contingent or otherwise or
known or unknown, are as set forth in our financial statements;
- obtaining any regulatory and other approvals and third party consents
required for consummation of the merger would not have a material adverse
effect on the anticipated benefits of the merger; and
- the merger would be consummated in accordance with the terms set forth in
the merger agreement, without any amendment thereto and without waiver by
us of any of the conditions to our respective obligations thereunder.
In conducting its review, Adams, Harkness & Hill did not obtain an
independent evaluation or appraisal of any of our assets or liabilities,
contingent or otherwise. The valuation analyses conducted by Adams, Harkness &
Hill in rendering its opinion, including in particular the discounted cash flow
analysis, the historical stock price performance analysis, the transaction
premiums paid analysis, and the peer group analysis, constituted a "going
concern" analysis of us. Adams, Harkness & Hill recognized that our prospects as
a "going concern" are extremely limited. Any "going concern" analysis relies on
our ability to obtain a substantial commitment for financing from a third party.
Adams, Harkness & Hill believed that in the absence of this transaction, our
ability to continue as a "going concern" is highly questionable.
PUBLIC COMPANY PEER ANALYSIS
We are focused on marketing drug and pharmaceutical products exclusively to
the pediatric market. Prior to July 9, 1997, we operated as a development stage
enterprise. Since that time we have introduced four new products. One of these
products was sold to Alpharma USPD Inc. in December 2000. As a result, we
currently market and sell three products. Our principal product, Orapred(R), is
a liquid steroid preparation with taste masking designed for the pediatric
market.
Adams, Harkness & Hill identified a group of publicly traded companies in
the pharmaceutical and biotechnology industries that it deemed comparable to us
based on their similar stage of product development and their financial
performance, which Adams, Harkness & Hill referred to collectively as the peer
group companies or peer group. Adams, Harkness & Hill identified and evaluated
22 public companies in these industries, but acknowledging our relatively small
public market capitalization and the relative valuation discount generally
associated with companies possessing small public market capitalization, focused
its analysis on the 15 companies possessing market capitalization less than
$125.0 million. Adams, Harkness & Hill noted that our market capitalization had
not exceeded $19.2 million for the last twelve months. Adams, Harkness & Hill
also noted that the peer group companies were not profitable.
Adams, Harkness & Hill compared certain financial measures and metrics of
Ascent with those of the peer group companies. Such information included:
- market capitalization;
- last twelve months revenue;
- book value; and
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- market capitalization/last twelve months revenue.
All financial measures and metrics involving peer group companies' common
stock prices per share are as of the close of trading on September 27, 2001, two
business days prior to the date of the opinion. In addition, all data is in
millions unless otherwise labeled or noted. The peer group, made up of companies
possessing public market capitalization of less than $125.0 million, consists
of:
<Table>
<Caption>
MARKET
LAST CAPITALIZATION/
TWELVE LAST TWELVE MARKET
MARKET MONTHS MONTHS CAPITALIZATION/
COMPANY CAPITALIZATION REVENUE BOOK VALUE REVENUE BOOK VALUE
------- -------------- ------- ---------- ---------------- ----------------
Access Pharmaceuticals...... $ 33.4 $ 0.3 $ 12.4 not relevant $ 2.7
Axys Pharmaceuticals........ 115.9 8.0 59.7 $ 14.6 1.9
Bentley Pharmaceuticals..... 85.8 20.9 18.6 4.1 4.6
Bradley Pharmaceuticals..... 63.9 22.9 13.0 2.8 4.9
Genaera Corporation......... 82.1 0.3 16.7 not relevant 4.9
Hybridon, Inc............... 17.9 1.0 1.8 18.4 10.1
Incara Pharmaceuticals...... 11.7 0.0 2.2 not relevant 5.3
Matrix Pharmaceuticals...... 18.4 1.8 34.5 10.1 0.5
Microcide Pharmaceuticals... 37.4 7.6 9.5 4.9 3.9
Nastech Pharmaceuticals..... 63.6 4.4 10.2 14.5 6.3
Peregrine Pharmaceuticals... 99.0 4.0 6.5 24.7 15.3
SciClone Pharmaceuticals.... 105.3 14.0 24.5 7.5 4.3
Symbollon Pharmaceuticals... 11.6 0.7 3.3 15.8 3.5
Vyrex Corporation........... 3.3 0.0 (0.3) not relevant not relevant
Zonagen..................... 34.0 4.5 30.9 7.5 1.1
High........................ 115.9 22.9 59.7 24.7 15.3
Low......................... 3.3 0.0 (0.3) 2.8 0.5
Adjusted Mean(a)............ 47.8 5.4 12.8 10.4 4.9
Median...................... 37.4 4.0 12.7 8.8 4.8
Ascent...................... 8.5 6.7 (38.7) 1.3 not relevant
</Table>
---------------
(a) Adjusted mean is defined as mean not including the high and the low in the
data set.
Based on its expertise in valuation of publicly-traded companies and, in
particular, its research into the performance variables considered by investors
when assessing relative value among the peer group companies, Adams, Harkness &
Hill concluded that publicly-traded companies are valued primarily on the bases
of historical and projected revenue growth, and overall size, all of which are
reflected in the individual company's multiple of market capitalization to last
twelve months revenue, and the multiple of market capitalization to book value.
As noted, all financial measures and metrics involving peer group
companies' common stock prices per share are as of the close of trading on
September 27, 2001, two days prior to the date of the opinion.
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In descending order of market capitalization to last twelve months revenue, the
peer group companies ranked as follows:
<Table>
<Caption>
MARKET CAPITALIZATION/LAST
COMPANY TWELVE MONTHS REVENUE
------- --------------------------
Peregrine Pharmaceuticals................................... $24.7
Hybridon, Inc. ............................................. 18.4
Symbollon Pharmaceuticals................................... 15.8
Axys Pharmaceuticals........................................ 14.6
Nastech Pharmaceuticals..................................... 14.5
Matrix Pharmaceuticals...................................... 10.1
SciClone Pharmaceuticals.................................... 7.5
Zonagen..................................................... 7.5
Microcide Pharmaceuticals................................... 4.9
Bentley Pharmaceuticals..................................... 4.1
Bradley Pharmaceuticals..................................... 2.8
Access Pharmaceuticals...................................... not relevant
Genaera Corporation......................................... not relevant
Incara Pharmaceuticals...................................... not relevant
Vyrex Corporation........................................... not relevant
High........................................................ 24.7
Low......................................................... 2.8
Adjusted Mean(a)............................................ 10.4
Median...................................................... 8.8
Ascent...................................................... 1.3
</Table>
---------------
(a) Adjusted mean is defined as mean not including the high and the low in the
data set.
Adams, Harkness & Hill noted the peer group companies' market
capitalization to last twelve months revenue multiple analysis implied our
equity value to have a high of $5.99, a low of $0.69, an adjusted mean of $2.52,
and a median of $2.14. Adams, Harkness & Hill noted that the equity value per
share presented in the aggregate consideration by the merger proposal fell below
these per share implied values.
In addition, Adams, Harkness & Hill noted that we had a negative book value
of ($38.7 million). Our negative book value is primarily due to our highly
leveraged capital structure. Fourteen out of the 15 peer group companies
exhibited positive book value and have little or no debt, which limits the
validity of any implied equity value for Ascent derived by this analysis.
PRECEDENT TRANSACTION ANALYSIS
Adams, Harkness & Hill assessed the transaction premiums and relative
valuations associated with selected precedent publicly disclosed acquisitions it
deemed relevant. Adams, Harkness & Hill reviewed 17 precedent transactions in
the healthcare industry with a focus on pharmaceutical and biotechnology
industries, referred to as the related industry precedent transactions,
involving selected companies from May 2000 to August 2001, which involved the
acquisition of the equity shares of publicly-traded companies for which share
price data was available. In addition, Adams, Harkness & Hill reviewed seven
precedent transactions where an earnout was part of the aggregate consideration.
Premiums paid in the related industry precedent transactions typically
imply the range of consideration acquirors are willing to pay relative to a
seller's stock price prior to the announcement of the
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relevant transaction. Adams, Harkness & Hill based its calculations premiums for
the merger on an announcement date of September 24, 2000. In descending order of
premium paid based on the seller's stock price one trading day prior to
announcement, the selected transactions used in Adams, Harkness & Hill's
analysis were:
<Table>
<Caption>
EQUITY
ANNOUNCEMENT VALUE OF ONE DAY ONE WEEK FOUR WEEK
TARGET ACQUIROR DATE TRANSACTION PREMIUM PREMIUM PREMIUM
------ -------- ------------ ----------- ------- -------- ---------
AccuMed Ampersand Medical 2/8/01 $ 6.4 345.4% 237.4% 406.1%
Somnus Medical Gyrus Group 5/7/01 54.3 122.2% 122.2% 225.9%
Laser Vision Centers TLC Laser Eye Centers 8/27/01 163.2 109.4% 109.4% 116.6%
Cardiac Pathways Boston Scientific 6/29/01 77.6 47.8% 152.1% 152.1%
Cambridge
NeuroScience CeNeS Pharmaceuticals 5/23/00 38.1 29.1% 34.3% 38.9%
Minntech Cantel Medical 5/31/01 70.1 22.0% 16.8% 20.7%
Aronex
Pharmaceuticals Antigenics 4/24/01 24.5 10.9% 42.9% (2.7)%
Aquila Antigenics 8/21/00 37.4 9.1% (.03)% 10.8%
Allergan Specialty Allergan 4/16/01 63.9 (11.2)% (8.2)% 0.2%
AXYS Pharmaceuticals Celera Genomics 6/13/01 87.8 (32.2)% (32.2)% (23.3)%
Focal Genzyme 4/26/01 8.8 (36.7)% (36.7)% (10.0)%
Gemini Genomics Sequenom 5/29/01 225.3 (37.9)% (36.7)% (11.9)%
Heartport Johnson & Johnson 1/26/01 33.2 (39.0)% (32.9)% (19.4)%
Trega Biosciences Lion Bioscience 12/27/00 7.8 (51.8)% (57.6)% (72.1)%
Integ Inverness Medical 10/4/00 54.2 (57.7)% (57.5)% (59.5)%
Langer Biomechanics OrthoStrategies 9/18/00 2.9 (72.3)% (61.4)% (67.7)%
Chesapeake Biological Cangene 10/30/00 29.2 (85.9)% (92.1)% (85.0)%
High 225.3 345.4% 237.4% 406.1%
Low 2.9 (85.9)% (92.1)% (85.0)%
Adjusted Mean(a) 50.4 0.8% 10.3% 19.9%
Median 38.1 (11.2)% (8.2)% (2.7)%
</Table>
---------------
(a) Adjusted mean is defined as mean not including the high and the low in the
data set.
Based upon Adams, Harkness & Hill's analysis of premiums paid in selected
precedent transactions, the high, low, adjusted mean and median premiums
(discounts) paid to sellers' share prices, using the buyer's share price on the
day prior to the announcement date of the transaction to calculate consideration
in stock transactions, along with the implied per share equity values offered by
the merger consideration to our share price for the day, week and four week
prior are listed below:
<Table>
<Caption>
ONE DAY PREMIUM ONE WEEK PREMIUM FOUR WEEK PREMIUM
--------------- ---------------- -----------------
High.............................. $1.60 $1.75 $3.29
Low............................... .05 .04 .10
Adjusted Mean(a).................. .36 .57 .78
Median............................ .32 .48 .63
</Table>
---------------
(a) Adjusted mean is defined as mean not including the high and the low in the
data set.
Adams, Harkness & Hill noted that the consideration including the
contingent payment provided by the merger agreement was below the high of $1.60
and above the low of $.05 and adjusted mean of $.36 and median of $.39, as
implied by the one day premium paid in the precedent transactions. The
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consideration including the contingent payment provided by the merger agreement
was below the high of $1.75 and the adjusted mean of $.57 and above the low of
$.04 and median of $.55, as implied by the one week premium paid in the
precedent transactions. The consideration including the contingent payment
provided by the merger was below the high of $3.29 and the adjusted mean of $.78
and median of $.73, and above the low of $.10, as implied by the four week
premium paid in the precedent transactions.
In addition, Adams, Harkness & Hill noted the premium (discount) reflected
in the merger not including the contingent payment was 14.7%, (20.6%) and
(36.5%) for the one day, one week and four week premium, respectively. Adams,
Harkness & Hill also noted that the premium (discount) reflected in the merger
inclusive of the implied value of the contingent payments was 35.0%, (6.5%) and
(25.2%) for the one day, one week and four week premium, respectively.
Premiums paid in precedent public company change of control transactions
for contingent payments imply the aggregate consideration acquirors are willing
to pay in addition to the cash provided at the announcement of the transaction.
In descending order of premium paid for the contingent payments one trading day
prior to announcement, the selected transactions used in Adams, Harkness &
Hill's analysis were:
<Table>
<Caption>
PREMIUM OF CONTINGENT PAYMENTS
EQUITY ------------------------------
ANNOUNCEMENT VALUE OF ONE DAY ONE WEEK FOUR WEEK
TARGET ACQUIROR DATE TRANSACTION(b) PREMIUM PREMIUM PREMIUM
------ -------- ------------ -------------- ------- -------- ---------
Seragen Ligand Pharmaceutical 5/11/98 $ 67.4 199.7% 247.0% 213.9%
Depotech Skyepharma 10/19/98 51.5 42.4% 49.9% 29.5%
Hudson Technologies Incepta Group 11/03/00 24.4 16.2% 21.5% 18.8%
Wahlco Environmental Thermatrix 11/9/98 3.3 (69.8)% (34.7)% 75.0%
The York Group Matthews International 5/23/01 98.4 (87.3)% (87.3)% (81.6)%
Franchise Mortgage Bay View Capital 3/11/99 286.6 (87.5)% (87.7)% (84.0)%
First Entertainment
Holdings Busybox.com 11/15/00 8.0 (97.8)% (96.8)% (97.9)%
High 199.7% 247.0% 213.9%
Low (97.8)% (96.8)% (97.9)%
Adjusted Mean (31.01)% (23.0)% (7.0)%
Median (69.8)% (34.7)% 18.8%
</Table>
---------------
(a) Adjusted mean is defined as mean not including the high and the low in the
data set.
(b) Including contingent payments.
Based upon Adams, Harkness & Hill's analysis of premiums paid for
contingent payments or earnouts, the high, low, adjusted mean and median
premiums (discounts) paid to sellers on the day prior to the announcement date
of the transaction for the day, week, and four week prior are listed below:
<Table>
<Caption>
ONE DAY PREMIUM ONE WEEK PREMIUM FOUR WEEK PREMIUM
--------------- ---------------- -----------------
High.............................. $1.08 $1.80 $2.04
Low............................... .01 .02 .01
Adjusted Mean(a).................. .25 .40 .60
Median............................ .11 .34 .77
</Table>
---------------
(a) Adjusted mean is defined as mean not including the high and the low in the
data set.
Adams, Harkness & Hill noted that the implied value of the contingent
payment provided by the merger was below the high of $1.08 and above the low,
adjusted mean and median of $.01, $.25 and $.11 as implied by the one day
premium paid in the precedent transactions. The implied value of the contingent
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payment provided by the merger was below the high of $1.80 and above the low and
adjusted mean and median of $.02, $.40 and $.34 as implied by the one week
premium paid in the precedent transactions. The implied value of the contingent
payments provided by the merger was below the high of $2.04 and the adjusted
mean of $.60 and the median of $.77 and above the low of $.01, as implied by the
four week premium paid in the precedent transactions.
STOCK PRICE PERFORMANCE ANALYSIS
Adams, Harkness & Hill examined the following common stock closing price
data for us:
- indexed price performance for the last twelve months ended September 27,
2001, compared to the performance of broad equity market indices, which
include the Nasdaq Composite and the Russell 2000; and
- indexed price performance for the last twelve months ended September 27,
2001, compared to the peer group company indices, which include the peers
with less than $100.0 million market capitalization and the peers with
greater than $100.0 million market capitalization.
Based on the above analyses, Adams, Harkness & Hill observed that, for the
last twelve months ended September 27, 2001, the Nasdaq composite and Russell
2000 decreased. During that same time period Adams, Harkness & Hill observed
that our per share price had decreased compared to both of the peer group
company indices over the same time period.
DISCOUNTED CASH FLOW ANALYSIS
Adams, Harkness & Hill performed a discounted cash flow analysis to
estimate the present value of our stand-alone unlevered, or before interest
expense, after-tax cash flows. To perform this analysis, Adams, Harkness & Hill
used the following data sources and assumptions:
- our revenue projections and guidance from our management to estimate
balance sheet and cash flow;
- required financing to continue operations was readily available at market
rates;
- a weighted-average cost of capital ranging from 30% to 40%;
- terminal value based on our earnings before interest, taxes, depreciation
and amortization, or EBITDA, for the year ended December 31, 2005
multiplied by EBITDA multiples ranging from 4.0 to 6.0; and
- terminal value based on our cash flow for the year ended December 31,
2005 multiplied by a perpetual growth rate ranging from 4.0% to 6.0%.
Adams, Harkness & Hill combined the calculated present value of our cash
flows for the five years ending December 31, 2005, with our EBITDA terminal
value, to arrive at a range of enterprise values based on the above assumptions.
These enterprise values were then adjusted by adding our current cash balance
and subtracting our current funded debt balance, which includes our Series H
preferred stock, to arrive at implied market capitalizations, or, equity values.
Adams, Harkness & Hill divided the computed equity values by the number of
shares of common stock outstanding, including shares issuable upon exercise of
warrants having an exercise price less than $0.48 per share, arrived at a range
of implied per share values of $.32 to $1.27, with a median implied value of
$.74.
Adams, Harkness & Hill combined the calculated present value of our cash
flows for the years ended December 31, 2001 through December 31, 2005, with our
perpetual growth rate terminal value, to arrive at a range of enterprise values
based on the above assumptions. These enterprise values were then adjusted by
adding the our current cash balance and subtracting our current funded debt
balance, which includes our Series H preferred stock, to arrive at implied
market capitalizations, or equity values. Adams, Harkness & Hill divided the
computed equity values by the number of shares of common stock outstanding,
including shares issuable upon exercise of warrants having an exercise price
less than $0.48
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34
per share, and arrived at a range of implied per share values of $.56 to ($.01),
with a median implied value of $.22.
CONTINGENCY VALUATION ANALYSIS
Adams, Harkness & Hill valued the contingent payments which comprised part
of the aggregate merger consideration, by establishing net present values for
revenue scenarios created with input from management projections and management
marketing data. Five scenarios were chosen:
- management projections through 2005;
- top down analyses assuming Orapred(R) sales as the driver of any
contingent payments. Using management projections for 2001 which included
first half actual revenues as a starting point, penetration rates into
the liquid steroid market of 50% and 75% at five years were modeled;
- bottoms up analyses assuming Orapred(R) sales as the driver of any
contingent payments. Using management projections for 2001 which included
first half actual revenues as a starting point, growth rates in
subsequent years were modeled at two separate discounts (large and
moderate) to management projections.
Each of the resultant cash flows was subjected to a net present value
analysis at discount rates ranging from 25 to 35% and the value of the
contingent payments were subject to a further illiquidity discount ranging from
35 to 45%. The average per share values for each contingency was assigned a
statistical probability and the weighted average of the scenarios was then
combined into a final per share valuation for the contingent payment aspect of
the merger consideration. As a result, Adams, Harkness & Hill valued the
contingent payments at approximately $.073 per share.
SUMMARY OF VALUATION ANALYSES
The foregoing summary does not purport to be a complete description of the
analyses performed by Adams, Harkness & Hill. The preparation of a fairness
opinion is a complex process. Adams, Harkness & Hill believes that its analyses
must be considered as a whole, and that selecting portions of such analysis
without considering all analyses and factors would create an incomplete view of
the processes underlying its opinion. Adams, Harkness & Hill did not attempt to
assign specific weights to particular analyses. Any estimates contained in
Adams, Harkness & Hill's analyses are not necessarily indicative of actual
values, which may be significantly more or less favorable than the estimate of
Adams, Harkness & Hill. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may actually
be sold. Because such estimates are inherently subject to uncertainty, Adams,
Harkness & Hill does not assume responsibility for their accuracy. In addition,
Adams, Harkness & Hill recognized that our ability to continue as a "going
concern" was extremely limited. Adams, Harkness & Hill believed that in the
absence of this transaction, our ability to continue as a "going concern" was
highly questionable.
Taken together, the information and analyses employed by Adams, Harkness &
Hill lead to Adams, Harkness & Hill's overall opinion that the consideration to
be received in the merger is fair, from a financial point of view, to our
stockholders who are not also holders of our indebtedness and who are not our
officers or directors.
INTERESTS OF OUR EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
When our stockholders consider the recommendation of our board of directors
with respect to the merger, they should be aware that some of our executive
officers and directors have interests in connection with the merger that are
different from, or in addition to, the interests of our stockholders, as
summarized below. In making their decision to recommend the merger, our board of
directors was aware of these interests and considered them among the other
matters described above under the section entitled "The Merger -- Our Reasons
for the Merger."
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EXECUTIVE RETENTION AGREEMENTS
In July and August 2001, we entered into retention agreements with Emmett
Clemente, David Benn and Steven Evans, our executive officers. Under each of
these agreements, we agreed to make retention payments to the executive officers
upon the closing of a merger of Ascent. These agreements provide that the amount
of such payments is determined based on the consideration received by us or our
stockholders in connection with the merger as determined in good faith by our
board of directors as set forth below.
<Table>
<Caption>
PAYMENT AMOUNT
FOR DR. CLEMENTE TOTAL CONSIDERATION RECEIVED TO DR. CLEMENTE
---------------- ---------------------------- ---------------
Less than $60.0 million $ 1.0 million
At least $60.0 million but less than $75.0 $1.25 million
million
At least $75.0 million but less than $87.0 $ 1.5 million
million
At least $87.0 million but less than $100.0 $ 2.0 million
million
At least $100.0 million but less than $112.0 $ 2.5 million
million
At least $112.0 million but less than $125.0 $ 3.0 million
million
At least $125.0 million $ 3.5 million
</Table>
<Table>
<Caption>
FOR EACH OF MR. BENN AND PAYMENT AMOUNT
MR. EVANS: TOTAL CONSIDERATION RECEIVED TO EACH
------------------------ ---------------------------- --------------
Less than $60.0 million $150,000
At least $60.0 million but less than $75.0
million $175,000
At least $75.0 million $250,000
</Table>
Our board of directors has determined that for purposes of determining
payments to be made to Dr. Clemente and Messrs. Benn and Evans under these
agreements at closing, the value of the consideration to be paid by Medicis at
the closing of the merger is deemed to be $60.0 million. As a result, upon the
consummation of the merger, we will pay Dr. Clemente $1.25 million and Messrs.
Benn and Evans $175,000 each. Medicis will deduct these payments from the
initial payment. If Medicis makes contingent payments pursuant to the merger
agreement and the aggregate consideration received in connection with the merger
increases, we may become obligated to make additional payments under the
executive retention agreements. Medicis will deduct these additional payments
from the contingent payments otherwise payable to the holders of our common
stock.
CLEMENTE EMPLOYMENT AGREEMENT
We are a party to an employment agreement with Dr. Clemente for the period
ending March 15, 2002, unless further extended by mutual agreement of us and Dr.
Clemente. Under this agreement, Dr. Clemente is entitled to receive:
- an annual base salary of $223,944, which may be adjusted; and
- an annual bonus of up to 30% of his then annual base salary based upon
the attainment of performance criteria set by our board of directors
annually, with the potential to exceed 30% of his then annual base
salary, at the discretion of our board of directors, in the event that we
achieve break-even cash flow.
If Dr. Clemente's employment is terminated by us without "cause" or by Dr.
Clemente for "good reason", as such terms are defined in the employment
agreement, Dr. Clemente will continue to receive his then annual base salary for
the one-year period commencing on the effective date of termination and benefits
for the 18-month period following the effective date of termination. However,
any of the above payments or benefits which we are required to provide will be
reduced dollar-for-dollar by any payments or benefits Dr. Clemente receives from
any other employer during the period we are required to provide these payments
or benefits. Following the consummation of the merger, Dr. Clemente will have
"good reason" to terminate his employment with us. Medicis and Dr. Clemente have
not yet determined the status of Dr. Clemente's employment following the merger.
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DIRECTOR CONSULTING AGREEMENTS
In June 2001, we amended our consulting agreements with Mr. Robert Baldini
and Mr. Joseph Iannelli, two of our directors, to provide that upon the
consummation of a merger we would make one-time payments to Messrs. Baldini and
Iannelli. Under these amended agreements, upon the consummation of the merger,
we will pay Mr. Baldini $225,000 and Mr. Iannelli $75,000.
INTERESTS OF FS PRIVATE INVESTMENTS LLC AND FLYNN PARTNERS
Since May 1998, we have engaged in a number of transactions with entities
affiliated with FS Private Investments LLC, under which we received significant
financing. Three of our directors, Mr. Brian Friedman, Mr. James Luikart and Mr.
Nicholas Daraviras are the President, Executive Vice President and Vice
President, respectively, of FS Private Investments. One of our directors, Mr.
James Flynn, is a general partner of Flynn Partners, which is a member of FS
Ascent Investments LLC, an entity affiliated with FS Private Investments. As of
the record date, the entities affiliated with FS Private Investments held
of our depositary shares representing approximately % of our
outstanding depositary shares at such date, various debt instruments of ours,
all of our Series H preferred stock, and warrants to purchase 5,000,000 of our
depositary shares. As of the record date, Flynn Partners held of our
depositary shares and various debt instruments of ours.
In addition to depositary shares, these entities own the following
securities of Ascent.
<Table>
<Caption>
8.0% 7.5%
8% CONVERTIBLE CONVERTIBLE 7.5%
SUBORDINATED SUBORDINATED SUBORDINATED SUBORDINATED SERIES H WARRANTS TO
NOTES NOTES NOTES NOTE PREFERRED PURCHASE
(PRINCIPAL (PRINCIPAL (PRINCIPAL (PRINCIPAL STOCK DEPOSITARY
SECURITYHOLDER AMOUNT) AMOUNT) AMOUNT) AMOUNT) (SHARES) SHARES
-------------- ------------ ------------ ------------ ------------ --------- -----------
Furman Selz Investors II
L.P. ...................... $1,156,631 $4,628,000 $12,341,777 -- -- --
FS Employee Investors LLC.... $ 98,785 $ 397,000 $ 1,057,777 -- -- --
FS Parallel Fund L.P. ....... $ 56,430 $ 225,000 $ 600,446 -- --
Flynn Partners............... $ 22,364 $ 87,000 -- -- -- --
FS Ascent Investments LLC.... -- -- -- $6,250,000 2,001 5,000,000
---------- ---------- ----------- ---------- ----- ---------
Total: ............. $1,334,210 $5,337,000 $14,000,000 $6,250,000 2,001* 5,000,000**
========== ========== =========== ========== ===== =========
</Table>
---------------
* Will increase to 4,000 if, as expected, we exercise our right to require the
holders of Series H preferred stock to purchase an additional 1,999 shares of
Series H preferred stock.
** Will increase to 9,000,000 if, as expected, we extend the date on which we
are required to redeem our 7.5% subordinated note to December 31, 2001.
8% Subordinated Notes and 8% Convertible Subordinated Notes. We issued
these notes in the aggregate original principal amount of $8,749,126 to entities
affiliated with FS Private Investments, Flynn Partners and BancBoston Ventures.
The outstanding principal on these notes is payable in full on June 1, 2005.
These notes bear interest at a rate of 8% per annum. Interest on these notes is
payable semiannually in June and December of each year. We deferred forty
percent of the interest due on the subordinated notes and fifty percent of the
dividend interest due on the convertible notes in each of December 1998, June
1999, December 1999 and June 2000 for a period of three years from the dates on
which such interest payments were due.
Upon the consummation of the merger we will redeem these notes in
accordance with their terms for a price equal to the unpaid principal plus
accrued and unpaid interest on such notes. As of October 1, 2001, accrued and
unpaid interest on the notes held by entities affiliated with FS Private
Investments totaled an aggregate of $986,591 and the accrued and unpaid interest
on the notes held by Flynn Partners totaled an aggregate of $16,523.
The terms of our 8% convertible subordinated notes provide that upon
redemption we will be required to issue to the holders of such notes common
stock purchase warrants. However, pursuant to the note
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agreement entered into in connection with the merger agreement, the entities
affiliated with FS Private Investments and Flynn Partners waived this
requirement.
7.5% Convertible Subordinated Notes. We issued these notes in the
aggregate original principal amount of $14.0 million. The outstanding principal
of these notes is payable in full on July 1, 2004. These notes bear interest at
a rate of 7.5% per annum. Interest on these notes is payable quarterly on the
last day of each calendar quarter.
Upon the consummation of the merger we will redeem these notes in
accordance with their terms for a price equal to the unpaid principal plus
accrued and unpaid interest on such notes. As of October 1, 2001, there was no
accrued and unpaid interest on these notes.
The terms of our 7.5% convertible subordinated notes provide that upon
redemption we will be required to issue to the holders of such notes common
stock purchase warrants. However, pursuant to the note agreement entered into in
connection with the merger agreement, such holders have waived this requirement.
7.5% Subordinated Note. We issued this note in the original principal
amount of $6,250,000. The outstanding principal on this note is currently
payable in full on November 30, 2001. However, under the terms of the note we
have the right to extend the date on which the principal amount is due to
December 31, 2001. Under the note agreement entered into in connection with the
merger agreement, we have agreed to extend the date on which the principal
amount is due to December 31, 2001, if required, and FS Ascent Investments, the
holder of the note, has agreed that it will not require repayment of the note
prior to the earliest of the termination of the merger agreement pursuant to its
terms, the consummation of the merger and January 31, 2002.
This note bears interest at a rate of 7.5% per annum. Interest on this note
is payable quarterly on the last day of each calendar quarter.
Upon the consummation of the merger we will redeem this note in accordance
with its terms for a price equal to the unpaid principal plus accrued and unpaid
interest on such notes. As of October 1, 2001, there was no accrued and unpaid
interest on this note.
Series H Preferred Stock. The terms of the Series H preferred stock
provide for a cumulative annual dividend payable on December 31, 2001 at the
rate of 7.5% of the liquidation amount of such stock, which is $1,000 per share.
The Series H preferred stock is redeemable at the redemption price at any time
after the date on which we are required to repay the principal amount of our
7.5% subordinated note or the occurrence of a change in control of Ascent at the
option of the holders of the Series H preferred stock holding at least 80% of
the shares of Series H preferred stock then outstanding. We may redeem all of
the Series H preferred stock at the redemption price at any time. The redemption
price for each share of Series H preferred stock equals the sum of the
liquidation amount of the Series H preferred stock, accumulated and unpaid
dividends on the Series H preferred stock and an amount determined by dividing
$10.0 million by the number of shares of Series H preferred stock then
outstanding. As of October 1, 2001, accumulated and unpaid dividends on the
Series H preferred stock equaled $8,806.
If the closing of the merger were to occur on October 1, 2001, the Series H
preferred stock would have converted into the right to receive $12,001,000 in
cash, plus accumulated and unpaid dividends of approximately $8,806 in the
merger. We expect to cause FS Ascent Investments to purchase an additional 1,999
shares of Series H preferred stock under the fifth amendment to the May 1998
securities purchase agreement prior to the closing of the merger. If we issue
such shares between now and the closing of the merger, the Series H preferred
stock would convert into the right to receive in the merger an amount equal to
$14.0 million in cash, plus accumulated and unpaid dividends.
Warrants. FS Ascent Investments holds warrants to purchase 5,000,000
depositary shares at an exercise price of $.05 per share. Under the fifth
amendment, we have the right to extend the date on which we are required to
repay our 7.5% subordinated note to December 31, 2001, which we expect to do,
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38
provided that we issue to FS Ascent Investments warrants to purchase an
additional 4,000,000 depositary shares. If any of the warrants held by FS Ascent
Investments are not exercised prior to the closing of the merger, these warrants
will automatically terminate.
Transaction Fee. In December 2000, in order to induce FS Ascent
Investments to enter into the arrangement providing for the purchase by FS
Ascent Investments of our 7.5% subordinated note and the Series H preferred
stock, we agreed that in consideration for the assistance of those entities in
consummating a strategic transaction with a third party we would pay those
entities a total of $3.0 million at the time we pay a success fee to an
investment bank engaged for such strategic transaction. Upon the consummation of
the merger, pursuant to this provision and in consideration for such entities
signing the note agreement, we have agreed to pay the entities affiliated with
FS Private Investments this $3.0 million.
Interests of Alpharma USPD Inc. One of our former directors, Mr. Thomas L.
Anderson, is president of Alpharma USPD Inc. Mr. Anderson resigned as a director
of Ascent on December 29, 2000 in connection with the termination of our
strategic alliance with Alpharma. As part of the termination arrangement, we
agreed that upon the consummation of any change of control of Ascent, as defined
in the agreement, we would pay to Alpharma a fee equal to 2% of the aggregate
consideration received by us in such event to the extent the aggregate
consideration is in excess of $65.0 million. As a result, under the merger
agreement, following the payment of the first $5.0 million of the contingent
payments, if earned, to our stockholders Medicis will pay to Alpharma an amount
equal to 2% of any further contingent payments earned and will deduct such
amount from the contingent payments to be made to our stockholders. In addition,
at the request of Medicis, Alpharma has agreed to extend the term of the
warehouse distribution agreement between us and Alpharma until June 30, 2002.
Accelerated Vesting of Stock Options
Pursuant to our stock plans, all stock options held by our employees and
directors will fully vest upon consummation of the merger. Our executive
officers and directors hold as of October 1, 2001 unvested options in the
amounts set forth below. These unvested options will vest immediately prior to
the consummation of the merger to the extent that they do not vest sooner in
accordance with their normal vesting schedules. Set forth below are the number
of vested and unvested options held by our executive officers and directors with
exercised prices less than $0.40 or equal to or more than $0.40 per share. We
cannot determine whether any of these options will be exercised. Any options not
exercised prior to the effective time of the merger will be cancelled and will
be of no further force and effect.
<Table>
<Caption>
NUMBER OF
NUMBER OF UNVESTED NUMBER OF VESTED
UNVESTED OPTIONS WITH NUMBER OF VESTED OPTIONS WITH
OPTIONS WITH EXERCISE PRICE OPTIONS WITH EXERCISE PRICE
EXERCISE PRICE EQUAL TO OR EXERCISE PRICE EQUAL TO OR MORE
NAME LESS THAN $.40 MORE THAN $.40 LESS THAN $.40 THAN $.40
---- -------------- ----------------- ---------------- ----------------
Emmett Clemente.......... 0 135,834 0 246,526
Raymond F. Baddour....... 0 5,000 0 30,000
Robert E. Baldini........ 0 73,750 0 134,000
David Benn............... 20,000 33,750 0 11,250
Nicholas Daraviras....... 0 5,000 0 20,000
Steve Evans.............. 20,000 55,000 0 35,000
James E. Flynn........... 15,000 0 0 0
Brian P. Friedman........ 15,000 0 0 0
Joseph R. Ianelli........ 0 20,000 0 25,000
Andre L. Lamotte......... 0 5,000 0 30,000
James L. Luikart......... 0 5,000 0 25,000
</Table>
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INDEMNIFICATION
The merger agreement provides that the surviving corporation will indemnify
our officers and directors against matters existing or occurring at or prior to
the effective time of the merger for six years after the merger. In addition,
Medicis has agreed to cause the surviving corporation to purchase additional
officers' and directors' liability insurance so as to increase the existing
coverage to total coverage of $20.0 million and to extend the period of coverage
to a date not less than six years after the effective time of the merger. See
the section entitled "The Merger Agreement -- Covenants of Ascent and
Medicis -- Director and Officer Indemnification."
OTHER AGREEMENTS WITH MEDICIS
Certain of our directors and certain entities affiliated with our directors
have entered into agreements with Medicis in connection with the merger,
including:
- Voting Agreement, dated as of October 1, 2001, by and among Medicis, MPC
Merger Corp., FS Private Investments LLC, Furman Selz Investors II L.P.,
FS Employee Investors LLC, FS Ascent Investments LLC and FS Parallel Fund
L.P.
- Note Agreement, dated as of October 1, 2001, by and among Ascent,
Medicis, Furman Selz Investors II L.P., FS Employee Investors LLC, FS
Ascent Investments LLC, FS Parallel Fund L.P. and Flynn Partners.
- Exclusive Remedy Agreement, dated as of October 1, 2001, by and among
Ascent, Medicis, FS Private Investments LLC, Furman Selz Investors II
L.P., FS Employee Investors LLC, FS Ascent Investments LLC, FS Parallel
Fund L.P., Flynn Partners, Raymond F. Baddour, Sc.D., Robert E. Baldini,
Medical Science Partners L.P. and Emmett Clemente, Ph.D.
For a description of these agreements see the section entitled "Related
Agreements."
REGULATORY APPROVALS
We are not aware of any federal or state regulatory approvals that are
required to be obtained that have not already been obtained, or any regulatory
requirements that must be complied with, in connection with the merger, except
for the requirements of the Delaware General Corporation Law to obtain
stockholder approval of the merger agreement.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following discussion is a summary of the material United States federal
income tax consequences of the merger to our stockholders whose shares, upon the
merger, will be converted into the right to receive cash following the merger
and, if applicable, the right to receive contingent payments and the right to
receive excess warrant proceeds. This discussion addresses only the United
States federal income tax consequences to our stockholders who hold their shares
as capital assets and does not address all of the United States federal income
tax consequences that may be relevant to particular stockholders in light of
their individual circumstances. This discussion also does not address the tax
consequences to our stockholders who are subject to special rules, including,
without limitation, financial institutions, tax-exempt organizations, insurance
companies, dealers in securities or foreign currencies, foreign holders, persons
who hold their shares as or in a hedge against currency risk, a constructive
sale, or conversion transaction, or holders who acquired their shares pursuant
to the exercise of employee stock options or otherwise as compensation. This
discussion does not address the tax consequences of transactions effectuated
prior or subsequent to, or concurrently with, the merger whether or not such
transactions are undertaken in connection with the merger. In addition, this
discussion does not address the effects of the merger under any state, local or
foreign tax laws or the alternative minimum tax provisions of the Internal
Revenue Code.
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The following summary is not binding on the Internal Revenue Service or a
court. It is based on the Internal Revenue Code, laws, regulations, rulings and
decisions in effect on the date hereof, all of which are subject to change,
possibly with retroactive effect, or to different interpretations which could
result in federal income tax consequences different from those described above.
As a result, neither we nor Medicis can assure you that the tax considerations
contained in this discussion will not be challenged by the Internal Revenue
Service or will be sustained by a court if challenged by the Internal Revenue
Service. No ruling has been or will be sought from the Internal Revenue Service
as to the United States federal income tax consequences of the merger.
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF THE MERGER TO YOU AND THE EFFECT OF POSSIBLE CHANGES
IN TAX LAWS.
TAX CONSEQUENCES TO ASCENT STOCKHOLDERS
Subject to the assumptions, limitations, and qualifications referred to
herein, the merger will result in the following federal income tax consequences:
Conversion of Depositary Shares in the Merger
- A holder of depositary shares will recognize gain or loss with respect to
the depositary shares converted in the merger equal to the difference
between:
- the sum of the amount of cash received by the holder upon consummation
of the merger and the fair market value, as of the closing date, of the
holder's right to receive contingent payments and excess warrant
proceeds; and
- the holder's adjusted tax basis in the depositary shares surrendered
therefor in the merger.
- Such gain or loss generally will be long-term capital gain or loss if the
shares converted were held for more than one year as of the closing date
of the merger and will be short-term capital gain or loss if the shares
were held for a shorter period.
- Our financial advisor, Adams, Harkness & Hill, has estimated that the
fair market value of the right to receive contingent payments, as of the
closing date, is equal to $0.07 per share. We believe that the fair
market value of the right to receive excess warrant proceeds is de
minimis. Nevertheless, each holder of depositary shares is urged to make
an independent determination, after consultation with appropriate
advisors, of the fair market value of the right to receive contingent
payments and the fair market value of the right to receive excess warrant
proceeds.
Receipt of Contingent Payments or Excess Warrant Proceeds
- A contingent payment or excess warrant proceeds received by a holder of
depositary shares (except for any portion of a contingent payment or
excess warrant proceeds treated as imputed interest as discussed below)
will decrease the holder's adjusted tax basis in the holder's right to
receive contingent payments or right to receive excess warrant proceeds,
whichever is applicable, to the extent thereof. If the holder's adjusted
tax basis in the right to receive contingent payments or right to receive
excess warrant proceeds, whichever is applicable, is decreased to zero,
any remaining portion of the contingent payment or excess warrant
proceeds, except for any portion of a contingent payment or excess
warrant proceeds treated as imputed interest as discussed below, will be
treated as taxable gain. While the matter is not free from doubt, such
gain should be long-term capital gain if the shares converted in the
merger were held for more than one year as of the closing date of the
merger and should be short-term capital gain if the shares were held for
a shorter period.
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- In general, a portion of a contingent payment or excess warrant proceeds
received by a holder of depositary shares will be treated as a payment of
imputed interest, and the holder will have to recognize such portion as
ordinary income.
- A holder of depositary shares will have an initial tax basis in the right
to receive contingent payments equal to the fair market value, as of the
closing date, of the holder's right to receive contingent payments. A
holder of depositary shares will have an initial tax basis in the right
to receive excess warrant proceeds equal to the fair market value, as of
the closing date, of the holder's right to receive excess warrant
proceeds.
- If a holder's adjusted tax basis in the holder's right to receive
contingent payments is greater than zero after the final contingent
payment is made, the holder generally will recognize a loss equal to the
holder's adjusted tax basis in the holder's right to receive contingent
payments. Similarly, if a holder's adjusted tax basis in the right to
receive excess warrant proceeds is greater than zero after the holder's
right to receive excess warrant proceeds terminates, the holder generally
will recognize a loss equal to the holder's adjusted tax basis in the
holder's right to receive excess warrant proceeds. While the matter is
not free from doubt, in either case, such loss generally should be
long-term capital loss.
Conversion of Series H Preferred Stock in the Merger
- A holder of Series H preferred stock will recognize capital gain or loss
with respect to the Series H preferred stock surrendered in the merger
equal to the difference between:
- the amount of the cash payment received by the holder upon the closing
of the merger (except for any portion of the cash payment attributable
to unpaid and accumulated dividends on the Series H preferred stock);
and
- the holder's adjusted tax basis in the Series H preferred stock
surrendered in the merger.
- Any portion of the cash payment received by a holder of Series H
preferred stock attributable to unpaid and accumulated dividends on the
Series H preferred stock will be taxed as a distribution for purposes of
the Internal Revenue Code. A distribution generally is included in
ordinary income to the extent it is made out of current and accumulated
earnings and profits; any remaining portion of a distribution is first
treated as a nontaxable recovery of the adjusted tax basis of the stock
and then, to the extent such portion exceeds the adjusted tax basis of
the stock, capital gain. Because we believe that we have no current and
accumulated earnings and profits, any portion of the cash payment
attributable to unpaid and accumulated dividends should be treated as a
nontaxable recovery of the holder's adjusted tax basis to the extent
thereof, and any remaining amount should be recognized by the holder as
capital gain.
- Any capital gain will be long-term capital gain if the preferred stock
converted in the merger was held for more than one year as of the closing
date of the merger and will be short-term capital gain if the stock was
held for a shorter period.
Exercise of Appraisal Rights
A stockholder who exercises appraisal rights with respect to the merger and
receives cash in respect of the shares for which such stockholder has exercised
appraisal rights generally will recognize gain or loss equal to the difference
between the amount of cash received in respect of such shares and the holder's
adjusted tax basis in such shares. Such gain or loss will be long-term capital
gain or loss if the shares were held for more than one year as of the closing
date of the merger and will be short-term capital gain or loss if the shares
were held for a shorter period.
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Backup Withholding
Certain noncorporate holders of our stock may be subject to backup
withholding, at a rate that is scheduled to be reduced progressively from 30.5%
to 28% from 2001 to 2006 under recently enacted legislation, on cash payments,
including cash payments received upon the exercise of appraisal rights,
contingent payments, and excess warrant proceeds received pursuant to the
merger. Backup withholding will not apply, however, to a stockholder who:
- furnishes a correct taxpayer identification number and certifies that the
stockholder is not subject to backup withholding on the Form W-9 or
successor form included in the letter of transmittal to be delivered to
our stockholders following the completion of the merger;
- provides a certification of foreign status on the appropriate Form W-8 or
successor form; or
- is otherwise exempt from backup withholding.
THE ABOVE DISCUSSION IS INTENDED TO PROVIDE ONLY A SUMMARY OF THE MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. IT IS NOT INTENDED
TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. IT DOES NOT ADDRESS CERTAIN CATEGORIES OF
STOCKHOLDERS, AND IT DOES NOT ADDRESS STATE, LOCAL OR FOREIGN TAX CONSEQUENCES.
IN ADDITION, AS NOTED ABOVE, IT DOES NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY
WITH, OR ARE CONTINGENT UPON, INDIVIDUAL CIRCUMSTANCES. WE STRONGLY URGE YOU TO
CONSULT YOUR TAX ADVISOR TO DETERMINE YOUR PARTICULAR UNITED STATES FEDERAL,
STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES RESULTING FROM THE
MERGER, IN LIGHT OF YOUR INDIVIDUAL CIRCUMSTANCES.
DISSENTING STOCKHOLDERS' APPRAISAL RIGHTS
Under Section 262 of the Delaware General Corporation Law, if you do not
vote your shares in favor of the adoption of the merger agreement, you will be
entitled to dissent and elect to have the "fair value" of your shares, exclusive
of any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, judicially determined by
the Delaware Court of Chancery and paid to you in cash.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the Delaware General Corporation Law and is qualified
in its entirety by the full text of Section 262, a copy of which is provided as
Annex C to this proxy statement. All references in Section 262 and in this
summary to a "stockholder" are to the record holder of the depositary shares
representing common stock as to which appraisal rights are asserted. All
outstanding shares of our common stock are held by State Street Bank and Trust
Company, as the depositary pursuant to a depositary agreement. If you have a
beneficial interest in depositary shares held of record in the name of another
person, such as a broker or nominee, you must act promptly to cause the record
holder to follow properly the steps summarized below and in a timely manner to
perfect your appraisal rights.
Under Section 262, where a merger agreement is to be submitted for the
adoption at a meeting of stockholders, as in the case of the special meeting of
our stockholders described in this proxy statement, the corporation, not less
than 20 days prior to the meeting, must notify each of its stockholders on the
record date entitled to appraisal rights that appraisal rights are available and
include in the notice a copy of Section 262. This proxy statement is that notice
to you, and a copy of the applicable statutory provisions of the Delaware
General Corporation Law are attached to this proxy statement as Annex C. If you
wish to exercise your appraisal rights or wish to preserve the right to do so,
you should review carefully Section 262 and seek advice of legal counsel, since
failure to comply fully with the procedures of that Section will result in the
loss of appraisal rights.
If you wish to exercise the right to dissent from the merger and demand
appraisal under Section 262, you must satisfy each of the following conditions:
- you must cause the depositary to deliver to us a written demand for
appraisal of your shares before the vote on the adoption and approval of
the merger agreement and the merger at the special
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meeting, which demand will be sufficient if it reasonably informs us of
your identity and that you intend to demand the appraisal of the shares
of common stock represented by your depositary shares;
- you must not vote in favor of the adoption and approval of the merger
agreement and the merger. If you wish to exercise appraisal rights, you
must vote against the adoption and approval of the merger agreement and
the merger or abstain from voting on the adoption or approval of the
merger agreement and the merger; and
- Section 262 provides that a stockholder must continuously hold its shares
from the date of making a written demand through the effective time of
the merger. If you are the record holder of shares on the date the
written demand for appraisal is made but thereafter transfer your shares
prior to the effective time of the merger, you will lose any right to
appraisal in respect of your shares.
Neither voting in person or by proxy against, abstaining from voting on or
failing to vote on the proposal to adopt the merger agreement and the merger
will constitute a written demand for appraisal within the meaning of Section
262. The written demand for appraisal must be in addition to and separate from
any such proxy or vote.
Only a holder of record of shares issued and outstanding immediately prior
to the effective time of the merger is entitled to assert appraisal rights for
the shares registered in that holder's name. A demand for appraisal should be
executed by or on behalf of the stockholder of record, fully and correctly, as
that stockholder's name appears in our stock records, should specify the
stockholder's name and mailing address, the number of shares owned and that the
stockholder intends thereby to demand appraisal of the stockholder's shares.
If your shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a written demand should be made in
that capacity. If your shares are owned of record by more than one person as in
a joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a stockholder. However, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for the owner or
owners.
A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more other beneficial owners while not exercising those rights with
respect to the shares held for one or more beneficial owners. In that case, the
written demand should set forth the number of shares as to which appraisal is
sought, and where no number of shares is expressly mentioned, the demand will be
presumed to cover all shares held in the name of the record owner. If you hold
your shares in brokerage accounts or other nominee forms and wish to exercise
appraisal rights, you are urged to consult with your broker to determine the
appropriate procedures for the making of a demand for appraisal by the nominee.
A stockholder who elects to exercise appraisal rights under Section 262
should cause the depositary to mail or deliver a written demand to Ascent
Pediatrics, Inc., 187 Ballardvale Street, Suite B125, Wilmington, MA 01887,
Attention: Corporate Secretary. You may contact the depositary at State Street
Bank and Trust Company c/o EquiServe, L.P., 150 Royall Street, Canton, MA 02021.
Within ten days after the completion of the merger, the surviving
corporation must send a notice as to the effectiveness of the merger to each
former stockholder who has made a written demand for appraisal in accordance
with Section 262 and who has not voted in favor of the adoption and approval of
the merger agreement and the merger. Within 120 days after the completion of the
merger, but not thereafter, either we, as the surviving corporation, or any
holder of dissenting shares who has complied with the requirements of Section
262 may file a petition in the Delaware Court of Chancery demanding a
determination of the value of all shares held by dissenting stockholders. We are
under no obligation to and have no present intent to file a petition for
appraisal, and you should not assume that we will file a petition or that we
will initiate any negotiations with respect to the fair value of the shares.
Accordingly, if you
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desire to have your shares appraised, you should initiate any petitions
necessary for the perfection of your appraisal rights within the time periods
and in the manner prescribed in Section 262.
Within 120 days after the effective time of the merger, any stockholder who
has complied with the provisions of Section 262 to that point in time will be
entitled to receive from us, upon written request, a statement setting forth the
aggregate number of shares not voted in favor of the adoption and approval of
the merger agreement and the merger and with respect to which demands for
appraisal have been received and the aggregate number of holders of the shares.
We must mail this statement to the stockholder within 10 days of receipt of a
request.
A stockholder timely filing a petition for appraisal with the Delaware
Court of Chancery must deliver a copy to us, which will then obligate us within
20 days to provide the Delaware Court of Chancery with a duly verified list
containing the names and addresses of all stockholders who have demanded
appraisal of their shares. After notice to the stockholders, the Delaware Court
of Chancery is empowered to conduct a hearing on the petition to determine which
stockholders are entitled to appraisal rights. The Delaware Court of Chancery
may require stockholders who have demanded an appraisal for their shares and who
hold stock represented by certificates to submit their certificates to the
Register in Chancery for notation thereon of the pendency of the appraisal
proceedings, and if any stockholder fails to comply with the requirement, the
Delaware Court of Chancery may dismiss the proceedings as to that stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. The costs of the action may be
determined by the Delaware Court of Chancery and taxed upon the parties as the
Delaware Court of Chancery deems equitable. Upon application of a holder of
dissenting shares, the Delaware Court of Chancery may also order that all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, reasonable attorneys' fees and the fees and
expenses of experts, be charged pro rata against the value of all of the shares
entitled to appraisal.
IF YOU CONSIDER SEEKING APPRAISAL, YOU SHOULD BE AWARE THAT THE FAIR VALUE
OF YOUR SHARES AS DETERMINED UNDER SECTION 262 COULD BE MORE THAN, THE SAME AS
OR LESS THAN THE PER SHARE CONSIDERATION YOU WOULD RECEIVE UNDER THE MERGER
AGREEMENT IF YOU DID NOT SEEK APPRAISAL OF YOUR SHARES. YOU SHOULD ALSO BE AWARE
THAT INVESTMENT BANKING OPINIONS ARE NOT OPINIONS AS TO FAIR VALUE UNDER SECTION
262.
In determining "fair value", the Delaware Court is required to take into
account all relevant factors. In Weinberger v. UOP, Inc. the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered and that "[f]air price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court has stated that in making this
determination of fair value the court must consider market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other facts
which could be ascertained as of the date of the merger which throw any light on
future prospects of the merged corporation. Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Cede & Co. v. Technicolor, Inc., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value," but which rather applies only to the
speculative elements of value arising from such accomplishment or expectation.
In Weinberger, the Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered."
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the completion of the merger, be entitled to vote
the shares subject to this demand for any purpose or to receive payment of
dividends or other distributions on those shares, except dividends or other
distributions payable to holders of record of shares as of a record date prior
to the completion of the merger.
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If any stockholder who demands appraisal of shares under Section 262 fails
to perfect, or effectively withdraws or loses, the right to appraisal, the
stockholder's shares will be converted into the right to receive the per share
merger consideration in accordance with the merger agreement, without interest.
A stockholder will fail to perfect, or effectively lose or withdraw, the right
to appraisal if no petition for appraisal is filed within 120 calendar days
after the completion of the merger. A stockholder may withdraw a demand for
appraisal by delivering to us a written withdrawal of the demand for appraisal
and acceptance of the merger consideration, except that any such attempt to
withdraw made more than 60 calendar days after the completion of the merger will
require our written approval. Once a petition for appraisal has been filed, the
appraisal proceeding may not be dismissed as to any stockholder, absent approval
of the Delaware Court of Chancery.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement, a copy of which is attached as Annex A to this proxy statement and is
incorporated by reference into this summary. The summary description is not
complete and is qualified in its entirety by reference to the merger agreement.
We urge you to read the merger agreement in its entirety for a complete
description of the terms and conditions of the merger and related matters.
GENERAL
Following the adoption and approval of the merger agreement and the merger
by our stockholders and the satisfaction or waiver of the other conditions to
the merger, a wholly-owned subsidiary of Medicis will merge with and into us. We
will survive the merger as a wholly-owned subsidiary of Medicis. If all
conditions to the merger are satisfied or waived, the merger will become
effective at the time of the filing by the surviving corporation of a duly
executed certificate of merger with the Secretary of State of the State of
Delaware.
CONVERSION OF ASCENT COMMON STOCK
At the effective time of the merger, each issued and outstanding share of
our common stock, other than shares held in treasury or by stockholders who have
perfected appraisal rights, will convert into the right to receive:
- an initial cash payment upon the closing;
- contingent payments, if earned, for the five years following the
effective time of the merger; and
- payments of excess warrant proceeds, if any.
INITIAL CASH PAYMENT
The initial cash payment for each depositary share will be determined by
deducting from the sum of $60.0 million and the aggregate consideration paid to
us upon the exercise of stock options and warrants between October 1, 2001 and
the closing, the following items:
- $28,999,126 in aggregate principal amount of, plus accrued and unpaid
interest on, our indebtedness outstanding as of the closing;
- a total of $1,675,000 to be paid at closing as retention payments to our
executive officers, including Emmett Clemente, Ph.D., our President and
Chairman, and certain other of our employees;
- a total of $300,000 to be paid at closing to two of our directors, Mr.
Robert Baldini and Mr. Joseph Ianelli, under our consulting agreements
with them;
- the $3.0 million transaction fee payable to entities affiliated with FS
Private Investments pursuant to the fifth amendment to the securities
purchase agreement we entered into with entities affiliated with FS
Private Investments in December 2000 and in consideration of the
execution by such entities of the note agreement;
- transaction costs we incur in connection with the merger, including fees
of investment bankers and attorneys, to the extent such costs exceed $1.2
million; and
- approximately $14.0 million, plus unpaid and accumulated dividends, upon
conversion of shares of Series H preferred stock in the merger, assuming
that we require the purchase of an additional 1,999 shares of Series H
preferred stock prior to closing of the merger;
and dividing the resulting amount by the sum of the total number of shares of
common stock that are outstanding immediately prior to the effective time of the
merger and the total number of shares of common stock issuable upon exercise of
warrants with an exercise price per share of less than $0.40 immediately prior
to the effective time of the merger.
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Assuming that the merger closes on or about December 31, 2001, we expect
that holders of depositary shares will receive approximately $0.40 per share in
cash. This per share amount is determined by subtracting $49,451,233, the total
estimated deductions listed above, from $60,482,000, which amount includes the
aggregate consideration that we estimate that we will receive from exercises of
stock options and warrants between October 1, 2001 and December 31, 2001, and
dividing the resulting amount by 27,966,422, which is the sum of the estimated
total number of shares of common stock outstanding immediately prior to the
effective time of the merger and the estimated total number of shares of common
stock issuable upon the exercise of warrants with an exercise price per share of
less than $0.40 immediately prior to the effective time of the merger. The
actual amount per share that holders of depositary shares will receive may be
more or less than this estimated amount.
CONTINGENT PAYMENTS
If earned, Medicis will make the contingent payments to the holders of
depositary shares for the first five years beginning the first day of the first
month following the effective time of the merger.
The contingent payments for each year will be calculated based on the
amount by which net sales of our pediatric products in the year exceed $25.0
million. The maximum contingent payment that may be made in any year is
determined in accordance with a formula that limits any annual payment for such
year to a specified amount between approximately $10.5 million and approximately
$12.5 million. At the end of the five-year period, Medicis is required to make a
final payment based on the amount by which aggregate net sales of our pediatric
products over the five-year period exceed $125.0 million. This final payment may
not exceed an amount equal to approximately $50.0 million less the sum of all
annual contingent payments made by Medicis. All of these contingent payments are
subject to specified deductions and a right of setoff in favor of Medicis. We
are unable to determine the amount of any contingent payments that will be
earned over the five-year period, if any.
The merger agreement provides that the right to receive contingent payments
may not be assigned or transferred by a holder of our common stock, except by
operation of law or by will or intestate succession.
Contingent payments will be earned to the extent that net sales by Medicis
or any of its subsidiaries, affiliates, licensees or sublicensees of our
pediatric products exceed the thresholds discussed below. The pediatric products
include the products that we currently market and other products of ours that
are in the development phase, including any variation of the formulations of
these products containing the specified active ingredients, in any dosage form
or by any name called, including:
Commercial Products:
- Orapred(R) prednisolone sodium phosphate oral solution (15mg prednisolone
per 5ml);
- Primsol(R) trimethroprim HCl oral solution (50mg/5ml);
- Pediamist(R) nasal saline spray;
Products in the Development Phase:
- Acetaminophen extended release sprinkles;
- Pediavent(R) albuterol extended release suspension; and
- Non-refrigerated Orapred(R) prednisolone sodium phosphate oral solution.
For purposes of determining the contingent payment for any year, the
following definitions apply:
- Net Sales. Net sales of the pediatric products in any year will be
calculated based on the gross amount invoiced by Medicis and its
affiliates, licensees and sublicensees from or on account of sales of the
pediatric products, less any amounts deducted on invoices, in accordance
with GAAP applied
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in a consistent manner with the past practices of Medicis related to the
sale of its other products for:
- normal, customary trade discounts, including volume discounts actually
given or made;
- credits, chargebacks, reductions, rebates, allowances and adjustments
for rejections, recalls, outdated products and returns;
- freight, shipping, insurance and other transportation charges; and
- sales, use, excise, value-added and similar taxes or duties imposed on
the sale other than income taxes.
Net sales in any year will also include any amount received by Medicis
or its affiliates under any co-promotion, marketing or similar agreement
entered into by Medicis or any of its affiliates with two specified
entities with respect to specified pharmaceutical products.
- Divestiture Amount. If, in any year, during the five-year contingent
payment period, Medicis divests all or substantially all of its right,
title and interest in any one or more of the pediatric products, a
portion of the direct consideration received by Medicis for such
pediatric product or products after deducting transaction costs will be
included in the calculation of the contingent payment for that year. Such
portion will be determined based on the year in which the divestiture
occurs following the effective time of the merger as follows:
- Year 1 -- 5/11.
- Year 2 -- 4/11.
- Year 3 -- 3/11.
- Year 4 -- 2/11.
- Year 5 -- 1/11.
- Contingent Payment Adjustments. Deductions from the calculation of
contingent payments include:
- transaction costs incurred by us in connection with the merger that
exceeded $1.2 million but were not deducted from the initial cash
payment;
- payments under the executive retention agreements that were not deducted
from the initial cash payment, such as the additional amounts that may
come due under those agreements if contingent payments are earned; and
- following the payment of the first $5.0 million of the contingent
payments, if any, to our stockholders, an amount equal to 2% of any
further contingent payments earned will be paid to Alpharma USPD Inc. in
accordance with an agreement entered into between us and Alpharma in
December 2000.
- Setoff. Medicis has the right to setoff against future contingent
payments any losses suffered by Medicis as a result of any third party
claims made within two years after the effective time of the merger to
the extent that the claims arise out of specified undisclosed liabilities
relating to the conduct of our business prior to the closing. This setoff
right is not applicable to the first $250,000 in losses suffered by
Medicis. See "The Merger Agreement -- Setoff Right; Survival of
Representations and Warranties."
- Premium Base. The premium base used to calculate contingent payments in
any year equals:
- the lesser of $10.0 million and the amount by which net sales for the
year exceed $25.0 million, plus
- any divestiture amounts in such year, less
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- any setoffs claimed by Medicis for such year.
After determining net sales, divestiture amounts, contingent payment
adjustments, setoffs and the premium base, the contingent payments will be
calculated as follows:
- Year 1 -- Deduct the contingent payment adjustments for such year from an
amount equal to 1.05 multiplied by the premium base for such year.
- Year 2 -- Deduct the contingent payment adjustments for such year from an
amount equal to 1.10 multiplied by the premium base for such year.
- Year 3 -- Deduct the contingent payment adjustments for such year from an
amount equal to 1.15 multiplied by the premium base for such year.
- Year 4 -- Deduct the contingent payment adjustments for such year from an
amount equal to 1.20 multiplied by the premium base for such year.
- Year 5 -- Deduct the contingent payment adjustments for such year from an
amount equal to 1.25 multiplied by the premium base for such year.
Medicis is also obligated to make a premium or "catch-up" payment after the
fifth year if the aggregate net sales and divestiture amounts, after deducting
setoff amounts, for the five-year period exceeds the sum of $125.0 million and
the aggregate premium base for the five-year contingent payment period. This
premium payment cannot exceed an amount equal to approximately $50.0 million
less the aggregate premium base for the five-year contingent payment period.
An example of the calculation of contingent payments, including the annual
contingent payments and the premium payment after the fifth year, is set forth
on page A-57 of Exhibit A to the merger agreement attached to this proxy
statement as Annex A.
Medicis has agreed to use its commercially reasonable efforts to market,
promote and sell the pediatric products, including efforts to develop products
currently in development, and to allocate resources consistent with the
resources allocated by Medicis to its current products.
CONVERSION OF SERIES H PREFERRED STOCK
Holders of Series H preferred stock will receive only an initial cash
payment upon conversion of their shares of Series H preferred stock in the
merger and no contingent payments. For each share of Series H preferred stock,
each holder will receive an amount equal to the sum of:
- the liquidation amount of such share, $1,000, plus unpaid and accumulated
dividends on such share; and
- $10.0 million divided by the number of shares of Series H preferred stock
outstanding immediately prior to the effective time of the merger.
Assuming that the merger closes on or about December 31, 2001, we expect
that holders of Series H preferred stock will receive approximately $3,518.45
per share in cash.
TREATMENT OF STOCK OPTIONS
Prior to the effective time of the merger, each outstanding option granted
by us under our Amended and Restated 1992 Equity Incentive Plan, 1997 Director
Stock Option Plan, 1997 Employee Stock Purchase Plan, Amended and Restated 1999
Stock Incentive Plan and Amended and Restated 2000 California Stock Option Plan
will become fully vested and exercisable. Any options not exercised prior to the
effective time of the merger will be cancelled and will be of no further force
or effect.
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TREATMENT OF WARRANTS
All outstanding warrants to purchase depositary shares may be exercised
before or after the effective time of the merger in accordance with their terms.
The holder of any warrants exercised after the effective time of the merger will
be entitled to receive the consideration that the holder would have received if
the warrant had been exercised prior to the effective time of the merger.
If at any time after the effective time of the merger, a holder of warrants
exercises warrants having an exercise price per share that exceeds the total
cash consideration that the holder would have received prior to the time of
exercise as a holder of depositary shares, the amount by which the aggregate
exercise price paid by such holder exceeds the total cash consideration such
holder is due as of the time of exercise as a result of the merger will be
distributed to all stockholders then entitled to receive contingent payments as
excess warrant proceeds. In addition, following any such exercise of warrants,
the total number of shares of common stock deemed outstanding for purposes of
calculating the per share amount of a contingent payment will be adjusted to
include the shares of common stock that would otherwise have been issued upon
such exercise.
EXCHANGE OF CERTIFICATES
SURRENDER OF SHARES OF COMMON STOCK AND DEPOSITARY SHARES; PAYMENT PROCEDURES
Promptly after the effective time of the merger, Medicis' paying agent will
mail to each stockholder entitled to receive merger consideration a letter of
transmittal and instructions for surrendering the depositary receipts
representing their depositary shares. Only those holders who properly surrender
their depositary receipts in accordance with the instructions will receive the
merger consideration. Upon the surrender of each depositary receipt with a
completed and executed letter of transmittal, Medicis' paying agent will pay the
holder the initial cash payment to which such holder is entitled with respect to
the shares of common stock represented by the depositary shares surrendered by
such holder, without any interest. The surrendered shares will then be
cancelled.
YOU SHOULD NOT SEND IN YOUR DEPOSITARY RECEIPTS UNTIL YOU RECEIVE THE LETTER OF
TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE.
PAYMENT PROCEDURES FOR CONTINGENT PAYMENTS AND EXCESS WARRANT PROCEEDS
Simultaneously with the delivery by Medicis of a statement indicating that
a contingent payment has been earned, upon the resolution of a dispute regarding
the calculation of a contingent payment or a setoff to a contingent payment by
Medicis, or if excess warrant proceeds are owed, Medicis is required to deliver
a sufficient amount of cash to the paying agent to pay the amount owed as a
contingent payment or payment of excess warrant proceeds and will cause the
paying agent to distribute the contingent payment or the excess warrant proceeds
to our stockholders.
NO FURTHER REGISTRATION OR TRANSFER OF DEPOSITARY SHARES
At the effective time of the merger we will close our stock transfer books
and not permit any further registration of transfers of depositary shares on our
records. From and after the effective time of the merger, the holders of
depositary shares outstanding immediately prior to the effective time of the
merger shall cease to have any rights with respect to such depositary shares,
except as otherwise provided in the merger agreement or the depositary agreement
or by applicable law, and other than the right to receive the applicable merger
consideration.
RELATED MATTERS AFTER THE MERGER
At the effective time of the merger, a transitory subsidiary of Medicis
will be merged with us. We will become the surviving corporation in the merger
and a wholly owned subsidiary of Medicis. Each share of transitory subsidiary
common stock issued and outstanding immediately prior to the effective time of
the merger will be converted into one validly issued, fully paid and
nonassessable share of common stock of
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the surviving corporation. The certificate of incorporation of Ascent, in effect
immediately prior to the time of the effective time of the merger, will become
the certificate of incorporation of the surviving corporation. The by-laws of
the transitory subsidiary will become the by-laws of the surviving corporation,
except that the name shall be changed to "Ascent Pediatrics, Inc."
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties of Ascent,
Medicis and Medicis' wholly-owned subsidiary. We made representations and
warranties to Medicis and its wholly-owned subsidiary, and each of them made
representations and warranties to us, that relate to:
- organization, existence, good standing, corporate power and similar
corporate matters;
- authorization, execution, delivery, required filings and consents and the
performance and the enforceability of the merger agreement and related
matters;
- the absence of conflicts, violations and defaults under our respective
corporate charters and by-laws, other agreements and documents and
applicable laws; and
- brokers and related fees.
We also represented and warranted to Medicis and its wholly-owned
subsidiary as to:
- our capitalization;
- permits, licenses and approvals from governmental entities;
- compliance with applicable laws, including the federal Food, Drug, and
Cosmetic Act;
- our filings with the Securities and Exchange Commission;
- our financial statements;
- the absence of undisclosed liabilities;
- the absence of certain changes in our business since June 30, 2001;
- litigation matters;
- our employee benefit plans;
- labor matters;
- our material contracts;
- environmental matters;
- clinical trials of our products;
- our intellectual property;
- tax matters;
- our assets;
- transactions with affiliates;
- insurance policies;
- the vote of stockholders required to approve the merger; and
- actions by our board of directors that make Section 203 of the Delaware
General Corporation Law inapplicable to this merger.
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Medicis also represented and warranted to us as to:
- its ability to pay the aggregate merger consideration;
- its ownership and the purpose of the transitory subsidiary; and
- the accuracy of information provided in connection with this proxy
statement.
COVENANTS OF ASCENT AND MEDICIS
CONDUCT OF OUR BUSINESS PRIOR TO THE MERGER
Except as contemplated by the merger agreement, we have agreed that prior
to the effective time of the merger we will:
- conduct our business in the ordinary course consistent with past
practice;
- use all reasonable best efforts to preserve intact our business
organization, to keep available the services of our current officers,
employees and consultants and to preserve our current relationships with
customers, suppliers and other with which we have a significant business
relationship; and
- not take any action that would cause the merger, the merger agreement,
the voting agreement and the transactions contemplated by the merger
agreement and the other agreements to be subject to the requirements of
Section 203 of the Delaware General Corporation Law or any other
applicable antitakeover laws and regulations of any state.
Specifically, we have agreed that we will not, without the prior written
consent of Medicis:
- adopt or propose any change to our certificate of incorporation or
by-laws;
- issue, sell, pledge, dispose, grant, encumber, or authorize the issuance,
sale, pledge, disposition, grant or encumbrance of any shares of our
capital stock or other securities, except pursuant to the exercise of
options, warrants or convertible securities outstanding as of October 1,
2001, pursuant to certain identified contracts or arrangements in effect
as of October 1, 2001, including approximately an additional $2.0 million
of Series H preferred stock and warrants to purchase up to an additional
4,000,000 depositary shares to FS Ascent Investments that we will issue
if, as expected, we extend the date on which the principal amount of our
7.5% subordinated note is due to December 31, 2001, or under our stock
option plans;
- declare, set aside, make or pay any dividend or other distribution with
respect to shares of our capital stock other than with respect to shares
of Series H preferred stock if required by the terms of the Series H
preferred stock;
- reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of our capital stock other than
shares of Series H preferred stock if required by the terms of the Series
H preferred stock;
- acquire any equity interest in any corporation, partnership or other
business organization or division, excluding money market accounts;
- enter into a new line of business or commence business operations outside
of our existing area of operations unrelated to pharmaceuticals and life
sciences areas;
- except in the ordinary course of business and consistent with past
practice, acquire any assets of any corporation, partnership or other
business organization or division for a purchase price in excess of
$10,000 individually or $50,000 in the aggregate;
- incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise become responsible for, the
obligations of any other person, or make any loans or advances, in excess
of $5,000 individually or $10,000 in the aggregate;
- authorize any capital expenditure in excess of $10,000 in the aggregate;
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- except as required to comply with applicable law:
- increase the compensation payable to our officers or employees;
- grant any severance or termination pay;
- enter into any employment or severance agreement with any director,
officer or other employee;
- enter into any employment or consulting arrangements with any person who
provides services to us that provides for compensation amounts that are
not in accordance with past practice, other than specified permitted
arrangements; or
- establish, adopt, enter into or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement
for the benefit of any director, officer or employee;
- take any action that would give rise to a claim under the WARN Act or any
similar state law or regulation because of a "plant closing" or "mass
layoff" (each as defined in the WARN Act);
- enter into any contract, agreement or obligation in excess of $5,000
which we may not terminate without cost upon notice of 30 days or less,
except purchase or sales orders issued or received in the ordinary course
of business, consistent with past practices;
- enter into any contract relating to the business development of any
pediatric product or a pharmaceutical product of any third party,
including but not limited to licensing, development, co-development,
marketing or co-marketing agreements;
- except as required by law or in accordance with generally accepted
accounting principles, change any existing method or accounting practice;
- make, change or revoke any material tax election, change any annual tax
accounting period, file an amended tax return or settle or compromise any
federal, state, local or foreign tax liability;
- other than in the ordinary course of business, sell, assign, lease,
terminate, abandon, fail to maintain, fail to prosecute as deemed prudent
by us, transfer or otherwise dispose of or grant any security interest in
and to any item of intellectual property owned or licensed by us, grant
any license with respect to any intellectual property owned by us, other
than licenses in the ordinary course in connection with sales, or
disclose, or allow to be disclosed, any confidential intellectual
property, unless it is subject to a confidentiality or nondisclosure
covenant protecting against disclosure thereof; or
- pay, discharge, satisfy or enter into any settlement or consent with
respect to any material claim or litigation.
MEETING OF STOCKHOLDERS
We agreed to do the following as promptly as reasonably practicable after
October 1, 2001:
- take all steps reasonably necessary to call, give notice of, convene and
hold a special meeting of our stockholders for the purpose of securing
the adoption and approval by our stockholders of the merger agreement and
the merger;
- distribute to our stockholders this proxy statement in accordance with
applicable federal and state law and with our certificate of
incorporation and bylaws, containing the recommendation of our board of
directors that the stockholders adopt the merger agreement and approve
the merger; and
- use all reasonable best efforts to solicit from our stockholders proxies
in favor of the adoption of the merger agreement and approval of the
merger and to secure such adoption and approval, provided that we will
not be required to hire a proxy solicitor or utilize any of our employees
other than our president.
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However, despite our agreement to undertake these actions, our board is not
prohibited from failing to make or from withdrawing or modifying its
recommendation to our stockholders in this proxy statement if our board, after
consultation with independent legal counsel, determines in good faith that such
action is legally required for the board to comply with its fiduciary duties to
our stockholders under applicable law.
WE ARE RESTRICTED FROM TRYING TO SELL TO ANOTHER PARTY
We have agreed that we and our officers, directors and employees will not,
and will use reasonable best efforts to ensure that our agents and
representatives will not, directly or indirectly, prior to the earlier to occur
of the closing of the merger and the termination of the merger agreement:
- initiate, solicit or knowingly encourage or facilitate any inquiries
relating to the making of an acquisition proposal for us;
- continue, enter into or engage in any negotiations or discussions
concerning an acquisition proposal; or
- provide access to our properties, books and records or any confidential
information to any person relating to an acquisition proposal.
The merger agreement defines an acquisition proposal to mean any proposal
or offer with respect to:
- any tender offer or exchange offer;
- any merger, consolidation, share exchange, business combination, sale of
substantially all of the assets, reorganization, recapitalization,
liquidation, dissolution or other similar transaction involving assets
which, individually or in the aggregate, constitute more than 25% of our
consolidated assets or earning power;
- any acquisition or purchase, direct or indirect, of more than 25% of our
consolidated assets;
- any acquisition or purchase, direct or indirect, that, if consummated,
would result in any person beneficially owning securities constituting
more than 25% of any class or series of our equity or voting securities;
or
- the sale or license of any intellectual property rights related to our
pediatric products other than licenses in the ordinary course in
connection with sales.
However, we and our board of directors may comply with Rule 14d-9 and Rule
14e-2(a) promulgated under the Exchange Act with regard to an acquisition
proposal. In addition, we and our board of directors may, prior to the adoption
and approval of the merger agreement and the merger by our stockholders, provide
access to our properties, books and records or confidential information to, or
enter into discussions or negotiations with, any person who has made an
unsolicited bona fide written acquisition proposal if and only to the extent
that:
- our board of directors, after consultation with independent legal
counsel, determines in good faith that the action is legally required for
our board of directors to comply with its fiduciary duties to our
stockholders under applicable law;
- the acquisition proposal is not subject to any financing contingencies or
is, in the good faith judgment of our board of directors, after
consultation with its financial advisor, reasonably capable of being
financed by such third party; and
- our board of directors determines in good faith, after consultation with
its independent legal counsel and financial advisor, that the acquisition
proposal is reasonably likely to lead to a transaction that is reasonably
capable of being completed and that, if completed, would reasonably be
expected to result in a transaction more favorable to our stockholders
from a financial point of view than the proposed merger with Medicis.
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We have agreed to immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any persons conducted prior to
October 1, 2001 with respect to any acquisition proposal and to use our
reasonable best efforts to cause any such person, or such person's agents or
advisors, in possession of confidential information about us that was furnished
by or on behalf of us to return or destroy all such information. In addition, we
have agreed to promptly notify Medicis in reasonable detail of receipt of any
acquisition proposal or request for non-public information. We also agreed to
continue to keep Medicis informed in all material respects of the status and
details of any discussions or negotiations with respect to any acquisition
proposal.
In addition, we have agreed that our board of directors will not:
- withdraw or modify in a manner adverse to Medicis, or propose publicly to
withdraw or modify in a manner adverse to Medicis, its recommendation of
the merger agreement or the merger;
- adopt, approve or recommend, or propose publicly to adopt, approve or
recommend, any acquisition proposal; or
- cause or permit us to enter into any letter of intent, memorandum of
understanding, agreement in principle, acquisition agreement, merger
agreement or similar agreement relating to or which is reasonably likely
to lead to an acquisition proposal, other than a permitted
confidentiality agreement.
However, our board of directors or any committee thereof may withdraw or modify
in a manner adverse to Medicis its recommendation if it determines, in good
faith and after consultation with its outside legal counsel, that such action is
legally required for the board of directors to comply with its fiduciary duties
to our stockholders under applicable law. Our board of directors may also take
such actions prior to the adoption and approval of the merger agreement and the
merger by our stockholders as it reasonably determines to be necessary if it
proposes to enter into an agreement relating to a superior acquisition proposal,
terminate the merger agreement and pay a $2.0 million termination fee.
EMPLOYEE BENEFITS MATTERS
The surviving corporation in the merger has agreed to take all reasonable
actions necessary or appropriate to permit the employees who as of the effective
time of the merger were employed by us and who continue to be employed by the
surviving corporation after the effective time of the merger to continue to
participate in the benefit plans in which they were participating immediately
prior to the effective time of the merger. The surviving corporation in the
merger may permit any such employee benefit plan or arrangement to be terminated
or discontinued on or after the effective time, so long as the surviving
corporation:
- takes all reasonable actions necessary or appropriate to permit the
retained employees participating in such employee benefit plan or
arrangement to immediately participate in replacement employee benefit
plans or arrangements substantially comparable to those maintained with
respect to other surviving corporation employees;
- with respect to a replacement plan that is a group health plan, credits
such retained employees with any deductibles and copayments already
incurred during the year under the terminated or discontinued group
health plan and waives any preexisting condition limitations applicable
to the retained employees;
- causes each replacement plan that is an employee pension benefit plan
intended to be qualified under Section 401 of the Internal Revenue Code
to be amended to provide that the retained employees shall receive credit
for participation and vesting purposes under such plan for their period
of employment with us and our predecessors to the extent such predecessor
employment was recognized by us; and
- credits the retained employees under each other replacement plan for
their period of employment with us and our predecessors to the extent
such predecessor employment was recognized by us.
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FURTHER ACTIONS; CONSENTS; FILINGS
We and Medicis have agreed to use reasonable best efforts to:
- take, or cause to be taken, all appropriate action and do, or cause to be
done, all things necessary, proper or advisable under applicable law or
otherwise to consummate and make effective the merger and the other
transactions contemplated by the merger agreement;
- obtain from governmental authorities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or
made by Medicis or us or any of their or our subsidiaries in connection
with the authorization, execution and delivery of the merger agreement
and the consummation of the transactions contemplated by the merger
agreement; and
- make all necessary filings, and thereafter make any other required
submissions, with respect to the merger agreement or the transactions
contemplated by the merger agreement required under applicable law.
We and Medicis also agreed to use reasonable best efforts to cooperate with
each other in connection with the making of all such filings necessary to
consummate the transactions contemplated by the merger agreement, and agreed to
provide copies of all such documents to the nonfiling party and its legal
advisors prior to filing and, if requested, accept all reasonable additions,
deletions or changes suggested in connection therewith.
EXPENSES
The merger agreement provides that each party is to pay the fees and
expense incurred by it, except for fees and expenses related to disputes arising
between the parties in connection with contingent payments or Medicis' setoff
right. Any fees paid by us in excess of $1.2 million will be deducted from
either the $60.0 million initial cash payment or the contingent payments.
MEDICIS' PAYMENT OBLIGATIONS
Medicis has agreed to pay the following obligations, all of which will be
deducted from the initial cash payment:
- the aggregate principal amount of, and accrued and unpaid interest on,
our outstanding indebtedness as of the closing;
- a total of $1,675,000 in retention payments to our executive officers and
certain other of our employees that are due upon the consummation of the
merger;
- a total of $300,000 in payments owed to Messrs. Baldini and Ianelli under
their respective consulting agreements with us; and
- the $3.0 million transaction fee payable to entities affiliated with FS
Private Investments pursuant to the fifth amendment to the securities
purchase agreement we entered into with entities affiliated with FS
Private Investments in December 2000 and in consideration of the
execution by such entities of the note agreement.
In addition, the surviving corporation in the merger has agreed to pay any
retention payments that are due after the effective time of the merger under the
retention agreements, which amounts will be deducted from the contingent
payments.
DIRECTOR AND OFFICER INDEMNIFICATION
The merger agreement provides that for a period of six years after the
effective time of the merger
- the surviving corporation in the merger will indemnify, defend and hold
harmless each person who is now, or has been at any time prior to October
1, 2001 or who becomes prior to the effective time of the merger, an
officer or director of Ascent against all losses, claims, damages,
liabilities, fees
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and expenses, including reasonable fees and disbursements of counsel and
judgments, fines, losses, claims, liabilities and amounts paid in
settlement, provided that any such settlement is effected with the prior
written consent of Medicis, which will not be unreasonably withheld,
arising in whole or in part out of actions or omissions in their capacity
as such occurring at or prior to the effective time of the merger to the
full extent permitted under the Delaware General Corporation Law or the
surviving corporation's certificate of incorporation and bylaws, except
to the extent such amounts are paid under directors' and officers'
liability insurance; and
- Medicis has agreed to cause the surviving corporation to purchase
additional officers' and directors' liability insurance to increase the
existing coverage to total coverage of $20.0 million and to extend the
period of coverage to a date not less than six years after the effective
time of the merger.
NOTIFICATION OF CERTAIN MATTERS
Medicis has agreed to give us prompt notice, and we have agreed to give
Medicis prompt notice, of any of the following events:
- the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be reasonably likely to cause any
representation or warranty contained in the merger agreement to be untrue
or inaccurate or any covenant, condition or agreement contained in the
merger agreement not to be complied with or satisfied; and
- any failure of Medicis or us to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under the
merger agreement;
and which, in either case or when aggregated with any other event or failure,
would reasonably be expected to provide the notified party the right to
terminate the merger agreement.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The obligations of Medicis and Ascent to effect the merger are subject to
the satisfaction or waiver of the following conditions:
- our stockholders must have adopted and approved the merger agreement and
the merger;
- there must be no law, rule, regulation, judgment, decree, executive order
or award in effect that makes the merger illegal or that otherwise
prohibits the consummation of the merger;
- the parties must have obtained all material government authorizations and
consents;
- we have obtained a tail insurance policy providing extended coverage for
products liability for six years, employment practices liability for
three years and fiduciary liability for three years; and
- we have maintained our worker's compensation insurance policy to keep
such coverage in effect after the merger.
In addition, our obligation to effect the merger is subject to the
satisfaction or waiver of the following conditions:
- the representations and warranties of Medicis and its wholly-owned
subsidiary in the merger agreement must be true and correct as of the
effective time of the merger (without giving effect to any materiality
qualifications), unless made as of another date, in which case they must
be true as of such date and except where the failures, individually or in
the aggregate, to be true and correct would not have a material adverse
effect on Medicis; and
- Medicis and its wholly-owned subsidiary must have performed or complied
in all material respects with all agreements and covenants required to be
performed or complied with by them under the merger agreement at or prior
to the effective time of the merger.
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In addition, the obligations of Medicis and its wholly-owned subsidiary to
effect the merger are subject to the satisfaction or waiver of the following
conditions:
- our representations and warranties in the merger agreement must be true
and correct as of the effective time of the merger (without giving effect
to any materiality qualifications), unless made as of another date, in
which case they must be true and correct as of such date and except where
the failures, individually or in the aggregate, to be true and correct
would not reasonably be expected to have a material adverse effect on us;
- we must have performed or complied in all material respects with all
agreements and covenants required to be performed or complied with by us
under the merger agreement at or prior to the effective time of the
merger;
- the number of dissenting shares of common stock may not comprise more
than 10% of the total outstanding shares of our common stock immediately
prior to the effective time of the merger;
- we must have received all material third party consents necessary to
consummate the merger;
- no event or events shall have occurred which, individually or in the
aggregate, would reasonably be expected to have a material adverse effect
on our business, properties, operations, financial condition and results
of operations taken as a whole or materially impair or delay our ability
to perform our material obligations under the merger agreement or to
consummate the merger;
- we must have executed the certificate of merger for filing with the
Secretary of State of the State of Delaware;
- we must have delivered to Medicis resignations of our officers and
directors; and
- there is no pending or threatened suit, action, investigation or
proceeding to which a governmental entity is a party seeking to restrain
or prohibit the merger or seeking to prohibit or limit the ownership or
operation of our business or assets or Medicis' respective business or
assets.
TERMINATION; TERMINATION FEES
TERMINATION
The merger agreement may be terminated and the merger abandoned at any time
prior to the effective time of the merger under the following circumstances:
- by mutual written consent of the parties;
- by either party if:
- the merger is not consummated by January 31, 2002, unless the failure
to complete the merger by such date is due to the terminating party's
failure to fulfill any obligation under the merger agreement;
- a governmental entity issues a nonappealable final order preventing the
consummation of the merger unless the terminating party's failure to
fulfill any obligation under the merger agreement was the cause of, or
resulted in, such order;
- the requisite vote of our stockholders in favor of the merger agreement
and the merger is not obtained at the special meeting; or
- the other party breaches representations, warranties or covenants in
the merger agreement which breach would, if uncured at the closing of
the merger, cause the terminating party's closing conditions not to be
satisfied and such breach is not cured within 20 business days of
written notice of such breach;
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- by Medicis if:
- our board of directors withdraws, modifies or changes its
recommendation to our stockholders with respect to the merger in a
manner adverse to Medicis or recommends a third party acquisition
proposal other;
- we enter into a definitive agreement with respect to a third party
acquisition proposal; or
- we willfully and materially breach any of our obligations with respect
to the special meeting or the solicitation of acquisition proposals
under the merger agreement;
- by us if prior to adoption and approval of the merger agreement and the
merger by our stockholders:
- we enter into an agreement with a third party who makes a superior
acquisition proposal;
- we pay a $2.0 million termination fee to Medicis;
- we have complied in all material respects with our obligation not to
solicit any third party acquisition proposals;
- we provide Medicis with a written summary of the material terms and
conditions of the superior acquisition proposal three business days
prior to termination; and
- we make ourselves and our financial and legal advisors reasonably
available to negotiate an amendment to the merger agreement or a new
offer from Medicis, and Medicis does not propose an offer within three
business days of the date it receives the written summary of material
terms and conditions that is at least as favorable in our board of
directors' good faith judgment to our stockholders from a financial
point of view as the pending superior acquisition proposal.
TERMINATION FEES
We have agreed to pay a $2.0 million termination fee to Medicis in the
event the merger agreement is terminated for any of the following reasons:
- by either party because the requisite vote of our stockholders in favor
of the merger agreement and the merger is not obtained;
- by Medicis because our board of directors withdraws, modifies or changes
its recommendation to our stockholders in a manner adverse to Medicis or
recommends to our stockholders a third party acquisition proposal or we
enter into a definitive agreement with respect to a third party
acquisition proposal other than a Medicis acquisition proposal; or
- by us because we enter into an agreement with respect to a superior
acquisition proposal meeting the requirements set forth in the merger
agreement.
We have also agreed to pay a $2.0 million termination fee if:
- either we or Medicis terminate the merger agreement because the merger
has not been completed on or before January 31, 2002;
- at the time of termination a third party has made and not withdrawn or
abandoned an acquisition proposal; and
- within 12 months after termination of the merger agreement, we consummate
or enter into a definitive agreement with respect to an acquisition
proposal.
We are required to pay such termination fee at the time we consummate or
enter into the definitive agreement for the acquisition proposal.
In addition, pursuant to the voting agreement entered into among the
entities affiliated with FS Private Investments LLC and Medicis, the entities
have agreed to pay to Medicis a $3.0 million termination fee if we are required
to pay a termination fee under the merger agreement. See "Related
Agreements -- Voting Agreement."
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SETOFF RIGHT; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
SETOFF RIGHT
After the effective time, Medicis is entitled to setoff against any future
contingent payments any and all liabilities, losses, damages, claims, costs and
expenses, interest, awards, judgments and penalties, including, without
limitation, reasonable attorneys' and consultants' fees and expenses and other
reasonable costs of defending, investigating or settling claims, actually
suffered or incurred by Medicis or its affiliates, officers, directors,
employees, agents, successors and assigns arising out of or resulting from one
or more bona fide claims by third parties made against Medicis or any Medicis
affiliate within two years after the effective time of the merger, to the extent
such claims arise out of:
- our Section 9.02 Liabilities as of June 30, 2001 to the extent not fully
reflected or reserved against on our unaudited balance sheet at June 30,
2001;
- our Section 9.02 Liabilities incurred after June 30, 2001, other than
Section 9.02 Liabilities incurred by us after June 30, 2001 in the
ordinary course of business which would have been reflected on or
reserved against on our unaudited balance sheet at June 30, 2001 in
accordance with generally accepted accounting principles and consistent
with past practices had they been incurred and not satisfied on or prior
to June 30, 2001; or
- our Section 9.02 Liabilities which are contingent liabilities and which,
in accordance with generally accepted accounting principles and
consistent with past practices, we determine prior to the effective time
of the merger are "probable" claims.
The merger agreement defines Section 9.02 Liabilities to mean all
liabilities arising out of the conduct of our business prior to the effective
time of the merger other than:
- specified liabilities we have disclosed to Medicis; and
- payment or performance obligations under the terms of contracts (but not
for breach or non-performance) we disclosed to Medicis or that we entered
into prior to the effective time of the merger without violating our
obligations in Section 5.01 of the merger agreement regarding the conduct
of our business pending the merger.
In connection with this setoff right, Medicis has agreed as follows:
- the losses that Medicis is entitled to deduct from any contingent
payments will be determined net of all insurance proceeds received or
receivable;
- Medicis will use reasonable efforts to mitigate any such losses; and
- Medicis' sole remedy for any such losses is its right to setoff against
future cash contingent payments, and that Medicis may not setoff any
losses until the aggregate amount of losses exceeds $250,000, and then
only to the extent losses exceed $250,000.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND OTHER OBLIGATIONS
Our representations and warranties and the representations and warranties
of Medicis and its wholly-owned subsidiary contained in the merger agreement
will expire and be terminated and extinguished upon the consummation of the
merger. The agreements, covenants and obligations made or undertaken by us,
Medicis or the surviving corporation in the merger will survive the consummation
of the merger and will remain in full force and effect, unless the agreement,
covenant or obligation expires after some specified period of time by its terms.
CALCULATION REPRESENTATIVE
FS Private Investments, or any affiliate it designates, has the full
authority as calculation representative to act and to take any and all actions
required or permitted to be taken under the merger agreement, with respect to
any claims, including the settlement thereof, made by Medicis or any Medicis
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affiliate for setoff against any contingent payments or any dispute, claim or
controversy relating to the calculation of any contingent payment.
If FS Private Investments, its designee or any subsequent calculation
representative resigns or is no longer able to perform its duties as calculation
representative, Emmett Clemente, Ph.D. shall become the calculation
representative. If Dr. Clemente is unable or unwilling to act as calculation
representative, an arbitrator will select a successor calculation
representative.
Neither the calculation representative nor any of its directors, officers,
agents or employees will be liable for any error of judgment or any action
taken, suffered or omitted to be taken under the merger agreement, except as the
result of gross negligence, bad faith or willful misconduct on the part of the
calculation representative.
Any out-of-pocket expenses incurred by the calculation representative and
not paid by Medicis or otherwise reimbursed to the calculation representative
will be deducted from any unpaid contingent payments, subject to Medicis' right
to setoff against such contingent payments.
AMENDMENT
At any time before or after approval of the merger agreement and the merger
by our stockholders and prior to the effective time of the merger, the merger
agreement may be amended in writing by us and Medicis with respect to any of its
terms, except as otherwise provided by law. However, following approval of the
merger agreement and the merger by our stockholders the parties may not amend or
change the provisions of the merger agreement if such amendment or change alters
or changes:
- the amount and kind of the merger consideration;
- any term of the certificate of incorporation of the transitory subsidiary
of Medicis to be effected by the merger; or
- any term or condition in the merger agreement if it would adversely
affect our stockholders.
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RELATED AGREEMENTS
VOTING AGREEMENT
In connection with the signing of the merger agreement, Medicis entered
into a voting agreement with FS Private Investments LLC, Furman Selz Investors
II L.P., FS Employee Investors LLC, FS Ascent Investments LLC and FS Parallel
Fund L.P. As of the record date, these entities owned an aggregate
of depositary shares, or approximately % of the depositary
shares at such date and all of the outstanding shares of Series H preferred
stock.
Under the voting agreement, these entities agreed that, until the earlier
to occur of the closing of the merger and the termination of the merger
agreement in accordance with its terms, they would:
- vote or cause to be voted the depositary shares and the shares of Series
H preferred stock held by them in favor of the adoption and approval of
the merger agreement and the merger, unless we accept a superior
acquisition proposal meeting the requirements set forth in the merger
agreement, or our board of directors withdraws, modifies or changes its
recommendation to our stockholders in a manner adverse to Medicis, in
which case, they would vote all of the shares of Series H preferred stock
held by them and such number of depositary shares held by them equaling
25% of the depositary shares issued and outstanding as of the record date
in favor of the adoption and approval of the merger agreement and the
merger;
- not sell, transfer, pledge, assign or otherwise dispose of any depositary
shares or shares of Series H preferred stock held by them; and
- waive any rights to appraisal or rights to dissent from the merger that
these entities have.
In addition, these entities agreed to pay to Medicis a $3.0 million fee if
we are required to pay Medicis a termination fee under the merger agreement.
We encourage you to read carefully the voting agreement which is attached
as Annex D to this proxy statement.
NOTE AGREEMENT
In connection with the signing of the merger agreement, Medicis entered
into a note agreement among us, Flynn Partners and the entities affiliated with
FS Private Investments with respect to the notes, warrants and shares of Series
H preferred stock held by such entities.
Under the note agreement, Flynn Partners and the entities affiliated with
FS Private Investments agreed that, until the earliest to occur of the
termination of the merger agreement pursuant to its terms, the closing of the
merger and January 31, 2002:
- they would not transfer any of our securities unless the transferee
agrees in writing to become bound by the terms of the note agreement; and
- they would not convert the notes into equity securities of Ascent.
Such holders of convertible subordinated notes also agreed to waive the
requirement that we issue additional warrants to them as a condition to our
right to redeem the convertible subordinated notes in connection with the merger
and waived any required notices of the merger or the anticipated redemption of
the notes upon consummation of the merger.
In addition, under the note agreement, FS Ascent Investments agreed:
- until the earliest to occur of the termination of the merger agreement
pursuant to its terms, the closing of the merger and January 31, 2002 it
would:
- not take any action that would cause us to redeem any or all of the
Series H preferred stock or take any action to cause us to repay our
7.5% subordinated note;
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63
- extend the date on which we are required to repay the principal amount
of our 7.5% subordinated note to December 31, 2001 for no additional
consideration other than as required under the terms of the notes;
- extend the date on which we are required to repay the principal amount
of our 7.5% subordinated note to January 31, 2002 if the merger is not
completed by December 31, 2001;
- to waive any required notices of the merger and the anticipated
redemption of the 7.5% subordinated note upon the completion of the
merger; and
- all unexercised warrants held by FS Ascent Investments will terminate
immediately prior to the completion of the merger.
We encourage you to read carefully the note agreement which is attached as
Annex E to this proxy statement.
EXCLUSIVE REMEDY AGREEMENT
In connection with the signing of the merger agreement, Medicis entered
into an exclusive remedy agreement with the following holders holding
approximately 67% of the outstanding depositary shares as of October 1, 2001: FS
Private Investments LLC, Furman Selz Investors L.P., FS Employee Investors LLC,
FS Ascent Investments LLC, FS Parallel Fund L.P., Flynn Partners, Raymond F.
Baddour, Sc.D., Robert E. Baldini, Medical Science Partners L.P. and Emmett
Clemente, Ph.D. Pursuant to the exclusive remedy agreement, these parties agreed
that their exclusive remedies relating to disputes under the merger agreement
regarding calculation of contingent payments and determination of any setoffs to
contingent payments by Medicis are governed by the appropriate provisions in the
merger agreement.
We encourage you to read carefully the exclusive remedy agreement which is
attached as Annex F to this proxy statement.
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MARKET PRICE INFORMATION FOR ASCENT
Our depositary shares are traded on the Over-the-Counter Bulletin Board
under the symbol "ASCTP." Prior to July 23, 1999, our common stock had been
traded on the Nasdaq National Market under the symbol "ASCT." The table below
sets forth the range of intraday high and low sales prices or bid prices per
share of Ascent common stock or depositary share, as appropriate, for the
periods indicated below as reported on the Nasdaq National Market or the
Over-the Counter-Bulletin Board, respectively.
<Table>
<Caption>
HIGH LOW
------- -------
1999
Quarter ended March 31, 1999.............................. $6.875 $2.50
Quarter ended June 30, 1999............................... $3.156 $1.625
Quarter ended September 30, 1999.......................... $3.00 $1.25
Quarter ended December 31, 2000........................... $2.125 $0.875
2000
Quarter ended March 31, 2000.............................. $3.00 $1.25
Quarter ended June 30, 2000............................... $2.7812 $0.9375
Quarter ended September 30, 2000.......................... $1.9688 $0.8438
Quarter ended December 31, 2000........................... $1.7344 $0.5312
2001
Quarter ended March 31, 2001.............................. $1.4375 $0.5625
Quarter ended June 30, 2001............................... $0.8125 $0.32
Quarter ended September 30, 2001.......................... $0.78 $0.33
Quarter ended December 31, 2001
(through October 5, 2001).............................. $0.54 $0.38
</Table>
As of the record date, we had one record holder of our common stock and
approximately record holders of depositary shares.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT OF ASCENT
The following table sets forth, as of October 1, 2001, certain information
concerning the beneficial ownership of our common stock and our Series H
preferred stock by:
- each person, to our knowledge, that beneficially owns more than 5% of the
outstanding shares of any class of securities;
- each director;
- each executive officer; and
- our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and is not necessarily indicative of
beneficial ownership for any other purpose. Under these rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting power or investment power and any shares which the individual or
entity has the right to acquire within 60 days after October 1, 2001 through the
conversion of any convertible note or other convertible security or the exercise
of any stock option, warrant or other right. However, these shares are not
deemed outstanding for purposes of calculating the percentage ownership of any
other person. The inclusion in this table of any shares does not constitute an
admission that the named shareholder is a direct or indirect beneficial owner of
the shares. Unless otherwise indicated, we believe that each person or entity
named in the table has sole voting power and investment power with respect to
all shares of capital stock listed as owned by the person or entity. Unless
otherwise indicated, the address of each director and executive officer of
Ascent is c/o Ascent Pediatrics, Inc., 187 Ballardvale Drive, Suite B125,
Wilmington, MA 01887.
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<Table>
<Caption>
DEPOSITARY SHARES SERIES H PREFERRED STOCK
----------------------- -------------------------
NUMBER OF NUMBER OF
SHARES SHARES
BENEFICIALLY PERCENT BENEFICIALLY PERCENT OF
OWNED OF CLASS OWNED CLASS
------------ -------- ------------ ----------
NAME OF BENEFICIAL OWNER
Funds affiliated with FS Private
Investments LLC.......................... 19,849,796(1) 71.3% 2,001 100%
520 Madison Avenue, 8th Floor
New York, NY 10055
Raymond F. Baddour, Sc.D................... 282,045(2) 1.6% -- --
Robert E. Baldini.......................... 134,000(3) * -- --
Emmett Clemente, Ph.D...................... 419,176(4) 2.4% -- --
Nicholas Daraviras......................... 20,000(5) * -- --
James E. Flynn............................. 261,909(6) 1.5% -- --
Brian P. Friedman.......................... 19,874,796(7) 71.3% 2,001 100%
Joseph R. Ianelli.......................... 25,000(8) * -- --
Andre L. Lamotte, Sc.D..................... 872,153(9) 5.1% -- --
James L. Luikart........................... 19,899,796(10) 71.4% 2,001 100%
David Benn................................. 11,250(11) * -- --
Steven Evans............................... 38,750(12) * -- --
All directors and current executive
officers as a group (eleven persons)..... 21,939,079(13) 77.1% -- --
</Table>
---------------
* Represents less than 1% of the outstanding depositary shares of Ascent.
(1) Consists of (a) 6,343,387 depositary shares held by Furman Selz Investors
II L.P., (b) a total of 5,088,243 depositary shares issuable upon the
conversion of the principal of a 7.5% convertible note and an 8.0%
convertible subordinated note held by Furman Selz Investors II L.P. within
60 days of October 1, 2001, (c) 543,670 depositary shares held by FS
Employee Investors LLC, (d) a total of 436,171 depositary shares issuable
upon the conversion of the principal of a 7.5% convertible note and an 8.0%
convertible subordinated note held by FS Employee Investors LLC within 60
days of October 1, 2001, (e) 308,604 depositary shares held by FS Parallel
Fund L.P., (f) a total of 247,517 depositary shares issuable upon the
conversion of the principal of a 7.5% convertible note and an 8.0%
convertible subordinated note held by FS Parallel Fund L.P. within 60 days
of October 1, 2001, (g) 150,000 depositary shares held by FS Private
Investments, (h) a total of 1,732,204 depositary shares held by FS Selz
Investors II L.P., FS Employee Investors LLC and FS Parallel Fund L.P.
pursuant to their ownership interest in FS Ascent Investments LLC and (i) a
total of 5,000,000 depositary shares issuable upon the exercise of warrants
held FS Ascent Investments LLC within 60 days of October 1, 2001. Furman
Selz Investors II L.P., FS Employee Investors LLC, FS Parallel Fund L.P.,
FS Private Investments and FS Ascent Investments LLC are affiliates under
common control. These entities also have the right to receive additional
securities. See "The Merger -- Interests of Our Executive Officers and
Directors in the Merger."
(2) Includes (a) 16,661 depositary shares issuable upon the exercise of
warrants within 60 days of October 1, 2001 and (b) 30,000 depositary shares
issuable upon the exercise of options within 60 days of October 1, 2001.
(3) Consists of 134,000 depositary shares issuable upon the exercise of options
within 60 days of October 1, 2001.
(4) Includes 246,526 depositary shares issuable upon the exercise of options
within 60 days of October 1, 2001.
60
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(5) Consists of 20,000 depositary shares issuable upon the exercise of options
within 60 days of October 1, 2001.
(6) Includes (a) 95,212 shares owned by Flynn Partners, (b) 18,316 depositary
shares issuable upon the conversion of the principal of an 8% convertible
subordinated note within 60 days of October 1, 2001 and (c) 130,381
depositary shares held by Flynn Partners pursuant to its ownership interest
in FS Ascent Investments LLC. Mr. Flynn is the general partner of Flynn
Partners, which is a member of FS Ascent Investments LLC. See "The
Merger -- Interests of Our Executive Officers and Directors in the Merger."
(7) Consists of the depositary shares described in note (1). Mr. Friedman is
President of FS Private Investments LLC and may be considered the
beneficial owner of the depositary shares described in note (1). Mr.
Friedman disclaims such beneficial ownership.
(8) Consists of 25,000 depositary shares issuable upon the exercise of options
within 60 days of October 1, 2001.
(9) Consists of (a) 738,776 depositary shares held by Medical Science Partners,
L.P., (b) 57,142 depositary shares held by Medical Science Partners II,
L.P., (c) 13,691 depositary shares held by Medical Science II
Co-Investment, L.P. , (d) 19,554 depositary shares issuable upon the
exercise of warrants within 60 days of October 1, 2001, held by Medical
Science Partners, L.P., (e) 10,769 depositary shares held by Dr. Lamotte,
(f) 2,221 depositary shares issuable upon the exercise of warrants held by
Dr. Lamotte within 60 days of October 1, 2001 and (g) 30,000 depositary
shares issuable upon the exercise of options held by Dr. Lamotte within 60
days of October 1, 2001. Dr. Lamotte is the managing general partner of the
general partners of Medical Science Partners, L.P., Medical Science
Partners II, L.P. and Medical Science II Co-Investment, L.P. and may be
considered the beneficial owner of the depositary shares held by such
entities, although Dr. Lamotte disclaims such beneficial ownership, except
as to his pecuniary interest therein.
(10) Consists of the depositary shares described in note (1) and 25,000
depositary shares issuable upon the exercise of options within 60 days of
October 1, 2001. Mr. Luikart is an Executive Vice President of FS Private
Investments LLC and may be considered the beneficial owner of the
depositary shares described in note (1). Mr. Luikart disclaims such
beneficial ownership.
(11) Consists of 11,250 depositary shares issuable upon the exercise of options
within 60 days of October 1, 2001.
(12) Consists of 38,750 depositary shares issuable upon the exercise of options
within 60 days of October 1, 2001.
(13) See notes (2) through (12).
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STOCKHOLDER PROPOSALS
We will hold an annual meeting of stockholders in 2002 only if the merger
is not completed.
Any proposal that a stockholder intends to present at the 2002 annual
meeting of stockholders must be submitted to our corporate secretary c/o Ascent
Pediatrics, Inc., 187 Ballardvale Drive, Suite B125, Wilmington, Massachusetts
01887, no later than January 11, 2002, in order to be considered for inclusion
in the proxy statement relating to that meeting.
If a stockholder wishes to present a proposal before the annual meeting in
2002 but has not complied with the requirements for inclusion of the proposal in
our proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of
1934, the stockholder must give notice of the proposal to our corporate
secretary at our principal offices. The required notice must be made in writing
and delivered or mailed by first class United States mail, postage-prepaid, to
our corporate secretary at our principal offices, and received not less than 60
days nor more than 90 days prior to the annual meeting in 2002. Notwithstanding
the foregoing, if we provide stockholders with less than 70 days notice or
public disclosure of the date of the meeting, then our corporate secretary must
receive proposals from stockholders no later than the close of business 20 days
after the date on which the notice of the meeting was mailed or the public
disclosure was made, whichever occurs first.
If a stockholder who wishes to present a proposal before the annual meeting
fails to notify us by the required date, the proxies that management solicits
for the meeting will have discretionary authority to vote on the stockholder's
proposal if it is properly brought before that meeting. If a stockholder makes
timely notification, the proxies may still exercise discretionary authority
under circumstances consistent with the Securities and Exchange Commission's
proxy rules.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information that we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms.
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet world wide
web site that contains reports, proxy statements and other information about
issuers, like us, who file electronically with the SEC. The address of that site
is http://www.sec.gov.
You should rely only on the information contained in this proxy statement
to vote on the merger agreement and the merger. We have not authorized anyone to
provide you with information that is different from what is contained in this
document. This proxy statement is dated , 2001. You should not
assume that the information in it is accurate as of any date other than that
date, and its mailing to stockholders should not create any implication to the
contrary.
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ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
MEDICIS PHARMACEUTICAL CORPORATION,
A DELAWARE CORPORATION,
MPC MERGER CORP.,
A DELAWARE CORPORATION, AND
ASCENT PEDIATRICS, INC.,
A DELAWARE CORPORATION
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
A-1
70
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE I THE MERGER....................................... A-6
Section 1.01. The Merger............................... A-6
Section 1.02. Effective Time; Closing.................. A-6
Section 1.03. Effect of the Merger..................... A-6
Section 1.04. Certificate of Incorporation; Bylaws..... A-7
Section 1.05. Directors and Officers................... A-7
ARTICLE II MERGER CONSIDERATION; EXCHANGE OF
CERTIFICATES.............................................. A-7
Section 2.01. Merger Consideration..................... A-7
Section 2.02. Payment of Merger Consideration.......... A-8
Section 2.03. Additional Payments...................... A-10
Section 2.04. Company Stock Options and Warrants....... A-13
Section 2.05. Dissenting Shares........................ A-14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY................................................... A-15
Section 3.01. Organization and Qualification........... A-15
Section 3.02. Certificate of Incorporation and
Bylaws................................................ A-15
Section 3.03. Capitalization........................... A-15
Section 3.04. Authority Relative to this Agreement..... A-16
Section 3.05. Consents and Approvals; No Violations.... A-17
Section 3.06. Permits; Compliance...................... A-17
Section 3.07. Company SEC Reports...................... A-18
Section 3.08. Financial Statements..................... A-18
Section 3.09. Absence of Undisclosed Liabilities....... A-19
Section 3.10. Absence of Certain Changes or Events..... A-19
Section 3.11. Absence of Litigation.................... A-20
Section 3.12. Employee Benefit Plans; Labor Matters.... A-20
Section 3.13. Contracts................................ A-22
Section 3.14. Environmental Matters.................... A-23
Section 3.15. Preclinical Testing and Clinical
Trials................................................ A-24
Section 3.16. Intellectual Property.................... A-24
Section 3.17. Taxes.................................... A-26
Section 3.18. Assets................................... A-27
Section 3.19. Certain Interests........................ A-27
Section 3.20. Insurance Policies....................... A-27
Section 3.21. Brokers.................................. A-27
Section 3.22. Vote Required............................ A-28
Section 3.23. Takeover Restrictions.................... A-28
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB................................................ A-28
Section 4.01. Organization and Qualification........... A-28
Section 4.02. Certificate of Incorporation and
Bylaws................................................ A-28
Section 4.03. Authority Relative to this Agreement..... A-28
Section 4.04. Consents and Approvals; No Violations.... A-29
</Table>
A-2
71
<Table>
<Caption>
PAGE
----
Section 4.05. Financing................................ A-29
Section 4.06. Ownership of Merger Sub; No Prior
Activities............................................ A-29
Section 4.07. Brokers.................................. A-29
Section 4.08. Information Supplied..................... A-30
ARTICLE V CONDUCT OF BUSINESSES PENDING THE MERGER......... A-30
Section 5.01. Conduct of Business by the Company
Pending the Merger.................................... A-30
ARTICLE VI ADDITIONAL AGREEMENTS........................... A-32
Section 6.01. Preparation of the Proxy Statement....... A-32
Section 6.02. Company Stockholders' Meeting............ A-32
Section 6.03. Access to Information; Confidentiality;
Transition............................................ A-32
Section 6.04. No Solicitation of Transactions.......... A-33
Section 6.05. Employee Benefits Matters................ A-34
Section 6.06. Further Action; Consents; Filings........ A-35
Section 6.07. Public Announcements..................... A-35
Section 6.08. Expenses................................. A-35
Section 6.09. Other Deductions......................... A-35
Section 6.10. Company Notes............................ A-36
Section 6.11. Director and Officer Indemnification..... A-36
Section 6.12. Notification of Certain Matters.......... A-37
Section 6.13. Pediatric Product Sales, Marketing and
Development........................................... A-37
Section 6.14. Other Matters............................ A-37
Section 6.15. Voting Agreement......................... A-38
ARTICLE VII CONDITIONS TO THE MERGER SECTION............... A-38
Section 7.01. Conditions to the Obligations of Each
Party................................................. A-38
Section 7.02. Conditions to the Obligations of Parent
and Merger Sub........................................ A-39
Section 7.03. Conditions to the Obligations of the
Company............................................... A-39
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............. A-40
Section 8.01. Termination.............................. A-40
Section 8.02. Notice of Termination; Effect of
Termination........................................... A-41
Section 8.03. Extension; Waiver........................ A-42
ARTICLE IX RIGHT OF SETOFF................................. A-42
Section 9.01. Survival of Representations, Warranties
and Other Obligations................................. A-42
Section 9.02. Right of Setoff Against the Contingent
Payments.............................................. A-42
Section 9.03. Procedure for Third Party Claims......... A-43
Section 9.04. Calculation Representative............... A-44
ARTICLE X GENERAL PROVISIONS............................... A-45
Section 10.01. Notices................................. A-45
Section 10.02. Certain Definitions..................... A-46
Section 10.03. Separability............................ A-54
Section 10.04. Assignment.............................. A-54
Section 10.05. No Third Party Beneficiaries............ A-54
Section 10.06. Incorporation of Exhibits............... A-54
</Table>
A-3
72
<Table>
<Caption>
PAGE
----
Section 10.07. Specific Performance.................... A-54
Section 10.08. Governing Law; Forum.................... A-54
Section 10.09. Headings................................ A-55
Section 10.10. Counterparts............................ A-55
Section 10.11. Entire Agreement........................ A-55
Section 10.12. Attorney's Fees......................... A-55
Section 10.13. Amendments and Supplements.............. A-55
EXHIBIT A EXAMPLE OF CONTINGENT PAYMENT CALCULATIONS....... A-57
</Table>
A-4
73
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan Of Merger, dated as of October 1, 2001 (this
"Agreement"), is among Medicis Pharmaceutical Corporation, a Delaware
corporation ("Parent"), MPC Merger Corp., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and Ascent Pediatrics, Inc., a
Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the General Corporations Law of the State of Delaware (the
"DGCL"), Parent and the Company will enter into a business combination
transaction pursuant to which Merger Sub will merge with and into the Company
(the "Merger");
WHEREAS, the Boards of Directors of Parent, the Merger Sub and the Company
have approved this Agreement, the Merger and the other transactions contemplated
by this Agreement (collectively, the "Transaction");
WHEREAS, each share of common stock of the Company, par value $.00004 per
share (the "Company Common Stock"), is currently held by State Street Bank and
Trust Company as depositary (the "Depositary") under that certain Depositary
Agreement dated February 16, 1999, as amended, by and among the Company, the
Depositary and Alpharma USPD, Inc. (the "Depositary Agreement"). Each share of
Company Common Stock is evidenced by a depositary share (each a "Depositary
Share") which is represented by a depositary receipt (each a "Depositary
Receipt" and each holder of a Depositary Share, a "Depositary Holder") and was
subject to the right and option of the Company to purchase all outstanding
shares of Company Common Stock (the "Call Option"). The Company assigned the
Call Option to Alpharma USPD, Inc. ("Alpharma") on July 23, 1999. Alpharma, in
connection with that certain Termination Agreement dated December 29, 2000, by
and among the Company, Alpharma, Alpharma, Inc., the Depositary and the Original
Lenders (as defined therein) dated December 29, 2000 (the "Termination
Agreement"), irrevocably and unconditionally agreed that it would not exercise
the Call Option and that, at any time upon the request of the Company, it would
deliver to the Company and the Depositary a Call Option Rejection Notice (as
defined in the Depositary Agreement);
WHEREAS, certain Depositary Holders of the Company own such number of
Depositary Shares of the Company and certain stockholders own such number of
shares of Series H Preferred Stock, par value $.01, of the Company (the "Series
H Preferred Stock," and, together with the Company Common Stock the "Company
Stock"), as is set forth in Section 1.01 of the Company's Disclosure Schedule
(such stockholders collectively being referred to herein as the "Principal
Stockholders");
WHEREAS, as a condition and inducement to Parent's and Merger Sub's
entering into this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, Parent is
entering into a voting agreement (a "Voting Agreement") with each of the
Principal Stockholders, dated the date hereof;
WHEREAS, as a condition and inducement to Parent's and Merger Sub's
entering into this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, the holders of
the Series H Preferred Stock (the "Series H Holders"), the holders (the "7.5%
Subordinated Note Holders") of the 7.5% Subordinated Notes (as defined below),
certain holders of the 8% Subordinated Notes (as defined below), the holders of
the 7.5% Convertible Subordinated Notes (as defined below) and certain holders
of the 8% Convertible Subordinated Notes (as defined below) (the 7.5%
Subordinated Notes, 8% Subordinated Notes, 7.5% Convertible Subordinated Notes
and 8% Convertible Subordinated Notes, collectively the "Company Notes" and such
holders, collectively the "Note Holders") and the holder (the "Series G Warrant
Holder") of Series G Warrants (such Series G Warrants owned and any additional
Series G Warrants issued to the Series G Warrant Holder after the date hereof
being referred to as the "Series G Warrants") issued pursuant to the Fifth
Amendment of the May 1998 Securities Purchase Agreement (as defined in Section
3.09(b)(ii) below) have entered into
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an agreement (the "Note Agreement") pursuant to which, among other things, (i)
the 7.5% Subordinated Note Holders have agreed not to require the repayment of
the 7.5% Subordinated Notes until the earliest to occur of (A) the consummation
of the Merger, (B) the termination of the Merger Agreement, and (C) the Drop
Dead Date (as defined below); (ii) the 7.5% Subordinated Note Holders have
agreed that if the Merger has not been consummated or the Agreement terminated
prior to December 31, 2001, the Demand Date (as defined in the 7.5% Subordinated
Notes) shall automatically be extended from December 31, 2001 to the earliest to
occur of (A) the consummation of the Merger, (B) the termination of the Merger
Agreement and (C) the Drop Dead Date; (iii) the Series H Holders have agreed not
to cause the Company to redeem the Series H Preferred Stock prior to the
earliest to occur of (A) the consummation of the Merger, (B) the termination of
the Merger Agreement and (C) the Drop Dead Date; (iv) the Note Holders have
agreed not to convert any of the Notes into equity securities of the Company;
and (v) the Series G Warrant Holder has agreed that all unexercised Series G
Warrants held by the Series G Warrant Holder at the Effective Time will
terminate immediately prior to the consummation of the Merger;
WHEREAS, as a condition and inducement to Parent's and Merger Sub's
entering into this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, Parent is
entering into an agreement with each of the Principal Stockholders and each of
certain other holders of Company Stock (the "Other Holders") pursuant to which,
among other things, each Principal Stockholder and Other Holder has agreed to be
bound by Sections 2.03 and 9.04 hereof (the "Exclusive Remedy Agreement"); and
WHEREAS, certain capitalized terms used in this Agreement are defined in
Section 10.02 of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, including without limitation Article VII, and in
accordance with the DGCL, at the Effective Time (as defined in Section 1.02),
Merger Sub shall be merged with and into the Company. As a result of the Merger,
the separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation of the Merger (the "Surviving
Corporation").
SECTION 1.02. Effective Time; Closing. As promptly as practicable, and in
any event within three Business Days, following the satisfaction or, if
permissible, waiver of the conditions set forth in Article VII (or such other
date as may be agreed upon by each of the parties hereto) (other than the
delivery of items to be delivered at the Closing and other than satisfaction of
those conditions that by their nature are to be satisfied at the Closing, it
being understood that the occurrence of the Closing shall remain subject to the
delivery of such items and the satisfaction or waiver of such conditions at the
Closing), the parties hereto shall cause the Merger to be consummated by filing
a certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Delaware, in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL. The Merger shall be
effective at such time as the Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware in accordance with the DGCL, or at
such later time on the day of such filing as is specified in the Certificate of
Merger (the "Effective Time"). Immediately prior to the filing of the
Certificate of Merger, a closing (the "Closing") will be held at the offices of
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 (or such other
place as the parties may agree). The date on which the Closing shall occur is
referred to herein as the "Closing Date."
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the DGCL.
Without limiting the generality of the foregoing, and
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subject thereto, at the Effective Time (i) all the property, rights, privileges,
powers and franchises of Merger Sub shall vest in the Surviving Corporation, and
(ii) all debts, liabilities, obligations, restrictions, disabilities and duties
of Merger Sub shall become the debts, liabilities, obligations, restrictions,
disabilities and duties of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the certificate of incorporation of the Company
shall be the certificate of incorporation of the Surviving Corporation until
thereafter amended as provided by law and such certificate of incorporation;
provided, however, that such certificate of incorporation may only be amended
with respect to the exculpation and indemnification of the Company Indemnified
Parties in accordance with the terms of Section 6.11 hereof.
(b) At the Effective Time, the bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation until thereafter amended as provided by law, the certificate of
incorporation of the Surviving Corporation and such bylaws; provided, however,
that such bylaws shall be amended to change all references to the name of the
Merger Sub to refer to the name of the Surviving Corporation.
SECTION 1.05. Directors and Officers. At the Effective Time, the
directors of Merger Sub immediately prior to the Effective Time shall become the
initial directors of the Surviving Corporation, each to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation, and the officers of Merger Sub immediately prior to the Effective
Time shall become the officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified.
ARTICLE II
MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES
SECTION 2.01. Merger Consideration.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of Parent, Merger Sub, the Company or the holders of any of the
following securities, pursuant to this Agreement and the DGCL:
(i) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be cancelled
in accordance with Section 2.01(a)(iii) and any Dissenting Shares (as
defined in Section 2.05(a)) shall be converted into the right to receive
the Common Stock Merger Consideration (as defined in Section 10.02(a))
payable, without interest, except as provided by Section 2.03(g) and
Section 9.02(c), to the holder of such share of Company Common Stock each a
"Common Holder" and collectively the "Common Holders"), upon surrender, in
the manner provided in Section 2.02, of the certificate that formerly
evidenced such share. As of the Effective Time, all such shares of Company
Common Stock shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall cease to have
any rights with respect thereto, except the right to receive the Common
Stock Merger Consideration;
(ii) each share of Series H Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares)
shall be converted into the right to receive the Series H Merger
Consideration (as defined in Section 10.02(a)), payable, without interest,
to the holder of such share of Series H Preferred Stock, upon surrender, in
the manner provided in Section 2.02, of the certificate that formerly
evidenced such share. As of the Effective Time, all such shares of Series H
Preferred Stock shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist, and each holder of a certificate
representing any such shares of Series H Preferred Stock shall cease to
have any rights with respect thereto, except the right to receive the
Series H Merger Consideration;
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(iii) each share of Company Stock held in the treasury of the Company
and each share of Company Stock owned by Parent or any direct or indirect
wholly owned subsidiary of Parent or of the Company immediately prior to
the Effective Time shall be cancelled and extinguished without any
conversion or exchange thereof and no payment or distribution shall be made
with respect thereto; and
(iv) each share of common stock, par value $0.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $.00004 per share, of the
Surviving Corporation.
(b) The Company shall cause Alpharma to issue the Call Option Rejection
Notice, such Call Option Rejection Notice to be effective immediately after the
Effective Time, thereby entitling the Depositary Holders to receive the Common
Stock Merger Consideration upon surrender of the Depositary Receipts
attributable to the Depositary Shares. After the Effective Time, Parent will
take such action with the Depositary as is reasonably necessary to cause the
Common Stock Merger Consideration deposited with the Depositary as the sole
holder of record of the Company Common Stock to be paid to the holders of the
Depositary Receipts.
SECTION 2.02. Payment of Merger Consideration.
(a) Prior to the Effective Time, Parent shall designate the Depositary or
such other bank or trust company reasonably satisfactory to the Company to act
as agent (the "Paying Agent") for the holders of shares of Company Stock to
receive the Initial Merger Consideration to which holders of Company Stock shall
become entitled hereunder. On or prior to the Closing, Parent shall transfer to
the Paying Agent the cash, subject to Section 2.02(g), necessary to pay the
Aggregate Initial Common Stock Consideration and the Aggregate Series H Merger
Consideration. The Contingent Payments (as defined in Section 2.03(a)), if
earned, shall be paid as provided in Section 2.02(d). The Excess Warrant
Proceeds (as defined in Section 2.04(b)), if any, shall be paid as provided in
Section 2.02(f). All funds deposited with the Paying Agent shall be invested by
the Paying Agent in (i) certificates of deposits in or repurchase agreements
from United States commercial banks having capital resources in excess of $1
billion, (ii) obligations of the United States government or any agency thereof,
(iii) obligations guaranteed by the United States government, (iv) in money
market accounts in financial institutions having capital resources in excess of
$1 billion or (v) as otherwise provided in the agreement entered into between
the Paying Agent, Parent and the Company; provided, however, that all such
investments will be in short term, highly liquid investments. Parent shall pay
the fees and expenses of the Paying Agent.
(b) Promptly after the Effective Time, Parent shall cause the Paying Agent
to mail to each Person who was, at the Effective Time, a holder of record of
shares of Company Stock entitled to receive the applicable Per Share Merger
Consideration pursuant to Section 2.01(a) a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
certificates or Depositary Receipts evidencing such shares of Company Stock (the
"Certificates") shall pass, only upon proper delivery of the Certificates to the
Paying Agent) and instructions for use in effecting the surrender of the
Certificates pursuant to such letter of transmittal. Upon surrender to the
Paying Agent of a Certificate, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, and
such other documents as may reasonably be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange therefor the applicable Per Share Merger Consideration. Provision shall
be made for holders of Certificates or Depositary Receipts evidencing such
shares of Company Stock to procure in person immediately after the Effective
Time a letter of transmittal and to deliver in person immediately after the
Effective Time such letter of transmittal and Certificates or Depositary
Receipts in exchange for that portion of the Initial Merger Consideration to
which such holders are entitled hereunder.
(c) Except as provided in Section 2.03(g) or Section 9.02(c), no interest
shall accrue or be paid on the applicable Per Share Merger Consideration. If the
payment equal to the applicable Per Share Merger Consideration is to be made to
a Person other than the Person in whose name the surrendered Certificate
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formerly evidencing shares of Company Stock is registered on the stock transfer
books of the Company, it shall be a condition of payment that the Certificate so
surrendered shall be endorsed properly or otherwise be in proper form for
transfer and that the Person requesting such payment shall have paid all
transfer and other taxes required by reason of the payment of the applicable Per
Share Merger Consideration to a Person other than the registered holder of the
Certificate surrendered, or shall have established to the satisfaction of Parent
that such taxes either have been paid or are not applicable.
(d) Simultaneous with the occurrence of any of the following events (i) the
delivery of each Net Sales Statement (as defined in Section 2.03(b) below), (ii)
the resolution of any dispute regarding the amount of any Contingent Payment
pursuant to Section 2.03(d), (iii) the determination that additional amounts are
payable pursuant to Section 2.03(h) or (iv) the resolution of any dispute
regarding the amount of any setoff pursuant to Section 9.03, Parent shall
transfer to the Paying Agent the cash necessary to pay the amount of any earned
Contingent Payment, if any, without interest, and shall cause the Paying Agent
to promptly distribute to the Common Holders the Contingent Payment to which
such Common Holders are entitled.
(e) At any time following six months after the Initial Merger
Consideration, a Contingent Payment or a payment of Excess Warrant Proceeds has
been transferred to the Paying Agent, Parent shall be entitled to require the
Paying Agent to deliver to it any funds which had been transferred to the Paying
Agent with respect to the Initial Merger Consideration, such Contingent Payment
or such payment of Excess Warrant Proceeds, as applicable, and not disbursed to
holders of shares of Company Stock (including, without limitation, all interest
and other income received by the Paying Agent in respect of all funds made
available to it, if any). Thereafter, such holders shall be entitled to look to
Parent (subject to abandoned property, escheat and other similar laws) only as
general creditors thereof with respect to any applicable Per Share Merger
Consideration that may be payable to them. Notwithstanding the foregoing,
neither Parent, the Surviving Corporation nor the Paying Agent shall be liable
to any holder of a share of Company Stock for any applicable Per Share Merger
Consideration properly delivered in respect of such share of Company Stock to a
public official pursuant to any abandoned property, escheat or other similar
law.
(f) Within five Business Days of any exercise of Out-of-the-Money Warrants
(as defined in Section 2.04(b) below), including the payment to Parent or the
Surviving Corporation of the exercise price therefor, Parent shall transfer to
the Paying Agent the cash necessary to pay the Excess Warrant Proceeds (as
defined in Section 2.04(b)(ii)), if any, resulting from the exercise of such
Out-of-the-Money Warrants, without interest, and shall cause the Paying Agent to
promptly distribute to the Common Holders the Excess Warrant Proceeds to which
such Common Holders are entitled.
(g) At the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
shares of Company Stock, or Company Stock Options (as defined in Section 2.04(a)
below) on the records of the Company. In the event of a transfer of ownership of
Company Stock prior to the Effective Time which is not registered in the
transfer records of the Company, the Per Share Merger Consideration may be paid
to a Person other than the Person in whose name the Certificate so surrendered
is registered, if such Certificate is presented to the Paying Agent, accompanied
by all documents required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. From and after the
Effective Time, the holders of shares of Company Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
shares of Company Stock, except as otherwise provided herein or by applicable
law, and other than the right to receive upon surrender of the applicable
Company Stock, the Per Share Merger Consideration. After the Effective Time, no
dividends, interest or other distributions shall be paid to the holder of any
unsurrendered shares of Company Stock. The applicable Per Share Merger
Consideration paid pursuant to this Agreement shall be deemed to have been paid
in full satisfaction of all rights pertaining to the surrendered Company Stock.
(h) Each of the Surviving Corporation and Parent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any Common Holder or Series H Holder
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(collectively, the "Company Stockholders") such amounts as it is required to
deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or any applicable
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by the Surviving Corporation or Parent, as the case may be, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the Company Stockholder in respect of which such deduction and
withholding was made by the Surviving Corporation or Parent, as the case may be.
(i) All cash amounts payable to a holder of Company Stock shall be rounded
upward to the nearest whole cent and shall be paid to the Company Stockholders
by the Paying Agent by check or wire transfer in immediately available funds (in
accordance with the Paying Agent's customary practice) pursuant to the written
payment instructions delivered by each Company Stockholder to the Paying Agent
upon surrender of such Company Stockholder's Certificate.
(j) In the event any Certificate shall have been lost, stolen or destroyed,
the Paying Agent, subject to such other conditions as the Paying Agent may
reasonably impose (including the posting of an indemnity bond or other surety in
favor of Parent with respect to the Certificate alleged to be lost, stolen or
destroyed), shall be authorized to accept an affidavit from the record holder of
such Certificate in a form reasonably satisfactory to the Paying Agent and upon
receipt of such affidavit issue in exchange for such lost, stolen or destroyed
Certificates, the applicable Per Share Merger Consideration in respect thereof
pursuant to this Agreement.
SECTION 2.03. Additional Payments.
(a) Contingent Payments. Parent shall pay to the Common Holders as
additional consideration for the shares of Company Common Stock additional
amounts, if earned, in accordance with the following terms (each such amount
being referred to individually as a "Contingent Payment" and, together with the
Premium Adjustment, as defined below, the "Contingent Payments"):
(i) an amount (such amount, the "First Contingent Payment") equal to
(A) the product of (x) the Premium Base Amount for the first Premium Year
multiplied by (y) 1.05 less (B) the Contingent Payment Adjustments (as
defined in Section 10.02(a) below). "Premium Base Amount" means the amount
that equals (A) the lesser of (i) Ten Million Dollars ($10,000,000) and
(ii) the amount by which Net Sales (as defined in Section 10.02(a) below)
exceeds Twenty-Five Million Dollars ($25,000,000) plus (B) the Divestiture
Amount (as defined in Section 10.02(a) below), if any, less (C) any
setoffs, if any, pursuant to Section 9.02(c);
(ii) an amount (such amount, the "Second Contingent Payment") equal to
(A) the product of (x) the Premium Base Amount for the second Premium Year
multiplied by (y) 1.10 less (B) the Contingent Payment Adjustments;
(iii) an amount (such amount, the "Third Contingent Payment") equal to
(A) the product of (x) the Premium Base Amount for the third Premium Year
multiplied by (y) 1.15 less (B) the Contingent Payment Adjustments;
(iv) an amount (such amount, the "Fourth Contingent Payment") equal to
(A) the product of (x) the Premium Base Amount for the fourth Premium Year
multiplied by (y) 1.20 less (B) the Contingent Payment Adjustments;
(v) an amount (such amount, the "Fifth Contingent Payment") equal to
(A) the product of (x) the Premium Base Amount for the fifth Premium Year
multiplied by (y) 1.25 less (B) the Contingent Payment Adjustments;
(vi) an additional amount (the "Premium Adjustment") equal to (A) the
amount by which the result of (x) the aggregate Net Sales, plus (y) the
aggregate Divestiture Amounts, in each case for Premium Years one through
five, less (z) all amounts, if any, set off pursuant to Section 9.02(c),
exceeds (B) the sum of (x) $125,000,000 and (y) the aggregate Premium Base
Amount for Premium Years one through five, in which event the Premium
Adjustment would equal the lesser of such
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amount and $50,000,000; provided, however, that in no event shall the sum
of the aggregate Premium Base Amount for Premium Years one through five and
the Premium Adjustment exceed $50,000,000. An example of the calculations
made in this Section 2.03(a) is provided as Exhibit A hereto.
(vii) Pursuant to the Termination Agreement, Alpharma has the right to
receive 2% of the aggregate Consideration (as defined therein) in excess of
$65.0 million, in the event of a Change of Control of the Company (as
defined therein). Therefore, Parent shall pay to Alpharma from time to time
an amount equal to 2% of the amount that would have been the Contingent
Payments if no payment had been made to Alpharma, from and after the
initial $5.0 million in Contingent Payments paid to Common Holders pursuant
to this Section 2.03 (the "Alpharma Payments") instead of such amount being
paid to the former Common Holders. Parent shall make such payments to
Alpharma on a parity with and at the same time Parent transfers funds for
the Contingent Payments to the Paying Agent. No calculation in this Section
2.03(a)(vii) shall impact the calculations made pursuant to Sections
2.03(a)(i)-(vi), the parties hereto agreeing that the purpose of this
Section 2.03(a)(vii) shall be to pay to Alpharma a portion of the
Contingent Payments that would otherwise be paid to the former Common
Holders.
(b) Net Sales Statements. For each Premium Year, Parent shall prepare a
statement (each a "Net Sales Statement") setting forth the Net Sales of each
Pediatric Product (which Net Sales Statement shall also list unit quantities,
the Net Sales amount of Pediatric Products shipped by Parent, its subsidiaries,
affiliates, licensees or sublicensees by product and the Net Sales Deductions
per Pediatric Product, aggregated by category, made) for the Premium Year to
which such Net Sales Statement relates. Within forty-five (45) calendar days
following the end of each Premium Year, Parent shall deliver to the Calculation
Representative (as defined in Section 9.04) a copy of the Net Sales Statement
for such Premium Year, along with a calculation of the related Contingent
Payment, if any, including all amounts, if any, setoff pursuant to Section
9.02(c) below or adjusted pursuant to the Contingent Payment Adjustments). In
the event that Parent determines according to this Section 2.03 that a
Contingent Payment is not to be paid during a Premium Year, Parent shall as
promptly as practicable notify the Calculation Representative in writing of such
fact, which notice shall describe the basis of Parent's determination. In
addition, Parent shall provide notification to the Common Holders, by press
release or otherwise, of the amount of any Contingent Payment earned, if any, or
if no Contingent Payment was earned, of such fact. The Calculation
Representative shall use its reasonable best efforts to cause its agents,
representatives, affiliates, stockholders, employees, officers and directors
(the Calculation Representative and such Persons being referred to as the
"Receiving Parties"), to treat and hold as confidential (and not disclose or
provide access to any Person) all information contained and relating to the Net
Sales Statements; provided, however, that this obligation shall not apply to any
information which:
(i) either before or after the date of disclosure to the Receiving
Parties becomes generally known to the public by some means other than a
breach of this Section 2.03(b);
(ii) is subsequently disclosed to the Receiving Parties by a third
party having a lawful right to make such disclosure and who is not under an
obligation of confidentiality to Parent;
(iii) is independently developed by or for the Receiving Party without
reference to or reliance upon any information received from Parent; or
(iv) is required by law, rule, regulation or bona fide legal process
(including any arbitration proceeding pursuant to Section 2.03(d) below) to
be disclosed, provided that the Receiving Party takes reasonable steps to
restrict and maintain the confidentiality of such information and provides
reasonable notice to Parent.
(c) Assignability. The right of each Common Holder to receive payments
pursuant to Section 2.03 may not be transferred or assigned except by operation
of law or by will or intestate succession.
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(d) Dispute Resolution; Arbitration. In the event that any dispute,
controversy or claim that arises in connection with this Section 2.03, such
dispute, controversy or claim shall be settled by arbitration in accordance with
the following:
(i) The Parent and the Calculation Representative shall attempt in
good faith to resolve promptly through negotiations any claim or dispute
under this Section 2.03. If any such dispute, controversy or claim should
arise, Parent and the Calculation Representative shall meet once (or more
if mutually agreed) to attempt to resolve the matter (the "Settlement
Meeting"). Either Parent or the Calculation Representative may request the
other to attend a Settlement Meeting at a mutually agreed time and place
within ten (10) days after delivery of a written notice of a dispute,
controversy or claim. The occurrence of a Settlement Meeting with respect
to a dispute, controversy or claim shall be a condition precedent to
instituting an arbitration proceeding with respect to a claim or dispute
under this Section 2.03, provided that if Parent or the Calculation
Representative refuses to attend a Settlement Meeting the other party may
proceed to institute an arbitration proceeding as provided below.
(ii) Applicable Rules. A panel of three arbitrators shall conduct the
arbitration proceedings in accordance with the provisions of the Federal
Arbitration Act (99 U.S.C. Section 1 et seq.) (the "Federal Arbitration
Act") and the Commercial Arbitration Rules of the American Arbitration
Association (the "Arbitration Rules"). The arbitration shall be held in New
York, New York.
(iii) Initiation of Arbitration. To submit a dispute, controversy or
claim to arbitration, either Parent or the Calculation Representative shall
furnish to the other and the American Arbitration Association a notice (the
"Arbitration Notice") containing (A) the name and address of the
complaining party, (B) the nature of the dispute, controversy or claim in
reasonable detail, (C) their intent to commence arbitration proceeding
under this Agreement and (D) the other information required under the
Federal Arbitration Act and the Arbitration Rules.
(iv) Selection of Arbitrators. Within twenty Business Days after
delivery of the Arbitration Notice, Purchaser and the Calculation
Representative shall each select one arbitrator. Within ten Business Days
after the selection of the last of those two arbitrators, those two
arbitrators shall select the third arbitrator from the list of the American
Arbitration Association's National Panel of Commercial Arbitrators (the
"Panel List"). If the first two arbitrators cannot select a third
arbitrator within such ten Business Day period, the American Arbitration
Association shall select such third arbitrator from the list. Each
arbitrator shall be an individual not subject to disqualification under
Rule No. 19 (or any successor rule) of the Arbitration Rules (or any
successor rule).
(v) Discovery. During the period beginning with the selection of the
third arbitrator and ending upon the conclusion of the arbitration
proceedings, the arbitrators shall have the authority to permit the parties
to conduct such discovery as the arbitrators consider appropriate. The
decision of a majority of the panel shall be the decision of the
arbitrators.
(vi) Judgments. The determination of the arbitrators as to the
resolution of the dispute, controversy or claim shall be final and binding
and conclusive to the maximum extent permitted by law. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction. This agreement to arbitrate is irrevocable.
(vii) Acknowledgement. The parties hereto acknowledge and agree that
the rights and restrictions set forth in this Section 2.03, including but
not limited to the amount of and the method for calculating the Contingent
Payments and the method of resolving disputes set forth in this Section
2.03(d), have been bargained for at arms length, and constitute essential
terms to the transactions contemplated by this Agreement.
(e) Contingent Payments Not Royalties. The Contingent Payments provided
for pursuant to this Section 2.03 are provided as a result of bona fide
difficulties in determining the value of the Company. The Contingent Payments
represent additional consideration for the Company Stock and are not intended to
be royalty payments.
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(f) Fees and Expenses. Any reasonable fees and expenses incurred by any
party in connection with resolving any dispute, claim or controversy under this
Section 2.03, including, without limitation, any legal fees or fees and expenses
incurred in connection with any arbitration proceeding held pursuant to Section
2.03(d), shall be borne by such party; provided, however, in the event that the
Parent is the prevailing party, the reasonable legal fees or fees and expenses
incurred by the Parent shall be setoff against any future Contingent Payments;
and provided, further, that in the event that the Calculation Representative is
the prevailing party, the reasonable legal fees or expenses incurred by the
Calculation Representative shall be paid by the Parent. The question of which
party is the prevailing party shall be submitted to the arbitrators as part of
the arbitration proceeding.
(g) Late Payments; Collections. Any amount not paid when due under this
Section 2.03 shall bear interest at the lesser of (i) five percent (5%) per
annum compounded annually, or (ii) the highest rate permitted by Law.
(h) Books and Records; Audits. For a period of not less than three (3)
years after the relevant Premium Year, Parent, its subsidiaries, affiliates,
licensees and sublicensees shall keep full, true and accurate books of account
sufficient to determine the amounts payable pursuant to this Section 2.03. The
Calculation Representative shall have the right, not more than once during any
calendar year, to have the books and records of Parent, its subsidiaries,
affiliates, licensees or sublicensees audited by a qualified independent
accounting firm of its choosing, under appropriate confidentiality provisions,
to ascertain the accuracy of the reports and payments under this Section 2.03
and compliance by Parent, its subsidiaries, affiliates, licensees or
sublicensees with its obligations under this Section 2.03. Such audit shall be
conducted upon at least ten (10) days' advance notice during normal business
hours and in a manner that does not interfere unreasonably with the business of
the audited entity. Subject to Parent's right to dispute such amounts in
accordance with Section 2.03(d), any underpayment determined by such audit shall
promptly be paid by Parent. If Parent has underpaid an amount due under Section
2.03 by more than ten percent (10%), Parent shall reimburse the Calculation
Representative for the cost of such audit (with the cost of the audit to be
borne by the Calculation Representative in all other cases).
SECTION 2.04. Company Stock Options and Warrants.
(a) Subject to the consummation of the Merger, prior to the Effective Time,
the Company shall take all necessary action (i) to amend the Company's 1997
Director Stock Option Plan to provide that all shares of Company Stock subject
to outstanding options under the 1997 Director Stock Option Plan shall become
fully vested and exercisable, whether or not previously vested and exercisable
prior to the Effective Time, and all such options not exercised prior to the
Effective Time shall be cancelled and no options granted pursuant to the 1997
Director Stock Option Plan will be outstanding at or after the Effective Time
(such amendment to be approved by the Company's Board of Directors and by each
Person who holds an option granted under the 1997 Director Stock Option Plan in
his or her individual capacity); (ii) with respect to all options granted and
outstanding under each of the Company's Amended and Restated 1992 Equity
Incentive Plan, the Company's 1997 Director Stock Option Plan, the Company's
1997 Employee Stock Purchase Plan, the Company's Amended and Restated 1999 Stock
Incentive Plan, the Company's Amended and Restated 2000 California Stock Option
Plan (collectively, with the 1997 Employee Stock Purchase Plan, the "Company
Stock Plans"), to accelerate the vesting and exercisability of outstanding
options and rights to purchase Company Stock granted under the Company Stock
Plans (each, a "Company Stock Option"), whether or not such Company Stock
Options were previously vested and exercisable prior to the Effective Time;
(iii) to take such actions as provided under the Company's 1997 Employee Stock
Purchase Plan to cause options granted thereunder to become exercisable as of a
date established by the Company's Board of Directors prior to the Effective
Time; (iv) to permit each holder of a Company Stock Option (each, a "Company
Optionholder") to exercise all of his Company Stock Options which are fully
vested and exercisable, including as a result of aforementioned acceleration,
prior to the Effective Time; (v) to take all action necessary, including,
without limitation, obtaining consents of and providing written notice to the
Company Optionholders to the extent necessary, to provide that all Company Stock
Options not so exercised shall be cancelled and that no Company Stock Options
will be
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outstanding at or after the Effective Time; and (vi) to terminate the Company
Stock Plans as of the Effective Time.
(b) In the event that at any time from and after the Effective Time a
holder of warrants to purchase any Company equity securities (such warrants, the
"Company Warrants" and such holders, the "Company Warrant Holders") that are not
In-the-Money Warrants (as defined in Section 10.02(a) below) ("Out-of-the-Money
Warrants") properly exercises Out-of-the-Money Warrants ("Exercised Warrants")
and delivers the exercise price for such Exercised Warrants to Parent or the
Surviving Corporation, then
(i) the portion (the "Allocated Consideration") of the aggregate
exercise price of such Exercised Warrants equal to the Common Stock Merger
Consideration paid by Parent to Common Holders pursuant to Section 2.02
prior to such exercise with respect to the number of shares of Company
Common Stock for which such Exercised Warrants are exercised shall be
repaid to the Person that exercises such Exercised Warrants (or upon the
mutual agreement of Parent and such Person, shall be deducted from the
exercise price actually paid by such Person to Parent or the Surviving
Corporation in connection with such exercise);
(ii) Parent shall pay to the Common Holders, in accordance with
Section 2.02(f), an amount (the "Excess Warrant Proceeds") equal to the
amount by which (A) the aggregate exercise price of such Exercised Warrants
exceeds (B) the Allocated Consideration; and
(iii) with respect to any payment made to Common Holders following the
exercise of such Exercised Warrants and the payment by Parent of the Excess
Warrant Proceeds with respect to the exercise of such Exercised Warrants,
(A) the Person exercising such Exercised Warrants shall be deemed a Common
Holder for purposes of this Agreement, and (B) the Per Share Denominator
(as defined below) shall be adjusted in accordance with the definition of
such term.
The parties acknowledge that the purpose of this Section 2.04(b) is to
allocate the exercise price of the Exercised Warrants among the holders of such
Exercised Warrants and the holders of Common Stock in a manner that has the same
result as if such Exercised Warrants had been exercised prior to the Effective
Time.
SECTION 2.05. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, shares
of Company Stock that are outstanding immediately prior to the Effective Time
and that are held by Company Stockholders as of the Effective Time who have
exercised and perfected appraisal rights for such shares of Company Stock in
accordance with Section 262 of the DGCL and who, as of the Effective Time, have
neither effectively withdrawn nor lost their right to such appraisal
(collectively, the "Dissenting Shares") shall not be converted into or represent
the right to receive the Merger Consideration (as defined in Section 10.02(a)
below). Such Company Stockholders shall be entitled to receive payment of the
appraised value of such shares of Company Stock held by them in accordance with
DGCL, except that all Dissenting Shares held by Company Stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such shares of Company Stock under DGCL shall thereupon
be deemed to have been converted into, and to have become exchangeable for, as
of the occurrence of such event, the right to receive the Merger Consideration
provided by Section 2.01, without any interest thereon, upon surrender, in the
manner provided in Section 2.02, of the Certificates that formerly evidenced
such shares of Company Stock.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands received by the
Company, and any other related instruments served pursuant to DGCL and received
by the Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under DGCL. The Company shall
not, except with the prior written consent of Parent (which shall not be
unreasonably withheld or delayed), voluntarily make any payment with respect to
any demands for appraisal or offer to settle or settle any such demands. Except
as provided in Section 2.05(a), holders of Dissenting Shares shall not be
entitled to receive their Merger Consideration and such Merger Consideration
shall be retained by Parent.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company to
Parent and Merger Sub concurrently with the execution of this Agreement (the
"Company Disclosure Schedule") the Company represents and warrants to Parent and
Merger Sub that the statements contained in this Article III are true and
correct as of the date hereof. The Company Disclosure Schedule shall be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article III and the disclosure in any paragraph shall qualify (1) the
corresponding paragraph in this Article III and (2) the other paragraphs in this
Article III only to the extent that it is clear from a reading of such
disclosure that it also qualifies or applies to such other paragraphs. The
Company represents and warrants to Parent and Merger Sub as follows:
SECTION 3.01. Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as it is now
being conducted, except where the failure to be so organized, existing or in
good standing or to have such power and authority would not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect.
The Company is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which the character
of the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed or in good standing that have not had, and would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. The term "Company Material Adverse Effect" means any
change, effect, event, occurrence or state of facts that is materially adverse
to the business, properties, operations, financial condition and results of
operations of the Company taken as a whole or materially impairs or delays the
ability of the Company to perform its material obligations under this Agreement
or to consummate the Merger; provided, however, that none of the following shall
be deemed, singly or in the aggregate, to constitute, or be considered in
determining whether there exists, a Company Material Adverse Effect: any change,
effect, event, occurrence or state of facts resulting from (i) any factors
generally affecting the healthcare or pharmaceutical industry, (ii) any factors
generally affecting general economic conditions or the securities markets, (iii)
acts or omissions of Parent or the Merger Sub, including without limitation acts
or omissions contemplated by or pursuant to this Agreement; (iv) acts or
omissions of the Company contemplated by or pursuant to this Agreement; (v) the
pendency or announcement of the Merger (including the loss by the Company of any
customers, suppliers or employees and any consequences of such loss); and (vi)
the continued incurrence of losses by the Company in the ordinary course of
business. The Company has no subsidiaries.
SECTION 3.02. Certificate of Incorporation and Bylaws. The Company has
heretofore furnished to Parent a complete and correct copy of the certificate of
incorporation and the bylaws, each as amended to date, of the Company. Such
certificate of incorporation and bylaws are in full force and effect. The
Company is not in violation of any of the provisions of its certificate of
incorporation or bylaws.
SECTION 3.03. Capitalization.
(a) The authorized capital stock of the Company consists of (a) 60,000,000
shares of Company Common Stock and (b) 5,000,000 shares of Company Preferred
Stock, 4,000 of which have been designated as Series H Preferred Stock.
(b) As of the date hereof, (i) 17,056,817 shares of Company Common Stock
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable and free of preemptive rights, (ii) no shares of Company Common
Stock are held in the treasury of the Company, (iii) 2,239,661 shares of Company
Common Stock are reserved for future issuance upon exercise of outstanding stock
options granted pursuant to the Company Stock Plans, (iv) 10,908,031 shares of
Company Common Stock are reserved for future issuance upon exercise of
outstanding Company Warrants, or the right to receive
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Company Warrants, (v) 6,140,351 shares of Company Common Stock are reserved for
future issuance upon conversion of the Company Notes and (vi) 1,619,731 shares
of Company Common Stock remain available for future issuance under the Company
Stock Plans.
(c) As of the date hereof, (i) 17,056,817 Depositary Shares are issued and
outstanding under the Depositary Agreement, (ii) 20,907,774 Depositary Shares
are reserved for future issuance upon exercise of outstanding warrants, stock
options or outstanding stock incentive rights granted pursuant to the Company
Stock Plans and (iii) all Depositary Shares and Depositary Receipts have been
issued in accordance with the Depositary Agreement.
(d) As of the date hereof, 2,001 shares of Series H Preferred Stock are
issued and outstanding, all of which are validly issued, fully paid and
nonassessable and free of preemptive rights and 1,999 shares of Series H
Preferred Stock have been reserved for future issuance. There are no other
shares of preferred stock of the Company outstanding or reserved for future
issuance.
(e) There are no outstanding subscriptions, options, rights, warrants,
convertible securities, stock appreciation rights, phantom equity or other
rights, agreements, arrangements or commitments of any character (including
"rights plans" or "poison pills") relating to the issued or unissued capital
stock of the Company or obligating the Company to issue, transfer, sell, redeem,
repurchase or otherwise acquire any shares of capital stock of, or other equity
interests in, the Company or obligating the Company to grant, extend, accelerate
the vesting of or enter into or make payment with respect to any such
subscription, option, right, warrant, convertible security, stock appreciation
right, phantom equity or other such commitment or agreements. All shares of
Company Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. All
Company Stock, Depositary Shares, subscriptions, options, rights, warrants,
convertible securities, stock appreciation rights, phantom equity or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of the Company or obligating the Company to
issue, transfer, sell, redeem, repurchase or otherwise acquire any shares of
capital stock of, or other equity interests in, the Company or obligating the
Company to grant, extend, accelerate the vesting of or enter into or make
payment with respect to any such subscription, option, right, warrant,
convertible security, stock appreciation right, phantom equity or other such
commitment or agreements (i) were issued in accordance with all applicable laws
and (ii) are free from any preemptive rights associated with such issuances.
(f) To the Company's knowledge, there are no voting trusts, proxies or
other agreements or understandings with respect to the voting of shares of
capital stock of the Company other than the Depositary Agreement and the Voting
Agreement.
SECTION 3.04. Authority Relative to This Agreement.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement, and, subject to the adoption of this Agreement and
the approval of the Merger by the Company Stockholders, to consummate the
Transactions. The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the Transactions have been duly
and validly authorized by all necessary corporate action, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the Transactions other than the Company Stockholders' Approval
(as defined in Section 3.22 below) and the filing of the Certificate of Merger
as required by DGCL. This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
its terms, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to the effect of general principles of equity
(the "Enforceability Exception").
(b) The Board of Directors of the Company at a meeting duly called and
held, has (i) determined that the Merger is in the best interest of the Company
and the Company Stockholders, (ii) approved the
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Merger and adopted this Agreement in accordance with the provisions of DGCL, and
(iii) directed that this Agreement and the Merger be submitted to the Company
Stockholders for their adoption and approval and resolved to recommend that the
Company Stockholders vote in favor of the adoption of this Agreement and the
approval of the Merger. A copy of the resolutions adopted by the Company's Board
of Directors approving this Agreement is set forth in Section 3.04(b) of the
Company Disclosure Schedule.
SECTION 3.05. Consents and Approvals; No Violations. The execution and
delivery of this Agreement does not, the consummation of the Transactions will
not and the performance by the Company of its obligations hereunder will not:
(a) subject to obtaining the Company Stockholders' Approval, conflict
with any provision of the certificate of incorporation or bylaws (or other
organizational documents) of the Company;
(b) subject to obtaining the Company Stockholders' Approval, require
any consent, waiver, approval, order, authorization or permit of, or
registration, filing with or notification to, any governmental or
regulatory authority or agency (a "Governmental Authority"), except for (i)
the filing of the Certificate of Merger with the Delaware Secretary of
State and appropriate corresponding documents with the secretaries of state
of the other states in which the Company is qualified to do business, (ii)
the filing of the Proxy Statement (as defined in Section 6.01 hereof) with
the SEC in accordance with the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (iii) such consents, approvals, orders,
authorizations and regulations, declarations and filings as may be required
under applicable state securities or blue sky laws, (iv) the filing of such
reports, schedules or materials under the Exchange Act and Regulation MA as
may be required in connection with this Agreement and the Transactions, and
(v) such other consents, waivers, approvals, orders, authorizations or
permits of or registration, filing with or notification to any Governmental
Authority that, if not obtained or made, would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect;
(c) result in any violation or breach of, or constitute a default
(with or without notice or lapse of time or both) under, or give rise to
any right of termination, forfeiture, cancellation or acceleration,
transfer fees or guaranteed payments or a loss of a material benefit under,
or require a consent, waiver or approval under any of the terms, conditions
or provisions of any Material Contracts (as defined in Section 3.13(a)),
except for any such conflicts, violations, breaches, defaults,
terminations, fees, rights, payments, cancellations or accelerations that
would not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect or such consents, waivers and approvals
which if not obtained would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect;
(d) subject to obtaining the Company Stockholders' Approval and
compliance with the requirements specified in Section 3.05(b), conflict
with or violate the provisions of any order, writ, injunction, judgment,
decree, statute, rule or regulation ("Law") applicable to the Company or
any of its properties or assets except for such conflicts or violations
which, would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect; or
(e) result in the creation of any lien, mortgage, pledge, security
interest, encumbrance, claim or charge of any kind ("Lien") upon any
properties or assets of the Company (including, but not limited to, the
Owned Intellectual Property) or on any shares of capital stock of the
Company under any agreement or instrument to which the Company is a party
or by which the Company or any of its properties or assets is bound.
SECTION 3.06. Permits; Compliance.
(a) The Company is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Authority necessary for the Company to
own, lease and operate its properties as it is now being operated or to carry on
its business as it is now being conducted, other than those, the absence of
which would not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect (the
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"Company Permits"), and no suspension or cancellation of any of the Company
Permits is pending or, to the Company's knowledge, threatened.
(b) The Company is not in conflict with, or in default, breach or violation
of, in each case, in any respect, (i) any Law applicable to the Company or the
ownership or operation of any property or asset of the Company, or (ii) any
Company Permits, except for any such conflicts, defaults, breaches or violations
that would not reasonably be expected to, individually or in the aggregate, have
a Company Material Adverse Effect.
(c) The Company's activities related to the research, development,
manufacture, testing, distribution, holding, sales and/or marketing of each
product or product candidate subject to the United States Food and Drug
Administration's (the "FDA") jurisdiction under the Federal Food, Drug, and
Cosmetic Act (the "FDCA") are in compliance in all material respects with all
applicable requirements under the FDCA and any other applicable Laws including,
but not limited to, (i) applicable Laws relating to good manufacturing
practices, labeling, advertising, record keeping or filing of reports including,
but not limited to, 21 CFR Part 203 (Prescription Drug Marketing Act) or (ii)
applicable Laws relating to sponsor obligations for products under an
investigational new drug application, a new drug application or an abbreviated
new drug application.
(d) The Company has, prior to the execution of this Agreement, made
available to Parent copies of all documents in its possession material to
assessing compliance of the Company with the FDCA and its implementing
regulations since January 1, 1999, including, but not limited to, copies of (i)
all warning letters, notices of adverse findings and similar correspondence
received since January 1, 1999, (ii) all audit reports performed since January
1, 1999, and (iii) any document concerning any significant oral or written
communication received from the FDA since January 1, 1999.
(e) Neither the Company nor, to the knowledge of the Company, any director,
officer, agent, employee or other person acting on behalf of the Company, has
used any corporate or other funds for unlawful contributions, payments, gifts,
or entertainment, or made any unlawful expenditures relating to political
activity to government officials or others, or established or maintained any
unlawful or unrecorded funds in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any other domestic or foreign law.
SECTION 3.07. Company SEC Reports. The Company has timely filed with the
Securities and Exchange Commission (the "SEC"), and has heretofore made
available (provided that all documents filed by the Company electronically with
the SEC and publicly available prior to the date hereof shall be deemed
available) to Parent true and complete copies of, each form, registration
statement, report, schedule, proxy or information statement and other document
(including exhibits and amendments thereto), including without limitation its
Annual Reports to Stockholders to the extent incorporated by reference in
certain of such reports, required to be filed by it with the SEC since January
1, 1999 under the Securities Act of 1933, as amended (the "Securities Act"), or
the Exchange Act (collectively, the "Company SEC Reports"). As of the respective
dates each Company SEC Report was filed, such Company SEC Report filed on or
prior to the date of this Agreement, including without limitation any financial
statements or schedules included therein, (a) complied in all material respects
with all applicable requirements of the Securities Act and the Exchange Act, as
the case may be, and the applicable rules and regulations promulgated
thereunder, and (b) did not at the time it was filed (or if amended or
superceded by a filing prior to the date of this Agreement, then as and on the
date so amended or superceded) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Each contract, lease, indenture, agreement,
arrangement or understanding to which the Company is a party that is required to
be filed with the SEC has been timely filed.
SECTION 3.08. Financial Statements. Each of the financial statements of
the Company contained in the Company SEC Reports filed on or prior to the date
of this Agreement (including any related notes and schedules) (the "Company
Financial Statements") at the time filed were prepared from, and were in
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accordance with, the books and records of the Company, complied in all material
respects with the applicable published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto and subject, in the case of quarterly financial statements, to normal
and recurring year end adjustments and the absence of financial footnotes in the
case of any unaudited interim financial statements) and fairly presented the
financial position of the Company as of the date thereof and the results of
operations and cash flows (and changes in financial position, if any) of the
Company for the periods presented therein (subject to, in the case of unaudited
interim financial statements, normal and recurring year end adjustments and the
absence of financial footnotes in the case of any unaudited interim financial
statements).
SECTION 3.09. Absence of Undisclosed Liabilities.
(a) There are no debts, liabilities or obligations, whether accrued or
fixed, absolute or contingent, matured or unmatured or determined or
determinable ("Liabilities") of the Company that are not fully reflected or
reserved against on the Company's Balance Sheet dated as of June 30, 2001 (the
"Balance Sheet") and that would be required under GAAP to be reflected or
reserved thereon, except Liabilities incurred since the date of the Balance
Sheet in the ordinary course of the business, consistent with the past practice
of the Company, which have not had, and would not reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect. There
are no outstanding warranty or product liability claims against the Company.
(b) The Company represents and warrants that, as of the date hereof:
(i) $6,250,000 principal, plus no accrued and unpaid interest, is
outstanding under the 7.5% Subordinated Notes issued on January 2, 2001
(the "7.5% Subordinated Notes");
(ii) $1,749,126 principal, plus approximately $485,693.00 in accrued
and unpaid interest, is outstanding under the 8% Subordinated Notes issued
under the Second Amendment on July 23, 1999 under the May 13, 1998
Securities Purchase Agreement, as amended (the "May 1998 Securities
Purchase Agreement") by and among the Company, Furman Selz Investors II,
L.P., FS Employee Investors LLC, FS Parallel Fund LP, BancBoston Ventures
Inc. and Flynn Partners (the "8% Subordinated Notes");
(iii) $14,000,000 principal, plus no accrued and unpaid interest, is
outstanding under the 7.5% Convertible Subordinated Notes issued on July
23, 1999 under the Third Amendment to the May 1998 Securities Purchase
Agreement and the 7.5% Convertible Subordinated Notes issued on October 15,
1999 under the Fourth Amendment to the May 1998 Securities Purchase
Agreement (the "7.5% Convertible Subordinated Notes");
(iv) $7,000,000 principal, plus approximately $829,760.00 in accrued
and unpaid interest and dividends is outstanding under the 8% Convertible
Subordinated Notes issued on July 23, 1999 upon exchange of Series G
Preferred Stock in the Second Amendment to the May 1998 Securities Purchase
Agreement (the "8% Convertible Subordinated Notes"); and
(v) a total of $6,606 in unpaid dividends has accrued pursuant to the
terms of the Series H Preferred Stock.
SECTION 3.10. Absence of Certain Changes or Events. Since June 30, 2001
except as contained in the SEC Reports filed on or prior to the date of this
Agreement, the Company has conducted its business only in the ordinary course
and in a manner consistent with past practice, and since such date (a) there has
not been any Company Material Adverse Effect and (b) the Company has not taken
any action which, if such action had been taken after the date of this
Agreement, would have required the written consent of Parent pursuant to the
lettered paragraphs of the second paragraph of Section 5.01 hereof; provided,
however, that solely for purposes of this Section 3.10, the phrase "other than
in the ordinary course of business consistent with past practices" shall be
inserted at the beginning of each of paragraphs (g), (h) and (j) of the second
paragraph of Section 5.01 hereof.
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SECTION 3.11. Absence of Litigation. There is no litigation, suit, claim,
arbitration, action, proceeding or investigation (collectively, "Litigation")
pending or, to the knowledge of the Company, threatened against the Company, or
any property or asset of the Company, before any court, arbitrator or
Governmental Authority. None of the Company or any property or assets
(including, but not limited to, the Owned Intellectual Property) of the Company,
is subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement with, or, to the knowledge of the Company,
continuing investigation by, any Governmental Authority, or any order, writ,
judgment, injunction, decree, determination or award of any court, arbitrator or
Governmental Authority.
SECTION 3.12. Employee Benefit Plans; Labor Matters.
(a) Section 3.12(a) of the Company Disclosure Schedule contains a true and
complete list of 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, restricted stock, incentive, deferred
compensation, retiree medical, disability or life insurance, supplemental
retirement, severance or other material benefit plans, programs or arrangements
(other than the Company Stock Plans), and all employment (other than oral
employment agreements that are terminable at will), termination, severance or
other similar contracts or agreements pursuant to which services are provided to
the Company, whether oral or written, whether legally enforceable or not, to
which the Company is a party, or with respect to which the Company has any
obligation to, or which are maintained, contributed to or sponsored by the
Company or any entity which is a part of a "controlled group of corporations"
with, under "common control" with, or a member of an "affiliated service group"
with the Company as such terms are defined in Section 414(b), (c), (m) or (o) of
the Code (an "ERISA Affiliate") for the benefit, of any current or former
employee, officer or director of the Company (collectively, the "Company Benefit
Plans").
(b) Each Company Benefit Plan is in writing, the Company has furnished or
made available to Parent with a true and complete copy of each Company Benefit
Plan, including, without limitation, (i) a copy of each trust, annuity contract
or other funding arrangement, (ii) each summary plan description ("SPD") and
summary of material modifications and summaries, if any, furnished or made
available to employees, officers and directors of the Company of all incentive
compensation, other plans and fringe benefits for which SPDs are not required,
(iii) the Internal Revenue Service ("IRS") Form 5500, if any, for the most
recently completed fiscal year, (iv) the most recently received IRS
determination letter for each such Company Benefit Plan intended to be qualified
under Section 401(a) of the Code, (v) the actuarial report and certified
financial statements in connection with each such Company Benefit Plan, if
applicable, for the most recently completed three fiscal years, (vi) any
correspondence with the IRS or the Department of Labor with respect to each such
Company Benefit Plan, (vii) each administrative or other services agreement or
contract in effect prior to the Closing Date and any amendments thereto
effective as of a later date, and (viii) the notifications to employees of their
rights under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, and the regulations promulgated thereunder ("COBRA").
(c) None of the Company Benefit Plans is a multiemployer plan (within the
meaning of Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a
single employer pension plan (within the meaning of Section 4001(a)(15) of
ERISA) for which the Company could incur liability under Section 4063 or 4064 of
ERISA (a "Multiple Employer Plan"). None of the Company Benefit Plans provides
for or promises retiree medical, disability or life insurance benefits to any
current or former employee, officer or director of the Company except as
required by applicable Law. No Company Benefit Plans are self-insured "multiple
employer welfare arrangements" as such term is defined in Section 3(40) of
ERISA.
(d) None of the Company Benefit Plans provides for the payment of
separation, severance, change of control, termination or similar-type benefits
to any person or obligates the Company to pay separation, severance,
termination, change of control or similar-type benefits solely or partially as a
result of the Transactions or as a result of a "change in control", within the
meaning of such term under any Company Benefit Plan or Section 280G of the Code.
Neither the execution and delivery of this Agreement nor the
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consummation of the Transactions, either alone or together with another event,
will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, forgiveness of indebtedness or
otherwise) becoming due under any Company Benefit Plan, (ii) increase any
benefits otherwise payable under any Company Benefit Plan or other arrangement,
(iii) result in the acceleration of the time of payment, vesting or funding of
any benefits under any Company Benefit Plan, (iv) affect in any respects any
Company Benefit Plan's current treatment under any Laws, including any tax or
social contribution Law or (v) give rise to the payment of any amount that would
not be deductible pursuant to the terms of Sections 162(a)(1), 162(m) and/or
280G of the Code or would require the payment of an excise tax imposed by
Section 4999 of the Code or any "gross up" of any such excise tax.
(e) Each Company Benefit Plan is now and always has been operated in all
material respects in accordance with its terms and the requirements of all
applicable Laws (including the regulations and rules promulgated thereunder),
including, without limitation, ERISA and the Code. The Company has performed all
material obligations required to be performed by it under, and is not in any
material respect in default under or in violation of, the Company Benefit Plans.
No action, claim or proceeding is pending or, to the Company's knowledge,
threatened with respect to any Company Benefit Plan (other than claims for
benefits in the ordinary course). None of the Company nor any ERISA Affiliate is
subject to any penalty or tax with respect to any Company Benefit Plan under
Section 402(i) of ERISA or Sections 4975 through 4980 of the Code.
(f) Each Company Benefit Plan that is intended to be qualified under
Section 401(a) or Section 401(k) of the Code has timely received a favorable
determination letter from the IRS considering the Tax Reform Act of 1986, as
amended, and subsequent changes in the law or applicable regulations covering
all of the provisions applicable to the Company Benefit Plan for which
determination letters are currently available, that the Company Benefit Plan is
so qualified and each trust established in connection with any Company Benefit
Plan that is intended to be exempt from federal income taxation under Section
501(a) of the Code has received a determination letter from the IRS that it is
so exempt, and to the Company's knowledge, no fact or event has occurred since
the date of such determination letter or letters from the IRS considering the
Tax Reform Act of 1986, as amended, to adversely affect the qualified status of
any such Company Benefit Plan or the exempt status of any such trust.
(g) The Company has not incurred any material unsatisfied liability under,
arising out of or by operation of Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course), including, without limitation, any liability in connection with (i) the
termination or reorganization of any employee benefit plan subject to Title IV
of ERISA or (ii) the withdrawal from any Multiemployer Plan or Multiple Employer
Plan. All "benefit liabilities" within the meaning of Section 4001(a)(16) of
ERISA are fully funded with respect to each applicable Company Benefit Plan
which is subject to Title IV of ERISA as determined on a termination basis using
the assumed interest rate set forth in each Company Benefit Plan or otherwise
required by ERISA or the Code.
(h) All contributions, premiums or payments required to be made or accrued
with respect to any Company Benefit Plan prior to the date hereof have been made
on or before their due dates. All such contributions made for open taxable years
of the Company and for which Tax Returns (as defined below) have been filed have
been fully deducted for income tax purposes and no such deduction has been
challenged or disallowed by any Governmental Authority and, to the Company's
knowledge, no fact or event exists which would reasonably be expected to give
rise to any such challenge or disallowance.
(i) The Company does not have any Company Benefit Plan that is not subject
to United States Law.
(j) The Company is not and never has been a party to or otherwise bound by
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. The Company is not the
subject of any proceeding asserting that the Company has committed an unfair
labor practice or seeking to compel it to bargain with any labor union or labor
organization, nor is there pending or, to the knowledge of the Company,
threatened, any labor strike, dispute, walkout, work stoppage, slow-down or
lockout involving the Company.
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(k) As of the date hereof, Section 3.12(k) of the Company Disclosure
Schedule sets forth a true and complete list of the names, titles, annual
salaries and all compensation pursuant to any commission or bonus plan or
similar arrangement of all officers of the Company and all other employees of
the Company.
SECTION 3.13. Contracts.
(a) SECTION 3.13(a) of the Company Disclosure Schedule lists each of the
following written contracts and agreements of the Company (such contracts and
agreements being "Material Contracts"):
(i) each contract and agreement which (A) involved consideration of
more than $10,000, in the aggregate, during the calendar year ended
December 31, 2000 that continues to be executory, (B) is likely to involve
consideration of more than $10,000, in the aggregate, during the calendar
year ending December 31, 2001, or (C) is likely to involve consideration of
more than $10,000, in the aggregate, over the remaining term of such
contract, and which, in any such case, cannot be canceled by the Company
without penalty or further payment and without more than 90 days' notice;
(ii) all broker, distributor, dealer, manufacturer's representative,
franchise, physician consulting, clinical study, data management, research,
agency and sales promotion contracts and agreements to which the Company is
a party;
(iii) all market research, market consulting and advertising contracts
and agreements, management contracts (excluding contracts for employment),
contracts with other consultants and any contracts and agreements involving
the payment of royalties or other amounts calculated based upon the
revenues or income of the Company or the revenue or income related to any
product of the Company to which the Company is a party and, in each case,
which is likely to involve consideration of more than $10,000, in the
aggregate, during the calendar year ending December 31, 2001;
(iv) all contracts and agreements evidencing indebtedness for borrowed
money in excess of $25,000;
(v) all leases and subleases of real property;
(vi) all contracts and agreements with any Governmental Authority to
which the Company is a party;
(vii) all contracts and agreements that limit or purport to limit the
ability of the Company to compete in any line of business or with any
Person or in any geographic area or during any period of time;
(viii) to the best of the Company's knowledge after reasonable
investigation all contracts containing confidentiality requirements
(including all nondisclosure agreements), which require the Company to keep
confidential information belonging to third parties;
(ix) all non-arm's length contracts and agreements in excess of
$10,000 individually between or among the Company and any Principal
Stockholder or, to the Company's knowledge, any affiliate of such Principal
Stockholder;
(x) any other material agreement of the Company which is terminable
upon, or prohibits a change of ownership or control of, the Company;
(xi) all contracts and agreements for Owned Intellectual Property (as
defined in Section 10.02) or Licenses (as defined in Section 10.02), other
than (A) any sublicense implicit as a result of a sale or transfer to an
end-user of any Company product, (B) any confidentiality or nondisclosure
agreements, in each case entered into in the ordinary course of the
Company's business and (C) licenses of commercial off-the-shelf or
shrink-wrap computer software;
(xii) all material contracts and agreements providing for benefits
under any Company Benefit Plan;
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(xiii) all material contracts or arrangements (excluding contracts
with customs brokers or legal counsel prosecuting patent applications or
registrations and/or trademark applications or registrations on behalf of
the Company) that, to the Company's knowledge, result in any Person holding
a power of attorney from the Company that relates to the Company or its
business;
(xiv) all contracts for employment for persons required to be listed
in Section 3.12(k) of the Disclosure Schedule;
(xv) all contracts and agreements with any Person authorized to act as
a purchasing agent for a third party pursuant to which the Company sells
products, has agreed to discount products or pursuant to which the Company
has agreed to utilize an electronic business-to-business exchange to sell
its products; and
(xvi) all other contracts and agreements, whether or not made in the
ordinary course of business, which are material to the Company or to the
conduct of its business, or the absence of which would prevent or
materially delay consummation of the Merger or otherwise prevent or
materially delay the Company from performing its obligations under this
Agreement.
(b) (i) Each Material Contract is valid and binding on the Company, and, to
the knowledge of the Company, on the other parties thereto (subject, in each
case, to the Enforceability Exception) and is in full force and effect (subject
to expiration thereof after the date hereof in accordance with the terms of such
Material Contract) and represents, together with any other contracts listed on
the Company Disclosure Schedule that relate to the same subject matter, the
entire agreement between the respective parties with respect to the subject
matter of such Material Contract;
(ii) The Company has not (A) received any written notice of
termination or cancellation under any Material Contract, (B) received any
written notice of breach or default under any Material Contract, which
breach or default has not been cured, and (C) granted to any other third
party any rights, adverse or otherwise, under any Material Contract that
would constitute a breach of such Material Contract; and
(iii) The Company and, to the Company's knowledge, any other party to
each Material Contract, are not in breach or default thereof, and no event
has occurred that, with notice or lapse of time, would constitute such a
breach or default or permit termination, modification or acceleration under
such Material Contract.
SECTION 3.14. Environmental Matters. The Company (a) is in compliance
with all federal, state or local statutes, laws, ordinances, regulations, rules,
codes or orders of the United States or any other jurisdiction and any
enforceable judicial or administrative interpretation thereof, including any
legally enforceable judicial or administrative order, consent decree or
judgment, relating to pollution or protection of the environment or natural
resources, including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials, as in effect as of the date of this Agreement ("Environmental Laws")
applicable to the conduct of the Company's business as presently conducted or to
the assets and properties owned by the Company, except where noncompliance would
not reasonably be expected to have a Company Material Adverse Effect, (b) holds
all permits, approvals, identification numbers, licenses and other
authorizations required under any applicable Environmental Law ("Environmental
Permits") material to the conduct of the Company's business as presently
conducted, except where the failure to have the Environmental Permit would not
reasonably be expected to have a Company Material Adverse Effect and (c) is in
compliance with its Environmental Permits for the conduct of its business as
presently conducted, except where noncompliance would not reasonably be expected
to have a Company Material Adverse Effect. The Company has not received any
written request for information, or been notified in writing that it is a
potentially responsible party, under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended as of the date hereof
("CERCLA"), or any similar law of any state, locality or any other jurisdiction.
The Company has not entered into or agreed in writing to any consent decree or
order or is not subject to such judgment, decree or judicial order relating to
compliance by the Company with
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Environmental Laws, Environmental Permits or the investigation, sampling,
monitoring, treatment, remediation, removal or cleanup of (a) any petroleum,
petroleum products, by-products or breakdown products, radioactive materials,
asbestos-containing materials or polychlorinated biphenyls or (b) any chemical,
material or substance defined or regulated as toxic or hazardous or as a
pollutant or contaminant or waste under any applicable Environmental Law
("Hazardous Materials"), and no such investigation, litigation or other
proceeding is pending or, to the knowledge of the Company, threatened against
the Company.
SECTION 3.15. Preclinical Testing and Clinical Trials. Section 3.15 of
the Company Disclosure Schedule sets forth all human clinical trials conducted
by the Company, on behalf of the Company, or in which the Company has
participated (the "Company Ongoing Clinical Programs"). To the Company's
knowledge, the Company Ongoing Clinical Programs were and, if still pending, are
being conducted in accordance with applicable laws and regulations, including
but not limited to, 21 CFR part 50 (informed consent), part 56 (institutional
review boards), part 58 (good laboratory practices), part 812 (investigational
device exemptions), and all other applicable laws and regulations, except where
the failure to be so conducted would individually or in the aggregate reasonably
be expected to have a Company Material Adverse Effect. Since January 1, 2000,
neither the Company, nor any agent or representative of the Company, has
received any written notices or correspondence from the United States Food and
Drug Administration or any other governmental agency requiring the delay,
termination, suspension or modification of any clinical trials conducted by or
on behalf of the Company or in which the Company has participated, or any
disqualification of testing facilities used by the Company. To the Company's
knowledge, no clinical investigator acting for the Company has been, is or is
threatened to become, the subject of any disbarment or disqualification
proceedings by any regulatory agency or has been terminated or threatened to be
terminated from any such investigation.
SECTION 3.16. Intellectual Property.
(a) Section 3.16(a) of the Company Disclosure Schedule sets forth a true
and complete list of all U.S. and foreign patents and patent applications and
design registrations and applications, all Registered Proprietary Names in all
countries of the world and all Unregistered Proprietary Names, all copyright
registrations and applications for registration of copyrights in all countries
of the world, all domain name registrations and applications for registration of
domain names, and mask works and registrations and registration applications
relating thereto and all documents and materials that embody, identify or
document trade secrets included in the Owned Intellectual Property (as defined
in Section 10.02) and Licensed Intellectual Property (as defined in Section
10.02), and Licenses (as defined in Section 10.02) (other than licenses of
commercial off-the-shelf or shrink-wrap computer software). The Company does not
have any Company Software (as defined in Section 10.02).
(b) To the Company's knowledge (i) (A) the use of the Owned Intellectual
Property and the Licensed Intellectual Property in connection with the operation
of the business of the Company as currently conducted, and (B) the manufacture,
use, offer for sale, and sale of the Pediatric Products (as such products exist
as of the date hereof) do not infringe or misappropriate or otherwise violate
the Intellectual Property rights of any third party, and no claim is pending or,
to the Company's knowledge, threatened against the Company alleging any of the
foregoing; and (ii) for the conduct of the business of the Company as presently
conducted, no right, license, lease, consent, or other agreement is required
with respect to any patent, invention, know-how, technology, or the like, and
any Proprietary Name, copyright, domain name or other Intellectual Property
other than those described in Section 3.16(b) of the Company Disclosure
Schedule. None of the patents or patent applications listed in Section 3.16(a)
of the Company Disclosure Schedule is involved in any interference,
reexamination, conflict or opposition proceeding, and to the Company's
knowledge, there has been no threat or other indication that any such proceeding
will hereafter be commenced. None of the Registered Proprietary Names or
registrations or applications to use or register such Registered Proprietary
Names listed in Section 3.16(a) of the Company Disclosure Schedule is involved
in any opposition, cancellation, nullification, interference, conflict or
concurrent use proceeding, and to the Company's knowledge, there has been no
threat or other indication that any such proceeding will hereafter be commenced.
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(c) The Company is the exclusive owner of the entire and unencumbered
right, title and interest in and to each item of the Owned Intellectual
Property, and, to the Company's knowledge, is entitled to use the Owned
Intellectual Property and the Licensed Intellectual Property in the ordinary
course of its business as presently conducted, subject only to the terms of the
Licenses listed on Section 3.16(a) of the Company Disclosure Schedule. To the
Company's knowledge, none of the activities or business previously or currently
conducted by the Company or planned to be conducted by the Company (including
the manufacture, use or sale of the future products which are the subject of
Company Ongoing Clinical Programs for any clinical indications) infringes,
violates or constitutes a misappropriation of, any Intellectual Property rights
of any other Person. To the Company's knowledge, the Company has not received
any complaint, claim or notice alleging any such infringement, violation or
misappropriation, present or future.
(d) The Owned Intellectual Property and the Licensed Intellectual Property
include all of the Intellectual Property used in the ordinary day-to-day conduct
of the business of the Company as presently conducted, and there are no other
items of Intellectual Property that are material to or necessary for such
ordinary day-to-day conduct of such business. To the Company's knowledge, the
Owned Intellectual Property and the Licensed Intellectual Property are issued,
granted or pending (to the extent such concepts are applicable) and are
otherwise in good standing, all without challenge of any kind, and are valid and
enforceable, and have not been adjudged invalid or unenforceable (except for
challenges to validity that may be received in the ordinary course of the
prosecution of patent applications in patent offices) in whole or part and the
Company is unaware of any fact which, individually or in the aggregate, would
reasonably be argued to detrimentally affect the validity, ownership or
enforceability of any item of the Owned Intellectual Property or the Licensed
Intellectual Property.
(e) No legal proceedings are pending or, to the Company's knowledge,
threatened against the Company (i) based upon or challenging or seeking to deny
or restrict the use by the Company of any of the Owned Intellectual Property or
the Licensed Intellectual Property, (ii) alleging that any services provided by,
processes used by, or products manufactured, used or sold by the Company
infringe or misappropriate any Intellectual Property right of any third party,
or (iii) alleging that the Licenses being licensed are in conflict with the
terms of any third party license or other agreement.
(f) To the Company's knowledge, no third party is engaging in any activity
that infringes or misappropriates the Owned Intellectual Property or the
Licensed Intellectual Property. With respect to the Company's rights in the
Owned Intellectual Property or the Company's right to use the Licensed
Intellectual Property, the consummation of the Transactions will not have a
Company Material Adverse Effect.
(g) The Company has delivered or made available to Parent, as requested by
Parent, true and correct and complete copies of patents, patent applications,
license commitments and other agreements identified in Section 3.16(a) of the
Company Disclosure Schedule and all applications and registrations for
Registered Proprietary Names and copyrights, licenses, leases, commitments and
other agreements listed or described in Section 3.16(a) of the Company
Disclosure Schedule, other than licenses of commercial off-the-shelf or
shrink-wrap computer software.
(h) The Company has taken reasonable steps in accordance with normal
industry practice to maintain the confidentiality of its trade secrets,
confidential and/or proprietary information and other Intellectual Property.
(i) To the knowledge of the Company, (i) there has been no misappropriation
of any material trade secrets or other confidential and/or proprietary
information or Intellectual Property of the Company by any Person, (ii) no
employee, independent contractor or agent of the Company has misappropriated any
trade secrets of any other Person in the course of such performance as an
employee, independent contractor or agent of the Company, and (iii) no employee,
independent contractor or agent of the Company is in default or breach of any
term of any employment agreement, nondisclosure agreement, assignment of
invention agreement or similar agreement or contract relating in any way to the
protection, ownership, development, use or transfer of Intellectual Property.
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(j) Each current officer or employee of the Company, including but not
limited to, all current research and development personnel at the Company has
executed an agreement with the Company regarding confidentiality and proprietary
information substantially in the form attached to Section 3.16(j)(i) of the
Company Disclosure Schedule. The Company is not aware that any of its officers
or employees are in violation of any such agreement.
SECTION 3.17. Taxes.
(a) (i) All Tax Returns (as defined in Section 10.02(a) below) in respect
of Taxes (as defined in Section 10.02(a) below) required to be filed with
respect to the Company have been timely filed; (ii) all Taxes required to be
shown on such Tax Returns or otherwise due have been timely paid; (iii) the
unpaid Taxes of the Company for Tax periods through June 30, 2001 do not exceed
the accruals and reserves for Taxes set forth on the Balance Sheet (exclusive of
any accruals for "deferred taxes" or similar items that reflect timing
differences between Tax and financial accounting principles; (iv) all such Tax
Returns are true, correct and complete in all material respects and properly
reflect the Taxes of Company for the periods covered thereby; (v) no adjustment
relating to such Tax Returns has been proposed or discussed formally or
informally by any Tax Authority (as defined in Section 10.02(a) below) and, to
the knowledge of the Company, no basis exists for any such material adjustment;
(vi) there are no pending or, to the knowledge of the Company, threatened
actions or proceedings for the assessment or collection of Taxes against the
Company; (vii) no claim has been made by a Governmental Authority in a
jurisdiction where the Company does not file Tax Returns that the Company may be
subject to Tax in such jurisdiction; (viii) no consent under Section 341(f) of
the Code has been filed with respect to the Company; (ix) there are no Tax liens
on any assets of the Company; (x) the Company has not made any payments, is not
obligated to make any payments, is not a party to any agreement, and by
execution of this Agreement does not become party to an agreement, that under
certain circumstances could obligate it to make any payments that would not be
deductible by the Company by reason of any one or more of Sections 162(m) and
280G of the Code; (xi) except as provided in Section 2.04, no acceleration of
the vesting schedule for any property that is substantially unvested within the
meaning of the regulations under Section 83 of the Code will occur in connection
with the Transactions; (xii) the Company has not been a member of any affiliated
group (within the meaning of Section 1504(a)(1) of the Code), other than the
affiliated group for which the Company files a consolidated Tax Return as the
common parent, for any period for which the statute of limitations for any Tax
has not expired; (xiii) the Company has not been at any time a member of any
partnership or joint venture or the holder of a beneficial interest in any trust
for any period for which the statute of limitations for any Tax has not expired;
(xiv) the Company is not subject to any accumulated earnings tax penalty or
personal holding company tax; (xv) the Company has not been a party to a
transaction described in Section 355 of the Code, and (xvi) since June 30, 2001,
the Company has not made, changed or revoked any material Tax election, changed
any annual Tax accounting period, adopted or changed any method of Tax
accounting, filed any amended Tax Return, entered into any closing agreement,
settled any Tax claim or assessment, surrendered any right to claim a Tax
refund, consented to any extension or waiver of the limitation period applicable
to any Tax claim or assessment or taken or omitted to take any other action with
respect to Taxes, if any such action or omission would have the effect,
individually or in the aggregate, of materially increasing the Tax liability of
the Company, Parent or any affiliate of Parent.
(b) (i) There are no outstanding waivers or agreements extending the
statute of limitations for any period with respect to any Tax to which the
Company may be subject; (ii) the Company has not participated in or cooperated
with an international boycott within the meaning of Section 999 of the Code;
(iii) there are no requests for information currently outstanding that could
affect the Taxes of the Company; (iv) there are no proposed reassessments of any
property owned by the Company that could increase the amount of any Tax to which
the Company would be subject; (v) no power of attorney that is currently in
force has been granted with respect to any matter relating to Taxes that could
affect the Company; (vi) there are no Tax allocation, sharing or Tax
indemnification agreements or arrangements affecting the Company; (vii) the
Company has no liability for the Taxes of any Person under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or
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successor, by contract, or otherwise; (viii) the Company has not been and is not
in violation of any federal, state, local or foreign tax law or the rules and
regulations of any Tax Authority except such violation as would not reasonably
be expected to, individually or in the aggregate, have a Company Material
Adverse Effect; (ix) the Company has not entered into any agreement or
arrangement with any Tax Authority that requires the Company to take any action
or to refrain from taking any action; (x) no closing agreement pursuant to
Section 7121 of the Code (or any predecessor provision) or any similar provision
of any state, local, or foreign law has been entered into by or with respect to
the Company; (xi) the Company will not be required to include any amount in
income for any taxable period ending after June 30, 2001 as a result of a change
in accounting or pursuant to any agreement with any Tax authority with respect
to any prior taxable period; (xii) there is no application pending with any Tax
Authority requesting permission for any changes in any accounting method of the
Company; (xiii) no Tax Authority has proposed any such adjustment or change in
accounting method with respect to the Company; (xiv) the Company is not a
"foreign person" within the meaning of Section 1445(b)(2) of the Code; and (xv)
all monies required to be withheld by the Company and paid to Tax Authorities
for all Taxes have been collected or withheld and either paid to the respective
Tax Authorities or set aside in accounts for such purpose.
(c) Section 3.17(c) of the Company Disclosure Schedule lists (i) all income
Tax Returns filed with respect to the Company for the prior three tax years,
(ii) the taxable years of the Company for which the statutes of limitations with
respect to income Taxes have not expired, and (iii) those years for which
examinations have been completed, those years for which examinations are
presently being conducted, and those years for which examinations have not yet
been initiated.
(d) The Company has delivered to Parent complete and correct copies of all
Tax Returns, examination reports and statements of deficiencies assessed against
or agreed to by the Company for the tax years ending on or after December 31,
1997.
SECTION 3.18. Assets. Except as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, the
Company owns, leases or has the legal right to use all of the properties and
assets, including, without limitation, real property, personal property and
Owned Intellectual Property used in or necessary for the conduct of the business
of the Company as it is currently conducted (all such properties and assets
being the "Assets"). The Company has good and marketable title to, or, in the
case of leased or subleased Assets, valid and subsisting leasehold interests in,
all the Assets, free and clear of all encumbrances, except such encumbrances (a)
arising in the ordinary course of business consistent with past practices, (b)
reflected in the Company Financial Statements (c) which have not had, and would
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect or (d) listed in Section 3.18 of the Company Disclosure
Schedule.
SECTION 3.19. Certain Interests. Except as set forth in the Company SEC
Reports filed on or prior to the date of this Agreement, the Company has not
entered into any transaction with any director, officer or other affiliate of
the Company or any transaction that would be subject to proxy statement
disclosure pursuant to Item 404 of Regulation S-K.
SECTION 3.20. Insurance Policies. Section 3.20 of the Company Disclosure
Schedule sets forth a true and complete list of all insurance policies held by
the Company. True and complete copies of all such policies have been provided or
made available by the Company to Parent. All premiums due on such policies have
been paid. The Company has not failed to give any notice or present any claim
under any such policy in a timely fashion, except where such failure would not
reasonably be expected to prejudice the Company's ability to make a claim. Such
insurance has (i) been maintained in full force and effect and (ii) not been
canceled or changed, except to extend the maturity dates thereof.
SECTION 3.21. Brokers. Except the FS Transaction Fee (defined in Section
6.09(a) below) and the Company's arrangement with Adams, Harkness & Hill, Inc.,
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of the Company.
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SECTION 3.22. Vote Required. The only votes of the holders of any classes
or series of capital stock of the Company necessary to approve this Agreement
and the Transactions (the "Company Stockholders' Approval") is (a) the
affirmative vote of the holders of at least a majority of the outstanding
Company Common Stock as of the record date for such vote, voting as a single
class and (b) the affirmative vote of the holders of at least 80% of the Series
H Preferred Stock outstanding as of the record date for such vote, voting as a
separate class, and each voting in favor of the adoption of this Agreement and
the approval of the Merger.
SECTION 3.23. Takeover Restrictions. The Company and the Board of
Directors of the Company have each taken all action required to be taken by it
in order to exempt the Merger, this Agreement, the Voting Agreements and the
transactions contemplated hereby and thereby from, the requirements of Section
203 of the DGCL and any other applicable "moratorium," "control share," "fair
price," "affiliate transaction," "business combination," or other antitakeover
laws and regulations of any state.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule delivered by Parent to the
Company concurrently with the execution of this Agreement (the "Parent
Disclosure Schedule") Parent represents and warrants to the Company that the
statements contained in this Article IV are true and correct as of the date
hereof. The Parent Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
IV and the disclosure in any paragraph shall qualify (1) the corresponding
paragraph in this Article IV and (2) the other paragraphs in this Article IV
only to the extent that it is clear from a reading of such disclosure that it
also qualifies or applies to such other paragraphs. Parent represents and
warrants to the Company as follows:
SECTION 4.01. Organization and Qualification. Each of Parent and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has the requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing or in good standing or to have such power and
authority would not, individually or in the aggregate, reasonably be expected to
have a Parent Material Adverse Effect. Each of Parent and Merger Sub is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction in which the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
or in good standing that have not had, and would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect. The
term "Parent Material Adverse Effect" means any change, effect, event,
occurrence or state of facts that is materially adverse to the business,
properties, operations, financial condition and results of operations of Parent
and its subsidiaries taken as a whole or materially impairs or delays the
ability of Parent to perform its material obligations under this Agreement or to
consummate the Merger; provided, however, that none of the following shall be
deemed, singly or in the aggregate, to constitute, or be considered in
determining whether there exists, a Parent Material Adverse Effect: any change,
effect, event, occurrence or state of facts resulting from (i) any factors
generally affecting the healthcare or pharmaceutical industry, (ii) any factors
generally affecting general economic conditions or the securities markets, (iii)
acts or omissions of the Company, including without limitation acts or omissions
contemplated by or pursuant to this Agreement; (iv) acts or omissions of Parent
or Merger Sub contemplated by or pursuant to this Agreement; and (v) the
pendency or announcement of the Merger.
SECTION 4.02. Certificate of Incorporation and Bylaws. Neither Parent nor
Merger Sub is in violation of any of the provisions of their respective
certificate of incorporation or bylaws.
SECTION 4.03. Authority Relative to this Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the Transactions. The execution,
delivery and performance of this Agreement by each of Parent and Merger
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Sub and the consummation by each of Parent and Merger Sub of the Transactions
have been duly and validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate the Transactions (other than, with
respect to the Merger, the filing of appropriate merger documents as required by
the DGCL). This Agreement has been duly and validly executed and delivered by
each of Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes a legal, valid and binding
obligation of each of Parent and Merger Sub, enforceable against each of Parent
and Merger Sub in accordance with its terms, subject to the Enforceability
Exception.
SECTION 4.04. Consents and Approvals; No Violations. The execution and
delivery of this Agreement does not, the consummation by Parent and Merger of
the Transactions will not, and the performance by Parent and Merger Sub of its
obligations hereunder will not:
(a) conflict with any provision of the certificate of incorporation or
bylaws (or other organizational documents) of Parent or Merger Sub;
(b) require any consent, waiver, approval, order, authorization or
permit of, or registration, filing with or notification to, any
Governmental Authority, except for (i) the filing of the Certificate of
Merger with the Delaware Secretary of State, (ii) such consents, approvals,
orders, authorizations and regulations, declarations and filings as may be
required under applicable state securities or blue sky laws, (iii) the
filing of such reports, schedules or materials under the Exchange Act and
Regulation MA as may be required in connection with this Agreement and the
Transactions, and (iv) such other consents, waivers, approvals, orders,
authorizations or permits of or registration, filing with or notification
of any Governmental Authority that, if not obtained or made, would not,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect; or
(c) result in any violation or breach of, or constitute a default
(with or without notice or lapse of time or both) under, or give rise to
any right of termination, forfeiture, cancellation or acceleration,
transfer fees or guaranteed payments or a loss of a material benefit under,
or require a consent, waiver or approval under any of the terms, conditions
or provisions of any material contract of Parent, except for any such
conflicts, violations, breaches, defaults, terminations, fees, rights,
payments, cancellations or accelerations that would not, individually or in
the aggregate, reasonably be expected to have a Parent Material Adverse
Effect or such consents, waivers and approvals which if not obtained would
not, individually or in the aggregate, reasonably be expected to have a
Parent Material Adverse Effect;
(d) conflict with or violate any Law applicable to Parent or Merger
Sub or any of its properties or assets except for such conflicts or
violations which, would not, individually or in the aggregate, reasonably
be expected to have a Parent Material Adverse Effect.
SECTION 4.05. Financing. Parent has, and shall have at the Effective Time
and at any time thereafter when due, funds available sufficient to permit Parent
to pay the Aggregate Merger Consideration pursuant to Section 2.01.
SECTION 4.06. Ownership of Merger Sub; No Prior Activities. Parent owns
all of the outstanding capital stock of Merger Sub. Merger Sub was formed by
Parent solely for the purpose of engaging in the Transactions. As of the date of
this Agreement and the Effective Time, except for obligations or liabilities
incurred in connection with its incorporation or organization and this Agreement
and the Transactions, Merger Sub has not and will not have incurred, directly or
indirectly, any obligations or liabilities or engaged in any business activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any Person.
SECTION 4.07. Brokers. Except for Corporate Development Specialists,
Inc., a New Jersey corporation, and Thomas Weisel Partners, the fees of which
shall be the sole responsibility of Parent, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Transactions based upon arrangements made by or on behalf of
Parent or Merger Sub.
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SECTION 4.08. Information Supplied. None of the information supplied or
to be supplied by Parent or Merger Sub specifically for inclusion or
incorporation by reference in the Proxy Statement (as defined below) will
(except to the extent revised or superseded by amendments or supplements
contemplated hereby), at the date the Proxy Statement is first mailed to the
Company Stockholders or at the time of the Company Stockholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger. The
Company agrees that, between the date of this Agreement and the earlier to occur
of the Effective Time and the termination of this Agreement, except as set forth
in Section 5.01 of the Company Disclosure Schedule or as contemplated by any
other provision of this Agreement, unless Parent shall otherwise consent in
writing:
(i) the Company shall conduct its business in the ordinary course
consistent with past practice;
(ii) the Company shall use all reasonable best efforts, in light of
the terms of this Agreement, to preserve intact its business organization,
to keep available the services of the current officers, employees and
consultants of the Company and to preserve the current relationships of the
Company with customers, suppliers and other persons with which the Company
has significant business relations; and
(iii) the Company and the board of directors of the Company shall not
take any action that would cause the Merger, this Agreement, the Voting
Agreement and the transactions contemplated hereby and thereby to be
subject to the requirements of Section 203 of the DGCL or any other
applicable "moratorium," "control share," "fair price," "affiliate
transaction," "business combination," or other antitakeover laws and
regulations of any state.
By way of amplification and not limitation, except as otherwise
contemplated by this Agreement or as set forth in Section 5.01 of the Company
Disclosure Schedule, the Company shall not, between the date of this Agreement
and the earlier to occur of the Effective Time and the termination of this
Agreement, directly or indirectly, do, or propose to do, any of the following
without the prior written consent of Parent:
(a) adopt or propose any change to its certificate of incorporation or
bylaws (or similar organizational documents);
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of any shares of
its capital stock of any class, or any options, warrants and rights to
receive warrants, convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of the Company,
including, without limitation, any grant of options to a "disqualified
individual" within the meaning of Section 280G of the Code, except pursuant
to the terms of options, warrants or convertible securities outstanding on
the date of this Agreement, pursuant to any contracts, instruments or
arrangements referred to in Section 3.03 or Schedule 3.03 of the Company
Disclosure Schedule, or under the Company Stock Plans;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock other than with respect to the Series H
Preferred Stock if required by the terms thereof;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock other
than shares of Series H Preferred Stock if required by the terms thereof;
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(e) acquire (including, without limitation, by merger, consolidation
or acquisition of stock or assets) any equity interest in any corporation,
partnership, other business organization or any division thereof or enter
into a new line of business or commence business operations outside of its
existing area of operations unrelated to the pharmaceuticals and life
science areas or, except in the ordinary course of business and consistent
with past practice, any assets for a purchase price in excess of $10,000
individually, or $50,000 in the aggregate (excluding money market accounts
and similar interests);
(f) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person, or
make any loans or advances, in excess of $5,000 individually or $10,000 in
the aggregate;
(g) authorize any capital expenditure in excess of $10,000 in the
aggregate;
(h) except as required to comply with applicable Law, increase the
compensation payable or to become payable to its officers or employees,
grant any severance or termination pay, or right thereto, to, or enter into
any employment or severance agreement with, any director, officer or other
employee of the Company, enter into any employment or consulting
arrangements or, except as permitted in paragraph (j) below, with any
person who provides services to the Company that provides for compensation
amounts that are not in accordance with past practice or establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee;
(i) take any action that would give rise to a claim under the WARN Act
or any similar state law or regulation because of a "plant closing" or
"mass layoff" (each as defined in the WARN Act);
(j) enter into any contract, agreement or obligation, including
without limitation consulting agreements, in excess of $5,000 which shall
not terminate or be subject to termination for convenience, in each case,
without cost, by the Company upon notice of 30 days or less, except
purchase or sales orders issued or received in the ordinary course of
business, consistent with past practices;
(k) enter into any contract relating to the business development of
any Pediatric Product or a pharmaceutical product of any third party,
including but not limited to licensing, development, co-development,
marketing or co-marketing agreements;
(l) change any method or accounting practice by the Company except for
any such change required by applicable Law or GAAP;
(m) except if required by Law, make, change or revoke any material Tax
election, change any annual Tax accounting period, adopt or change any
method of Tax accounting, file any amended Tax Return, enter into any
closing agreement, settle any Tax claim or assessment, surrender any right
to claim a Tax refund, consent to any extension or waiver of the limitation
period applicable to any Tax claim or assessment or take or omit to take
any other action with respect to Taxes, if any such action or omission
would have the effect of materially increasing the Tax liability of the
Company, Parent or any affiliate of Parent;
(n) other than in the ordinary day-to-day conduct of the business of
the Company, (i) sell, assign, lease, terminate, abandon, fail to maintain,
fail to prosecute as deemed prudent by the Company, transfer or otherwise
dispose of or grant any security interest in and to any item of the Owned
Intellectual Property or Licensed Intellectual Property, in whole or in
part, (ii) grant any license with respect to any Owned Intellectual
Property (other than licenses in the ordinary course in connection with
sales), or (iii) disclose, or allow to be disclosed, any confidential Owned
Intellectual Property, unless such Owned Intellectual Property is subject
to a confidentiality or nondisclosure covenant protecting against
disclosure thereof; or
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(o) pay, discharge, satisfy or enter into any settlement or consent
with respect to any material claim or litigation, (absolute, accrued,
asserted or unasserted, contingent or otherwise).
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Preparation of the Proxy Statement. As promptly as
practicable after the execution of this Agreement, the Company shall prepare and
file with the SEC a Proxy Statement (the "Proxy Statement") (it being understood
and agreed that both parties will use their reasonable best efforts to
accomplish this preparation and filing within three (3) weeks after the date
hereof). The Company will use its reasonable best efforts to respond to the
comments of the SEC in connection with the Proxy Statement and to furnish all
information required to prepare the Proxy Statement. The Company will use its
reasonable best efforts to cause the Proxy Statement to be mailed to the
Company's stockholders as promptly as practicable following completion of any
SEC review. If necessary under applicable Law, after the definitive Proxy
Statement shall have been mailed, the Company shall promptly circulate amended,
supplemented or supplemental proxy materials and, if required in connection
therewith, re-solicit proxies. The Company shall promptly advise Parent of any
request by the SEC for amendment of the Proxy Statement or comments thereon and
responses thereto or requests by the SEC for additional information.
SECTION 6.02. Company Stockholders' Meeting. The Company shall, as
promptly as reasonably practicable after the date hereof (i) take all steps
reasonably necessary to call, give notice of, convene and hold a special meeting
of its stockholders (the "Company Stockholders Meeting") for the purpose of
securing the Company Stockholders' Approval, (ii) distribute to the Company
Stockholders the Proxy Statement in accordance with applicable federal and state
law and with its certificate of incorporation and bylaws, which Proxy Statement
shall contain the recommendation of the Board of Directors of the Company that
the Company Stockholders adopt this Agreement and approve the Merger, (iii)
except as otherwise permitted pursuant to Section 6.04, use all reasonable best
efforts to solicit from the Company Stockholders proxies in favor of the
adoption of this Agreement and approval of the Merger and to secure the Company
Stockholders' Approval; provided, however, the Company shall not be required to
retain the services of a proxy solicitor or utilize any Company employees, other
than the Company's chief executive officer, to solicit such proxies, and (iv)
consult with Parent with respect to each of the foregoing matters; provided,
that nothing contained in this Agreement shall prohibit the Company Board of
Directors from failing to make or from withdrawing or modifying its
recommendation to the Company Stockholders hereunder if the Board of Directors
of the Company, after consultation with independent legal counsel, determines in
good faith that such action is legally required for such Board of Directors to
comply with its fiduciary duties to its stockholders under applicable Law.
SECTION 6.03. Access to Information; Confidentiality; Transition.
(a) From the date of this Agreement to the Effective Time, the Company
shall: (i) provide to Parent (and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other representatives,
collectively, "Representatives") access at reasonable times upon reasonable
prior notice to the officers, employees, agents, accountants (subject to
execution of customary undertakings), properties, offices and other facilities
of the Company and to the books and records thereof, (ii) furnish promptly such
information concerning the business, properties, contracts, assets, liabilities,
personnel and other aspects of the Company as Parent or its Representatives may
reasonably request, (iii) deliver to Parent or its Representative copies of all
reports regularly prepared by the Company or the Company's Representatives in
the ordinary course of the Company's business (other than reports filed with the
SEC and publicly available) and such other reports regarding the Company as
Parent or its Representatives may reasonably request, and (iv) cause its
Representatives to meet regularly with Parent upon the request of Parent at
reasonable times and upon reasonable prior notice to discuss the Company and the
Company's business. No investigation will affect any of the representations or
warranties made herein or the conditions to the obligations of the parties
hereto to consummate the transactions contemplated hereby.
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(b) The parties shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement, dated as of August 20, 2001 and the Confidentiality
Agreement dated November 30, 1999 (the "Confidentiality Agreements"), each
between the Company and Parent, as applicable, other than the obligations set
forth in Sections 2 and 3 of the August 20, 2001 Confidentiality Agreement. The
Confidentiality Agreements shall survive the execution and delivery of this
Agreement and the Effective Time.
(c) From the date of this Agreement to the Effective Time, Parent and the
Company shall work together to prepare for and facilitate a smooth transition in
anticipation of the consummation of the Transaction including, but not limited
to, using reasonable best efforts to put in place a six month extension of that
certain Warehouse Distribution Agreement by and between the Company and Alpharma
dated December 29, 2000, hold periodic meetings with Company sales
representatives and hold periodic meetings with Company sales management
personnel.
SECTION 6.04. No Solicitation of Transactions.
(a) The Company agrees that (i) it and its officers, directors and
employees shall not and (ii) it shall use reasonable best efforts to ensure that
its agents and representatives shall not, (A) directly or indirectly, initiate,
solicit or knowingly encourage or facilitate any inquiries relating to or the
making of any Acquisition Proposal or (B) directly or indirectly, continue,
enter into or engage in any negotiations or discussions concerning any
Acquisition Proposal with or furnish any information relating to the Company or
provide access to the properties, books and records or any confidential
information or data of the Company to, any person relating to an Acquisition
Proposal. Notwithstanding the foregoing, nothing contained in this Agreement
shall prevent the Company or its Board of Directors from (i) taking and
disclosing to its stockholders a position contemplated by Rule 14d-9 and Rule
14e-2(a) promulgated under the Exchange Act, (ii) prior to the Company
Stockholders' Approval being obtained, providing access to properties, books and
records and providing information or data in response to a request therefor by a
person who has made an unsolicited bona fide written Acquisition Proposal if the
Board of Directors of the Company receives from the person so requesting such
information an executed confidentiality agreement on terms substantially similar
to those contained in the August 20, 2001 Confidentiality Agreement (except for
(x) such changes specifically necessary in order for the Company to be able to
comply with its obligations under this Agreement and (y) the provisions of
Sections 2 and 3 of such Confidentiality Agreement) (provided that all such
written information that has not previously been supplied to Parent is also
provided on a prior or substantially concurrent basis to Parent), or (iii) prior
to the Company Stockholders' Approval being obtained, engaging in any
negotiations or discussions with any person who has made an unsolicited bona
fide written Acquisition Proposal; if and only to the extent that in connection
with the foregoing clauses (ii) and (iii), (1) the Company's Board of Directors
(after consultation with its independent legal counsel) determines in good faith
that such action is legally required for the Board of Directors to comply with
its fiduciary duties to the Company's stockholders under applicable law, (2)
such Acquisition Proposal is not subject to any financing contingencies or is,
in the good faith judgment of the Company's Board of Directors (after
consultation with its financial advisor), reasonably capable of being financed
by such other person and (3) the Company's Board of Directors determines in good
faith after consultation with its independent legal counsel and financial
advisor (taking into account among other things the legal, financial, regulatory
and other aspects of the proposal, the person making the proposal, the
likelihood of consummation and the time to complete such transaction) that such
Acquisition Proposal is reasonably likely to lead to a transaction that is
reasonably capable of being completed and that, if consummated, would reasonably
be expected to result in a transaction more favorable to the Company's
Stockholders from a financial point of view than the transaction contemplated by
this Agreement (any such more favorable Acquisition Proposal being referred to
in this Agreement as a "Superior Proposal"). The Company agrees that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any persons conducted heretofore with respect
to any Acquisition Proposal and will use its reasonable best efforts to cause
any such person (or its agents or advisors) in possession of confidential
information about the Company that was furnished by or on behalf of the Company
to return or destroy all such information. The Company
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shall also notify Parent promptly (but in no event later than 24 hours) after
receipt of any Acquisition Proposal or any indication of interest in making an
Acquisition Proposal after the date hereof, which notice shall include the
identity of the person making such Acquisition Proposal or indication and the
material terms and conditions of such Acquisition Proposal or indication
(including any subsequent material amendment or modification to such terms and
conditions). The Company shall keep Parent promptly informed in all material
respects of the status and details of any such Acquisition Proposal.
(b) The Board of Directors of the Company shall not (i) except as permitted
by the proviso of Section 6.02, withdraw (or modify in a manner adverse to
Parent) or propose publicly to withdraw (or modify in a manner adverse to
Parent) the recommendation or declaration of advisability by the Board of
Directors of the Company of this Agreement or the Merger, or recommend, or
propose publicly to recommend, the approval or adoption of any Acquisition
Proposal (other than an Acquisition Proposal made by Parent), (ii) adopt or
approve, or propose publicly to adopt or approve, any Acquisition Proposal
(other than an Acquisition Proposal made by Parent), (iii) cause or permit the
Company to enter into any letter of intent, memorandum of understanding,
agreement in principle, acquisition agreement, merger agreement, option
agreement, joint venture agreement, partnership agreement or similar agreement
which relates to or is reasonably likely to lead to, any Acquisition Proposal
(other than a confidentiality agreement referred to in Section 6.04(a)) or (iv)
agree or resolve to take any of the actions prohibited by clauses (i), (ii) or
(iii) of this sentence. Notwithstanding anything in this Section 6.04 to the
contrary, if, at any time prior to the Company Stockholder's Approval being
obtained, the Company's Board of Directors determines in good faith, after
consultation with its financial advisors and independent legal counsel, in
response to an Acquisition Proposal that was unsolicited and that did not
otherwise result from a material breach of this Section 6.04, that such proposal
is a Superior Proposal, the Company or its Board of Directors may terminate this
Agreement pursuant to Section 8.01(e) and prior to such termination, may take
such actions as it reasonably determines to be necessary to satisfy the
pre-conditions to termination specified in Section 8.01(e).
(c) For purposes of this Agreement, "Acquisition Proposal" means any
proposal or offer with respect to (i) any tender offer or exchange offer, (ii)
any merger, consolidation, share exchange, business combination, sale of
substantially all of the assets, reorganization, recapitalization, liquidation,
dissolution or other similar transaction involving assets which, individually or
in the aggregate, constitute more than 25% of the consolidated assets or earning
power of the Company, (iii) any acquisition or purchase, direct or indirect, of
more than 25% of the consolidated assets of the Company, (iv) any acquisition or
purchase, direct or indirect, that, if consummated, would result in any person
beneficially owning securities constituting more than 25% of any class or series
of equity or voting securities of the Company or (v) the sale or license of any
Intellectual Property rights related to the Pediatric Products (other than
licenses in the ordinary course in connection with sales), in each case, other
than the Merger.
SECTION 6.05. Employee Benefits Matters. The Surviving Corporation shall
take all reasonable actions necessary or appropriate to permit the employees who
as of the Effective Time were employed by the Company and who continue to be
employed by the Surviving Corporation after the Effective Time (the "Retained
Employees") to continue to participate from and after the Effective Time in the
Company Benefit Plans in which such Retained Employees were participating
immediately prior to the Effective Time. Notwithstanding the foregoing, the
Surviving Corporation may permit any such employee benefit plan or arrangement
to be terminated or discontinued on or after the Effective Time, provided that
the Surviving Corporation shall (a) take all reasonable actions necessary or
appropriate to permit the Retained Employees participating in such employee
benefit plan or arrangement to immediately thereafter participate in employee
benefit plans or arrangements substantially comparable to those maintained with
respect to other Surviving Corporation employees (the "Replacement Plans"), (b)
with respect to a Replacement Plan that is a group health plan (i) credit such
Retained Employees, for the year during which participation in the Replacement
Plan begins, with any deductibles and copayments already incurred during such
year under the terminated or discontinued group health plan and (ii) waive any
preexisting condition limitations applicable to the Retained Employees (and
their eligible dependents) under the Replacement Plan to the extent that a
Retained Employee's (or dependent's) condition would not have
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caused a preexisting condition exclusion under the terminated or discontinued
group health plan, and (c)(1) cause each Replacement Plan that is an employee
pension benefit plan (as such term is defined in Section 3(2) of ERISA) intended
to be qualified under Section 401 of the Code to be amended to provide that the
Retained Employees shall receive credit for participation and vesting purposes
under such plan for their period of employment with the Company and its
predecessors to the extent such predecessor employment was recognized by the
Company and (2) credit the Retained Employees under each other Replacement Plan
that is not described in the preceding clause for their period of employment
with the Company and its predecessors to the extent such predecessor employment
was recognized by the Company. Notwithstanding anything contained in this
Agreement to the contrary, neither the Surviving Corporation, on the one hand,
nor any employee, on the other hand, shall be obligated to continue any
employment relationship or any specific terms of employment for any specific
period of time. Nothing contained in this Agreement shall limit or restrict
Parent's right on or after the Effective Time to amend, modify or terminate any
of the Company Benefit Plans.
SECTION 6.06. Further Action; Consents; Filings. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use
reasonable best efforts to (i) take, or cause to be taken, all appropriate
action and do, or cause to be done, all things necessary, proper or advisable
under applicable law or otherwise to consummate and make effective the
Transactions, (ii) obtain from Governmental Authorities any consents, licenses,
permits, waivers, approvals, authorizations or orders required to be obtained or
made by Parent or the Company or any of their subsidiaries in connection with
the authorization, execution and delivery of this Agreement and the consummation
of the Transactions and (iii) make all necessary filings, and thereafter make
any other required submissions, with respect to this Agreement or the
Transactions required under applicable law. The parties hereto shall use their
reasonable best efforts to cooperate with each other in connection with the
making of all such filings necessary to consummate the Transactions, and shall
provide copies of all such documents to the nonfiling party and its legal
advisors prior to filing and, if requested, accept all reasonable additions,
deletions or changes suggested in connection therewith.
SECTION 6.07. Public Announcements. The initial public disclosure (the
"Initial Public Disclosure") relating to this Agreement shall be a press
release, the text of which has been agreed to by each of Parent and the Company.
Thereafter, until the Effective Time, unless otherwise required by applicable
law, neither party hereto shall issue any press release or otherwise make any
public statements with respect to this Agreement or the Transactions without the
prior written consent of the other party hereto except that either party may
make public statements between the date of the Initial Public Disclosure and the
Closing Date solely to the extent that the content of such public statements is
limited to the agreed upon text of the Initial Public Disclosure.
SECTION 6.08. Expenses. Other than as set forth in Section 2.03(f) and
other than expenses incurred in connection with Article IX, all costs and
expenses incurred in connection with this Agreement and the Transactions
(including, without limitation, the fees and expenses of financial advisors,
accountants and legal counsel) ("Expenses") (i) if incurred by Parent or Merger
Sub, shall be paid by Parent, and (ii) if incurred by the Company, shall be paid
by the Company ("Company Expenses"); provided, however, that all Company
Expenses actually paid by the Company on or prior to the Closing Date in excess
of $1,200,000 shall be deducted from the Initial Merger Consideration by Parent.
The Company, prior to the Effective Time, or the Calculation Representative,
after the Effective Time, shall provide Parent with copies of all invoices and
such other documents requested by Parent reasonably documenting any costs or
other expenses to be included within Company Expenses. To the extent that
Company Expenses are incurred by the Company in excess of $1,200,000 and have
not been previously deducted from the Initial Merger Consideration as
contemplated by the preceding sentence, such Company Expenses shall be deducted
from the Contingent Payments, if any.
SECTION 6.09. Other Deductions.
(a) Pursuant to Section 6.4 of that certain Fifth Amended and Restated
Securities Purchase Agreement by and among the Company and certain investors
dated December 29, 2000, the Company is
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obligated to pay to Furman Selz Investors II L.P., FS Employee Investors LLC and
FS Parallel Fund L.P. (the "FS Entities") an aggregate cash amount equal to $3.0
million (the "FS Transaction Fee") upon completion of a Strategic Transaction,
as defined therein. If the Merger is consummated, the FS Transaction Fee shall
be paid by Parent or the Surviving Corporation when due and shall be deducted
from the Initial Merger Consideration.
(b) The Company has entered into (i) a retention agreement with Emmett
Clemente dated as of August 8, 2001, (ii) a retention agreement with S. Evans
dated as of July 10, 2001, (iii) a retention agreement with D. Benn dated as of
July 10, 2001, (iv) a retention agreement with Jennifer Marchand dated as of
September 24, 2001, (v) a retention agreement with Mark Murray dated as of
September 24, 2001, and (vi) a retention agreement with Michael Ferraresso dated
as of September 24, 2001 (collectively, "Key Management" and the retention
agreements collectively the "Retention Agreements") which provide for certain
cash payments ("Retention Payments") to Key Management upon the consummation of
a strategic transaction. The Parent shall pay the Retention Payments which are
due at Closing and such Retention Payments shall be deducted from the Initial
Merger Consideration. The Surviving Corporation shall pay any Retention Payments
due after the Effective Time which Retention Payments, to the extent not
previously deducted from the Initial Merger Consideration, shall be deducted
from the Contingent Payments, if any.
(c) The Company has entered into amendments to certain consulting
agreements (the "Consulting Agreements") with each of Robert E. Baldini and
Joseph R. Ianelli (the "Consultants") as follows: (i) Amendment No. 1 to
Consulting Agreement dated as of July 12, 2001 with Robert E. Baldini and (ii)
Amendment No. 1 to Consulting Agreement with Joseph R. Ianelli dated as of July
9, 2001, each of which provide for certain cash payments ("Transaction
Incentives") upon the sale of the Company. Parent shall pay the Transaction
Incentives when due and the Transaction Incentives shall be deducted from the
Initial Merger Consideration.
SECTION 6.10. Company Notes. Simultaneous with the consummation of the
Merger, Parent shall, on behalf of the Company, prepay the principal amounts
outstanding, plus all accrued and unpaid interest, under the Company Notes
(including any interest which has accrued in accordance with the terms of the
Company Notes between the date hereof and such date of prepayment) (such
aggregate amount being the "Company Notes Amount") in full satisfaction of the
Company's obligations under the Company Notes. The Company Notes Amount shall be
deducted from the Initial Merger Consideration.
SECTION 6.11. Director and Officer Indemnification.
(a) For six years after the Effective Time, the Surviving Corporation
shall, indemnify, defend and hold harmless each person who is now, or has been
at any time prior to the date hereof or who becomes prior to the Effective Time,
an officer or director of the Company (each a "Company Indemnified Party")
against all losses, claims, damages, liabilities, fees and expenses (including
reasonable fees and disbursements of counsel and judgments, fines, losses,
claims, liabilities and amounts paid in settlement (provided that any such
settlement is effected with the prior written consent of Parent, which will not
be unreasonably withheld)) arising in whole or in part out of actions or
omissions in their capacity as such occurring at or prior to the Effective Time
to the full extent permitted under DGCL (or the laws of such other state in
which the Surviving Corporation may subsequently be domesticated if at least as
favorable) or the Surviving Corporation's certificate of incorporation and
bylaws, except to the extent such amounts are paid under directors' and
officers' liability insurance; provided, that any determination required to be
made with respect to whether a Company Indemnified Party's conduct complies with
the standards set forth under the DGCL (or the laws of such other state in which
the Surviving Corporation may subsequently be domesticated if at least as
favorable), the Surviving Corporation's certificate of incorporation or bylaws,
as the case may be, shall be made by independent counsel mutually acceptable to
the Surviving Corporation and the Company Indemnified Party; and provided,
further, that nothing herein shall impair any rights or obligations of any
Company Indemnified Party. In the event that any claim or claims are brought
against any Company Indemnified Party (whether arising before or after the
Effective Time), such Company Indemnified Party may select counsel for the
defense of such claim, which counsel
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shall be reasonably acceptable to the Company (if selected prior to the
Effective Time), and the Surviving Corporation (if selected after the Effective
Time).
(b) Parent shall cause the Surviving Corporation to, and the Surviving
Corporation shall, purchase additional officers' and directors' liability
insurance coverage that (i) extends the existing officers' and directors'
liability insurance coverage to total coverage of $20 million and (ii) extends
the period of coverage to include the period commencing on the Effective Time
and ending not less than six years after the Effective Time, but in each case
only to the extent related to actions or omissions at or prior to the Effective
Time.
SECTION 6.12. Notification of Certain Matters. Parent shall give prompt
notice to the Company, and the Company shall give prompt notice to Parent, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be reasonably likely to cause (x) any
representation or warranty contained in this Agreement to be untrue or
inaccurate or (y) any covenant, condition or agreement contained in this
Agreement not to be complied with or satisfied, and (ii) any failure of Parent
or the Company to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder, and which, in either (i) or (ii),
in each case or when aggregated with any other event or failure, would
reasonably be expected to provide the notified party the right to terminate this
Agreement pursuant to Section 8.01; provided, however, that the delivery of any
notice pursuant to this Section 6.12 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
SECTION 6.13. Pediatric Product Sales, Marketing and Development. From
and after the Effective Time, Parent shall use commercially reasonable efforts
to market, promote and sell the Commercial Pediatric Products, which efforts
shall include the allocation of efforts and resources consistent with the
resources allocated by Parent to the marketing, promotion and sale of other
commercially available products of Parent with comparable commercial opportunity
in the marketplace. From and after the Effective Time, Parent shall use
commercially reasonable efforts to develop, market commercialize and sell the
Development Pediatric Products, which efforts shall include the allocation of
efforts and resources consistent with the resources allocated by Parent to the
development, marketing, commercialization and sale of other in development
products of Parent with comparable commercial opportunity in the marketplace.
SECTION 6.14. Other Matters.
(a) The Company shall use its reasonable best efforts to:
(i) purchase a tail insurance policy (the "Extension Policy")
providing extended insurance coverage as follows: (A) a products liability
policy extension for 3 years from the Effective Time, (B) employment
practices liability policy extension for 3 years from the Effective Time
and (C) fiduciary liability policy extension for 3 years from the Effective
Time, the cost of which shall be paid by Parent or the Surviving
Corporation.
(ii) maintain in full force and effect the Company's worker's
compensation insurance policy and take such steps as are reasonably
requested by Parent to keep such coverage in effect post Closing through
the end of its current term, any additional cost of which shall be paid by
Parent or the Surviving Corporation (the "Workers Comp Policy");
(iii) obtain the written resignations of each member of the board of
directors (the "Board Resignations") of the Company, in each case effective
upon the Effective Time; and
(iv) obtain the written resignations of each officer (the "Officer
Resignations") of the Company, in each case effective upon the Effective
Time; and
(v) obtain an amendment to the Depositary Agreement (the "Depositary
Amendment") which amendment shall be reasonably satisfactory to Parent and
shall provide, for (A) the consent to the arbitration provisions contained
in Section 2.03 of this Agreement and (B) the binding effect of the
designation of the Calculation Representative pursuant to Section 9.04 of
this Agreement.
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(b) The Parent or the Surviving Corporation shall upon receipt of customary
documentation from the Company to Parent or the Surviving Corporation:
(i) reimburse the Company for the purchase by the Company of the
Extension Policy; and
(ii) reimburse the Company for the additional costs, if any,
associated with the maintenance and keeping effective by the Company of the
Workers Comp Policy.
(c) The Company will use its reasonable best efforts to have BancBoston
Ventures, Inc. ("BancBoston") execute and deliver the Exclusive Remedy
Agreement, in the capacity of a Depositary Holder (as defined in the Exclusive
Remedy Agreement), with respect to the Depositary Shares held by BancBoston. The
Company will use its reasonable best efforts to have BancBoston execute and
deliver the Note Agreement, in the capacity of a Note Holder (as defined in the
Note Agreement) with respect to the 8% Convertible Subordinated Notes and the 8%
Subordinated Notes held by BancBoston. The Company shall give such notice to
BancBoston as shall be necessary to permit the Company to redeem at the
Effective Time the 8% Convertible Subordinated Notes and the 8% Subordinated
Notes held by BancBoston.
SECTION 6.15. Voting Agreement. Parent agrees that it will not (i) amend
or modify the Voting Agreement in any manner, (ii) purchase any of the Subject
Shares (as defined in the Voting Agreement) other than pursuant to this
Agreement, (iii) enter into an agreement with the Stockholders (as defined in
the Voting Agreement) inconsistent with the Voting Agreement or which imposes on
any of such Stockholders additional obligations from those set forth in the
Voting Agreement, in any case without the prior written consent of the Company,
which consent shall not be unreasonably withheld.
ARTICLE VII
CONDITIONS TO THE MERGER SECTION
SECTION 7.01. Conditions to the Obligations of Each Party. The
obligations of the Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction or waiver (where permissible) on or prior to the
Closing Date by Parent or the Company of the following conditions:
(a) the Company shall have received the Company Stockholders'
Approval;
(b) no Governmental Authority or court of competent jurisdiction
located or having jurisdiction in the United States shall have enacted,
issued, promulgated, enforced or entered any law, rule, regulation,
judgment, decree, executive order or award (an "Order") which is then in
effect and has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger and the Transactions;
(c) other than the filing of the Certificate of Merger, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Authority in connection with the Merger and the consummation
of the Transactions, the failure of which to file, obtain or occur would
reasonably be expected to have, directly or indirectly, a Parent Material
Adverse Effect or a Company Material Adverse Effect, shall have been filed,
been obtained or occurred on terms and conditions which would not
reasonably be expected to have a Parent Material Adverse Effect or a
Company Material Adverse Effect;
(d) the Company shall have obtained the Extension Policy which
Extension Policy shall be in full force and effect; and
(e) the Company shall have maintained the Workers Comp Policy which
Workers Comp Policy shall be in full force and effect.
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SECTION 7.02. Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger are subject to the
satisfaction or waiver (where permissible) on or prior to the Closing Date by
Parent of the following additional conditions:
(a) each of the representations and warranties of the Company
contained in this Agreement (without giving effect to any materiality
qualifications or limitations therein or any references therein to Company
Material Adverse Effect) shall be true and correct, in each case as of the
Effective Time as though made on and as of the Effective Time, except (i)
for such failures, individually or in the aggregate, to be true and correct
that would not reasonably be expected to have a Company Material Adverse
Effect; (ii) that those representations and warranties that address matters
only as of a particular date shall remain true and correct as of such date,
subject to the qualifications in (i) above; and (iii) for changes expressly
permitted or contemplated by the terms of this Agreement, and Parent shall
have received a certificate signed on behalf of the Company by a duly
authorized officer of the Company to such effect;
(b) the Company shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by the Company on or prior to the Effective
Time, and Parent shall have received a certificate signed on behalf of the
Company by a duly authorized officer of the Company to that effect;
(c) the Company shall have received, each in form and substance
reasonably satisfactory to Parent, all third party consents necessary to
consummate the Transactions, the failure of which to obtain would
reasonably be expected to have a Company Material Adverse Effect;
(d) no event or events shall have occurred, which, individually or in
the aggregate, would reasonably be expected to have a Company Material
Adverse Effect;
(e) the Company shall have executed the Certificate of Merger for
filing pursuant to Section 1.02 hereof with the Secretary of State of the
State of Delaware;
(f) the Company shall have delivered to Parent the fully executed
Board Resignations and Officer Resignations;
(g) there shall not be pending or threatened any suit, action,
investigation or proceeding to which a Governmental Authority is a party
(i) seeking to restrain or prohibit the consummation of the Transactions or
seeking to obtain from Parent or the Company any damages that are material
or (ii) seeking to prohibit or limit the ownership or operation by Parent
or the Company of any material portion of their respective businesses or
assets;
(h) Dissenting Shares shall comprise not more than 10% of the Company
Common Stock outstanding immediately prior to the Effective Time; and
(i) the Company shall have amended that certain Product Purchase
Agreement by and between the Company and Alpharma to (i) provide that the
assignment and assumption of certain GPO contracts from the Company to
Alpharma was in part and not in whole and (ii) obtain all third party
consents associated with consummation of the transactions contemplated by
the Product Purchase Agreement.
SECTION 7.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (where permissible) by the Company following additional
conditions:
(a) each of the representations and warranties of Parent and Merger
Sub contained in this Agreement (without giving effect to any materiality
qualifications or limitations therein or any references therein to Parent
Material Adverse Effect) shall be true and correct, in each case as of the
Effective Time, as though made on and as of the Effective Time, except (i)
for such failures, individually or in the aggregate, to be true and correct
that would not have a Parent Material Adverse Effect; (ii) that those
representations and warranties that address matters only as of a particular
date
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shall remain true and correct as of such date; and (iii) for changes
expressly permitted or contemplated by the terms of this Agreement, and the
Company shall have received a certificate signed on behalf of Parent by a
duly authorized officer of Parent to such effect; and
(b) Parent and Merger Sub shall have performed or complied in all
material respects with all agreements and covenants required by this
Agreement to be performed or complied with by Parent and Merger Sub on or
prior to the Effective Time, and the Company shall have received a
certificate signed on behalf of Parent by a duly authorized officer of
Parent to that effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the
Transactions may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval and adoption of this Agreement and the
transactions contemplated by this Agreement by the Company Stockholders, as
follows:
(a) by mutual written consent duly authorized by the Board of
Directors of each of Parent and the Company;
(b) by Parent or the Company, if the Effective Time shall not have
occurred on or before January 31, 2002 (the "Drop Dead Date"); provided,
however, that if SEC review of the Proxy Statement shall have occurred and
such SEC review has not been completed by December 31, 2001, then the Drop
Dead Date shall be February 28, 2002; provided, further, 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 Effective Time to
occur on or before such date;
(c) by Parent or the Company, if there shall be any Order which is
final and nonappealable preventing the consummation of the Merger;
provided, however, that the right to terminate this Agreement under this
Section 8.01(c) shall not be available to any party whose failure to
fulfill any obligation under this Agreement hereunder has been the cause
of, or resulted in, such Order;
(d) by Parent (i) if the Board of Directors of the Company (or any
committee thereof) (x) withdraws, modifies or changes its recommendation of
this Agreement or the Merger in a manner adverse to Parent or (y) shall
have recommended to the Company Stockholders any Acquisition Proposal
(other than an Acquisition Proposal made by Parent); (ii) if the Company
shall have entered into an agreement with respect to an Acquisition
Proposal (other than an Acquisition Proposal made by Parent); or (iii) the
Company shall have willfully and materially breached any of its obligations
under Sections 6.02 or 6.04;
(e) by the Company, if, prior to the Company Stockholders' Approval
having been obtained, (i) the Company simultaneously enters into a
definitive agreement for a Superior Proposal in accordance with (and has
otherwise complied with) the terms of this Section 8.01(e), including the
notice provisions herein, (ii) the Company makes the payment of the
Termination Fee as required pursuant to Section 8.02 of this Agreement for
which the Company is responsible under Section 8.02 of this Agreement,
(iii) the Company has complied in all material respects with Section 6.04,
(iv) the Company has provided Parent, three Business Days prior to such
termination, a written summary of the material terms and conditions of such
Acquisition Proposal (such three Business Day period shall end at the same
time of day on the third Business Day as such written summary was provided
to Parent by the Company) and (v) prior to any such termination, the
Company shall, and shall cause its respective financial and legal advisors
to, be reasonably available to negotiate with Parent any amendment to the
terms and conditions of this Agreement or new offer that Parent determines
to propose, and Parent does not make, within such three Business Day
period, an offer to
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the Company that is at least as favorable, in the Board of Directors' good
faith judgment, to the Company's Stockholders from a financial point of
view as the pending Acquisition Proposal;
(f) by the Company or Parent, if, at the Company Stockholders Meeting
(including any adjournment or postponement), the Company Stockholders'
Approval shall not have been obtained; or
(g) by Parent or the Company, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach (i) would, if uncured at
Closing, cause the conditions set forth in Section 7.02 (in the case of
termination by Parent) or Section 7.03 (in the case of termination by the
Company) not to be satisfied, and (ii) shall not have been cured within
twenty (20) Business Days following receipt by the breaching party of
written notice of such breach from the other party.
SECTION 8.02. Notice of Termination; Effect of Termination. In the event
the Company or Parent shall elect to terminate this Agreement pursuant to
Section 8.01, it shall give written notice of such termination to the other
party, which notice shall state the reasons for such termination.
(a) In the event of termination of the Agreement pursuant to this
Article VIII, all obligations of the parties shall terminate, except the
obligations of the parties pursuant to this Section 8.02 and except for the
provisions of Sections 6.03(b), 6.07, 10.03, 10.08, 10.11 and 10.12,
provided that nothing herein shall relieve any party from liability for any
willful breaches hereof that shall have occurred prior to termination.
(b) In the event that this Agreement is terminated pursuant to Section
8.01(d), Section 8.01(e) or Section 8.01(f), then the Company shall
promptly (and in any event within one Business Day after such termination
or, in the case of any such termination by the Company, simultaneously with
such termination (such termination not to be effective unless such payment
is made)) pay to Parent an amount equal to a termination fee of $2,000,000
(the "Termination Fee").
(c) In the event (i) an Acquisition Proposal shall have been made to
the Company or an Acquisition Proposal shall have been made directly to the
stockholders of the Company generally or shall have otherwise become
publicly known or any person shall have publicly announced an intention
(whether or not conditional) to make an Acquisition Proposal, (ii) this
Agreement is terminated by the Company or Parent pursuant to Section
8.01(b) (and the Acquisition Proposal shall not have been abandoned or
withdrawn prior to such termination) and (iii) within twelve months after
such termination the Company enters into a definitive agreement with
respect to, or consummates, any Acquisition Proposal; then the Company
shall promptly (and in any event within one Business Day after entering
into such agreement or consummating an Acquisition Proposal), pay Parent an
amount equal to the Termination Fee. Solely for purposes of this Section
8.02(c), (i) all references to 25% in the definition of Acquisition
Proposal shall be 40%, (ii) the references to tender offer and exchange
offer in the definition of Acquisition Proposal shall only mean such an
offer that relates to 40% or more of the Company's outstanding Common
Stock, and (iii) the reference to a sale or license of any Intellectual
Property rights related to the Pediatric Products in clause (v) of the
definition of Acquisition Proposal shall mean only such a sale or license
that relates to such rights that comprise 40% or more of the fair market
value of all such rights of the Company.
(d) Parent and the Company agree that the agreements contained in
Sections 8.02(b) and 8.02(c) are an integral part of the transactions
contemplated by this Agreement and that the Termination Fee constitutes
liquidated damages and not a penalty.
(e) Notwithstanding anything to the contrary contained herein, receipt
by Parent of the amounts payable pursuant to Section 8.02(b) or Section
8.02(c) shall constitute full settlement of any and all liabilities of the
Company for damages under this Agreement in respect of a termination of
this Agreement pursuant to Sections 8.01(d), 8.01(e) or 8.01(f) other than
with respect to liabilities arising out of or attributable to the willful
breach by the Company of any covenant or agreement in this Agreement.
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SECTION 8.03. Extension; Waiver. At any time prior to the Effective Time,
any party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties made to such party contained herein or in any
document delivered pursuant to this Agreement or (c) waive compliance with any
of the agreements or conditions for the benefit of such party contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The delay in or failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a wavier of
such rights.
ARTICLE IX
RIGHT OF SETOFF
SECTION 9.01. Survival of Representations, Warranties and Other
Obligations.
(a) The respective representations and warranties of the Company, Parent
and the Merger Sub contained in this Agreement shall expire with, and be
terminated and extinguished upon, the Effective Time. The respective agreements,
covenants and obligations made or undertaken by the Company, Parent, the Merger
Sub and the Surviving Corporation contained in this Agreement shall survive the
Closing and shall not merge in the performance of any obligation by any party
hereto, and shall remain in full force and effect, unless, in respect of any
agreement, covenant or obligation, some specified period is set forth in this
Agreement.
(b) Notwithstanding any other provisions hereof, the obligations of the
Surviving Corporation contained in this Agreement, including but not limited to
the obligations contained in Section 6.11, shall be binding upon the successors
and assigns of the Surviving Corporation. In the event the Surviving Corporation
or any of its successors or assigns (i) consolidates with or merges into any
other Person or (ii) transfers all or substantially all of its properties or
assets to any Person, then, and in each case, proper provision shall be made so
that successors and assigns of the Surviving Corporation honor the Surviving
Corporation's obligations set forth in this Agreement, including but not limited
to the obligations contained in Section 6.11.
(c) The obligations of Parent or the Surviving Corporation, as the case may
be, under Sections 6.09, 6.10, 6.11 and 6.13 shall survive the consummation of
the Merger and shall not be terminated or modified in such a manner as to
adversely affect any Person to whom Sections 6.09, 6.10, 6.11 or 6.13 applies
without the consent of such affected Person (it being expressly agreed that the
Person(s) to whom Sections 6.09, 6.10, 6.11 and 6.13 apply shall be third party
beneficiaries of Sections 6.09, 6.10, 6.11 and 6.13, each of whom may enforce
the provisions of Sections 6.09, 6.10, 6.11 and 6.13).
SECTION 9.02. Right of Setoff Against the Contingent Payments.
(a) After the Effective Time, Parent shall have the right to setoff against
any future Contingent Payments any and all liabilities, losses, damages, claims,
costs and expenses, interest, awards, judgments and penalties (including,
without limitation, reasonable attorneys' and consultants' fees and expenses and
other reasonable costs of defending, investigating or settling claims)
(hereinafter, a "loss"), actually suffered or incurred by Parent or its
affiliates (including, after the Effective Time, the Surviving Corporation),
officers, directors, employees, agents, successors and assigns (collectively,
the "Parent Affiliated Parties") arising out of or resulting from one or more
bona fide claims by third parties ("Third Party Claims") made against a Parent
Affiliated Party prior to the date that is two (2) years after the Effective
Time (the "Expiration Time"), but not if made thereafter, to the extent such
claims arise out of:
(i) Section 9.02 Liabilities (as defined in Section 10.02(a) below) of
the Company as of the date of the Balance Sheet to the extent not fully
reflected or reserved against on the Balance Sheet; or
(ii) Section 9.02 Liabilities incurred subsequent to the date of the
Balance Sheet, other than (with respect to this clause (ii) and not with
respect to clause (iii)) Section 9.02 Liabilities incurred
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by the Company subsequent to the date of the Balance Sheet in the ordinary
course of business which would have been reflected on or reserved against
on the Balance Sheet in accordance with GAAP and consistent with past
practices had they been incurred and not satisfied on or prior to the date
of the Balance Sheet; or
(iii) Section 9.02 Liabilities which are contingent liabilities and
which, in accordance with GAAP and consistent with past practices, the
Company determines prior to the Effective Time are "probable" claims.
All Losses under this Section 9.02(a) shall be determined net of all
insurance proceeds received or receivable. Parent shall, and shall cause the
Parent Affiliated Parties to, use reasonable efforts to mitigate any Losses
(which shall not include any obligation to expend any material funds).
(b) Notwithstanding anything to the contrary contained in this Agreement,
the sole remedy of the Parent Affiliated Parties with respect to Third Party
Claims shall be the right of setoff pursuant to this Section 9.02, and:
(i) the maximum aggregate amount of Losses arising out of or resulting
from Third Party Claims that may be setoff against the Contingent Payments
shall be limited to $50,000,000 and the setoff against the Contingent
Payments pursuant to Section 9.02(c) shall be the Parent Affiliated
Parties' sole remedy to receive any payments pursuant to this Section 9.02;
and
(ii) no Losses with respect to any Third Party Claims shall be setoff
against the Contingent Payments until such time as the aggregate amounts of
all such Losses shall equal or exceed $250,000 (the "Deductible"), and then
only with respect to the excess thereof over $250,000.
(c) Any Loss of any Parent Affiliated Party pursuant to this Section 9.02
may only be satisfied by setoff against any Contingent Payment which may become
payable to the Company Stockholders pursuant to Section 2.03 on or after the
date of the setoff (except, as to a particular claimed Loss, to the extent of
amounts withheld as to such Loss in accordance with the following sentence)
including, without limitation, any Contingent Payments to be paid or earned
after the Expiration Time so long as the Third Party Claim with respect to such
Loss was made prior to the Expiration Time. In the event that Parent claims a
setoff is due pursuant to Section 9.02(a), Parent may withhold a portion of a
Contingent Payment that is otherwise due pursuant to Section 2.03 until the
dispute with respect to the Loss is resolved; provided, however, that in no
event shall Parent withhold a portion of the Contingent Payment in excess of the
amount of the Loss in dispute. In the event that, upon resolution of such
dispute in accordance with Section 9.03, Parent is deemed to have incorrectly
withheld a portion of a Contingent Payment, Parent shall promptly pay such
incorrectly withheld portion to the Paying Agent in cash, together with interest
on such portion calculated from the date such withheld portion should have been
paid and calculated at the lesser of (i) five percent (5%) per annum, compounded
annually, or (ii) the highest rate permitted by Law. The failure to withhold a
sufficient portion of a Contingent Payment with respect to Losses shall not
limit or restrict the right of any Parent Affiliated Party to setoff such Losses
against one or more future Contingent Payments.
SECTION 9.03. Procedure for Third Party Claims.
(a) The obligations and liabilities with respect to Losses arising from
Third Party Claims under this Article IX shall be governed by and contingent
upon the following additional terms and conditions: (i) no claim may be asserted
or setoff made related to any Third Party Claim unless written notice of such
Third Party Claim is received by the Calculation Representative prior to the end
of the Expiration Time; and (ii) if the Parent Affiliated Party shall receive
notice of any Third Party Claim, Parent shall give the Calculation
Representative notice of such Third Party Claim promptly following the receipt
by the Parent Affiliated Party of such notice; provided, however, that the
failure to provide such notice shall not affect or reduce the Parent's right to
setoff, except to the extent that the amount of setoff is increased by such
failure. The notice of claim shall describe in reasonable detail the facts and
circumstances known to the Parent Affiliated Party that gave rise to such Third
Party Claim, and the amount or good faith estimate of the amount arising
therefrom.
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(b) If the Calculation Representative acknowledges in writing the Parent's
right to setoff against the Contingent Payments any Losses that may result from
such Third Party Claim, then the Calculation Representative shall be entitled to
assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice if it gives notice of its intention to do so to
the Parent within 15 days of the receipt of such notice from the Parent (and, to
the extent the Calculation Representative defends such Third Party Claim, the
costs and expenses of counsel for the Parent Affiliated Parties shall not
constitute Losses); provided, however, that, if there exists or is reasonably
likely to exist a conflict of interest that would make it inappropriate in the
reasonable judgment of the Parent Affiliated Party, based on the advice of
Parent's counsel, for the same counsel to represent both the Parent Affiliated
Party and the Calculation Representative, then the Parent Affiliated Party shall
be entitled to retain its own counsel, in each jurisdiction for which counsel is
required, and Parent may setoff such expenses against any future Contingent
Payments to the extent otherwise provided herein; provided that the Parent
Affiliated Parties shall not be entitled to select more than one counsel in any
jurisdiction. In the event that the Calculation Representative exercises the
right to undertake any such defense against any such Third Party Claim as
provided above, each Parent Affiliated Party shall cooperate with the
Calculation Representative in such defense and make available to the Calculation
Representative, at such Parent Affiliated Party's expense, all witnesses,
pertinent records, materials and information in such Parent Affiliated Party's
possession or under such Parent Affiliated Party's control relating thereto as
are reasonably required by the Calculation Representative. Similarly, in the
event such Parent Affiliated Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Calculation Representative shall
cooperate with the Parent Affiliated Party in such defense and make available to
the Parent Affiliated Party, all such witnesses, records, materials and
information in the Calculation Representative's possession or under the
Calculation Representative's control relating thereto as are reasonably required
by the Parent Affiliated Party. No such Third Party Claim may be settled by
Calculation Representative without the prior written consent of the Parent
unless the Parent Affiliated Parties are released in full in connection with
such settlement. A Parent Affiliated Party may settle any Third Party Claim
without the consent of the Calculation Representative; provided, however, that
the Parent Affiliated Party may not setoff such settled Third Party Claim
against any Contingent Payment, any future Contingent Payment or amounts
withheld from Contingent Payments pursuant to Section 9.02(c) unless the
Calculation Representative consented to such settlement. Notwithstanding the
foregoing, if Parent notifies the Calculation Representative in writing of its
desire to settle a Third Party Claim and the Calculation Representative does not
within 10 Business Days of such notice consent to such settlement, then Parent
may at any time or from time to time setoff against any Contingent Payment, any
future Contingent Payments and any amounts withheld from Contingent Payments
pursuant to Section 9.02(c) relating to such claim, any and all reasonable
attorneys' and consultants' fees and expenses and other reasonable costs of
defending, investigating or settling such claims (collectively, the "Defense
Costs") with respect to such Third Party Claim, whether incurred before or after
such notification; provided, however, if Parent does not settle such Third Party
Claim and as a result of a final, non-appealable judgment, no Parent Affiliated
Party is liable to any party or parties with respect to such Third Party Claim
then in such case, Parent shall not be entitled to setoff the Defense Costs with
respect to such Third Party Claim and shall reimburse any Defense Costs
previously setoff with respect to such Third Party Claim.
SECTION 9.04. Calculation Representative. FS Private Investments, LLC
("FS Private") or any affiliate of FS Private as FS Private shall designate (the
"FS Designee"), ("FS Private or the FS Designee, as the case may be, being
referred to herein as "Calculation Representative"), shall have full authority
to act and to take any and all actions required or permitted to be taken under
this Agreement, with respect to any claims (including the settlement thereof)
made by one or more Parent Affiliated Parties for setoff pursuant to this
Article IX or any dispute, claim or controversy under Section 2.03(d). In the
event that FS Private, the FS Designee or any subsequent Calculation
Representative resigns as Calculation Representative or is no longer able to
perform such duties, Emmett Clemente, or if he is unable or unwilling to serve,
a Person (selected by an arbitrator listed on the Panel List) who is willing to
serve in such capacity, shall be the Calculation Representative; provided that
if the FS Designee resigns, FS Private shall again have the right to designate
an affiliate as Calculation Representative. Neither the
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Calculation Representative nor any of its directors, officers, agents or
employees shall be liable to any Person for any error of judgment, or any action
taken, suffered or omitted to be taken, under this Agreement, except in the case
of its gross negligence, bad faith or willful misconduct. The Calculation
Representative may consult with legal counsel, independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts. The Calculation Representative shall not have
any duty to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions of this Agreement. As to any matters not
expressly provided for in this Agreement, the Calculation Representative shall
not be required to exercise any discretion or take any action. The Parent
Affiliated Parties shall be entitled to rely on all statements, representations
and decisions of the Calculation Representative. Any out-of-pocket costs or
expenses incurred by the Calculation Representative in performing its duties and
responsibilities under this Agreement, and not paid by Parent or otherwise
reimbursed to the Calculation Representative as provided in this Agreement,
shall be (x) deducted from any unpaid Contingent Payments, if any, and paid by
Parent to the Calculation Representative solely from such future Contingent
Payments, if any, and (y) treated as Contingent Payment Adjustments; provided,
however, the Calculation Representative's rights under this sentence are
subordinated to Parent's prior right of setoff as to any unpaid amounts to which
Parent has made a claim under Article IX.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed given if given in writing and delivered
in person, or mailed by registered or certified mail (postage prepaid, return
receipt requested) or delivered by a nationally recognized overnight courier
service, or confirmed facsimile transmission to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 10.01):
if to Parent or Merger Sub or, after the Closing, the Surviving
Corporation:
Medicis Pharmaceutical Corporation
8125 N. Hayden Road
Scottsdale, Arizona 85258
Facsimile: (602) 778-6007
Attn: Jonah Shacknai
with a copy to each of:
Medicis Pharmaceutical Corporation
8125 N. Hayden Road
Scottsdale, Arizona 85258
Facsimile: (602) 808-3881
Attn: General Counsel
and
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Ave., Suite 4100
Dallas, Texas 75201
Facsimile: (214) 969-4343
Attention: Michael E. Dillard, P.C.
if to the Company before the Closing:
Ascent Pediatrics, Inc.
187 Ballardvale Street, Suite B215
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Wilmington, MA 01887
Facsimile: (978) 658-3939
Attn: President
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Facsimile: (617) 526-5000
Attention: David E. Redlick, Esq.
if to the Calculation Representative:
Calculation Representative
c/o FS Private Investments LLC
520 Madison Avenue, 8th Floor
New York, New York 10022
Facsimile: (212) 284-1717
Attn: Brian Friedman
with a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, NY 10038-4982
Facsimile: (212) 806-6006
Attention: Melvin Epstein, Esq.
All such notices and communications hereunder shall be deemed given when
received, as evidenced by the signed acknowledgement of receipt of the person to
whom such notice or communication shall have been personally delivered, the
acknowledgement of receipt returned to the sender by the applicable postal
authorities, the confirmation of delivery rendered by the applicable overnight
courier service, or the confirmation by the sender of a successful facsimile
transmission to the person to whom such notice was sent via facsimile.
SECTION 10.02. Certain Definitions.
(a) As used in this Agreement, the following terms shall have the following
meanings:
(i) "affiliate" of a specified Person means a Person who directly, or
indirectly, through one or more intermediaries, controls, is controlled by
or is under common control with such specified Person.
(ii) "Aggregate Initial Common Stock Consideration" means the
Aggregate Merger Consideration excluding the Contingent Payments and the
Excess Warrant Proceeds.
(iii) "Aggregate Merger Consideration" means the Initial Merger
Consideration plus the Contingent Payments (as defined in Section 2.03(A)),
if earned pursuant to Section 2.03 and the Excess Warrant Proceeds, if any.
(iv) "Aggregate Series H Merger Consideration" means the product of
(i) the Series H Merger Consideration and (ii) the number of shares of
Series H Preferred Stock issued and outstanding immediately prior to the
Effective Time.
(v) "beneficial owner", with respect to any shares, means a Person who
shall be deemed to be the beneficial owner of such shares under Rule 13d-3
of the Exchange Act.
(vi) "Business Day" means any day on which banks are not required or
authorized to close in New York City, New York.
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(vii) "Commercial Pediatric Products" means collectively, Orapred(R)
prednisolone sodium phosphate oral solution (15mg prednisolone per 5ml),
Primsol(R) trimethoprim HCl oral solution (50mg/5ml) and Pediamist(R) nasal
saline spray.
(viii) "Common Stock Cash Merger Consideration" means the amount equal
to (i) the result of the Initial Merger Consideration less the Aggregate
Series H Merger Consideration, divided by (ii) the sum of (A) the number of
shares of Company Common Stock issued and outstanding immediately prior to
the Effective Time plus (B) the number of shares of Company Common Stock
issuable upon the exercise of In-the-Money Warrants.
(ix) "Common Stock Merger Consideration" means the Common Stock Cash
Merger Consideration plus the right to receive the Contingent Per Share
Payment, if any, and the Per Share Excess Warrant Proceeds, if any.
(x) "Company Software" means Software used by the Company in its
business as such Software exists on the date hereof that is either (A)
material to the operation of the business of the Company, (B) manufactured,
distributed, sold, licensed or marketed by the Company or (C) developed by
or for the Company; provided however, that Company Software shall not
include financial reporting Software or similar Software.
(xi) "Contingent Payment Adjustments" means any deductions for the
Alpharma Payments pursuant to Section 2.03(a)(vii), deductions pursuant to
Section 2.03(f), any deductions for Company Expenses in excess of
$1,200,000 in accordance with Section 6.08, any deductions for Retention
Agreements pursuant to Section 6.09(b), and any payments to the Calculation
Representative in accordance with Section 9.04, each to the extent not
previously deducted from the Initial Merger Consideration or in calculating
any prior Contingent Payment.
(xii) "Contingent Per Share Payment" means, with respect to each
Contingent Payment, an amount equal to (A) the applicable Contingent
Payment amount divided by (B) the Per Share Denominator; and the plural of
such term means the aggregate of such payments with respect to each share
of Company Common Stock.
(xiii) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise.
(xiv) "Development Pediatric Products" means, collectively,
Acetaminophen extended release sprinkles, Pediavent(R) albuterol extended
release suspension, and Non-refrigerated Orapred(R) prednisolone sodium
phosphate oral solution (15 mg prednisolone per 5 ml).
(xv) "Divestiture Amount" means, in the event that Parent divests
itself of substantially all of its right, title and interest in and to a
Pediatric Product, a one time payment of an amount equal to the product of
(a) the direct consideration received by Parent for such Pediatric Product,
net of Parent's out-of-pocket transaction costs associated with such
divestiture and (b) if the divestiture is consummated in the First Premium
Year, 5/11; in the Second Premium Year, 4/11; in the Third Premium Year,
3/11; in the Fourth Premium Year, 2/11; or in the Fifth Premium Year, 1/11.
(xvi) "GAAP" means United States generally accepted accounting
principles.
(xvii) "Initial Merger Consideration" means $60.0 million in cash,
plus the aggregate consideration paid to the Company from the date hereof
to the Effective Time in connection with the exercise of Company Options
and Company Warrants, (a) less all Company Expenses actually paid by the
Company on or prior to the Closing Date in excess of $1,200,000 and (b)
less the payments required to be made pursuant to Sections 6.09 and 6.10.
(xviii) "Intellectual Property" means: (a) inventions (whether
patentable or unpatentable and whether or not reduced to practice),
designs, improvements and United States, foreign and
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international patents, patent applications, design registrations and
applications, and statutory invention registrations, together with all
reissues, continuations, continuations-in-part, divisionals, revisions,
extensions, and reexaminations relating thereto, (b) trademarks, service
marks, domain names, trade dress, logos, trade names, corporate names and
other source identifiers, and all goodwill associated therewith, including
United States and foreign mark registrations and applications for
registration thereof, (c) copyrightable works and copyrights, including
registrations and applications for registration thereof, (d) trade secrets
and/or confidential and/or proprietary information relating to the
business, including but not limited to: processes, formulae, compositions,
methods, schematics, technology, technical data, know-how, drawings,
customer and supplier lists, pricing and cost information, computer
software programs or applications and tangible or intangible proprietary
information or material, (e) mask works and all applications, registrations
and renewals relating thereto, (f) rights of privacy, personal and moral
rights, publicity and endorsement, and all other rights associated
therewith in any jurisdiction and (g) Software.
(xix) "In-the-Money Warrants" means Company Warrants issued and
outstanding immediately prior to the Effective Time having an exercise
price of $.40 or less.
(xx) "knowledge" of a Person shall mean the actual knowledge of any
fact, circumstance or condition by such Person, or, in the case of a
non-natural Person, the officers and management employees of such Person.
(xxi) "Licensed Intellectual Property" means all Intellectual Property
licensed to the Company pursuant to the Licenses.
(xxii) "Licenses" mean (A) licenses of Owned Intellectual Property by
the Company to third parties, (B) licenses of Intellectual Property by
third parties to the Company as of the date hereof, and (C) agreements
between the Company and third parties for the development of Intellectual
Property.
(xxiii) "Merger Consideration" means the consideration for the Company
Stock provided for in Section 2.01.
(xxiv) "Net Sales" means the sum of (A) the difference between (x) the
gross amount invoiced by Parent or its subsidiaries, affiliates, licensees
or sublicensees from or on account of sales of Pediatric Products less (y)
any Net Sales Deductions; provided, however, the Company will allocate Net
Sales Deductions to the Pediatric Products only in an equitable manner
consistent with the manner in which it allocates Net Sales Deductions in
the balance of its business, plus (B) any amount received by Parent or its
affiliates under any copromotion, marketing or similar agreement with any
of the entities listed on Section 10.02(a)(xxiv) of the Company Disclosure
Schedule which provides for Parent or its affiliates to promote or market
the pharmaceutical products described on Section 10.02(a)(xxiv) of the
Company Disclosure Schedule.
(xxv) "Net Sales Deductions" means any amounts deducted on Net Sales
invoices, in accordance with GAAP applied in a consistent manner with the
past practices of Parent related to sale of its other products for: (A)
normal, customary trade discounts (including volume discounts) actually
given or made, (B) credits, chargebacks, reductions, rebates, allowances
and adjustments for rejections, recalls, outdated products and returns, (C)
freight, shipping, insurance and other transportation charges, and (D)
sales, use, excise, value-added and similar taxes or duties imposed on the
sale (other than income taxes).
(xxvi) "Owned Intellectual Property" means all Intellectual Property
owned by the Company.
(xxvii) "Pediatric Products" means, collectively, the Commercial
Pediatric Products, and the Development Pediatric Products, in any
variation of these formulations containing the specified active ingredients
in any dosage form or by any name called.
(xxviii) "Per Share Denominator" means a number (which is subject to
adjustment from time to time) that as of the point in time at which this
term is used for any particular calculation equals
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the sum of (A) the number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time plus (B) the number of
shares of Company Common Stock issuable upon the exercise of In-the-Money
Warrants plus (C) in the event that Out-of-the-Money Warrants are exercised
after the Effective Time, the aggregate number of shares of Company Common
Stock for which such Out-of-the-Money Warrants are exercised as of the
point in time at which this term is used for any particular calculation;
(xxix) "Per Share Excess Warrant Proceeds" means, with respect to any
payment of Excess Warrant Proceeds, an amount equal to (A) the applicable
amount of Excess Warrant Proceeds divided by (B) the Per Share Denominator,
as adjusted from time to time.
(xxx) "Per Share Merger Consideration" means, as applicable, the
Common Stock Merger Consideration or the Series H Merger Consideration.
(xxxi) "Person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government.
(xxxii) "Premium Year" means each of five consecutive twelve month
periods commencing on the first day of the first calendar month after the
Closing Date, with the fifth Premium Year ending one day prior to the fifth
anniversary of such commencement date.
(xxxiii) "Registered Proprietary Name" means all trade marks, trade
names, brand names, and service marks registered or the subject of
applications for registration filed by Company in any country or
governmental unit thereof throughout the world.
(xxxiv) "Section 9.02 Liabilities" means all Liabilities arising out
of the conduct of the Company's business prior to the Effective Time other
than:
(x) Liabilities disclosed in Section 9.02 of the Company Disclosure
Schedule; and
(y) Payment or performance obligations under the terms of contracts
(but not for the breach or non-performance thereof) disclosed in the
Company Disclosure Schedule or entered into by the Company prior to the
Effective Time without violation of Section 5.01.
(xxxv) "Series H Certificate" means the Company's Certificate of
Designation, Voting Powers, Preferences and Rights of Series H Preferred
Stock as filed with the Secretary of State of the State of Delaware on
December 29, 2000.
(xxxvi) "Series H Merger Consideration" means an amount per share of
Series H Preferred Stock equal to the Redemption Price (as defined in the
Series H Certificate).
(xxxvii) "Software" means computer software and programs in any form,
and all versions, updates, corrections, enhancements and modifications
thereof, and all related documentation and excluding commercial,
off-the-shelf software.
(xxxviii) "subsidiary" means, with respect to any party, any
corporation, partnership, joint venture, limited liability company or other
business association or entity, of which (x) at least a majority of the
securities or other interests having by their terms voting power to elect a
majority of the board of directors or others performing similar functions
with respect to such Person is directly or indirectly beneficially owned or
controlled by such party or by any one or more of its subsidiaries, or by
such party and one or more of its subsidiaries, or (y) such party or any
Subsidiary of such party is a general partner of a partnership or a manager
of a limited liability company.
(xxxix) "Tax Authority" means the Internal Revenue Service and any
other domestic or foreign Governmental Authority responsible for the
administration, imposition, collection, or administration of any Taxes.
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(xl) "Taxes" means any and all federal, state, local, or foreign
taxes, fees, levies, duties, tariffs, imposts and other charges of any kind
(together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any Tax
Authority, including, without limitation: taxes or other charges on or with
respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation or net worth; taxes or
other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value-added or gains taxes; and customs' duties, tariffs and
similar charges, whether disputed or not, including any obligations under
any agreements or arrangements with any other Person with respect to such
amounts, and including any liability arising as a transferee or
successor-in-interest.
(xli) "Tax Returns" means any and all reports, returns, declarations,
statements or other information required to be supplied to a Tax Authority
in connection with Taxes, including any schedules or attachments thereto,
and including any amendment thereof.
(xlii) "Unregistered Proprietary Name" means all trade marks, trade
names, brand names, and service marks used by the Company but not
registered or the subject of an application for registration in any country
or governmental unit thereof throughout the world.
(b) The following terms shall have the meanings defined for such terms in
the Sections of this Agreement set forth below:
<Table>
7.5% Convertible Subordinated Notes......................... 3.09(b)(iii)
7.5% Subordinated Notes..................................... 3.09(b)(i)
7.5% Subordinated Note Holders.............................. Recitals
8% Convertible Subordinated Notes........................... 3.09(b)(iv)
8% Subordinated Notes....................................... 3.09(b)(ii)
Acquisition Proposal........................................ 6.04(c)
affiliate................................................... 10.02(a)(i)
Agreement................................................... Preamble
Aggregate Initial Common Stock Consideration................ 10.02(a)(ii)
Aggregate Merger Consideration.............................. 10.02(a)(iii)
Aggregate Series H Merger Consideration..................... 10.02(a)(iv)
Allocated Consideration..................................... 2.04(b)(i)
Alpharma.................................................... Recitals
Alpharma Payments........................................... 2.03(a)(vii)
Arbitration Notice.......................................... 2.03(d)(iii)
Arbitration Rules........................................... 2.03(d)(ii)
Assets...................................................... 3.18
Balance Sheet............................................... 3.09(a)
BancBoston.................................................. 6.14(c)
beneficial owner............................................ 10.02(a)(v)
Board Resignations.......................................... 6.14(a)(iii)
Business Day................................................ 10.02(a)(vi)
Calculation Representative.................................. 9.04
Call Option................................................. Recitals
CERCLA...................................................... 3.14
Certificates................................................ 2.02(b)
Certificate of Merger....................................... 1.02
Closing..................................................... 1.02
</Table>
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<Table>
Closing Date................................................ 1.02
COBRA....................................................... 3.12(b)
Code........................................................ 2.02(h)
Commercial Pediatric Products............................... 10.02(a)(vii)
Common Holder(s)............................................ 2.01(a)(i)
Common Stock Cash Merger Consideration...................... 10.02(a)(viii)
Common Stock Merger Consideration........................... 10.02(a)(ix)
Company..................................................... Preamble
Company Benefit Plans....................................... 3.12(a)
Company Common Stock........................................ Recitals
Company Disclosure Schedule................................. Article III
Company Expenses............................................ 6.08
Company Financial Statements................................ 3.08
Company Indemnified Party................................... 6.11(a)
Company Material Adverse Effect............................. 3.01
Company Notes............................................... Recitals
Company Notes Amount........................................ 6.10
Company Ongoing Clinical Programs........................... 3.15
Company Optionholder........................................ 2.04(a)(iv)
Company Permits............................................. 3.06(a)
Company SEC Reports......................................... 3.07
Company Software............................................ 10.02(a)(x)
Company Stock............................................... Recitals
Company Stock Option........................................ 2.04(a)(ii)
Company Stock Plans......................................... 2.04(a)(ii)
Company Stockholders........................................ 2.02(h)
Company Stockholders Meeting................................ 6.02(i)
Company Stockholders' Approval.............................. 3.22
Company Warrants............................................ 2.04(b)
Company Warrant Holders..................................... 2.04(b)
Confidentiality Agreements.................................. 6.03(b)
Consultants................................................. 6.09(c)
Consulting Agreements....................................... 6.09(c)
Contingent Payment(s)....................................... 2.03(a)
Contingent Payment Adjustments.............................. 10.02(a)(xi)
Contingent Per Share Payment................................ 10.02(a)(xii)
control..................................................... 10.02(a)(xiii)
Deductible.................................................. 9.02(b)(ii)
Defense Costs............................................... 9.03(b)
Depositary.................................................. Recitals
Depositary Agreement........................................ Recitals
Depositary Amendment........................................ 6.14(a)(v)
Depositary Holder........................................... Recitals
Depositary Receipt.......................................... Recitals
Depositary Share............................................ Recitals
</Table>
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<Table>
Development Pediatric Products.............................. 10.02(a)(xiv)
DGCL........................................................ Recitals
Dissenting Shares........................................... 2.05(a)
Divestiture Amount.......................................... 10.02(a)(xv)
Drop Dead Date.............................................. 8.01(b)
Effective Time.............................................. 1.02
Enforceability Exception.................................... 3.04(a)
Environmental Laws.......................................... 3.14
Environmental Permits....................................... 3.14
ERISA....................................................... 3.12(a)
ERISA Affiliate............................................. 3.12(a)
Excess Warrant Proceeds..................................... 2.04(b)(ii)
Exchange Act................................................ 3.05(b)
Exclusive Remedy Agreement.................................. Recitals
Exercised Warrants.......................................... 2.04(b)
Expenses.................................................... 6.08
Expiration Time............................................. 9.02(a)
Extension Policy............................................ 6.14(a)(i)
FDA......................................................... 3.06(c)
FDCA........................................................ 3.06(c)
Federal Arbitration Act..................................... 2.03(d)(ii)
Fifth Contingent Payment.................................... 2.03(a)(v)
First Contingent Payment.................................... 2.03(a)(i)
Fourth Contingent Payment................................... 2.03(a)(iv)
FS Designee................................................. 9.04
FS Entities................................................. 6.09(a)
FS Private.................................................. 9.04
FS Transaction Fee.......................................... 6.09(a)
GAAP........................................................ 10.02(a)(xvi)
Governmental Authority...................................... 3.05(b)
Hazardous Materials......................................... 3.14
Initial Merger Consideration................................ 10.02(a)(xvii)
Initial Public Disclosure................................... 6.07
Intellectual Property....................................... 10.02(a)(xviii)
In-the-Money Warrants....................................... 10.02(a)(xix)
IRS......................................................... 3.12(b)
Key Management.............................................. 6.09(b)
knowledge................................................... 10.02(xx)
Law......................................................... 3.05(d)
Liabilities................................................. 3.09(a)
Licensed Intellectual Property.............................. 10.02(a)(xxi)
Licenses.................................................... 10.02(a)(xxii)
Lien........................................................ 3.05(e)
Litigation.................................................. 3.11
Loss........................................................ 9.02(a)
</Table>
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<Table>
Material Contracts.......................................... 3.13(a)
May 1998 Securities Purchase Agreement...................... 3.09(b)(ii)
Merger...................................................... Recitals
Merger Consideration........................................ 10.02(a)(xxiii)
Merger Sub.................................................. Preamble
Multiemployer Plan.......................................... 3.12(c)
Multiple Employer Plan...................................... 3.12(c)
Net Sales................................................... 10.02(a)(xxiv)
Net Sales Deductions........................................ 10.02(a)(xxv)
Net Sales Statement......................................... 2.03(b)
Note Agreement.............................................. Recitals
Note Holder(s).............................................. Recitals
Officer Resignations........................................ 6.14(a)(iv)
Order....................................................... 7.01(b)
Other Holders............................................... Recitals
Out-of-the-Money Warrants................................... 2.04(b)
Owned Intellectual Property................................. 10.02(a)(xxvi)
Panel List.................................................. 2.03(d)(iv)
Parent...................................................... Preamble
Parent Affiliated Parties................................... 9.02(a)
Parent Disclosure Schedule.................................. Article IV
Parent Material Adverse Effect.............................. 4.01
Paying Agent................................................ 2.02(a)
Pediatric Products.......................................... 10.02(a)(xxvii)
Per Share Denominator....................................... 10.02(a)(xxviii)
Per Share Excess Warrant Proceeds........................... 10.02(a)(xxix)
Per Share Merger Consideration.............................. 10.02(a)(xxx)
Person...................................................... 10.02(a)(xxxi)
Premium Adjustment.......................................... 2.03(a)(vi)
Premium Base Amount......................................... 2.03(a)(i)
Premium Year................................................ 10.02(a)(xxxii)
Principal Stockholders...................................... Recitals
Proxy Statement............................................. 6.01
Receiving Parties........................................... 2.03(b)
Registered Proprietary Name................................. 10.02(a)(xxxiii)
Replacement Plans........................................... 6.05
Representatives............................................. 6.03(a)
Retained Employees.......................................... 6.05
Retention Agreements........................................ 6.09(b)
Retention Payments.......................................... 6.09(b)
SEC......................................................... 3.07
Second Contingent Payment................................... 2.03(a)(ii)
Section 9.02 Liabilities.................................... 10.02(a)(xxxiv)
Securities Act.............................................. 3.07
Series G Warrant(s)......................................... Recitals
</Table>
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<Table>
Series G Warrant Holder..................................... Recitals
Series H Certificate........................................ 10.02(a)(xxxv)
Series H Holder(s).......................................... Recitals
Series H Merger Consideration............................... 10.02(a)(xxxvi)
Series H Preferred Stock.................................... Recitals
Settlement Meeting.......................................... 2.03(d)(i)
Software.................................................... 10.02(a)(xxxvii)
SPD......................................................... 3.12(b)
subsidiary.................................................. 10.02(a)(xxxviii)
Superior Proposal........................................... 6.04(a)
Surviving Corporation....................................... 1.01
Tax Authority............................................... 10.02(a)(xxxix)
Taxes....................................................... 10.02(a)(xl)
Tax Returns................................................. 10.02(a)(xli)
Termination Agreement....................................... Recitals
Termination Fee............................................. 8.02(b)
Third Contingent Payment.................................... 2.03(a)(iii)
Third Party Claims.......................................... 9.02(a)
Transaction................................................. Recitals
Transaction Incentives...................................... 6.09(c)
Unregistered Proprietary Name............................... 10.02(a)(xlii)
Voting Agreement............................................ Recitals
Workers Comp Policy......................................... 6.14(a)(ii)
</Table>
SECTION 10.03. Separability. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
SECTION 10.04. Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors, and assigns; provided, however, that neither this
Agreement nor any rights hereunder shall be assignable or otherwise subject to
hypothecation, in whole or in part, by operation of law or otherwise by any of
the parties without the prior written consent of the other parties, and any
assignment in violation hereof shall be null and void.
SECTION 10.05. No Third Party Beneficiaries. Except for the Company
Indemnified Parties, no Person other than the parties hereto is an intended
beneficiary of this Agreement or any portion hereof. Nothing contained in this
Section 10.05 shall be construed as affecting the rights of the Company
Stockholders under Sections 2.02, 2.03 or 9.01 or the rights of the Calculation
Representative under Section 2.03 and Article IX.
SECTION 10.06. Incorporation of Exhibits. The Company Disclosure
Schedule, the Parent Disclosure Schedule and all Exhibits attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
SECTION 10.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 10.08. Governing Law; Forum. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware applicable
to contracts executed in and to be performed in that state and without regard to
any applicable conflicts of law. Each of the parties hereto
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submits to the exclusive jurisdiction of the state and federal courts of the
United States located in the State of Delaware with respect to any claim or
cause of action arising out of this Agreement or the Transactions.
SECTION 10.09. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 10.10. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 10.11. Entire Agreement. This Agreement (including the Exhibits,
the Company Disclosure Schedule and the Parent Disclosure Schedule) and the
Confidentiality Agreements constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto.
SECTION 10.12. Attorney's Fees. If any action at law or equity, including
an action for declaratory relief, is brought to enforce or interpret any
provision of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees and expenses from the other party, which fees and
expenses shall be in addition to any other relief which may be awarded.
SECTION 10.13. Amendments and Supplements. At any time before or after
approval of the matters presented in connection with the Merger by the Company
Stockholders and prior to the Effective Time, this Agreement may be amended or
supplemented in writing by the Company and Parent with respect to any of the
terms contained in this Agreement, except as otherwise provided by law;
provided, however, that following approval of this Agreement by the Company
Stockholders there shall be no amendment or change to the provisions hereof that
(i) alters or changes the amount and kind of the Merger Consideration; (ii)
alters or changes any term of the certificate of incorporation of the Surviving
Corporation to be effected by the Merger or (iii) alters or changes any term or
condition hereof if it would adversely affect the Company Stockholders.
[Signature Page Follows]
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MERGER AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, each of Parent, Merger Sub and the Company has executed
or has caused this Agreement to be executed by its respective officers thereunto
duly authorized as of the date first written above.
Medicis Pharmaceutical Corporation,
a Delaware corporation
By: /s/ MARK A. PRYGOCKI, SR.
------------------------------------
Name: Mark A. Prygocki, Sr.
Title: Executive Vice-President &
Chief Financial Officer
MPC Merger Corp., a Delaware
corporation
By: /s/ MARK A. PRYGOCKI, SR.
------------------------------------
Name: Mark A. Prygocki, Sr.
Title: Secretary & Treasurer
Ascent Pediatrics, Inc., a Delaware
corporation
By: /s/ EMMETT CLEMENTE
------------------------------------
Name: Emmett Clemente
Title: President
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EXHIBIT A TO MERGER AGREEMENT
EXAMPLE OF CONTINGENT PAYMENT CALCULATIONS*
PREMIUM YEAR 1
- Net Sales of Pediatric Products = $30,000,000
- amount in excess of $25,000,000 = $5,000,000
- plus Divestiture Amount = $2,000,000
- less setoff pursuant to Section 9.02(c) of $1,000,000
- therefore Premium Base Amount = $6,000,000
Multiply Premium Base Amount by 1.050 = $6,300,000
- Less Contingent Payment Adjustments of $500,000
Amount Due to Company Stockholders = $5,800,000
PREMIUM YEAR 2
- Net Sales of Pediatric Products = $42,000,000
- amount in excess of $25,000,000 = $17,000,000
- cap on Contingent Payment therefore amount in excess = $10,000,000
- therefore Premium Base Amount = $10,000,000
Multiply Premium Base Amount by 1.10 = $11,000,000
- Less Contingent Payment Adjustments of $600,000
Amount Due to Company Stockholders = $10,400,000
PREMIUM YEAR 3
- Net Sales of Pediatric Products = $37,000,000
- amount in excess of $25,000,000 = $12,000,000
- cap on Contingent Payment therefore amount in excess = $10,000,000
- therefore Premium Base Amount = $10,000,000
Multiply Premium Base Amount by 1.15 = $11,500,000
- Less Contingent Payment Adjustments of $200,000
Amount Due to Company Stockholders = $11,300,000
PREMIUM YEAR 4
- Net Sales of Pediatric Products = $27,000,000
- amount in excess of $25,000,000 = $2,000,000
- therefore Premium Base Amount = $ 2,000,000
Multiply Premium Base Amount by 1.2 = $2,400,000
- Less Contingent Payment Adjustments of $40,000
Amount Due to Company Stockholders = $2,360,000
PREMIUM YEAR 5
- Net Sales of Pediatric Products = $21,000,000
- amount in excess of $25,000,000 = $ 0
- plus Divestiture Amount = $2,000,000
- therefore Premium Base Amount = $2,000,000
Multiply Premium Base Amount by 1.25 = $2,500,000
- Less Contingent Payment Adjustments of $0
Amount Due to Company Stockholders = $ 2,500,000
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PREMIUM ADJUSTMENT
<Table>
Sum of Net Sales and Divestiture Amounts for Premium Years 1
through 5:
Premium Year 1......................................... $ 32,000,000
Premium Year 2......................................... 42,000,000
Premium Year 3......................................... 37,000,000
Premium Year 4......................................... 27,000,000
Premium Year 5......................................... 23,000,000
------------
Aggregate Net Sales & Divestiture Amounts................... $161,000,000
Less set off pursuant to 9.02(c)............................ 1,000,000
Net......................................................... $160,000,000
Sum of Premium Base Amount:
Premium Year 1......................................... $ 6,000,000
Premium Year 2......................................... 10,000,000
Premium Year 3......................................... 10,000,000
Premium Year 4......................................... 2,000,000
Premium Year 5......................................... 2,000,000
------------
Aggregate Premium Base Amount............................... $ 30,000,000
Plus........................................................ $125,000,000
Amount in Excess of Threshold............................... $155,000,000
</Table>
Aggregate Net Sale and Divestiture Amounts of $161,000,000, less $1,000,000
in offsets results in $160,000000. $125,000,000 plus the aggregate Premium Base
Amount of $30,000,000 earned during Premium Years 1 through 5, results in a
Premium Adjustment of $5,000,000 being payable.
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ANNEX B
October 1, 2001
Board of Directors
Ascent Pediatrics, Inc.
187 Ballardvale Street
Wilmington, MA 01887
Members of the Board:
You have requested our opinion (the "Fairness Opinion") as to the fairness,
from a financial point of view, of the aggregate consideration to be received by
the Unaffiliated Shareholders (as defined below) of common stock (the "Common
Stock") of Ascent Pediatrics, Inc. (the "Company") pursuant to the definitive
Merger Agreement and Plan of Merger dated October 1, 2001 (the "Agreement") by
and among the Company, Medicis Pharmaceutical Corporation ("Acquiror"), and a
wholly owned subsidiary of Acquiror ("Transitory Subsidiary"). Under the terms
of the Agreement, each share of Company Common Stock shall be converted at the
Effective Time into the right to receive the Common Stock Cash Merger
Consideration plus the right to receive the Contingent Per Share Payment, if
any, and Transitory Subsidiary will merge with and into the Company (the
"Merger"). Both the Common Stock Cash Merger Consideration and the Contingent
Per Share Payment are dependent upon and subject to several material factors,
further specified in the Agreement.
Adams, Harkness & Hill, Inc., as part of its investment banking activities,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, underwritings, distributions of listed
and unlisted securities, private placements and valuations for corporate and
other purposes. In the ordinary course of our business we may hold long or short
positions of the Company's Common Stock for either our customers or our own
account. As of the date hereof, we own approximately 215,969 shares of Company
Common Stock. We served as a managing underwriter in the Company's initial
public offering on May 29, 1997. We are serving as financial advisor to the
Company in connection with the Merger and will receive a fee for those services.
We will also receive a fee for providing this Fairness Opinion that is not
contingent upon the consummation of the Merger.
In developing our Fairness Opinion, we have, among other things:
(i) reviewed the Agreement dated October 1, 2001;
(ii) reviewed the Company's and Acquiror's filings with the Securities
and Exchange Commission for the five year period ending June 30, 2001;
(iii) analyzed and discussed with members of management of the Company
certain historic and projected financial statements and other financial and
operating data concerning the Company, prepared by management of the
Company;
(iv) conducted due diligence discussions with members of senior
management of the Company;
(v) compared the results of operations of the Company with those of
certain companies we deemed to be relevant and comparable;
(vi) reviewed the historical market prices, trading activity and
ownership of the Company's Common Stock and compared it with those of
certain publicly traded companies we deem to be relevant and comparable;
(vii) compared the terms and conditions of the Agreement with certain
mergers and acquisitions we deemed to be relevant and comparable; and
(viii) performed such other financial studies, investigations and
analyses and took into account such other matters as we deemed necessary,
including our assessment of general economic, market and monetary
conditions as of the date hereof.
B-1
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In connection with our review and arriving at our Fairness Opinion, we have
not independently verified any information received from the Company, have
relied on such information, and have assumed that all such information is
complete and accurate in all material respects. With respect to any forecasts
reviewed relating to the prospects of the Company, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of Company management as to the future financial
performance of the Company. In our review of the Company's capital structure and
operating forecasts we noted the Company's inability to continue operating as a
going concern without the ability to secure additional financing and/or modify
the terms and conditions of its existing financial obligations.
Our Fairness Opinion is rendered on the basis of securities market
conditions prevailing as of the date hereof and on the conditions and prospects,
financial and otherwise, of the Company as known to us on the date hereof. We
have not conducted, nor have we received copies of, any independent valuation or
appraisal of any of the assets of the Company. In addition, we have assumed,
with your consent, that any material liabilities (contingent or otherwise, known
or unknown) of the Company are as set forth in the historic and projected
financial statements of the Company. This Fairness Opinion is necessarily based
upon the information available to us and facts and circumstances as they exist
and are subject to evaluation on the date hereof; events occurring after the
date hereof could materially affect the assumptions used in preparing this
Fairness Opinion. We are not expressing any opinion herein as to the price at
which shares of Common Stock have traded or may trade at any future time. We
have not undertaken to reaffirm or revise this Fairness Opinion or otherwise
comment upon any events occurring after the date hereof and do not have any
obligation to update, revise or reaffirm this Fairness Opinion.
For purposes of the Fairness Opinion, we define Unaffiliated Shareholders
to include those holders of Company Common Stock who are not also holders of
either of the Company's 7.5% Subordinated Notes, 8.0% Subordinated Notes, 7.5%
Convertible Subordinated Notes, 8.0% Convertible Subordinated Notes, Series H
Preferred Stock, warrants or options; and who are not officers or directors of
the Company.
We are aware that each share of Common Stock is held by State Street Bank
and Trust Company, as depositary, and is evidenced by a depositary share and
represented by a depositary receipt. For purposes of this opinion, any
references to "holders of Common Stock" shall be deemed to be a reference to
holders of depositary shares, including without limitation, for purposes of the
definition of "Unaffiliated Shareholders" set forth above.
This Fairness Opinion is directed to the Board of Directors of the Company
and is not intended to be and does not constitute a recommendation to any
securities holder of the Company. We were not requested to opine as to, and this
Fairness Opinion does not address, the basic business decision to proceed with
or effect the Merger. We have provided this letter to you on the understanding
that this letter is for the information of the Board of Directors of the Company
exclusively, and may not be used for any other purpose or relied on by any other
person without our prior written consent, and that the Company and we have
agreed, absent any controlling legal authority, to vigorously contest any
assertion otherwise.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the aggregate consideration is fair, from a financial point of
view, to the Unaffiliated Shareholders of Company Common Stock.
Sincerely,
ADAMS, HARKNESS & HILL, INC.
B-2
129
ANNEX C
DELAWARE GENERAL CORPORATION LAW
SECTION 262 -- APPRAISAL RIGHTS.
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec. 251
(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec. 264
of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
C-1
130
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under sec. 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated
C-2
131
therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal
and to accept the terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor
of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any
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stockholder whose name appears on the list filed by the surviving or
resulting corporation pursuant to subsection (f) of this section and who
has submitted such stockholder's certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation
be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder's demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the
Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
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ANNEX D
VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement") dated as of October 1, 2001, by and
among Medicis Pharmaceutical Corporation, a Delaware corporation ("Parent"), MPC
Merger Corp., a Delaware corporation and wholly owned subsidiary of Parent
("Merger Sub"), FS Private Investments LLC, a Delaware limited liability company
("FS Private"), Furman Selz Investors II L.P., a Delaware limited partnership
("FS II"), FS Employee Investors LLC, a Delaware limited liability company ("FS
Employee"), FS Ascent Investments LLC, a Delaware limited liability company ("FS
Ascent"), and FS Parallel Fund L.P., a Delaware limited partnership ("FS
Parallel," together with FS Private, FS II, FS Employee and FS Ascent, each a
"Stockholder" and collectively the "Stockholders").
WHEREAS, each Stockholder desires that Parent, Merger Sub and Ascent
Pediatrics, Inc., a Delaware corporation (the "Company"), enter into an
Agreement and Plan of Merger dated the date hereof (the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement) providing for the merger of Merger Sub with and into
the Company (the "Merger") upon the terms and subject to the conditions set
forth in the Merger Agreement; and
WHEREAS, each Stockholder and the Company are executing this Agreement as
an inducement to Parent and Merger Sub to enter into and execute the Merger
Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by Parent
and Merger Sub of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
1. Representations and Warranties.
(a) Each Stockholder severally represents and warrants to Parent and Merger
Sub as follows:
(i) Such Stockholder is the record and beneficial owner of (A) the
number of depositary shares ("Depositary Shares") issued pursuant to that
certain depositary agreement (the "Depositary Agreement") dated February
16, 1999 by and among the Company, State Street Bank and Trust Company and
Alpharma USPD, Inc., each such Depositary Share evidencing one share of
Company common stock, par value $0.00004 per share, of the Company (the
"Company Common Stock") and (B) the number of shares of Series H Preferred
Stock, par value $0.01 (the "Series H Preferred Stock"), set forth opposite
such Stockholder's name on Schedule A hereto (such Depositary Shares and
Series H Preferred Stock, together with any other Depositary Shares, Series
H Preferred Stock or other capital stock of the Company acquired after the
date hereof (including through the distribution of depositary property
pursuant to the Depositary Agreement, the conversion of convertible
securities or the exercise of any stock options, warrants or similar
instruments) being collectively referred to herein as the "Subject
Shares"). The Subject Shares constitute the only shares, with respect to
which such Stockholder is the record or beneficial owner, of Depositary
Shares, Series H Preferred Stock or other capital stock of the Company or
options, warrants or other rights (whether or not contingent) to acquire
such shares of capital stock of the Company that are or may be entitled to
vote on the Merger or the Merger Agreement at any meeting of stockholders
of the Company called to vote upon the Merger or the Merger Agreement. Such
Stockholder has the sole right to vote and Transfer (as defined below in
Section 4(a) below) the Subject Shares set forth opposite its name on
Schedule A hereto, and none of such Subject Shares is subject to any voting
trust or other agreement, arrangement or restriction with respect to the
voting or the Transfer of the Subject Shares, except as provided by this
Agreement (it being understood that any pledge of the Pledged Shares (as
defined below) shall not be a breach of this representation). Such
Stockholder has all requisite power and authority to enter into this
Agreement and to perform its obligations hereunder. Such Stockholder is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization. The execution and delivery of this Agreement
by such Stockholder and the performance by such Stockholder of its
obligations hereunder have been duly authorized by all necessary action on
the part of such Stockholder. This Agreement has been duly executed and
delivered by, and constitutes a valid
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and binding agreement of, such Stockholder, enforceable against such
Stockholder in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium or other similar laws and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding for such remedy may be brought (collectively, the
"Enforceability Exceptions").
(ii) Neither the execution and delivery of this Agreement nor the
performance by such Stockholder of its obligations hereunder will result in
a violation of, or a default under, or conflict with, (A) any provision of
its certificate of incorporation, bylaws, partnership agreement, limited
liability company agreement or similar organizational documents, (B) any
contract, trust, commitment, agreement, understanding, arrangement or
restriction of any kind (other than as may relate to the Pledged Shares but
subject to the proviso set forth in (iii) below) to which such Stockholder
is a party or bound or to which the Subject Shares are subject, except, in
the case of clause (B) above, as would not prevent, delay or otherwise
materially impair such Stockholder's ability to perform its obligations
hereunder. Execution, delivery and performance of this Agreement by such
Stockholder will not reasonably be expected to violate, or require any
consent, approval or notice under, any provision of any judgment, order,
decree, statute, law, rule or regulation applicable to such Stockholder or
the Subject Shares, except (x) for any reports under Sections 13(d) and 16
of the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated hereby or (y) as would not reasonably be
expected to prevent, delay or otherwise materially impair such
Stockholder's ability to perform its obligations hereunder.
(iii) The Subject Shares and the certificates representing such
Subject Shares are held by such Stockholder free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever, except
for any such encumbrances arising hereunder or pursuant to the pledge of
any Subject Shares by such Stockholder prior to the date hereof to a
financial institution or a brokerage firm (the "Pledged Shares"); provided,
however, that such Stockholder represents that any such arrangement
regarding such Pledged Shares shall not prevent, delay or otherwise
materially impair such Stockholder's ability to execute and deliver this
Agreement or perform its obligations hereunder and such Stockholder shall
use its reasonable efforts to obtain an acknowledgment by the pledgee of
the terms of this Agreement and such pledgee's agreement to vote the
Pledged Shares (if and to the extent the voting power of the Pledged Shares
is being or to be exercised by pledgee) in accordance with Section 2
hereof.
(iv) No broker, investment banker, financial advisor or other person
is entitled to any broker's, finder's, financial advisor's or other similar
fee or commission based upon arrangements made by or on behalf of such
Stockholder in connection with its entering into this Agreement. Adams,
Harkness & Hill, Inc. is the Company's Investment banker with respect to
the Merger.
(v) Such Stockholder understands and acknowledges that Parent and
Merger Sub are entering into the Merger Agreement in reliance upon such
Stockholder's execution and delivery of this Agreement.
(b) Parent and Merger Sub represent and warrant to each Stockholder that
the execution and delivery of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
have been duly authorized by all necessary action on the part of Parent and
Merger Sub.
2. Voting Agreements. Each Stockholder severally agrees with, and
covenants to, Parent and Merger Sub that, during the Term (as defined in Section
8 below) of this Agreement, at any meeting of stockholders of the Company or at
any adjournment thereof or in any other circumstances upon which a vote, consent
or other approval (including by written consent) is sought, such Stockholder
shall, including by executing a written consent solicitation if requested by
Parent or Merger Sub, vote (or cause to be voted) the Subject Shares in favor of
the adoption by the Company of the Merger Agreement and the approval of the
terms thereof and each of the other transactions expressly contemplated by the
Merger Agreement. Notwithstanding the foregoing, if at the time of the Company
Stockholders' Meeting the Company has accepted a Superior Proposal or the board
of directors of the Company has withdrawn,
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modified or changed its recommendation of the Merger Agreement or the Merger in
a manner adverse to Parent, each Stockholder's obligation under this Agreement
to vote Subject Shares in favor of or consent to the adoption by the Company of
the Merger Agreement and approval of the terms thereof shall be automatically
modified so that the number of Subject Shares (other than the Series H Preferred
Stock which shall not be affected by this sentence) which such Stockholder shall
be so obligated to vote in favor of or consent to such matters shall equal the
product of (x) 25% of the number of Depositary Shares issued and outstanding on
the record date (the "Record Date") for the Company Stockholders' Meeting and
(y) a fraction, the numerator of which is the number of Depositary Shares issued
and beneficially owned by such Stockholder on the Record Date and the
denominator of which is all Depositary Shares issued and beneficially owned
(without duplication) by the Stockholders on the Record Date.
3. Payment for Subject Shares in Excess of the Offer Price. Each
Stockholder severally (and not jointly) hereby agrees that, if the Company is
obligated to pay the Termination Fee, then such Stockholder shall pay Parent on
demand an amount (such "Stockholder's Amount") equal to the product of $3.0
million multiplied by a fraction (such "Stockholder's Percentage"), the
numerator of which is the number of Depositary Shares issued and beneficially
owned by such Stockholder on the date hereof and the denominator of which is all
Depositary Shares issued and beneficially owned (without duplication) by the
Stockholders on the date hereof. Each Stockholder severally (and not jointly)
hereby agrees to reimburse Parent and Merger Sub for any fees and expenses
(including reasonable attorneys fees) incurred by Parent and Merger Sub in
connection with any successful litigation, dispute or other attempt to recover
such Stockholder's Amount in the event that such Stockholder fails to pay such
amount to Parent upon written demand.
4. Other Covenants. Each Stockholder severally agrees with, and covenants
to, Parent and Merger Sub during the Term of this Agreement as follows:
(a) Such Stockholder shall not after the date hereof (i) sell,
transfer, pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"), or consent to any Transfer of, any Subject
Shares or any interest therein, except pursuant to the Merger, (ii) enter
into any contract, option or other agreement with respect to any Transfer
of any or all of the Subject Shares or any interest therein, (iii) grant
any proxy, power-of-attorney or other authorization in or with respect to
the Subject Shares, except for this Agreement or (iv) deposit the Subject
Shares into a voting trust or enter into a voting agreement or voting
arrangement with respect to the Subject Shares; provided, that any such
Stockholder may Transfer any of the Subject Shares to any other Stockholder
who is on the date hereof a party to this Agreement; provided, further,
that the restrictions in this Section 4 shall not be deemed violated by any
Transfer of Subject Shares pursuant to a cashless exercise of stock
options.
(b) Such Stockholder hereby waives any rights of appraisal, or rights
to dissent from the Merger, that such Stockholder may have.
5. Certain Events. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to such Stockholder's Subject Shares and
shall be binding upon any person or entity to which legal or beneficial
ownership of such subject Shares shall pass, whether by operation of law or
otherwise, including without limitation such Stockholder's administrators or
successors. In the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital structure of the
Company affecting the Common Stock, or the acquisition of additional Depositary
Shares or shares of Common Stock or other voting securities of the Company by
any Stockholder, the number of subject shares listed on Schedule A beside the
name of such Stockholder shall be adjusted appropriately and this Agreement and
the obligations hereunder shall attach to any additional Depositary Shares or
shares of Common Stock or other voting securities of the Company issued to or
acquired by such Stockholder.
6. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director of the Company makes any agreement or
understanding herein in his or her capacity as such director. Each Stockholder
signs solely in his or her capacity as the record and beneficial owner of such
Stockholder's Subject Shares.
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7. Further Assurances. Each Stockholder shall, upon request of Parent or
Merger Sub, execute and deliver any additional documents and take such further
actions as may reasonably be deemed by Parent or Merger Sub to be necessary or
desirable to carry out the provisions hereof.
8. Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon (and shall only be effective from the
date hereof until) the first to occur of (the "Term") (i) the Effective Time of
the Merger or (ii) the date upon which the Merger Agreement is terminated in
accordance with its terms as in effect as of the date hereof; provided, however,
that (x) Sections 3 and 9 shall survive any termination of this Agreement and
(y) termination of this Agreement pursuant to Clause (ii) above shall not
relieve any party hereto from liability for any willful and knowing breach
hereof prior to such termination.
9. Miscellaneous.
(a) All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice): (i) if to the Company, Parent or Merger Sub,
to the appropriate address set forth in Section 10.01 of the Merger Agreement;
and (ii) if to a Stockholder, to the appropriate address set forth on Schedule A
hereto.
(b) The descriptive headings contained in this Agreement are included for
convenience of reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(c) This Agreement may be executed and delivered (including by facsimile)
in two or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed and delivered shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement and shall become effective as to any Stockholder when one or more
counterparts have been signed by each of the Company, Parent and Merger Sub and
such Stockholder and delivered to the Company, Parent and Merger Sub and such
Stockholder.
(d) This Agreement (including the documents and instruments referred to
herein) 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 this Agreement is not intended to confer upon any
other person (other than Parent and Merger Sub) any rights or remedies
hereunder.
(e) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
(f) Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of law
or otherwise, by any of the parties without the prior written consent of the
other parties, except as expressly provided by Section 4(a). Any assignment in
violation of the foregoing shall be void.
(g) As between any Stockholder, Parent and Merger Sub, each of such parties
agrees that irreparable damage to the other, non-breaching party would occur and
that such non-breaching party would not have any adequate remedy at law 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 non-breaching party shall be entitled to an
injunction or injunctions to prevent breaches by the other party of this
Agreement and to enforce specifically the terms and provisions of this
Agreement, this being in addition to any other remedy to which it may be
entitled at law or in equity.
(h) If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall be
enforced to the fullest extent permitted by law.
(i) No amendment, modification or waiver in respect of this Agreement shall
be effective against any party unless it shall be in writing and signed by such
party.
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VOTING AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Company, Parent, Merger Sub and the Stockholders
party hereto have caused this Agreement to be duly executed and delivered as of
the date first written above.
MEDICIS PHARMACEUTICAL CORPORATION,
a Delaware corporation
By: /s/ MARK A. PRYGOCKI, SR.
------------------------------------
Name: Mark A. Prygocki, Sr.
Title: Executive Vice-President &
Chief Financial Officer
MPC MERGER CORP., a Delaware
corporation
By: /s/ MARK A. PRYGOCKI, SR.
------------------------------------
Name: Mark A. Prygocki, Sr.
Title: Secretary & Treasurer
Stockholders:
FURMAN SELZ INVESTORS II L.P.,
a Delaware limited Partnership,
FS EMPLOYEE INVESTORS LLC,
a Delaware limited liability company,
and FS PARALLEL FUND L.P.,
a Delaware limited partnership
By: FS PRIVATE INVESTMENTS LLC,
Manager
By: /s/ JAMES L. LUIKART
------------------------------------
Name: James L. Luikart
Title: Managing Member
FS ASCENT INVESTMENTS LLC,
a Delaware limited liability company
By: FS PRIVATE INVESTMENTS LLC,
Manager
By: /s/ JAMES L. LUIKART
------------------------------------
Name: James L. Luikart
Title: Managing Member
FS PRIVATE INVESTMENTS LLC,
a Delaware limited liability company
By: /s/ JAMES L. LUIKART
------------------------------------
Name: James L. Luikart
Title: Managing Member
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SCHEDULE A TO VOTING AGREEMENT
<Table>
<Caption>
DEPOSITARY
SHARES
STOCKHOLDER HELD
----------- ----------
FS Private Investments LLC.................................. 150,000
Furman Selz Investors II L.P................................ 6,343,387
FS Employee Investors LLC................................... 543,670
FS Ascent Investments LLC................................... 1,862,585
FS Parallel Fund L.P........................................ 308,604
</Table>
<Table>
<Caption>
SERIES H
PREFERRED
STOCKHOLDER STOCK HELD
----------- ----------
FS Ascent Investments LLC*.................................. 2,001
</Table>
---------------
* Notwithstanding the fact that FS Ascent Investments LLC is the record holder
of all of the shares of Series H Preferred Stock, the shares of Series H
Preferred Stock are beneficially owned by the following funds in the stated
amounts and the representations and warranties in the agreement to which this
is Schedule A are accordingly modified: Furman Selz Investors II L.P., 1,762
shares; FS Employee Investors LLC, 152 shares; FS Parallel Fund L.P., 86
shares; and FS Ascent Investments LLC, 1 share.
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ANNEX E
NOTE AGREEMENT
This NOTE AGREEMENT (this "Note Agreement") is made effective as of October
1, 2001 by and among Ascent Pediatrics, Inc., a Delaware corporation (the
"Company"), Medicis Pharmaceutical Corporation, a Delaware corporation (the
"Parent"), Furman Selz Investors II L.P., a Delaware limited partnership ("FS
II"), FS Employee Investors LLC, a Delaware limited liability company ("FS
Employee"), FS Ascent Investments LLC, a Delaware limited liability company ("FS
Ascent"), FS Parallel Fund L.P., a Delaware limited partnership ("FS Parallel"),
BancBoston Ventures Inc. ("Bancboston") and Flynn Partners ("Flynn").
WHEREAS, FS II, FS Employee, FS Parallel, BancBoston and Flynn (each a
"Note Holder" and collectively the "Note Holders") are holders of (i) an
aggregate principal amount of $1,749,126 of 8% Subordinated Notes issued on July
23, 1999 (the "8% Subordinated Notes") under the May 13, 1998 Securities
Purchase Agreement, as amended, (the "May 1998 Securities Purchase Agreement")
by and among the Company, FS II., FS Employee, FS Parallel, BancBoston and
Flynn; (ii) an aggregate principal amount of $14,000,000 of 7.5% Convertible
Subordinated Notes issued on July 23, 1999 under the Third Amendment to the May
1998 Securities Purchase Agreement and on October 15, 1999 under the Fourth
Amendment to the May 1998 Securities Purchase Agreement (the "7.5% Convertible
Subordinated Notes"); and (iii) an aggregate principal amount of $7,000,000 of
8% Convertible Subordinated Notes issued on July 23, 1999 upon exchange of
Series G Preferred Stock in the Second Amendment to the May 1998 Securities
Purchase Agreement (the "8% Convertible Subordinated Notes," and together with
the 8% Subordinated Notes, and the 7.5% Convertible Subordinated Notes, the
"Notes"), in each case as set forth on Schedule A hereto;
WHEREAS, FS Ascent is the sole holder (the "7.5% Subordinated Note Holder")
of the 7.5% Subordinated Note issued on January 2, 2001 in the aggregate
principal amount of $6,250,000 (the "7.5% Subordinated Note") under the Loan
Agreement dated as of December 29, 2000 (the "Loan Agreement") by and between
the Company and FS Ascent;
WHEREAS, FS Ascent holds 2,001 shares of the Company's Series H Preferred
Stock, par value $.01 per share and has the obligation to purchase additional
shares upon request of the Company in accordance with the Fifth Amendment (the
"Fifth Amendment") to the May 1998 Securities Purchase Agreement dated January
2, 2001 (such shares of Series H Preferred Stock owned and any additional shares
of Series H Preferred Stock issued to FS Ascent after the date hereof being
herein referred to as the "Series H Preferred Stock" and such holder of Series H
Preferred Stock, the "Preferred Holder");
WHEREAS, FS Ascent holds Warrants to purchase an additional 5,000,000
Depositary Shares issued pursuant to the Fifth Amendment and may be issued
additional Warrants by the Company (such Warrants owned and any additional
Warrants issued to FS Ascent after the date hereof being herein referred to as
the "Warrants" and such holder, the "Warrant Holder");
WHEREAS, each Note Holder, 7.5% Subordinated Note Holder, Preferred Holder
and Warrant Holder desires that Parent, MPC Merger Corp., a Delaware corporation
and wholly owned subsidiary of Parent ("Merger Sub"), and the Company enter into
an Agreement and Plan of Merger dated the date hereof (the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement) providing for the merger of Merger Sub with and into
the Company (the "Merger") upon the terms and subject to the conditions set
forth in the Merger Agreement; and
WHEREAS, each Note Holder, 7.5% Subordinated Note Holder, Preferred Holder,
Warrant Holder and the Company are executing this Note Agreement as an
inducement to Parent and Merger Sub to enter into and execute the Merger
Agreement.
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140
NOW, THEREFORE, in consideration of the execution and delivery by Parent
and Merger Sub of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
1. Term This Note Agreement shall terminate upon the earlier to occur
of (a) the termination of the Merger Agreement pursuant to its terms,
(b) the consummation of the Merger and (c) the Drop Dead Date; provided,
however, that in the event that the Merger is consummated then Sections
7 and 8 of this Note Agreement shall continue in full force and effect
and shall not terminate (the "Term").
2. Representations and Warranties of Each Note Holder and FS
Ascent. Each Note Holder and FS Ascent severally and not jointly
represents and warrants to Parent that as of the date of this Agreement:
(a) such Note Holder or FS Ascent is the record and beneficial
owner of such Notes, 7.5% Subordinated Notes, Series H Preferred Stock,
and Warrants (collectively, the "Securities") as are set forth opposite
such holder's name on Schedule A hereto;
(b) the Securities constitute the only capital stock, notes,
options, warrants or other rights (whether or not contingent) to acquire
shares of capital stock of the Company with respect to which such Note
Holder or FS Ascent is the record or beneficial owner; and
(c) the Securities are held by such Note Holder or FS Ascent free
and clear of all liens, encumbrances, claims, security interests or any
other restrictions whatsoever (other than any restrictions under
applicable securities laws), and there are no outstanding subscriptions,
options, rights, contracts, understandings or agreements to purchase or
otherwise acquire the Notes, 7.5% Subordinated Notes, Series H Preferred
Stock and Warrants other than the additional shares of Series H
Preferred Stock and additional Warrants that are issuable under the
Fifth Amendment.
3. Covenants of Each Note Holder and FS Ascent. Each Note Holder and
FS Ascent shall not after the date hereof (i) sell, transfer, pledge,
assign or otherwise dispose of (including by gift) (collectively
"Transfer"), or consent to any Transfer of, any Notes, 7.5% Subordinated
Notes, Series H Preferred Stock and Warrants or any interest therein, (ii)
enter into any contract, option or other agreement with respect to any
Transfer of any or all of the Notes, 7.5% Subordinated Notes, Series H
Preferred Stock and Warrants or any interest therein or (iii) assign any of
its rights or obligations pursuant to the May 1998 Securities Purchase
Agreement or the Loan Agreement; provided, that each Note Holder and FS
Ascent may Transfer any of the Notes, 7.5% Subordinated Notes, Series H
Preferred Stock and Warrants to any other person or entity that, prior to
or coincident with such Transfer, executes an agreement to be bound by the
provisions of this Note Agreement including, without limitation, the
provisions contained in Sections 4, 5, 6, 7 and 8 hereof.
4. Redemption of Series H Preferred Stock. Notwithstanding anything
to the contrary contained in the Certificate of Designations for the Series
H Preferred Stock, the Preferred Holder hereby covenants and agrees that
during the Term such Preferred Holder will not take any action to cause the
Company to be required to redeem any or all of the shares of Series H
Preferred Stock then outstanding.
5. Conversion of The Notes. Notwithstanding anything to the contrary
contained in any of the Notes, each Note Holder hereby covenants and agrees
that during the Term such Note Holder will not convert any of the Notes
into equity securities of the Company.
6. Demand Under the 7.5% Subordinated Notes.
(a) The Company hereby covenants and agrees to issue the Extension
Notice and take such other action as may be required to extend the
Demand Date through December 31, 2001. The Company further covenants and
agrees that should any action be required by the Company in order to
cause the maturity date of the 7.5% Subordinated Note as provided in
Section 6(b)
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141
below to be extended from December 31, 2001 to the Drop Dead Date, the
Company will use reasonable best efforts to take such action.
(b) The 7.5% Subordinated Note Holder hereby (i) covenants and
agrees that it will not take any action to cause the Company to be
required to repay the 7.5% Subordinated Note during the Term, (ii)
agrees to extend the Demand Date (as defined in the Loan Agreement)
through December 31, 2001 upon proper receipt of an Extension Notice (as
defined in the Fifth Amendment) from the Company and for no additional
consideration beyond that currently provided in Section 2.2 of such
Fifth Amendment, (iii) agrees that if the Company has issued such
Extension Notices to extend the Demand Date through December 31, 2001
and if the Merger has not been consummated on or prior to December 31,
2001, then the Demand Date shall automatically be extended through the
Drop Dead Date for no additional consideration, (iv) waives any required
notice of the Merger under the Loan Agreement and (v) waives any
required notices under the Loan Agreement of the anticipated redemption
of the 7.5% Subordinated Note as provided in the Merger Agreement.
7. Exercise or Termination of Warrants. Notwithstanding anything to
the contrary contained in the Warrants, FS Ascent hereby covenants and
agrees that all unexercised Warrants held by FS Ascent at the Effective
Time will terminate immediately prior to the consummation of the Merger.
8. Waiver of Issuance of New Warrants. Notwithstanding anything to
the contrary contained in the 7.5% Convertible Subordinated Notes, the 8%
Convertible Subordinated Notes and the May 1998 Securities Purchase
Agreement, effective as of the Effective Time, each Note Holder hereby (i)
waives the issuance of New Warrants (as defined in the May 1998 Securities
Purchase Agreement) as a condition to the Company's right to redeem such
7.5% Convertible Subordinated Notes and 8% Convertible Subordinated Notes
pursuant to Section 9.3(c) of the May 1998 Securities Purchase Agreement
upon the consummation of the Merger and (ii) waives any required notices
under the May 1998 Securities Purchase Agreement of the anticipated Merger
and of the anticipated redemption of the Notes upon the consummation of the
Merger.
9. Governing Law. This Note Agreement will be governed by the laws of
the State of Delaware without regard to conflicts of laws principles.
10. Counterparts. This Note Agreement may be executed and delivered
(including by facsimile) in two or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement and shall become effective as
to any Note Holder or FS Ascent when one or more counterparts have been
signed by each of the Company, Parent and Merger Sub and such Note Holder
or FS Ascent and delivered to the Company, Parent and Merger Sub and such
Note Holder or FS Ascent even if all of the parties for which signature
blocks exist have not executed a counterpart to this Note Agreement.
11. Separability. If any provision of this Note Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions
hereof which shall remain in full force and effect.
[SIGNATURE PAGE FOLLOWS]
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142
NOTE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed and delivered this Note
Agreement as of the date first written above.
ASCENT PEDIATRICS, INC.,
a Delaware corporation
By: /s/ EMMETT CLEMENTE
------------------------------------
Name: Emmett Clemente
Title: President
MEDICIS PHARMACEUTICAL CORPORATION,
a Delaware corporation
By: /s/ MARK A. PRYGOCKI, SR.
------------------------------------
Name: Mark A. Prygocki, Sr.
Title: Executive Vice-President &
Chief Financial Officer
FURMAN SELZ INVESTORS II L.P.,
a Delaware limited Partnership,
FS EMPLOYEE INVESTORS LLC,
a Delaware limited liability company,
and
FS PARALLEL FUND L.P.,
a Delaware limited partnership
By: FS PRIVATE INVESTMENTS LLC,
Manager
By: /s/ JAMES L. LUIKART
------------------------------------
Name: James L. Luikart
Title: Managing Member
FS ASCENT INVESTMENTS LLC,
a Delaware limited liability company
By: FS PRIVATE INVESTMENTS LLC,
Manager
By: /s/ JAMES L. LUIKART
------------------------------------
Name: James L. Luikart
Title: Managing Member
BANCBOSTON VENTURES INC.
By:
------------------------------------
Name:
Title:
FLYNN PARTNERS
By: /s/ JAMES E. FLYNN
------------------------------------
Name: James E. Flynn
Title: Partner
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143
SCHEDULE A TO NOTE AGREEMENT
<Table>
<Caption>
7.5% 8.0%
8% CONVERTIBLE CONVERTIBLE SERIES H
SUBORDINATED SUBORDINATED SUBORDINATED PREFERRED
STOCKHOLDER NOTES NOTES NOTES STOCK WARRANTS
----------- ------------ ------------ ------------ --------- ---------
FS Private Investments LLC............. -- -- -- -- --
Furman Selz Investors II L.P........... $1,156,423 $12,341,778 $4,628,000 -- --
FS Employee Investors LLC.............. $ 98,785 $ 1,057,778 $ 397,000 -- --
FS Ascent Investments LLC.............. -- -- -- 2,001 5,000,000
FS Parallel Fund L.P................... $ 56,429 $ 600,444 $ 225,000 --
BancBoston Ventures Inc................ $ 415,542 -- $1,663,000 -- --
Flynn Partners......................... $ 21,739 -- $ 87,000 -- --
</Table>
E-5
144
ANNEX F
EXCLUSIVE REMEDY AGREEMENT
This EXCLUSIVE REMEDY AGREEMENT (this "Exclusive Remedy Agreement") is made
effective as of October 1, 2001 by and among Medicis Pharmaceutical Corporation,
a Delaware corporation (the "Parent"), Ascent Pediatrics, Inc., a Delaware
corporation (the "Company"), FS Private Investments LLC, a Delaware limited
liability company ("FS Private"), Furman Selz Investors II L.P., a Delaware
limited partnership ("FS II"), FS Employee Investors LLC, a Delaware limited
liability company ("FS Employee"), FS Ascent Investments LLC, a Delaware limited
liability company ("FS Ascent"), FS Parallel Fund L.P., a Delaware limited
partnership ("FS Parallel"), BancBoston Ventures Inc. ("Bancboston"), Flynn
Partners ("Flynn"), Raymond F. Baddour, Sc.D. ("BADDOUR"), Robert E. Baldini
("Baldini"), Medical Science Partners L.P. ("Medical Science") and Emmett
Clemente, Ph.D. ("Clemente").
WHEREAS, each share of common stock of the Company, par value $.00004 per
share (the "Company Common Stock"), is currently held by State Street Bank and
Trust Company as depositary (the "Depositary") under that certain Depositary
Agreement dated February 16, 1999, as amended, by and among the Company, the
Depositary and Alpharma USPD, Inc. (the "Depositary Agreement"). Each share of
Company Common Stock is evidenced by a depositary share (each a "Depositary
Share") which is represented by a depositary receipt;
WHEREAS, each of FS Private, FS II, FS Employee, FS Ascent, FS Parallel,
BancBoston, Flynn, Baddour, Baldini, Medical Science and Clemente are holders of
the issued and outstanding Depositary Shares as set forth opposite such holder's
name on Schedule A hereto (such Depositary Shares owned and any additional
Depositary Shares issued during the Term hereof being referred to as the
"Subject Shares" and each holder of the Subject Shares a "Depositary Holder" and
collectively the "Depositary Holders");
WHEREAS, each Depositary Holder desires that Parent, MPC Merger Corp., a
Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub"), and
the Company enter into an Agreement and Plan of Merger dated the date hereof
(the "Merger Agreement"; capitalized terms used but not defined herein shall
have the meanings set forth in the Merger Agreement) providing for the merger of
Merger Sub with and into the Company (the "Merger") upon the terms and subject
to the conditions set forth in the Merger Agreement; and
WHEREAS, each Depositary Holder and the Company are executing this
Exclusive Remedy Agreement as an inducement to Parent and Merger Sub to enter
into and execute the Merger Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by Parent
and Merger Sub of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
1. Term. This Exclusive Remedy Agreement shall terminate upon the
earliest to occur of (a) the consummation of the Merger, (b) the
termination of the Merger Agreement pursuant to its terms and (c) the Drop
Dead Date; provided, however, that in the event that the Merger is
consummated then SECTIONS 3, 4, 5, 6, 7, 8, 9, 10, 11 and 12 of this
Exclusive Remedy Agreement shall continue in full force and effect and
shall not terminate (the "Term").
2. Representations and Warranties of Each Depositary Holder. Each
Depositary Holder severally and not jointly represents and warrants to
Parent that:
(a) such Depositary Holder is the record and beneficial owner of
such Depositary Shares as is set forth opposite such holder's name on
Schedule A hereto;
(b) the Depositary Shares are held by such Depositary Holder free
and clear of all liens, encumbrances, claims, security interests or any
other restrictions whatsoever (other than any
F-1
145
restrictions under applicable securities laws), and there are no
outstanding subscriptions, options, rights, contracts, understandings or
agreements to purchase or otherwise acquire the Depositary Shares, other
than the additional shares of Series H Preferred Stock and additional
Series G Warrants that are issuable under the Fifth Amendment to the May
1998 Securities Purchase Agreement dated as of December 29, 2000; and
(c) such Depositary Holder has all requisite power and authority
and, if such Depositary Holder is a natural person, the legal capacity,
to enter into this Exclusive Remedy Agreement and to perform its
obligations hereunder. To the extent not a natural person, such
Depositary Holder is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. The
execution and delivery of this Exclusive Remedy Agreement by such
Depositary Holder and the performance by such Depositary Holder of its
obligations hereunder have been duly authorized by all necessary action
on the part of such Depositary Holder. This Exclusive Remedy Agreement
has been duly executed and delivered by, and constitutes a valid and
binding agreement of, such Depositary Holder, enforceable against such
Depositary Holder in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, moratorium or other similar
laws and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before
which any proceeding for such remedy may be brought (the "Enforceability
Exception"). If the Depositary Holder is married and the Depositary
Shares of the Depositary Holder constitute community property or spousal
approval is otherwise required for this Agreement to be legal, valid and
binding, then, to the extent so required, this Agreement has been duly
authorized, executed and delivered by, and constitutes a valid and
binding agreement of, the Depositary Holder's spouse, enforceable
against such spouse in accordance with its terms, subject to the
Enforceability Exception.
3. Exclusive Remedy. Each Depositary Holder hereby covenants and
agrees that, during the Term, with regard to any disputes arising out of
Sections 2.03, 9.02, 9.03 and 9.04 of the Merger Agreement, as its
exclusive remedy such Depositary Holder shall be bound by the terms and
conditions of the following provisions of the Merger Agreement as if such
Depositary Holder were a party thereto:
(a) Section 2.03(d) regarding dispute resolution and arbitration
in respect of disputes, controversies and claims as to Contingent
Payments payable by Parent pursuant to Section 2.03; and
(b) Section 9.04 regarding the Calculation Representative with
respect to any claims for setoff pursuant to Article IX or any dispute,
claim or controversy under Section 2.03(d) of the Merger Agreement.
4. Governing Law. This Exclusive Remedy Agreement will be governed by
the laws of the State of Delaware without regard to conflicts of laws
principles.
5. Notices. All notices, requests, claims, demands and other
communications under this Exclusive Remedy Agreement shall be in writing
and shall be deemed given if delivered personally or sent by overnight
courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by
like notice): (i) if to the Company, Parent or Merger Sub, to the
appropriate address set forth in Section 10.01 of the Merger Agreement; and
(ii) if to a Depositary Holder, to the appropriate address set forth on
Schedule A hereto.
6. Headings. The descriptive headings contained in this Exclusive and
shall not affect in any way the meaning or interpretation of this Exclusive
Remedy Agreement.
7. Entire Agreement. This Exclusive Remedy Agreement (including the
documents and instruments referred to herein) 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 this Exclusive Remedy Agreement is not intended to confer upon
any other person (other than Parent and Merger Sub) any rights or remedies
hereunder.
F-2
146
8. Counterparts. This Exclusive Remedy Agreement may be executed and
delivered (including by facsimile) in two or more counterparts, and by the
different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement and shall become
effective as to any Depositary Holder when one or more counterparts have
been signed by each of the Company, Parent and Merger Sub and such
Depositary Holder and delivered to the Company, Parent and Merger Sub and
such Depositary Holder even if all of the parties for which signature
blocks exist have not executed a counterpart to this Exclusive Remedy
Agreement.
9. Remedies. As between any Depositary Holder, Parent and Merger Sub,
each of such parties agrees that irreparable damage to the other,
non-breaching party would occur and that such non-breaching party would not
have any adequate remedy at law in the event that any of the provisions of
this Exclusive Remedy Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that
the non-breaching party shall be entitled to an injunction or injunctions
to prevent breaches by the other party of this Exclusive Remedy Agreement
and to enforce specifically the terms and provisions of this Exclusive
Remedy Agreement, this being in addition to any other remedy to which it
may be entitled at law or in equity.
10. Assignment. Neither this Exclusive Remedy Agreement nor any of
the rights, interests or obligations under this Exclusive Remedy Agreement
shall be assigned, in whole or in part, by operation of law or otherwise,
by any of the parties without the prior written consent of the other
parties. Any assignment in violation of the foregoing shall be void.
11. Amendment. No amendment, modification or waiver in respect of
this Exclusive Remedy Agreement shall be effective against any party unless
it shall be in writing and signed by such party.
12. Separability. If any provision of this Exclusive Remedy Agreement
shall be declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions
hereof which shall remain in full force and effect.
F-3
147
EXCLUSIVE REMEDY AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed and delivered this Exclusive
Remedy Agreement as of the date first written above.
ASCENT PEDIATRICS, INC.,
a Delaware corporation
By: /s/ EMMETT CLEMENTE
------------------------------------
Name: Emmett Clemente
Title: President
MEDICIS PHARMACEUTICAL CORPORATION,
a Delaware corporation
By: /s/ MARK A. PRYGOCKI, SR.
------------------------------------
Name: Mark A. Prygocki, Sr.
Title: Executive Vice-President &
Chief
Financial Officer
FURMAN SELZ INVESTORS II L.P.,
a Delaware limited Partnership,
FS EMPLOYEE INVESTORS LLC,
a Delaware limited liability company,
and
FS PARALLEL FUND L.P.,
a Delaware limited partnership
By: FS PRIVATE INVESTMENTS LLC,
Manager
By: /s/ JAMES L. LUIKART
------------------------------------
Name: James L. Luikart
Title: Managing Member
FS ASCENT INVESTMENTS LLC,
a Delaware limited liability company
By: FS PRIVATE INVESTMENTS LLC,
Manager
By: /s/ JAMES L. LUIKART
------------------------------------
Name: James L. Luikart
Title: Managing Member
F-4
148
BANCBOSTON VENTURES INC.
By:
------------------------------------
Name:
Title:
FLYNN PARTNERS
By: /s/ JAMES E. FLYNN
------------------------------------
Name: James E. Flynn
Title: Partner
By: /s/ RAYMOND F. BADDOUR
------------------------------------
Name: Raymond F. Baddour, Sc.D.
By: /s/ ROBERT E. BALDINI
------------------------------------
Name: Robert E. Baldini
MEDICAL SCIENCE PARTNERS, L.P.
By: /s/ ANDRE LAMOTTE
------------------------------------ ,
its general partner
By:
-----------------------------------
Name: Andre Lamotte
Title: Managing General Partner
By: /s/ EMMETT CLEMENTE
------------------------------------
Name: Emmett Clemente, Ph.D.
FS PRIVATE INVESTMENTS LLC,
a Delaware limited liability company
By: /s/ JAMES L. LUIKART
------------------------------------
Name: James L. Luikart
Title: Managing Member
F-5
149
SCHEDULE A TO EXCLUSIVE REMEDY AGREEMENT
<Table>
<Caption>
STOCKHOLDER ADDRESS DEPOSITARY SHARES HELD
----------- ------- ----------------------
FS Private Investments LLC...................... c/o FS Private Investments 150,000
520 Madison Avenue
8th Floor
New York, NY 10022
Furman Selz Investors II L.P.................... c/o FS Private Investments 6,343,387
520 Madison Avenue
8th Floor
New York, NY 10022
FS Employee Investors LLC....................... c/o FS Private Investments 543,670
520 Madison Avenue
8th Floor
New York, NY 10022
FS Ascent Investments LLC....................... c/o FS Private Investments 1,862,585
520 Madison Avenue
8th Floor
New York, NY 10022
FS Parallel Fund L.P............................ c/o FS Private Investments 308,604
520 Madison Avenue
8th Floor
New York, NY 10022
BancBoston Ventures Inc......................... 175 Federal Street 574,028
Boston, MA 02110
Attention: Marcia Bates
Flynn Partners.................................. c/o FS Private Investments 95,212
520 Madison Avenue
8th Floor
New York, NY 10022
Medical Sciences Partners L.P................... 161 Worcester Road 738,776
Framingham, MA
Emmett Clemente................................. 23 Loading Place Road 172,650
Manchester, MA 01944
Raymond F. Baddour.............................. 12100 S.W. 65th Avenue 235,384
Pinecrest, FL 33156
Robert E. Baldini............................... Five Olde Greenhouse Lane --
Madison, NJ 07940
</Table>
F-6
150
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
ASCENT PEDIATRICS, INC.
The shares represented by this voting instruction card will be voted as directed
by the undersigned. IF YOU SIGN AND SEND IN YOUR VOTING INSTRUCTION CARD AND DO
NOT INDICATE HOW YOU WANT TO VOTE, THE DEPOSITARY WILL ABSTAIN FROM VOTING YOUR
SHARES AND THE EFFECT WILL BE A VOTE AGAINST THE ADOPTION AND APPROVAL OF THE
MERGER AGREEMENT AND THE MERGER.
Mark box at right if an address change or comment has been noted on the reverse
side of this card. [ ]
CONTROL NUMBER:
RECORD DATE SHARES:
Please be sure to sign and date this
Voting Instruction Card. Date _____________________
Stockholder sign here __________________ Co-owner sign here ___________________
1. To adopt and approve an Agreement and Plan of Merger, dated as of
October 1, 2001, by and among Ascent Pediatrics, Inc. ("Ascent"), Medicis
Pharmaceutical Corporation ("Medicis") and MPC Merger Corp., a wholly-owned
subsidiary of Medicis, and the transactions contemplated by such agreement.
The merger agreement provides that MPC Merger Corp. will merge with and
into Ascent, and Ascent will become a wholly-owned subsidiary of Medicis.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
NOTE: IN THEIR DISCRETION, THE NAMED ATTORNEYS ARE AUTHORIZED TO VOTE UPON THE
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.
DETACH CARD DETACH CARD
151
VOTING INSTRUCTION CARD ASCENT PEDIATRICS, INC. VOTING INSTRUCTION CARD
SPECIAL MEETING OF STOCKHOLDERS
__________ __, 2001
THESE VOTING INSTRUCTIONS ARE SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, having received notice of the meeting and the proxy statement
therefor, and revoking all prior proxies, hereby directs State Street Bank and
Trust Company, as Depositary (the "Depositary"), to vote and act upon the
following matters in accordance with the instructions indicated on the reverse
side in respect of all shares of Common Stock of Ascent Pediatrics, Inc. (the
"Company") represented by Depositary Shares held by the undersigned. In
addition, the undersigned authorize(s) the Depositary to appoint Emmett
Clemente, Ph.D. and Jennifer A. Marchand, and each of them, attorneys or
attorney of the Depositary (with full power of substitution) for and in the name
of the Depositary to attend the Special Meeting of Stockholders of the Company
to be held at the offices of Hale and Dorr LLP, 26th Floor, 60 State Street,
Boston, Massachusetts at [TIME], local time, on ___________ __, 2001, and any
adjourned sessions thereof, and there to vote and act, as indicated, upon the
matter on the reverse side in respect of all shares of Common Stock of the
Company which the Depositary would be entitled to vote or act upon, with all
powers the Depositary would possess if personally present, including the power
to vote upon such other matters as may properly come before the meeting or any
adjournment thereof.
Attendance of the undersigned at the meeting or at any adjourned session thereof
will not be deemed to revoke this voting instruction card unless the undersigned
shall affirmatively indicate thereat the intention of the undersigned to vote
said shares in person. If the undersigned hold(s) any shares of Common Stock of
the Company in a fiduciary, custodial or joint capacity or capacities, this
voting instruction card is signed by the undersigned in every such capacity as
well as individually.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND
PROMPTLY RETURN IN THE ENCLOSED ENVELOPE.
Please sign name(s) exactly as appearing hereon. When signing as attorney,
executor, administrator or other fiduciary, give your full title as such. Joint
owners should each sign personally. If a corporation, sign in full corporate
name, by authorized officer. If a partnership, sign in partnership name, by
authorized person.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
__________________________________ ______________________________________
__________________________________ ______________________________________
__________________________________ ______________________________________