EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
among
DISCOVERY LABORATORIES, INC.
ATI ACQUISITION CORP.
AND
ACUTE THERAPEUTICS, INC.
March 5, 1998
March 5, 1998
TABLE OF CONTENTS
Page
ARTICLE 1 THE MERGER.................................................................................. 2
Section 1.1 The Merger.................................................................. 2
Section 1.2 Closing and Effective Time.................................................. 2
Section 1.3 Directors and Officers of the Surviving Corporation......................... 2
Section 1.4 Certificate of Incorporation................................................ 2
Section 1.5 Bylaws...................................................................... 2
Section 1.6 Effect of the Merger........................................................ 2
ARTICLE 2 CONVERSION OR EXCHANGE OF SECURITIES........................................................ 3
Section 2.1 Conversion of Capital Stock................................................. 3
Section 2.3 Payment for Common Shares; Surrender of Certificates........................ 4
Section 2.4 Appraisal Rights............................................................ 5
Section 2.5 Seller Option Plan.......................................................... 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER.................................................... 6
Section 3.1 Organization................................................................ 6
Section 3.2 Capitalization.............................................................. 6
Section 3.3 Authorization; Validity of Agreement; Necessary Action...................... 7
Section 3.4 Consents and Approvals; No Violations....................................... 7
Section 3.5 [RESERVED].................................................................. 8
Section 3.6 Absence of Certain Changes.................................................. 8
Section 3.7 No Undisclosed Liabilities.................................................. 9
Section 3.8 Litigation.................................................................. 9
Section 3.9 No Default; Compliance with Applicable Laws................................. 9
Section 3.10 Intellectual Property....................................................... 9
Section 3.11 Tax Returns and Payments.................................................... 10
Section 3.12 Certificate of Incorporation and Bylaws..................................... 10
Section 3.13 Title to Property........................................................... 10
Section 3.14 Employee Benefits and Contracts............................................. 11
Section 3.15 Employment; Labor Matters................................................... 12
Section 3.16 Brokers..................................................................... 12
Section 3.17 Environmental Laws.......................................................... 12
Section 3.18 Insurance................................................................... 13
Section 3.19 Contracts and Commitments................................................... 13
Section 3.20 Interests of Officers and Directors......................................... 14
Section 3.21 Questionable Payments....................................................... 14
Section 3.22 Certain Tax Matters......................................................... 14
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March 5, 1998
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND
ACQUISITION SUBSIDIARY............................................................... 15
Section 4.1 Organization................................................................ 15
Section 4.2 Capitalization.............................................................. 15
Section 4.3 Authorization; Validity of Agreement; Necessary Action...................... 16
Section 4.4 Consents and Approvals; No Violations....................................... 17
Section 4.5 SEC Reports and Financial Statements........................................ 17
Section 4.6 Absence of Certain Changes.................................................. 18
Section 4.7 No Undisclosed Liabilities.................................................. 19
Section 4.8 Litigation.................................................................. 19
Section 4.9 No Default; Compliance with Applicable Laws................................. 19
Section 4.10 Intellectual Property....................................................... 20
Section 4.11 Tax Returns and Payments.................................................... 20
Section 4.12 Certificate of Incorporation and Bylaws..................................... 21
Section 4.13 Title to Property........................................................... 21
Section 4.14 Employee Benefits and Contracts............................................. 21
Section 4.15 Employment; Labor Matters................................................... 22
Section 4.16 Brokers..................................................................... 23
Section 4.17 Environmental Laws.......................................................... 23
Section 4.18 Insurance................................................................... 23
Section 4.19 Contracts and Commitments................................................... 23
Section 4.20 Interests of Officers and Directors......................................... 24
Section 4.21 Questionable Payments....................................................... 24
Section 4.22 Certain Tax Matters......................................................... 25
Section 4.23 No Prior Activities......................................................... 25
ARTICLE 5 COVENANTS................................................................................... 25
Section 5.1 Interim Operations of Seller and Buyer...................................... 25
Section 5.2 Access; Confidentiality..................................................... 27
Section 5.3 Additional Agreements....................................................... 27
Section 5.4 Consents and Approvals; HSR Act............................................. 28
Section 5.5 Exclusivity................................................................. 28
Section 5.6 Publicity................................................................... 28
Section 5.7 Notification of Certain Matters............................................. 28
Section 5.8 Indemnification............................................................. 29
Section 5.9 Approval of Stockholders.................................................... 29
Section 5.10 Buyer Proxy Statement....................................................... 30
Section 5.11 Seller Information Statement................................................ 30
Section 5.12 Tax Treatment............................................................... 31
Section 5.13 Form S-8.................................................................... 31
Section 5.14 Reservation of Buyer Common Stock........................................... 31
Section 5.15 Consolidation of Operations................................................. 31
Section 5.16 Consolidation of Board of Directors......................................... 32
Section 5.17 Incentive Bonus Payments.................................................... 32
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March 5, 1998
ARTICLE 6 CONDITIONS.................................................................................. 32
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.................. 32
Section 6.2 Additional Conditions to Obligations of Seller.............................. 33
Section 6.3 Additional Conditions to Obligations of Buyer and Acquisition
Subsidiary.................................................................. 34
ARTICLE 7 TERMINATION................................................................................. 35
Section 7.1 Termination................................................................. 35
Section 7.2 Effect of Termination....................................................... 36
ARTICLE 8 MISCELLANEOUS............................................................................... 36
Section 8.1 Fees and Expenses........................................................... 36
Section 8.2 Amendment and Modification.................................................. 36
Section 8.3 Nonsurvival of Representations and Warranties............................... 36
Section 8.4 Notices..................................................................... 37
Section 8.5 Interpretation.............................................................. 38
Section 8.6 Counterparts................................................................ 38
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership................................................................... 38
Section 8.8 Severability................................................................ 38
Section 8.9 Governing Law............................................................... 38
Section 8.10 Assignment.................................................................. 39
Exhibit A - Form of Capetola Employment Agreement
Exhibit B - Form of Key Executive Employment Agreement
Exhibit C - Form of Option Agreement for 338,500 Shares
Exhibit D - Form of Option Agreement for 175,000 Shares
Exhibit E - Form of Option Agreement for 160,000 Shares
Exhibit F - Form of Registration Rights Agreement
Exhibit G - Form of Investment Agreement
Exhibit H - Form of Lock-up Agreement
Exhibit I - Form of Buyer 1998 Stock Option Plan
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March 5, 1998
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated March 5, 1998, by and among
Discovery Laboratories, Inc., a Delaware corporation ("Buyer" or "Discovery"),
ATI Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Buyer ("Acquisition Subsidiary"), and Acute Therapeutics, Inc., a Delaware
corporation ("Seller" or "Acute").
RECITALS:
WHEREAS, upon and subject to the terms and conditions of this
Agreement, Acquisition Subsidiary will merge with and into Seller (the "Merger")
and Seller will become a wholly-owned subsidiary of Buyer;
WHEREAS, the Boards of Directors of Seller and Buyer have each
determined that it is in the best interests of their respective stockholders for
Buyer to acquire Seller upon the terms and subject to the conditions set forth
herein; and
WHEREAS, also in furtherance of such acquisition, the Boards of
Directors of Seller and Buyer have each approved this Agreement and the Merger
of Acquisition Subsidiary with and into Seller in accordance with the Delaware
General Corporation Law ("DGCL"), and upon the terms and subject to the
conditions set forth herein; and
WHEREAS, the Board of Directors of Seller has resolved to recommend
approval of this Agreement and the Merger to the holders of shares of Seller's
Common Stock, $0.001 par value per share (the "Common Shares") and the holder of
shares of Seller's Series A Preferred Stock, $0.001 par value per share (the
"Series A Acute Preferred Shares");
WHEREAS, for federal income tax purposes it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code"); and
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Seller, Buyer and Acquisition Subsidiary hereby agree as follows:
March 5, 1998
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2 hereof), Seller and
Acquisition Subsidiary shall consummate the Merger pursuant to which Acquisition
Subsidiary shall be merged with and into Seller in accordance with Section 251
of the DGCL, the separate corporate existence of Acquisition Subsidiary shall
cease, and Seller shall continue as the surviving corporation in the Merger
(Seller is sometimes referred to as the "Surviving Corporation").
Section 1.2 Closing and Effective Time. The closing of the Merger (the
"Closing") shall take place (i) at 10:00 a.m., New York time, on a date to be
specified by the parties, which shall be no later than the fifth business day
after satisfaction or waiver of all of the conditions set forth in Article 6
hereof, at the offices of Brobeck, Phleger & Harrison LLP, 1633 Broadway, 47th
Floor, New York, NY 10019 or (ii) at such other time and place as Buyer and
Seller shall agree (the "Closing Date"). Immediately after completion of the
Closing, the parties shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") executed in accordance with
the relevant provisions of the DGCL and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at the
time when the Certificate of Merger has been duly filed with the Delaware
Secretary of State, or such time as is agreed upon by the parties and specified
in the Certificate of Merger, and such time is hereinafter referred to as the
"Effective Time." The date of the Effective Time is hereinafter referred to as
the "Effective Date."
Section 1.3 Directors and Officers of the Surviving Corporation. The
directors and officers of Seller at the Effective Time shall be the initial
directors and officers, respectively, of the Surviving Corporation.
Section 1.4 Certificate of Incorporation. The certificate of
incorporation of Acquisition Subsidiary in effect at the Effective Time shall be
the certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law.
Section 1.5 Bylaws. The bylaws of Acquisition Subsidiary in effect at
the Effective Time shall be the bylaws of the Surviving Corporation until
amended in accordance with applicable law.
Section 1.6 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 subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
Seller and Acquisition Subsidiary shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Seller and Acquisition Subsidiary shall
become the debts, liabilities and duties of the Surviving Corporation.
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March 5, 1998
ARTICLE 2
CONVERSION OR EXCHANGE OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of Buyer, Acquisition
Subsidiary, Seller, or the holders of any Common Shares or Series A Acute
Preferred Shares or Series B Acute Preferred Shares (as herein defined) or any
shares of capital stock of Acquisition Subsidiary:
(a) Acquisition Subsidiary Capital Stock. Each issued and outstanding
share of capital stock of Acquisition Subsidiary shall be converted into and
become one fully paid and nonassessable share of common stock of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Series A Acute Preferred Shares.
All Common Shares that are owned by Seller and all Series A Acute Preferred
Shares that are owned by Buyer shall be cancelled and extinguished without any
conversion thereof and no consideration shall be delivered in exchange therefor.
(c) Conversion of Common Shares. Each issued and outstanding Common
Share (other than Common Shares to be canceled in accordance with Section 2.1(b)
and any dissenting Common Shares which are held by stockholders exercising
appraisal rights pursuant to the DGCL ("Dissenting Stockholders")) shall by
virtue of the Merger and without any action on the part of the holder thereof,
be automatically converted into the right to receive, upon surrender of the
certificate formerly representing such Common Share (the "Common Share
Certificate") in the manner provided in Section 2.3 below, 3.91 shares of Common
Stock, $.001 par value of Buyer ("Buyer Common Stock"). The number of shares of
Buyer Common Stock into which each Common Share will be automatically converted
is referred to as the "Conversion Ratio." All such Common Shares, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such Common Shares shall cease to have any rights with respect
thereto, except the right to receive the merger consideration therefor upon the
surrender of such certificate in accordance with Section 2.3, or, in the case of
Dissenting Stockholders, the right, if any, to receive payment from the
Surviving Corporation of the fair value of such Common Shares as determined in
accordance with the DGCL. No fractional shares of Buyer Common Stock shall be
issued and, in lieu thereof, a cash payment shall be made pursuant to Section
2.3(c).
Section 2.2 Exchange of Series B Acute Preferred Shares. Each issued
and outstanding Share of Seller's Series B Preferred Stock, $0.001 par value per
share (the "Series B Acute Preferred Shares") shall, at the Closing, be
exchanged for one share of Series A Preferred Stock, $0.001 par value per share
of Buyer (the "Discovery Preferred Shares"), pursuant to an exchange agreement
between Buyer and Johnson & Johnson Development Corporation ("JJDC")(the
"Exchange Agreement") in form and substance reasonably acceptable to Buyer and
Seller.
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March 5, 1998
Section 2.3 Payment for Common Shares; Surrender of Certificates
(a) Letter of Transmittal. As soon as practicable after the Effective
Time, Buyer will send to each record holder of Common Shares at the Effective
Time a letter of transmittal and other appropriate materials for use in
surrendering Common Share Certificates to Buyer's transfer agent, who shall be
appointed exchange agent with respect to the Merger (the "Exchange Agent").
(b) Payment Procedures. Promptly after the Effective Time, Buyer shall
request that the Exchange Agent distribute to each former holder of Common
Shares, upon surrender to the Exchange Agent of one or more Common Share
Certificates for cancellation together with a duly executed and properly
completed letter of transmittal, the shares of Buyer Common Stock receivable by
such holder in accordance with the provisions of Section 2.1(c). If Buyer Common
Stock is to be delivered to a person other than the person in whose name a
Common Share Certificate is so registered, the Common Share Certificate is so
surrendered shall be properly endorsed, with signatures guaranteed, or otherwise
in proper form for transfer, and the person requesting such payment shall pay
any transfer or other taxes required by reason of the delivery to a person other
than the registered holder of such Common Share Certificate surrendered, or such
person shall establish to the satisfaction of Buyer that such tax has been paid
or is not applicable. No interest shall be paid on any consideration payable in
the Merger to former holders of Common Shares.
(c) No Fractional Shares.
(i) No fractional shares of Buyer Common Stock shall be
issued as a result of the Merger. In lieu of the
issuance of fractional shares, cash adjustments will
be paid to the former holder of Common Shares in
respect of any fraction of a share of Buyer Common
Stock which would otherwise be issuable under this
Agreement. Such cash adjustment shall be equal to an
amount determined by multiplying (A) the fractional
share of Buyer Common Stock to which the holder of
Seller Common Stock would be otherwise entitled under
Section 2.1(c) (after aggregating all shares of Buyer
Common Stock to which such holder is entitled), by
(B) the average closing price of shares of Buyer
Common Stock on The Nasdaq Small Cap Market for the
twenty trading days immediately preceding the
Effective Date.
(ii) As soon as practicable after the determination of the
amount of cash, if any, to be paid to former holders
of Common Shares with respect to any fractional share
interests of Buyer Common Stock, the Exchange Agent
shall promptly pay such amounts to such former
holders of Common Shares subject to and in accordance
with the terms of this Section 2.3. Buyer will make
available to the Exchange Agent the cash necessary
for this purpose.
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March 5, 1998
Section 2.4 Appraisal Rights. Notwithstanding any other provision of
this Agreement to the contrary, including but without limitation Section 6.3(f),
Common Shares held by a holder who has not voted such Common Shares in favor of
the approval of this Agreement and the Merger or consented thereto in writing
and with respect to which appraisal rights shall have been demanded and
perfected in accordance with Section 262 of the DGCL (the "Dissenting Common
Shares") and as of the Effective Time not withdrawn shall not be converted into
the right to receive the consideration payable pursuant to Section 2.1(c) at or
after the Effective Time, but such Common Shares shall become the right to
receive such consideration as may be determined to be due to holders of
Dissenting Common Shares pursuant to the laws of the State of Delaware unless
and until the holder of such Dissenting Common Shares withdraws his or her
demand for such appraisal or becomes ineligible for such appraisal. If a holder
of Dissenting Common Shares shall withdraw his or her demand for such appraisal
or shall become ineligible for such appraisal (through failure to perfect or
otherwise), then, as of the Effective Time or the occurrence of such event,
whichever last occurs, such holder's Dissenting Common Shares shall
automatically be converted into and represent the right to receive the merger
consideration as provided in Section 2.1(c). Seller shall give Buyer (i) prompt
written notice of any demands for appraisal of Common Shares received by Seller
and (ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. Seller shall not, without prior
written consent of Buyer, make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands.
Section 2.5 Seller Option Plan.
(a) Assumption of Options. Each outstanding option to purchase Common
Shares issued to employees, non-employee directors and consultants of Seller
pursuant to Seller's 1996 Stock Option/Stock Issuance Plan, as amended (the
"Seller Option Plan"), except for options to purchase 44,800 Common Shares
granted on October 10, 1996, as listed on Schedule 2.5 hereto which shall
terminate on the Closing, whether vested or unvested (each a "Stock Option"),
shall remain outstanding after the Effective Time and shall be assumed by Buyer.
The parties intend that Buyer's assumption of the Stock Options shall be treated
as "assuming a stock option in a transaction to which Section 424(a) applies"
within the meaning of Section 424 of the Code and this subsection (a) shall be
interpreted and applied consistent with such intent. Each Stock Option assumed
by Buyer shall be exercisable upon the same terms and conditions as under the
Seller Option Plan and applicable option agreement issued thereunder, except
that (i) such option shall be exercisable for that number of shares of Buyer
Common Stock equal to the number of Common Shares for which such option was
exercisable times the Conversion Ratio, and (ii) the exercise price of such
option shall be equal to the exercise price of such option divided by the
Conversion Ratio. The number of shares of Buyer Common Stock subject to an
option assumed by Buyer shall be rounded to the nearest whole number (with .5
rounded up) and the exercise price thereof shall be rounded up to the nearest
whole cent.
(b) Notice. As soon as practicable after the Effective Time, Buyer
shall deliver to the holders of Stock Options appropriate notices setting forth
such holders' rights pursuant to the Buyer Option Plan (as defined in Section
4.2 hereof). The agreements evidencing the grants
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March 5, 1998
of such Stock Options shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 2.5 after giving effect to
the Merger).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF SELLER
Seller represents and warrants to Buyer and Acquisition Subsidiary as
follows:
Section 3.1 Organization.
(a) Except as set forth in Section 3.1 of the disclosure schedule
delivered to Buyer on or before the date hereof (the "Seller Disclosure
Schedule"), Seller is a corporation duly organized, validly existing and in good
standing under the laws of Delaware and has the requisite corporate power and
authority and any necessary governmental authority to own, operate or lease the
properties that it purports to own, operate or lease and to carry on its
business as it is now being conducted, and, except as set forth in Section 3.1
of the Seller Disclosure Schedule, is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned, operated or leased or the nature of its activities
makes such qualification necessary, except for such failure which, when taken
together with all other such failures, would not have a Seller Material Adverse
Effect (as defined below in Section 3.1(b)). Seller does not own or control any
subsidiary.
(b) The term "Seller Material Adverse Effect" means any individual
material adverse effect, or adverse effects which in the aggregate (whether or
not related and whether or not any individual effect is material) have a
material adverse effect, on the business, operations, properties (including
intangible properties), condition (financial or otherwise), assets or
liabilities of Seller or could reasonably be expected to prevent or materially
delay the consummation of the Merger.
Section 3.2 Capitalization.
(a) Capitalization. The authorized capital stock of Seller consists of
2,000,000 Common Shares, par value $0.001 per share and 1,000,000 shares of
Preferred Stock, $0.001 par value per share, of which 600,000 shares are
designated Series A Acute Preferred Shares and 2,200 shares are designated
Series B Acute Preferred Shares. The outstanding Series A Acute Preferred Shares
are convertible into 600,000 shares of Common Shares at the conversion price in
effect with respect thereto. The Series B Acute Preferred Shares are not
convertible. As of December 31, 1997, (i) 202,000 Common Shares were issued and
outstanding, (ii) 600,000 Series A Acute Preferred Shares were issued and
outstanding and were convertible into 600,000 Common Shares, (iii) 2,039 Series
B Acute Preferred Shares were issued and outstanding and held by JJDC, (iv) no
shares of Common Stock were held in the treasury of Seller, and (v) 202,300
Common Shares were reserved for issuance upon exercise of outstanding
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March 5, 1998
options under the Seller Option Plan. Section 3.2 of the Seller Disclosure
Schedule sets forth a true and correct list as of December 31, 1997 of all
holders of options to purchase Common Shares, the number of such options
outstanding as of such date and the exercise price per option. All of the
outstanding shares of Common Shares have been duly authorized and validly issued
and are fully paid and nonassessable and free of preemptive rights. Except as
set forth in this Section 3.2 and in Section 3.2 of the Seller Disclosure
Schedule, there are no other options, warrants or other rights, convertible
debt, agreements, arrangements or commitments of any character obligating Seller
to issue or sell any shares of capital stock of or other equity interests in
Seller. Seller is not obligated to redeem, repurchase or otherwise reacquire any
of its capital stock or other securities.
(b) Seller does not directly or indirectly own or have a right to
acquire an equity interest in any corporation, partnership, joint venture or
other business association or entity.
Section 3.3 Authorization; Validity of Agreement; Necessary Action.
Seller has full corporate power and authority to execute and deliver this
Agreement, all agreements to which Seller is or will be a party that are
exhibits to this Agreement and the Management Agreement of even date herewith
between Buyer and Seller (the "Management Agreement") and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by Seller of this Agreement and such other agreements and the
consummation of the Merger and of the other transactions contemplated hereby and
thereby, have been duly authorized by the Board of Directors of Seller and no
other corporate or stockholder action on the part of Seller is necessary to
authorize the execution and delivery by Seller of this Agreement and such other
agreements and the consummation of the transactions contemplated hereby and
thereby (other than the approval of this Agreement and the Merger by the holders
of a majority of the outstanding shares of Seller capital stock entitled to vote
with respect thereto). This Agreement and such other agreements have been duly
executed and delivered by Seller and, assuming due and valid authorization,
execution and delivery hereof by the other parties thereto are valid and binding
obligations of Seller, enforceable against Seller in accordance with its terms.
Section 3.4 Consents and Approvals; No Violations. Except for the
filings or the consents, authorizations or approvals under the agreements set
forth in Section 3.4 of the Seller Disclosure Schedule and the filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Exchange Act of 1934 (the "Exchange
Act"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), state securities or blue sky laws, the DGCL and the filing and
recordation of a Certificate of Merger under the DGCL, neither the execution,
delivery or performance of this Agreement by Seller nor the consummation by
Seller of the transactions contemplated hereby nor compliance by Seller with any
of the provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or the bylaws of Seller, (ii)
require any filing with, or permit, authorization, consent or approval of any
court, arbitration tribunal, administrative agency or commission or other
governmental or other regulatory authority or agency, domestic or foreign (a
"Governmental Entity") on the part of Seller, (iii) require the
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March 5, 1998
consent of any person under, result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Seller is a party or by which Seller or any of its properties or assets may be
bound (the "Seller Specified Agreements"), the lack of which consent, or which
violation, breach or default, individually or in the aggregate, could reasonably
be expected to have a Seller Material Adverse Effect or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Seller, any
of its subsidiaries or any of their properties or assets.
Section 3.5 [RESERVED]
Section 3.6 Absence of Certain Changes. Since December 31, 1997,
except as contemplated by this Agreement, there has not been:
(a) any Seller Material Adverse Effect;
(b) any material damage, destruction or loss (whether or not covered by
insurance) with respect to any of the material assets of Seller;
(c) any issuance, redemption or acquisition of capital stock by Seller
or any declaration or payment of any dividend or other distribution in cash,
stock or property with respect to capital stock;
(d) any stock split, reverse stock split, combination, reclassification
or other similar action with respect to capital stock;
(e) any entry into any material commitment or transaction (including,
without limitation, any borrowing or capital expenditure) other than in the
ordinary course of business or as contemplated by this Agreement;
(f) any acquisition or disposition of rights (pursuant to license,
sublicense or otherwise) under or with respect to any patent, copyright,
trademark, tradename or other intellectual property right or registration
thereof or application therefor;
(g) any mortgage, pledge, security interest or imposition of lien or
other encumbrance on any material asset of Seller; or
(h) any change by Seller in accounting principles or methods except
insofar as may have been required by a change in generally accepted accounting
principles and disclosed in the Buyer Financial Statements (as defined in
Section 4.5 below).
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March 5, 1998
Except as set forth in Section 3.6 of the Seller Disclosure Schedule,
since December 31, 1997 Seller has conducted its business only in the ordinary
course and in a manner consistent with past practice and has not made any
material change in the conduct of its business or operations. Except as set
forth in Section 3.6 of the Seller Disclosure Schedule, no person has or will
have the right to receive any severance, bonus, other payment, increase or
change in benefits or vesting of stock options, shares or other benefits as a
result of any of the transactions contemplated by this Agreement.
Section 3.7 No Undisclosed Liabilities. Except as set forth in Section
3.7 of the Seller Disclosure Schedule, and except as reflected in the Buyer
Financial Statements, Seller has no liabilities of any nature (whether accrued,
absolute, contingent or otherwise), except those liabilities incurred in the
ordinary course of business which could not, individually or in the aggregate,
reasonably be expected to have a Seller Material Adverse Effect.
Section 3.8 Litigation. Except as disclosed in Section 3.8 of the
Seller Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Seller, threatened against Seller.
Except as disclosed in Section 3.8 of the Seller Disclosure Schedule, Seller is
not subject to any outstanding order, writ, injunction or decree.
Section 3.9 No Default; Compliance with Applicable Laws. The business
of Seller is not being conducted in default or violation of any term, condition
or provision of (i) its certificate of incorporation or bylaws, (ii) any Seller
Specified Agreement or (iii) any federal, state, local or foreign statute, law,
ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to Seller, excluding from the foregoing clauses (ii) and (iii),
defaults or violations which could not, individually or in the aggregate,
reasonably be expected to have a Seller Material Adverse Effect. As of the date
of this Agreement, no investigation or review by any Governmental Entity or
other entity with respect to Seller is pending or, to the knowledge of Seller,
threatened, nor has any Governmental Entity or other entity indicated an
intention to conduct the same. Seller has in effect all Federal, state, local
and foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Seller Permits") necessary
for it to own, lease or operate its properties and assets and to carry on its
business as now conducted, and there has occurred no default under any such
Seller Permit.
Section 3.10 Intellectual Property. Except as set forth in Section 3.10
of the Seller Disclosure Schedule, or as could not reasonably be expected to
have, individually or in the aggregate, a Seller Material Adverse Effect, Seller
owns or possesses adequate licenses or other valid rights to use all patents,
trademarks, trade names, copyrights, service marks, trade secrets, know-how and
other proprietary rights and information used or held for use in connection with
the business of Seller as currently conducted, and Seller is unaware of any
assertion or claim challenging the validity of any of the foregoing. Section
3.10 of the Seller Disclosure Schedule lists all material licenses, sublicenses
and other agreements to which Seller is a party and pursuant to which (i) any
third party is authorized to use any intellectual property right of Seller
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March 5, 1998
and (ii) Seller is authorized to use any intellectual property rights (other
than pursuant to shrink- wrap licenses and other software licenses) of a third
party, true and correct copies of which have been provided to Buyer and
Acquisition Subsidiary. The conduct of the business of Seller as currently
conducted does not conflict in any way with any patent, license, trademark, or
copyright of any third party. To the knowledge of Seller, there are no
infringements of any proprietary rights owned by or licensed by or to Seller
that could reasonably be expected to have, individually or in the aggregate, a
Seller Material Adverse Effect. Seller has taken reasonable security measures to
protect the confidentiality of its trade secrets. Except as set forth in Section
3.10 of the Seller Disclosure Schedule, all current and past employees or
consultants of Seller, who, either alone or in concert with others, developed,
invented, discovered, derived, programmed or designed such trade secrets, or who
have or had access to information disclosing such trade secrets, have entered
into confidentiality and non-disclosure agreements with Seller (the "Seller
Trade Secret Agreements"). Any exception which has been taken to the Trade
Secrets Agreements (for example an employee or consultant excluding a prior
invention) is described in Section 3.10 of the Seller Disclosure Schedule,
including the exception taken and the employee taking such exception. To the
knowledge of Seller, neither Seller, nor its employees or its consultants have
caused any of Seller's trade secrets to become part of the public knowledge or
literature, nor has Seller, its employees or consultants permitted any such
trade secrets to be used, divulged or appropriated for the benefit of persons to
the material detriment of Seller.
Section 3.11 Tax Returns and Payments. Except as set forth in Section
3.11 of the Seller Disclosure Schedule, all tax returns and reports with respect
to Seller required by law to be filed under the laws of any jurisdiction,
domestic or foreign, have been duly and timely filed and all taxes, fees or
other governmental charges of any nature which were required to have been paid
have been paid or provided for. Seller has no knowledge of any unpaid taxes or
any actual or threatened assessment of deficiency or additional tax or other
governmental charge or a basis for such a claim against Seller. Seller has no
knowledge of any tax audit of Seller by any taxing or other authority in
connection with any of its fiscal years; Seller has no knowledge of any such
audit currently pending or threatened, and Seller has no knowledge of any tax
liens on any of the properties of Seller.
Section 3.12 Certificate of Incorporation and Bylaws. Seller has
heretofore furnished to Buyer and Acquisition Subsidiary a complete and correct
copy of the certificate of incorporation and the bylaws, each as amended to the
date hereof, of Seller. Such certificate of incorporation and bylaws are in full
force and effect. Seller is not in violation of any of the provisions of its
certificate of incorporation or bylaws.
Section 3.13 Title to Property.
(a) Seller has good and marketable title, or valid leasehold rights in
the case of leased property, to all real property and all personal property
purported to be owned or leased by it, free and clear of all material liens,
security interests, claims, encumbrances and charges, excluding (i) immaterial
liens for fees, taxes, levies, imposts, duties or governmental tax of any
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March 5, 1998
kind which are not yet delinquent or are being contested in good faith by
appropriate proceedings which suspend the collection thereof, (ii) immaterial
liens for mechanics, materialmen, laborers, employees, suppliers or other liens
arising by operation of law for sums which are not yet delinquent or are being
contested in good faith by appropriate proceedings, (iii) purchase money liens
on office, computer and related equipment and supplies incurred in the ordinary
course of business, and (iv) liens or defects in title or leasehold rights that,
individually or in the aggregate, could not reasonably be expected to have a
Seller Material Adverse Effect.
(b) Consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation of, or require the consent of others under, any lease in which
Seller is a lessee, except for breaches or defaults which, individually, or in
the aggregate, could not reasonably be expected to have a Seller Material
Adverse Effect.
Section 3.14 Employee Benefits and Contracts.
(a) Section 3.14 of the Seller Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) maintained by Seller. Each of
such employee benefit plans complies in all material respects with applicable
requirements of ERISA or the Code of 1986 and no "reportable event" or
"prohibited transaction" (as such terms are defined in ERISA) has occurred with
respect to any such plan, and no termination, if it has occurred or were to
occur before the Effective Date, would present a risk of liability to any
Governmental Entity or other persons that would have a Seller Material Adverse
Effect.
(b) Seller has never maintained an employee benefit plan
subject to Section 412 of the Code or Title IV of ERISA. Each employee benefit
plan of Seller intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service
confirming such qualification. Seller has never had an obligation to contribute
to a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA. There are
no unfunded obligations under any employee benefit plan of Seller providing
benefits after termination of employment to any employee or former employee,
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980(B) of the Code. Each employee benefit plan of Seller may be amended
or terminated by Seller without the consent or approval of any other person.
There is no employee benefit plan, stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, or severance benefit plan of
Seller, any of the benefits of which will be increased or the vesting of the
benefits under which will be accelerated by the occurrence of any of the
transactions contemplated by this Agreement or the benefits under which will be
calculated on the basis of the transactions contemplated by this Agreement.
(c) Seller is not obligated to make any parachute payment, as
defined in Section 280G(b)(2) of the Code, nor will any parachute payment be
deemed to have occurred as a result of or arising out of any of the transactions
contemplated by this Agreement. Seller
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March 5, 1998
has no contract, agreement, obligation or arrangement with any employee or other
person, any of the benefits of which will be increased or the vesting of the
benefits under which will be accelerated by any change of control of Seller or
the occurrence of any of the transactions contemplated by this Agreement or the
benefits under which will be calculated on the basis of the transactions
contemplated by this Agreement.
Section 3.15 Employment; Labor Matters.
(a) Seller has delivered to Buyer true, complete and correct copies of
all employment agreements and all consulting agreements to which Seller is a
party.
(b) Except as set forth in Section 3.15 of the Seller Disclosure
Schedule (i) Seller is not a party to any outstanding employment agreements or
contracts with directors, officers, employees or consultants; (ii) Seller is not
a party to any agreement, policy or practice that requires it to pay termination
or severance pay to employees (other than as required by law); and (iii) Seller
is not a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by Seller, nor does Seller know of any
activities or proceedings of any labor union to organize any such employees.
Section 3.16 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Seller.
Section 3.17 Environmental Laws. Except as could not reasonably be
expected to have, individually or in the aggregate, a Seller Material Adverse
Effect: (i) Seller is in compliance with all applicable Environmental Laws (as
defined below); (ii) all past noncompliance, if any, of Seller with
Environmental Laws or Environmental Permits (as defined below) has been resolved
without any pending, ongoing or future obligation, cost or liability; and (iii)
Seller has not released or transported a Hazardous Material (as defined below),
in violation of any Environmental Law.
For purposes of this Agreement:
(a) "Environmental Law" shall mean any law and any enforceable
judicial or administrative interpretation thereof, including any 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 Material, as in effect as
of the date hereof.
(b) "Environmental Permit" shall mean any permit, approval,
identification number, license or other authorization required under or issued
pursuant to any applicable Environmental Law.
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March 5, 1998
(c) "Hazardous Material" shall mean any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
government authority, any state or the United State Government.
Section 3.18 Insurance. Section 3.18 of the Seller Disclosure
Schedule sets forth a true and complete list of all insurance policies in force
at the date hereof, with respect to the assets, properties or operations of
Seller. True and complete copies of all such insurance policies have been made
available to Buyer and Acquisition Subsidiary by Seller. Such policies are in
full force and effect.
Section 3.19 Contracts and Commitments.
(a) Except as disclosed in Section 3.10, 3.15 or 3.19 of the Seller
Disclosure Schedule, Seller is not a party or subject to:
(i) any plan, contract or arrangement, written or oral, which
requires aggregate payments by Seller in excess of $50,000 per year or
which provides for bonuses, pensions, deferred compensation, severance
pay or benefits, retirement payments, profit-sharing, or the like;
(ii) any joint marketing, joint development or joint venture
contract or arrangement or any other agreement which has involved or is
expected to involve a sharing of profits with other persons;
(iii) any lease for real or personal property in which the
amount of payments which Seller is required to make on an annual basis
exceeds $50,000;
(iv) any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession, arrangement,
commitment or authorization which may be, by its terms, terminated or
breached by reason of the execution of this Agreement, the Merger, or
the consummation of the transactions contemplated hereby or thereby;
(v) except for trade indebtedness incurred in the ordinary
course of business, any instrument evidencing or related in any way to
indebtedness in excess of $50,000 incurred in the acquisition of
companies or other entities or indebtedness in excess of $50,000 for
borrowed money by way of direct loan, sale of debt securities, purchase
money obligation, conditional sale, guarantee, indemnification or
otherwise;
(vi) any contract containing covenants purporting to limit
Seller's freedom to compete in any line of business or in any
geographic area or with any third party,
(vii) any agreement, contract or commitment relating to
capital expenditures and involving future obligations in excess of
$50,000; or
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March 5, 1998
(viii) any other agreement, contract or commitment which is
material to Seller taken as a whole.
(b) Except as disclosed in Section 3.19 of the Seller Disclosure
Schedule, each agreement, contract, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license and commitment
listed in Section 3.19 of the Seller Disclosure Schedule is valid and binding on
Seller and the other party(ies) thereto, is in full force and effect, and
neither Seller, nor to the knowledge of Seller any other party thereto, has
breached any material provision of, or is in material default under the terms
of, any such agreement, contract, mortgage, indenture, plan, lease, instrument,
permit, concession, franchise, arrangement, license or commitment.
(c) There is no agreement, judgment, injunction, order or decree
binding upon Seller which has or could reasonably be expected to have the effect
of prohibiting or materially impairing any current business practice of Seller,
any acquisition of property by Seller or the conduct of business by Seller as
currently conducted or as proposed to be conducted by Seller.
Section 3.20 Interests of Officers and Directors. To Seller's
knowledge, except as set forth in Section 3.20 of the Seller Disclosure
Schedule, no officer or director of Seller has had, either directly or
indirectly, a material interest in: (i) any person or entity which purchases
from or sells, licenses or furnishes to Seller any goods, property rights or
services; (ii) except for the employment or consulting contracts listed in
Section 3.15 of the Seller Disclosure Schedule, any contract or agreement to
which Seller is a party or by which it may be bound or affected; or (iii) any
property, real or personal, tangible or intangible, used in or pertaining to its
business.
Section 3.21 Questionable Payments. Neither Seller nor to its knowledge
any director, officer, agent or other employee of Seller has: (i) made any
payments or provided services or other favors in the United States of America or
in any foreign country in order to obtain preferential treatment or
consideration by any Governmental Entity with respect to any aspect of the
business of Seller; or (ii) made any political contributions which would not be
lawful under the laws of the United States or the foreign country in which such
payments were made. Neither Seller nor to its knowledge any director, officer,
agent or other employee of Seller has been the subject of any inquiry or
investigation by any Governmental Entity in connection with payments or benefits
or other favors to or for the benefit of any governmental or armed services
official, agent, representative or employee with respect to any aspect of the
business of Seller or with respect to any political contribution.
Section 3.22 Certain Tax Matters. Neither Seller nor, to the knowledge
of Seller, any of its affiliates has taken or agreed to take any action that
could be expected to prevent the Merger from constituting a transaction
qualifying under Section 368 of the Code. Seller is not aware of any agreement,
plan or other circumstances that could reasonably be expected to prevent the
Merger from so qualifying under Section 368 of the Code.
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March 5, 1998
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF BUYER AND ACQUISITION SUBSIDIARY
Buyer and Acquisition Subsidiary represent and warrant to Seller as
follows:
Section 4.1 Organization.
(a) Except as set forth in Section 4.1 of the disclosure schedule
delivered to Seller on or before the date hereof (the "Buyer Disclosure
Schedule"), each of Buyer and Acquisition Subsidiary (which is the only
subsidiary of Buyer other than Seller) 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 and any
necessary governmental authority to own, operate or lease the properties that it
purports to own, operate or lease and to carry on its business as it is now
being conducted, and, except as set forth in Section 4.1 of the Buyer Disclosure
Schedule, is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned,
operated or leased or the nature of its activities makes such qualification
necessary, except for such failure which, when taken together with all other
such failures, would not have a Buyer Material Adverse Effect (as defined below
in Section 4.1(b)).
(b) The term "Buyer Material Adverse Effect" means any individual
material adverse effect, or adverse effects which in the aggregate (whether or
not related and whether or not any individual effect is material) have a
material adverse effect, on the business, operations, properties (including
intangible properties), condition (financial or otherwise), assets or
liabilities of Buyer and its subsidiaries taken as a whole or that could
reasonably be expected to prevent or materially delay the consummation of the
Merger.
(c) For purposes of this Article 4 and Article 5, Acute shall not be
considered to be a subsidiary of Buyer.
Section 4.2 Capitalization.
(a) Capitalization. The authorized capital stock of Buyer consists of
20,000,000 shares of Buyer Common Stock, par value $0.001 per share, and
5,000,000 shares of Preferred Stock, par value $0.001 per share, of which
2,420,282 are designated Series B Convertible Preferred Stock (the "Series B
Preferred Stock"). As of December 31, 1997, (i) 3,176,065 shares of Buyer Common
Stock were issued and outstanding, (ii) 2,200,256 shares of Series B Preferred
Stock were issued and outstanding and were convertible into 3,424,980 shares of
Buyer Common Stock, (iii) 115,491 shares of Buyer Common Stock were held in the
treasury of the Buyer, (iv) 253,535 shares of Buyer Common Stock were reserved
for issuance upon exercise of outstanding options issued under the 1996 Stock
Option Plan of Discovery Laboratories, Inc., a former Delaware corporation ("Old
Discovery") and outside such plan and assumed by Buyer,
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March 5, 1998
(v) an aggregate of 116,162 shares of Buyer Common Stock were reserved for
issuance under stock options granted pursuant to Buyer's 1993 and 1995 Stock
Option Plans (the "Buyer Option Plans"), (vi) an aggregate of 2,297 shares of
Buyer Common Stock were reserved for issuance under stock options granted by
Buyer outside the Buyer Option Plans, (vii) an aggregate of 2,055,624 shares of
Buyer Common Stock were reserved for issuance under outstanding warrants as more
fully described in Section 4.2 of the Buyer Disclosure Schedule, (viii) 342,499
shares of Buyer Common Stock were reserved for issuance upon conversion of the
220,026 shares of Series B Preferred Stock issuable upon the exercise of
outstanding warrants, and (ix) 173,333 shares of Buyer Common Stock were
reserved for issuance upon exercise of Buyer's outstanding unit purchase option
(including warrants issuable upon the exercise of such unit purchase option).
Section 4.2 of the Buyer Disclosure Schedule sets forth a true and correct list
as of December 31, 1997 of all holders of options to purchase shares of Buyer
Common Stock, the number of such options outstanding as of such date and the
exercise price per option. All of the outstanding shares of Buyer Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights. Except as set forth in this Section
4.2 and Section 4.2 of the Buyer Disclosure Schedule, there are no other
options, warrants or other rights, convertible debt, agreements, arrangements or
commitments of any character obligating Buyer or Acquisition Subsidiary to issue
or sell any shares of capital stock of or other equity interests in Buyer or
Acquisition Subsidiary other than Buyer's obligation to reset the conversion
price applicable to the Series B Preferred Stock under the circumstances
described in Buyer's Restated Certificate of Incorporation. Buyer is not
obligated to redeem, repurchase or otherwise reacquire any of its capital stock
or other securities.
(b) Except as set forth in Section 4.2 of the Buyer Disclosure
Schedule, all of the outstanding shares of the capital stock of Acquisition
Subsidiary are beneficially owned by Buyer, directly or indirectly, and all such
shares have been duly authorized, validly issued and are fully paid and
nonassessable and are owned by either Buyer or one of its subsidiaries free and
clear of all liens, security interests, charges, claims or encumbrances of any
nature whatsoever. There are no existing options, calls or commitments of any
character relating to the issued or unissued capital stock or other securities
of Acquisition Subsidiary. Except as set forth in Section 4.2 of the Buyer
Disclosure Schedule, Buyer does not directly or indirectly own or have a right
to acquire an equity interest in any corporation, partnership, joint venture or
other business association or entity.
Section 4.3 Authorization; Validity of Agreement; Necessary Action.
Each of Buyer and Acquisition Subsidiary has full corporate power and authority
to execute and deliver this Agreement and all agreements to which Buyer and
Acquisition Subsidiary is or will be a party that are exhibits to this
Agreement, including the Employment Agreements (as defined in Section 6.2
herein), and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by Buyer and Acquisition Subsidiary of this
Agreement, and the consummation of the Merger and of the other transactions
contemplated hereby and thereby, have been duly authorized by the Boards of
Directors of Buyer and Acquisition Subsidiary, as the case may be, and no other
corporate or stockholder action on the part of Buyer and Acquisition Subsidiary
is necessary to authorize the execution and delivery by Buyer
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March 5, 1998
or Acquisition Subsidiary of this Agreement and the consummation of the
transactions contemplated hereby and thereby (other than the approval of this
Agreement and the Merger by the holders of a majority of the outstanding shares
(on an as-converted basis) of Buyer capital stock entitled to vote with respect
thereto). This Agreement has been duly executed and delivered by Buyer and
Acquisition Subsidiary and assuming due and valid authorization, execution and
delivery hereof by Seller, is a valid and binding obligation of Buyer and
Acquisition Subsidiary, as the case may be, enforceable against Buyer and
Acquisition Subsidiary in accordance with their respective terms.
Section 4.4 Consents and Approvals; No Violations. Except for the
filings or the consents, authorizations or approvals under the agreements set
forth in Section 4.4 of the Buyer Disclosure Schedule and the filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act, the HSR Act, state securities or
blue sky laws, the DGCL and the filing and recordation of a Certificate of
Merger under the DGCL, neither the execution, delivery or performance of this
Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby nor compliance by Buyer with any of the provisions hereof
will (i) conflict with or result in any breach of any provision of the
certificate of incorporation or the bylaws of Buyer or Acquisition Subsidiary,
(ii) require any filing with, or permit, authorization, consent or approval of,
a Governmental Entity, on the part of Buyer or Acquisition Subsidiary, (iii)
require the consent of any person under, result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which Buyer or Acquisition Subsidiary is a party or by which any of them or
any of their properties or assets may be bound (the "Buyer Specified
Agreements"), the lack of which consent, or which violation, breach or default,
individually or in the aggregate, could reasonably be expected to have a Buyer
Material Adverse Effect, or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Buyer, Acquisition Subsidiary or any
of their properties or assets.
Section 4.5 SEC Reports and Financial Statements.
(a) Buyer has timely filed with the Securities and Exchange Commission
(the "SEC"), and has delivered to Seller, true and complete copies of, all
forms, reports, schedules, statements and other documents required to be filed
by it since January 1, 1996, under the Securities Act of 1933, as amended, or
the Exchange Act (collectively, the "SEC Documents"). Except as set forth in
Section 4.5 of the Buyer Disclosure Schedule, the SEC Documents (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, including without limitation the applicable
accounting requirements thereunder and the published rules and regulations of
the SEC with respect thereto, (ii) when filed, did not 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 the
light of the circumstances under which they were made, not misleading, and (iii)
taken as a whole, do not contain any
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March 5, 1998
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 the
light of the circumstances under which they were made, not misleading.
Acquisition Subsidiary is not required to file any statements or reports with
the SEC pursuant to Sections 13(a) or 15(d) of the Exchange Act.
(b) Except as set forth in Section 4.5 of the Buyer Disclosure
Schedule, the consolidated financial statements of Buyer contained in the SEC
Documents (the "Buyer Financial Statements"), have been prepared in accordance
with United States generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the financial position and the results of
operations and cash flows (and changes in financial position, if any) of Buyer
and Acquisition Subsidiary as of the respective dates and for the respective
periods thereof, except that the unaudited interim quarterly financial
statements were or are subject to normal and recurring year-end adjustments
which were or are not expected to be material in amount and did not or may not
have included footnote disclosure that would otherwise be required by GAAP.
Except as set forth in Section 4.5 of the Buyer Disclosure Schedule, Buyer is
not aware of any facts or circumstances which would require Buyer to amend or
restate any of the SEC Documents, including without limitation the financial
information included therein.
Section 4.6 Absence of Certain Changes. Since December 31, 1997, except
as contemplated by this Agreement or set forth in Section 4.6 of the Buyer
Disclosure Schedule, there has not been:
(a) any Buyer Material Adverse Effect;
(b) any material damage, destruction or loss (whether or not covered by
insurance) with respect to any of the material assets of Buyer or Acquisition
Subsidiary;
(c) any issuance, redemption or acquisition of capital stock by Buyer
or Acquisition Subsidiary or any declaration or payment of any dividend or other
distribution in cash, stock or property with respect to capital stock;
(d) any stock split, reverse stock split, combination, reclassification
or other similar action with respect to capital stock;
(e) any entry into any material commitment or transaction (including,
without limitation, any borrowing or capital expenditure) other than in the
ordinary course of business or as contemplated by this Agreement;
(f) any acquisition or disposition of rights (pursuant to license,
sublicense or otherwise) under or with respect to any patent, copyright,
trademark, tradename or other intellectual property right or registration
thereof or application therefor;
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March 5, 1998
(g) any mortgage, pledge, security interest or imposition of lien or
other encumbrance on any material asset of Buyer or Acquisition Subsidiary; or
(h) any change by Buyer in accounting principles or methods except
insofar as may have been required by a change in generally accepted accounting
principles and disclosed in the SEC Documents.
Except as set forth in Section 4.6 of the Buyer Disclosure Schedule,
since December 31, 1997, Buyer and its subsidiaries have conducted their
business only in the ordinary course and in a manner consistent with past
practice and have not made any material change in the conduct of the business or
operations of Buyer and Acquisition Subsidiary taken as a whole. Except as set
forth in Section 4.14(b) of the Buyer Disclosure Schedule, no person has or will
have the right to receive any severance, bonus, other payment, increase or
change in benefits or vesting of stock options, shares or other benefits as a
result of any of the transactions contemplated by this Agreement.
Section 4.7 No Undisclosed Liabilities. Except as set forth in Section
4.7 of the Buyer Disclosure Schedule, and except as reflected in the Buyer
Financial Statements contained in the SEC Documents, Buyer and Acquisition
Subsidiary have no liabilities of any nature (whether accrued, absolute,
contingent or otherwise), except those liabilities incurred in the ordinary
course of business which could not, individually or in the aggregate, reasonably
be expected to have a Buyer Material Adverse Effect.
Section 4.8 Litigation. Except as disclosed in the SEC Documents or in
Section 4.8 of the Buyer Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of Buyer, threatened
against Buyer. Except as disclosed in the SEC Documents or in Section 4.8 of the
Buyer Disclosure Schedule, neither Buyer nor Acquisition Subsidiary is subject
to any outstanding order, writ, injunction or decree.
Section 4.9 No Default; Compliance with Applicable Laws. Except as
disclosed in Section 4.9 of the Buyer Disclosure Schedule, the business of each
of Buyer and Acquisition Subsidiary is not being conducted in default or
violation of any term, condition or provision of (i) its certificate of
incorporation or bylaws, (ii) any Buyer Specified Agreement or (iii) any
federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to Buyer or Acquisition
Subsidiary, excluding from the foregoing clauses (ii) and (iii), defaults or
violations which could not, individually or in the aggregate, reasonably be
expected to have a Buyer Material Adverse Effect. Except as disclosed in Section
4.9 of the Buyer Disclosure Schedule, as of the date of this Agreement, no
investigation or review by any Governmental Entity or other entity with respect
to Buyer or Acquisition Subsidiary is pending or, to the knowledge of Buyer,
threatened, nor has any Governmental Entity or other entity indicated an
intention to conduct the same. Each of Buyer and Acquisition Subsidiary has in
effect all Federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights ("Buyer Permits") necessary for it to
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March 5, 1998
own, lease or operate its properties and assets and to carry on its business as
now conducted, and there has occurred no default under any such Buyer Permit.
Section 4.10 Intellectual Property. Except as set forth in Section 4.10
of the Buyer Disclosure Schedule, or as could not reasonably be expected to
have, individually or in the aggregate, a Buyer Material Adverse Effect, Buyer
and its subsidiaries own or possess adequate licenses or other valid rights to
use all patents, trademarks, trade names, copyrights, service marks, trade
secrets, know-how and other proprietary rights and information used or held for
use in connection with the business of Buyer and its subsidiaries as currently
conducted, and Buyer is unaware of any assertion or claim challenging the
validity of any of the foregoing. Section 4.10 of the Buyer Disclosure Schedule
lists all material licenses, sublicenses and other agreements to which the Buyer
or Acquisition Subsidiary is a party and pursuant to which (i) any third party
is authorized to use any intellectual property right of the Buyer or Acquisition
Subsidiary and (ii) Buyer or its subsidiaries are authorized to use any
intellectual property rights (other than pursuant to shrink-wrap licenses and
other software licenses) of a third party, true and correct copies of which have
been provided to Seller. Except as set forth in Section 4.10 of the Buyer
Disclosure Schedule, the conduct of the business of Buyer and its subsidiaries
as currently conducted does not conflict in any way with any patent, license or
copyright of any third party. To the knowledge of Buyer, except as set forth in
Section 4.10 of the Buyer Disclosure Schedule, there are no infringements of any
proprietary rights owned by or licensed by or to Buyer or Acquisition Subsidiary
that could reasonably be expected to have, individually or in the aggregate, a
Buyer Material Adverse Effect. Buyer has taken reasonable security measures to
protect the confidentiality of its trade secrets. All current and past employees
or consultants of Buyer, who, either alone or in concert with others, developed,
invented, discovered, derived, programmed or designed such trade secrets, or who
have or had access to information disclosing such trade secrets, have entered
into confidentiality and non-disclosure agreements with Buyer (the "Buyer Trade
Secret Agreements"). Any exception which has been taken to the Buyer Trade
Secrets Agreements (for example an employee or consultant excluding a prior
invention) is described in Section 4.10 of the Buyer Disclosure Schedule,
including the exception taken and the employee taking such exception. To the
knowledge of Buyer, neither Buyer, nor its employees or its consultants have
caused any of Buyer's trade secrets to become part of the public knowledge or
literature, nor has Buyer, its employees or consultants permitted any such trade
secrets to be used, divulged or appropriated for the benefit of persons to the
material detriment of Buyer.
Section 4.11 Tax Returns and Payments. All tax returns and reports with
respect to Buyer or Acquisition Subsidiary required by law to be filed under the
laws of any jurisdiction, domestic or foreign, have been duly and timely filed
and all taxes, fees or other governmental charges of any nature which were
required to have been paid have been paid or provided for. Buyer and Acquisition
Subsidiary have no knowledge of any unpaid taxes or any actual or threatened
assessment of deficiency or additional tax or other governmental charge or a
basis for such a claim against Buyer or Acquisition Subsidiary. Buyer and
Acquisition Subsidiary have no knowledge of any tax audit of Buyer or
Acquisition Subsidiary by any taxing or other authority in connection with any
of its fiscal years; Buyer and Acquisition Subsidiary have no
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March 5, 1998
knowledge of any such audit currently pending or threatened, and Buyer and
Acquisition Subsidiary have no knowledge of any tax liens on any of the
properties of Buyer or Acquisition Subsidiary.
Section 4.12 Certificate of Incorporation and Bylaws. Buyer and
Acquisition Subsidiary have heretofore furnished to Seller a complete and
correct copy of the certificate of incorporation and the bylaws, each as amended
to the date hereof, of Buyer and Acquisition Subsidiary. Such certificate of
incorporation and bylaws are in full force and effect. Neither Buyer nor
Acquisition Subsidiary is in violation of any of the provisions of its
certificate of incorporation.
Section 4.13 Title to Property.
(a) Except as disclosed in Section 4.13 to the Buyer Disclosure
Schedule, Buyer and Acquisition Subsidiary has good and marketable title, or
valid leasehold rights in the case of leased property, to all real property and
all personal property purported to be owned or leased by them, free and clear of
all material liens, security interests, claims, encumbrances and charges,
excluding (i) immaterial liens for fees, taxes, levies, imposts, duties or
governmental tax of any kind which are not yet delinquent or are being contested
in good faith by appropriate proceedings which suspend the collection thereof,
(ii) immaterial liens for mechanics, materialmen, laborers, employees, suppliers
or other liens arising by operation of law for sums which are not yet delinquent
or are being contested in good faith by appropriate proceedings, (iii) purchase
money liens on office, computer and related equipment and supplies incurred in
the ordinary course of business, and (iv) liens or defects in title or leasehold
rights that, individually or in the aggregate, could not reasonably be expected
to have a Buyer Material Adverse Effect.
(b) Except as set forth in Section 4.13(b) of the Buyer Disclosure
Schedule, consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation of, or require the consent of others under, any lease in which
Buyer or Acquisition Subsidiary is a lessee, except for breaches or defaults
which, individually or in the aggregate, could not reasonably be expected to
have a Buyer Material Adverse Effect.
Section 4.14 Employee Benefits and Contracts.
(a) Section 4.14 of the Buyer Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of the ERISA) maintained by
Buyer and Acquisition Subsidiary. Each of such employee benefit plans complies
in all material respects with applicable requirements of ERISA or the Internal
Revenue Code of 1986, as amended (the "Code") and no "reportable event" or
"prohibited transaction" (as such terms are defined in ERISA) has occurred with
respect to any such plan, and no termination, if it has occurred or were to
occur before the Effective Date, would present a risk of liability to any
Governmental Entity or other persons that would have a Buyer Material Adverse
Effect.
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March 5, 1998
(b) Buyer and Acquisition Subsidiary has never maintained an
employee benefit plan subject to Section 412 of the Code or Title IV of ERISA.
Each employee benefit plan of Buyer or Acquisition Subsidiary intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service confirming such
qualification. Neither Buyer nor Acquisition Subsidiary has ever had an
obligation to contribute to a "multi-employer plan" as defined in Section
4001(a)(3) of ERISA. There are no unfunded obligations under any employee
benefit plan of Buyer or Acquisition Subsidiary providing benefits after
termination of employment to any employee or former employee, including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under Section 4980(B)
of the Code. Each employee benefit plan of Buyer or Acquisition Subsidiary may
be amended or terminated by Buyer or Acquisition Subsidiary without the consent
or approval of any other person. There is no employee benefit plan, stock option
plan, stock appreciation right plan, restricted stock plan, stock purchase plan,
or severance benefit plan of Buyer or Acquisition Subsidiary, any of the
benefits of which will be increased or the vesting of the benefits under which
will be accelerated by the occurrence of any of the transactions contemplated by
this Agreement or the benefits under which will be calculated on the basis of
the transactions contemplated by this Agreement, except as set forth in Section
4.14(b) of the Buyer Disclosure Schedule.
(c) Neither Buyer nor Acquisition Subsidiary is obligated to
make any parachute payment, as defined in Section 280G(b)(2) of the Code, nor
will any parachute payment be deemed to have occurred as a result of or arising
out of any of the transactions contemplated by this Agreement. Neither Buyer nor
Acquisition Subsidiary has any contract, agreement, obligation or arrangement
with any employee or other person, any of the benefits of which will be
increased or the vesting of the benefits under which will be accelerated by any
change of control of Buyer or Acquisition Subsidiary or the occurrence of any of
the transactions contemplated by this Agreement or the benefits under which will
be calculated on the basis of the transactions contemplated by this Agreement
except as set forth in Section 4.14(b) of the Buyer Disclosure Schedule.
Section 4.15 Employment; Labor Matters.
(a) Buyer has delivered to Seller true, complete and correct copies of
all employment agreements and all consulting agreements to which Buyer or
Acquisition Subsidiary is a party.
(b) Except as set forth in Section 4.15 of the Buyer Disclosure
Schedule (i) neither Buyer nor Acquisition Subsidiary is a party to any
outstanding employment agreements or contracts with directors, officers,
employees or consultants; (ii) neither Buyer nor Acquisition Subsidiary is a
party to any agreement, policy or practice that requires it to pay termination
or severance pay to employees (other than as required by law); and (iii) neither
Buyer nor Acquisition Subsidiary is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by Buyer
or Acquisition Subsidiary, nor does Buyer or Acquisition Subsidiary know of any
activities or proceedings of any labor union to organize any such employees.
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March 5, 1998
Section 4.16 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by and on behalf of Buyer or Acquisition Subsidiary.
Section 4.17 Environmental Laws. Except as disclosed in Section 4.17 of
the Buyer Disclosure Schedule or as could not reasonably be expected to have,
individually or in the aggregate, a Buyer Material Adverse Effect: (i) Buyer and
Acquisition Subsidiary is in compliance with all applicable Environmental Laws;
(ii) all past noncompliance, if any, of Buyer or Acquisition Subsidiary with
Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future obligation, cost or liability; and (iii) neither
Buyer nor Acquisition Subsidiary has released or transported a Hazardous
Material, in violation of any Environmental Law.
Section 4.18 Insurance. Section 4.18 of the Buyer Disclosure
Schedule sets forth a true and complete list of all insurance policies in force
at the date hereof, with respect to the assets, properties or operations of each
of Buyer and Acquisition Subsidiary. True and complete copies of all such
insurance policies have been made available to Seller by Buyer. Such policies
will not be terminated as a result of the Merger, subject to payment of
applicable premiums. Such policies also are in full force and effect.
Section 4.19 Contracts and Commitments.
(a) Except as disclosed in Section 4.10, 4.15 or 4.19 of the Buyer
Disclosure Schedule, neither Buyer nor Acquisition Subsidiary is a party or
subject to:
(i) any plan, contract or arrangement, written or oral, which
requires aggregate payments by Buyer or Acquisition Subsidiary in
excess of $50,000 per year or which provides for bonuses, pensions,
deferred compensation, severance pay or benefits, retirement payments,
profit-sharing, or the like;
(ii) any joint marketing, joint development or joint venture
contract or arrangement or any other agreement which has involved or is
expected to involve a sharing of profits with other persons;
(iii) any lease for real or personal property in which the
amount of payments which Buyer or Acquisition Subsidiary is required to
make on an annual basis exceeds $50,000;
(iv) any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession, arrangement,
commitment or authorization which may be, by its terms, terminated or
breached by reason of the execution of this Agreement, the Merger, or
the consummation of the transactions contemplated hereby or thereby;
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March 5, 1998
(v) except for trade indebtedness incurred in the ordinary
course of business, any instrument evidencing or related in any way to
indebtedness in excess of $50,000 incurred in the acquisition of
companies or other entities or indebtedness in excess of $50,000 for
borrowed money by way of direct loan, sale of debt securities, purchase
money obligation, conditional sale, guarantee, indemnification or
otherwise;
(vi) any contract containing covenants purporting to limit
Buyer's or Acquisition Subsidiary's freedom to compete in any line of
business or in any geographic area or with any third party,
(vii) any agreement, contract or commitment relating to
capital expenditures and involving future obligations in excess of
$50,000; or
(viii) any other agreement, contract or commitment which is
material to Buyer and Acquisition Subsidiary taken as a whole.
(b) Except as disclosed in Section 4.19 of the Buyer Disclosure
Schedule, each agreement, contract, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license and commitment
listed in Section 4.19 of the Buyer Disclosure Schedule is valid and binding on
Buyer or Acquisition Subsidiary and the other party(ies) thereto, as applicable,
and assuming due and valid authorization, execution and delivery by all counter
parties, is in full force and effect, and neither Buyer, Acquisition Subsidiary,
nor to the knowledge of Buyer any other party thereto, has breached any material
provision of, or is in material default under the terms of, any such agreement,
contract, mortgage, indenture, plan, lease, instrument, permit, concession,
franchise, arrangement, license or commitment.
(c) There is no agreement, judgment, injunction, order or decree
binding upon the Buyer or Acquisition Subsidiary which has or could reasonably
be expected to have the effect of prohibiting or materially impairing any
current business practice of Buyer or Acquisition Subsidiary, any acquisition of
property by Buyer or Acquisition Subsidiary or the conduct of business by Buyer
or Acquisition Subsidiary as currently conducted or as proposed to be conducted
by Buyer or Acquisition Subsidiary.
Section 4.20 Interests of Officers and Directors. To Buyer's knowledge,
except as set forth in Section 4.20 of the Buyer Disclosure Schedule, no officer
or director of Buyer or Acquisition Subsidiary has had, either directly or
indirectly, a material interest in: (i) any person or entity which purchases
from or sells, licenses or furnishes to Buyer or Acquisition Subsidiary any
goods, property rights or services; (ii) except for the contracts listed in
Section 4.15 of the Buyer Disclosure Schedule, any contract or agreement to
which Buyer or Acquisition Subsidiary is a party or by which it may be bound or
affected; or (iii) any property, real or personal, tangible or intangible, used
in or pertaining to its business or that of Acquisition Subsidiary.
Section 4.21 Questionable Payments. Neither Buyer nor Acquisition
Subsidiary nor to its knowledge any director, officer, agent or other employee
of Buyer or Acquisition Subsidiary
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March 5, 1998
has: (i) made any payments or provided services or other favors in the United
States of America or in any foreign country in order to obtain preferential
treatment or consideration by any Governmental Entity with respect to any aspect
of the business of Buyer or Acquisition Subsidiary; or (ii) made any political
contributions which would not be lawful under the laws of the United States or
the foreign country in which such payments were made. Neither Buyer nor
Acquisition Subsidiary nor to its knowledge any director, officer, agent or
other employee of Buyer or Acquisition Subsidiary has been the subject of any
inquiry or investigation by any Governmental Entity in connection with payments
or benefits or other favors to or for the benefit of any governmental or armed
services official, agent, representative or employee with respect to any aspect
of the business of Buyer or Acquisition Subsidiary or with respect to any
political contribution.
Section 4.22 Certain Tax Matters. Except as disclosed in Section 4.22
of the Buyer Disclosure Schedule, neither Buyer nor, to the knowledge of Buyer,
any of its affiliates has taken or agreed to take any action that could be
expected to prevent the Merger from constituting a transaction qualifying under
Section 368 of the Code. Buyer is not aware of any agreement, plan or other
circumstances that could reasonably be expected to prevent the Merger from so
qualifying under Section 368 of the Code.
Section 4.23 No Prior Activities. Except for obligations or liabilities
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and the transactions contemplated hereby
(including any financing), Acquisition Subsidiary has not incurred any
obligations or liabilities, and has not engaged in any business or activities of
any type or kind whatsoever or entered into any agreements or arrangements with
any person or entity. Acquisition Subsidiary is a wholly-owned subsidiary of
Buyer.
ARTICLE 5
COVENANTS
Section 5.1 Interim Operations of Seller and Buyer. Seller and Buyer
each hereby covenants and agrees with the other that, except (i) as expressly
contemplated by this Agreement, (ii) as set forth in Section 5.1 of the Seller
Disclosure Schedule, (iii) as set forth in Section 5.1 of the Buyer Disclosure
Schedule or (iv) as agreed in writing by Seller and Buyer, after the execution
and delivery of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time:
(a) the business of such party and its subsidiaries shall be conducted
only in the ordinary and usual course and, to the extent consistent therewith,
each party and its subsidiaries shall use its reasonable commercial efforts to
preserve its business organization intact and maintain its existing relations
with customers, suppliers, employees, creditors and business partners;
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March 5, 1998
(b) each such party shall not, directly or indirectly, amend its or any
of its subsidiaries' certificate of incorporation or bylaws or similar
organizational documents;
(c) each such party shall not, and it shall not permit its subsidiaries
to: (i)(A) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to such party's capital stock or that of
its subsidiaries, or (B) redeem, purchase or otherwise acquire directly or
indirectly any of such party's capital stock (or options, warrants, calls,
commitments or rights of any kind to acquire any shares of capital stock) or
that of its subsidiaries; (ii) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, capital
stock of any class of such party or its subsidiaries, other than Common Shares
or Buyer Common Stock issuable upon the exercise of options and warrants
outstanding on the date hereof and described in Section 3.2 of this Agreement or
the Seller Disclosure Schedule or Section 4.2 of this Agreement or the Buyer
Disclosure Schedule; (iii) split, combine or reclassify the outstanding capital
stock of such party or of its subsidiaries; or (iv) amend or otherwise modify
the terms of any rights, warrants or options with respect to such party or of
its subsidiary's capital stock;
(d) each such party shall not, and it shall not permit its subsidiaries
to, acquire or agree to acquire, or dispose of or agree to dispose of, any
material assets, either by purchase, merger, consolidation, sale of shares in
any of its subsidiaries or otherwise, other than in the ordinary course of
business;
(e) each such party shall not, and it shall not permit its subsidiaries
to, transfer, lease, license, sell, mortgage, pledge or encumber any assets;
(f) except as contemplated by Section 4.14(b), neither such party nor
its subsidiaries shall: (i) grant any increase in the compensation payable to
any of its officers, directors or key employees; or (ii)(A) adopt any new, or
(B) except as contemplated by Section 2.5, amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become payable
under any existing, bonus, incentive compensation, deferred compensation,
severance, profit sharing, stock option, stock purchase, insurance, pension,
retirement or other employee benefit plan, agreement or arrangement; or (iii)
enter into or modify or amend any employment or severance agreement with or,
except as required by applicable law, grant any severance or termination pay to
any officer, director or employee of Seller or any of its subsidiaries; or (iv)
enter into any collective bargaining agreement;
(g) neither such party nor any of its subsidiaries shall, without the
other party's prior written consent, which consent shall not be unreasonably
withheld, modify, amend or terminate any of its contracts or waive, release or
assign any rights or claims;
(h) neither such party nor any of its subsidiaries shall: (i) incur or
assume any indebtedness for money borrowed; (ii) modify any such indebtedness or
other liability; (iii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly,
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March 5, 1998
contingently or otherwise) for the obligations of any other person, other than
immaterial amounts in the ordinary course of business consistent with past
practice and other than for any subsidiary; (iv) make any loans, advances or
capital contributions to, or investments in, any other person (other than to
wholly-owned subsidiaries of such party); (v) change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for the year ended
December 31, 1997, or (vi) enter into any material commitment or transaction
except as contemplated by this Agreement;
(i) neither such party nor any of its subsidiaries shall change any of
the accounting methods, practices or policies used by it unless required by a
change in GAAP;
(j) such party shall not, and it shall not permit its subsidiaries to,
make or agree to make any new capital expenditures in excess of $10,000 in the
aggregate;
(k) such party shall not, and it shall not permit its subsidiaries to,
make any tax election (unless required by law) or settle or compromise any
income tax liability; and
(l) neither party nor any of its subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
Section 5.2 Access; Confidentiality. Each of Seller and Buyer shall
(and Buyer shall cause each of its subsidiaries to) (a) afford to the officers,
employees, accountants, counsel and other representatives of Seller and Buyer,
as the case may be, reasonable access to and the right to inspect and observe,
during normal business hours during the period prior to the Effective Time, its
personnel, accountants, representatives, properties, books, contracts, insurance
policies, commitments and records, offices, plants and other facilities, (b)
make available promptly to Seller or Buyer, as the case may be (i) a copy of
each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws, if applicable and (ii) all other information concerning its
business, properties and personnel as Seller or Buyer may reasonably request.
Each party will treat any such information in accordance with the provisions of
the letter agreement dated the date hereof between Seller and Buyer (the
"Confidentiality Agreement"). No investigation conducted by Seller or Buyer
shall impact any representation or warranty given by Seller to Buyer hereunder.
Section 5.3 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable commercial
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations, or to remove any injunctions or other impediments or delays, legal
or otherwise, to consummate and make effective the Merger and the other
transactions contemplated by this Agreement. Buyer also agrees to timely file
all filings required to be made with the SEC with respect to such transactions.
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March 5, 1998
Section 5.4 Consents and Approvals; HSR Act. Each of Seller, Buyer and
Acquisition Subsidiary will take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on it with respect to
this Agreement and the transactions contemplated hereby (which actions shall
include, without limitation, furnishing all information required under the HSR
Act and in connection with approvals of or filings with any other Governmental
Entity) and will promptly cooperate with and furnish information to each other
in connection with any such requirements imposed upon any of them or any of
their subsidiaries in connection with this and the transactions contemplated
hereby. Each of Seller, Buyer and Acquisition Subsidiary will, and will cause
its subsidiaries to, take all reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other public or
private third party required to be obtained or made by Buyer, Acquisition
Subsidiary, Seller or any of their subsidiaries in connection with the Merger or
the taking of any action contemplated thereby or by this Agreement. Each party
shall promptly inform the other party of any communication with, and any
proposed understanding, undertaking, or agreement with, any Governmental Entity
regarding any such filings or any such transaction.
Section 5.5 Exclusivity. From the date hereof until the earlier of
termination of this Agreement or consummation of the Merger, neither Seller nor
Buyer nor any of their officers, directors, employees, representatives
(including any investment banker, attorney or accountant retained by them),
agents or affiliates shall directly or indirectly encourage, solicit, initiate,
facilitate or conduct discussions or negotiations with, provide any information
to, or enter into any agreement with, any corporation, partnership, person or
other entity or group concerning or expressing an interest in or proposing any
merger, consolidation, reorganization, share exchange, business combination,
liquidation, dissolution sale of all or other significant assets or securities
or other similar transaction involving such party, except to the extent required
by their fiduciary duties as determined by the Board of Directors of such party
after discussion with their counsel.
Section 5.6 Publicity. So long as this Agreement is in effect, neither
Seller, Buyer nor any of their respective affiliates shall issue or cause the
publication of any press release or other public announcement with respect to
the Merger, this Agreement or the other transactions between the parties
contemplated hereby without the prior consultation of the other party, except as
may be required by law or by any listing agreement with a national securities
exchange or trading market.
Section 5.7 Notification of Certain Matters. Seller shall give prompt
notice to Buyer and Acquisition Subsidiary, and Buyer and Acquisition Subsidiary
shall give prompt notice to Seller, of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would cause any
representation or warranty made by such party or parties in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Effective Time
and (ii) any failure of Seller, Buyer or Acquisition Subsidiary, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.7 shall
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March 5, 1998
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice. Seller also shall give prompt notice to Buyer, and Buyer
or Acquisition Subsidiary shall give prompt notice to Seller, of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement (unless the
requirement for such consent is set forth in Section 3.4 of the Seller
Disclosure Schedule or Section 4.4 of the Buyer Disclosure Schedule);
(ii) any notice or other communication from any Governmental
Entity in connection with the transactions contemplated by this
Agreement;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge, threatened against,
relating to or involving or otherwise affecting it or any of its
subsidiaries or which relate to the consummation of the transactions
contemplated by this Agreement; and
(iv) any occurrence of any event having, or which could
reasonably be expected to have, a Seller Material Adverse Effect or
Buyer Material Adverse Effect.
Section 5.8 Indemnification. Notwithstanding Section 8.7 hereof, Buyer
agrees that all rights to indemnification existing in favor of directors,
officers or employees of Seller as provided in Seller's certificate of
incorporation or bylaws, with respect to matters occurring through the Effective
Time, shall survive the Merger and shall continue in full force and effect. If
the Surviving Corporation or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 5.8.
Section 5.9 Approval of Stockholders.
(a) Buyer shall, promptly after the date of this Agreement, take all
actions necessary in accordance with the requirements of the bylaws of the
National Association of Securities Dealers, Inc. ("NASD"), DGCL and its
certificate of incorporation and bylaws to convene a meeting of Buyer's
stockholders to act on this Agreement (the "Buyer Stockholders' Meeting") and
Buyer shall consult with Seller in connection therewith.
(b) Unless Seller's Board of Directors in the good faith exercise of
its fiduciary duties, after receiving advice from outside legal counsel,
determines not to recommend, or to withdraw its recommendation that such matters
be approved by Seller's stockholders, Seller shall, promptly after the date of
this Agreement, take all actions necessary in accordance with DGCL and its
certificate of incorporation and bylaws to obtain the unanimous written consent
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March 5, 1998
of Seller's stockholders to act on this Agreement, and Seller shall consult with
Buyer in connection therewith.
Section 5.10 Buyer Proxy Statement. Unless the Board of Directors of
Buyer in the good faith exercise of its fiduciary duties determines not to
recommend the Merger and this Agreement to its stockholders (or to withdraw such
recommendation), Buyer, acting through its Board of Directors, shall, in
accordance with applicable law:
(i) after consultation with Seller and its legal counsel,
diligently prepare and file with the SEC as soon as reasonably
practicable after the date of this Agreement (but in no event later
than 30 days after the date hereof), a preliminary proxy or information
statement relating to the Merger and this Agreement and use
commercially reasonable efforts (x) to obtain and furnish the
information required to be included by the SEC in the Buyer Proxy
Statement (as hereinafter defined) and, after consultation with Seller
and its counsel, to respond promptly to any comments made by the SEC
with respect to the preliminary proxy or information statement and
cause a definitive proxy or information statement, including any
amendment or supplement thereto (the "Buyer Proxy Statement") to be
mailed to its stockholders, provided that no amendment or supplement to
the Buyer Proxy Statement will be made by Buyer without consultation
with Seller and its counsel and (y) to obtain the necessary approvals
of the Merger and this Agreement by its stockholders;
(ii) prepare the preliminary proxy statement and prepare and
revise the Buyer Proxy Statement so that at the date mailed to Buyer's
stockholders and at the time of the meeting of Buyer's stockholders to
be held in connection with the Merger, the Buyer Proxy Statement will
(x) not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order that the statements made therein, in light of the circumstances
under which they are made, not misleading (except that Buyer shall not
be responsible under this clause (ii) with respect to statements made
therein based on information supplied by Seller expressly for inclusion
in the Buyer Proxy Statement), and (y) comply in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder; and
(iii) make at the Buyer's Stockholder's Meeting, and include
in the Proxy Statement, the recommendation of the Board that
stockholders of Buyer vote in favor of the approval of the Merger and
the authorization and adoption of this Agreement.
Section 5.11 Seller Information Statement.
(a) Seller shall afford Buyer and its legal counsel a reasonable
opportunity to review and comment on any solicitation materials, including
solicitation of action by written consent, that Seller distributes to its
stockholders in connection with the Merger, which shall be diligently prepared
and distributed to Seller's stockholders as soon as reasonably practicable after
the date
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March 5, 1998
of this Agreement and, at such date, such solicitation materials will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order that the statements
made therein, in light of the circumstances under which they are made, not
misleading (except that Seller shall not be responsible under this Section
5.11(a) with respect to statements made therein based on information supplied by
Buyer expressly for inclusion in such solicitation materials). To the greatest
extent practicable, information required to be disclosed in both the Buyer Proxy
Statement and any such solicitation materials shall be disclosed in an identical
manner.
(b) Seller shall furnish to Buyer, and revise, written information
concerning itself expressly for inclusion in the Buyer Proxy Statement,
including without limitation by reviewing and commenting (with respect to
information concerning Seller) on drafts of the Buyer Proxy Statement and the
preliminary proxy statement to be prepared pursuant to Section 5.10. Seller
shall inform Buyer of any change regarding such information so that such
Seller-furnished information will not, at both the date mailed to Buyer
stockholders and at the time of the meeting of Buyer stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated in Seller furnished
information or necessary in order to make the statements made in
Seller-furnished information, in light of the circumstances under which they are
made, not misleading.
Section 5.12 Tax Treatment. Each party hereto shall use all reasonable
efforts to cause the Merger to qualify and shall not take, and shall use all
reasonable efforts to prevent any affiliate of such party from taking, any
actions which could prevent the Merger from qualifying as a reorganization under
the provisions of Section 368(a) of the Code.
Section 5.13 Form S-8. With respect to the Seller Option Plan, Buyer
shall take all corporate action necessary or appropriate to, as soon as
practicable after the Effective Time, file a registration statement on Form S-8
(or any successor or other appropriate form) with respect to the shares of Buyer
Common Stock which will be subject to options outstanding under such plan as of
the Closing to the extent such registration statement is required under
applicable law in order for such shares of Buyer Common Stock to be sold without
restriction, and Buyer shall use reasonable efforts to maintain the
effectiveness of such registration statements (and maintain the current status
of the prospectuses contained therein) for so long as such options under such
plan remain outstanding.
Section 5.14 Reservation of Buyer Common Stock. Buyer shall reserve
from its authorized but unissued shares of Buyer Common Stock that number of
shares of Buyer Common Stock issuable upon exercise of the Seller Stock Options
assumed by Buyer.
Section 5.15 Consolidation of Operations. Buyer and Seller shall
cooperate with one
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March 5, 1998
another with a view toward consolidating the operations of Buyer and Seller at
Seller's principal executive offices and eliminating duplicative staffing and
overhead as soon as reasonably possible.
Section 5.16 Consolidation of Board of Directors. Buyer will utilize
good faith efforts to decrease the membership of the Board of Directors of Buyer
to a total of seven (7) members by the first anniversary of the date of this
Agreement. It is agreed and understood that this Section 5.16 shall not require
(i) Buyer to amend its organizational documents or (ii) Buyer's directors to
take any actions inconsistent with their fiduciary duties.
Section 5.17 Incentive Bonus Payments. Buyer and Seller agree that the
incentive bonus payments to be made to Robert J. Capetola, pursuant to Section
4.e. of the Capetola Employment Agreement attached as Exhibit A hereto, and to
each of Harry G. Brittain, Cynthia Davis, Laurence B. Katz, Lisa Mastroianni,
Christopher Schaber, Huei Tsai and Thomas Wiswell, pursuant to Section 4.d. of
the employment agreements to be entered into with such individuals in the form
of Exhibit B hereto, shall be determined for each of the above-named individuals
by Buyer's Compensation Committee, shall be paid in either cash or equity as
determined by such Compensation Committee, shall be in the following aggregate
amounts and shall be paid upon the achievement of each of the following
milestones (which are set forth in the aforementioned agreements): (a) $150,000
upon the successful completion of Phase II studies for any compound under
development in Discovery's portfolio (each a "Portfolio Compound"); (b) $500,000
upon the successful completion of Phase II studies for any Portfolio Compound;
and (c) $1,000,000 upon receipt of marketing approval in the United States for
any Portfolio Compound. The aforementioned bonuses shall be paid only once for
each of the milestones.
ARTICLE 6
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Effective Time of each of the following
conditions, any and all of which may be waived in whole or in part by Seller,
Buyer or Acquisition Subsidiary, as the case may be, to the extent permitted by
applicable law:
(a) Stockholder Approval. This Agreement shall have been
approved by the requisite vote of the stockholders of Seller, Buyer and
Acquisition Subsidiary;
(b) Statutes. No statute, rule, order, decree or regulation
shall have been enacted or promulgated by any Governmental Entity which
prohibits the consummation of the Merger;
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(c) Injunctions. There shall be no order or injunction of a
court or other governmental authority of competent jurisdiction in effect
precluding, restraining, enjoining or prohibiting consummation of the Merger;
(d) Tax Opinions. Buyer shall have received from Roberts,
Sheridan & Kotel, P.C., counsel to Buyer, a written opinion dated as of the
Closing Date to the effect that the Merger, when effected in accordance with
this Agreement, will qualify as a reorganization under Section 368(a) of the
Code; Seller shall have received from Brobeck, Phleger & Harrison LLP, counsel
to Seller, a written opinion dated as of the Closing Date to the effect that the
Merger, when effected in accordance with this Agreement, will qualify as a
reorganization under Section 368(a) of the Code;
(e) Capetola Employment Agreement. Robert J. Capetola shall
have entered into an employment agreement with Buyer, in the form attached as
Exhibit A hereto;
(f) Key Executive Employment Agreements. Buyer and each of
Harry G. Brittain, Cynthia Davis, Laurence B. Katz, Lisa Mastroianni,
Christopher Schaber, Huei Tsai and Thomas Wiswell shall have entered into
employment agreements as mutually agreed to by Buyer and Seller, substantially
in the form attached as Exhibit B hereto (the "Key Executive Employment
Agreements");
(g) Exchange Agreement. Buyer shall have entered into the
Exchange Agreement with JJDC.
(h) Board of Directors. On the Effective Date, the Board of
Directors of Buyer shall consist of Robert J. Capetola, Steve Kanzer, Max Link,
Herbert McDade, David Naveh, Milton Packer, Richard Power, Mark Rogers, Marvin
Rosenthale, and Richard Sperber.
(i) No Litigation. After the date hereof, there shall not be
threatened, or instituted and continuing, any action, suit or proceeding against
Seller, Buyer or Acquisition Subsidiary, by any Governmental Entity or any other
person directly or indirectly relating to the Merger or any other transactions
contemplated by this Agreement which individually or in the aggregate could
reasonably be expected to have a Seller Material Adverse Effect or Buyer
Material Adverse Effect.
Section 6.2 Additional Conditions to Obligations of Seller. The
obligation of Seller to effect the Merger is also subject to the fulfillment of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of Buyer and Acquisition Subsidiary contained in this Agreement shall
be true and correct on the date hereof and shall also be true and correct on and
as of the Effective Time, with the same force and effect as if made on and as of
the Effective Time, unless the failure of such representations and warranties to
be true and correct could not reasonably be expected to cause, individually or
in the aggregate, a Buyer Material Adverse Effect (as applied to such dates);
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March 5, 1998
(b) Agreements, Conditions and Covenants. Buyer and Acquisition
Subsidiary shall have performed or complied in all material respects with all
agreements, conditions and covenants required by this Agreement to be performed
or complied with by them on or before the Effective Time;
(c) Certificate of Chairman of the Board. Seller shall have
received a certificate of the Chairman of the Board of Directors of Buyer to the
effect that each of the conditions specified in clauses (a) and (b) of this
Section 6.2 have been satisfied;
(d) Stock Option Agreements. In addition to the Stock Options
assumed by Buyer under Section 2.4, Buyer shall have granted stock options
pursuant to Buyer Stock Option Plan in the forms of option agreements attached
hereto as Exhibit C, Exhibit D and Exhibit E, to certain of Seller's employees
as set forth on Schedule 6.2(d), for an aggregate of 338,500, 175,000 and
160,000 shares of Common Stock, respectively.
(e) Opinion. Seller shall have received an opinion dated as of
the Closing Date from Roberts, Sheridan & Kotel P.C., counsel to Buyer and
Acquisition Subsidiary, covering the matters set forth in Schedule 6.2(e).
(f) Registration Rights Agreement. Buyer shall have entered
into a Registration Rights Agreement with JJDC and The Scripps Research
Institute, substantially in the form attached hereto as Exhibit F.
Section 6.3 Additional Conditions to Obligations of Buyer and
Acquisition Subsidiary. The obligations of Buyer and Acquisition Subsidiary to
effect the Merger are also subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of Seller contained in this Agreement shall be true and correct on
the date hereof and shall also be true and correct on and as of the Effective
Time, with the same force and effect as if made on and as of the Effective Time,
unless the failure of such representations and warranties to be true and correct
as of such dates could not reasonably be expected to cause, individually or in
the aggregate, a Seller Material Adverse Effect (as applied to such dates);
(b) Agreements, Conditions and Covenants. Seller shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time;
(c) Officer's Certificate. Buyer shall have received a
certificate of the Chief Executive Officer of Seller to the effect that each of
the conditions specified in clauses (a) and (b) of this Section 6.3. have been
satisfied.
(d) Investment Agreement. Each holder of Common Shares shall
have executed and delivered to Buyer the form of Investment Agreement attached
as Exhibit G hereto.
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March 5, 1998
(e) Opinion. Buyer shall have received an opinion dated as of
the Closing Date from Brobeck, Phleger & Harrison LLP, counsel to Seller,
covering the matters set forth in Schedule 6.3(e).
(f) Dissenting Common Shares. The aggregate number of Common
Shares held by Dissenting Stockholders shall not be equal to or exceed five
percent (5%) of the outstanding Common Shares immediately prior to the Effective
Time.
(g) Contractual Lock-up Agreements. Each common stockholder
and optionholder of Seller shall have entered into an agreement with Buyer
substantially in the form of Exhibit H attached hereto.
(h) Buyer Stock Option Plan. The 1998 stock option plan of
Buyer (the "1998 Stock Option Plan") in the form attached as Exhibit I hereto,
shall have been approved by the requisite vote of the stockholders of Buyer.
(i) Termination Agreement. Seller shall enter into a letter
agreement terminating the Co-Sale Agreement dated as of October 28, 1996 by and
between Seller and the stockholders listed on Schedule A thereto.
ARTICLE 7
TERMINATION
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the terms of
this Agreement by the stockholders of Buyer or Seller:
(a) by mutual written consent of the Boards of Directors of
Buyer and Seller;
(b) by either Buyer or Seller if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting consummation of the Merger and
such order, decree or ruling or other action shall have become final and
nonappealable;
(c) by either Buyer or Seller, if the Merger shall not have
been consummated by July 15, 1998; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.1(c) shall not be available
to any party whose failure (or the failure of the affiliates of which) to
perform any of its obligations under this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or before such date;
provided, further, that for this purpose, Buyer and Seller shall not be deemed
to be affiliates of each other; directors, officers and employees of Seller
shall be deemed to act only on behalf of such Seller; and directors, officers
and employees of Buyer or Acquisition Subsidiary shall be deemed to act only on
behalf of Buyer and/or Acquisition Subsidiary; and provided further that an
individual holding
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March 5, 1998
positions on the boards of both Seller, on the one hand, and Buyer or
Acquisition Subsidiary, on the other hand, shall be deemed to act only on behalf
of Buyer and/or Acquisition Subsidiary unless such interpretation would be
manifestly unreasonable;
(d) by Buyer or Acquisition Subsidiary, in the event of a
breach by Seller of any representation, warranty, covenant or other agreement
contained in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to Seller and which, individually
or in the aggregate, has had or could reasonably be expected to have, a Seller
Material Adverse Effect; or
(e) by Seller, in the event of a breach by Buyer or
Acquisition Subsidiary of any of their respective representations, warranties,
covenants or other agreements contained in this Agreement, which cannot be or
has not been cured within thirty (30) days after the giving of written notice to
Buyer or Acquisition Subsidiary, and which, individually or in the aggregate,
has had or could reasonably be expected to have, a Buyer Material Adverse
Effect.
Section 7.2 Effect of Termination. In the event of a termination of
this Agreement by either Seller or Buyer as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Buyer, Acquisition Subsidiary or Seller or their
respective officers or directors, except with respect to Sections 3.16, 4.16,
5.2, this Section 7.2 and Article 8; provided, however, that nothing herein
shall relieve any party of liability for any breach this Agreement.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Fees and Expenses. All fees and expenses incurred in
connection with the Merger, this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
Section 8.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of Seller or Buyer
contemplated hereby, by written agreement of the parties hereto, at any time
prior to the Closing Date with respect to any of the terms contained herein;
provided, however, that after the approval of this Agreement by the stockholders
of Seller or Buyer, no such amendment, modification or supplement shall reduce
the amount or change the form of the consideration to be received by Seller
stockholders in the Merger.
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
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March 5, 1998
Section 8.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon receipt, and shall be given
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Buyer or Acquisition Subsidiary, to:
Discovery Laboratories, Inc.
509 Madison Avenue
Suite 1406
New York, NY 10022
Telephone: (212) 223-9504
Facsimile: (212) 688-7978
Attention: Steve H. Kanzer, Esq.
with copies to:
Roberts, Sheridan & Kotel, P.C.
Tower Forty-Nine
12 East 49th Street
New York, NY 10017
Telephone: (212) 299-8600
Facsimile: (212) 299-8686
Attention: Kenneth G. Alberstadt, Esq.
(b) if to Seller, to:
Acute Therapeutics, Inc.
3359 Durham Road
Doylestown, PA 18901
Telephone: (215) 794-3064
Facsimile: (215) 794-3239
Attention: Robert J. Capetola, Ph. D.
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March 5, 1998
with copies to:
Brobeck, Phleger & Harrison LLP
1633 Broadway
47th Floor
New York, NY 10019
Telephone: (212) 581-1600
Facsimile: (212) 586-7878
Attention: Ellen B. Corenswet, Esq.
Section 8.5 Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation". As used in this Agreement, the term "affiliate(s)" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act. As used in this Agreement,
a "subsidiary" of any entity shall mean all corporations or other entities in
which such entity owns a majority of the issued and outstanding capital stock or
equity or similar interests.
Section 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement and the Confidentiality Agreement (including the
documents and the instruments referred to herein and therein): (a) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) other than the provisions of Section 5.8 hereof, nothing expressed or
implied in this Agreement is intended or will be construed to confer upon or
give to any person, firm or corporation other than the parties hereto any rights
or remedies under or by reason of this Agreement or any transaction contemplated
hereby.
Section 8.8 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 8.9 Governing Law. This Agreement and the legal relations
between the parties hereto will be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to the choice of law
principles thereof.
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March 5, 1998
Section 8.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Acquisition Subsidiary may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to Buyer or to any direct or indirect wholly owned subsidiary of
Buyer. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
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March 5, 1998
IN WITNESS WHEREOF, Buyer, Acquisition Subsidiary and Seller have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
Buyer
By: /s/ James S. Kuo
_____________________________
Name: James S. Kuo
_____________________________
Title: President
_____________________________
Acquisition Subsidiary
By: /s/ James S. Kuo
_____________________________
Name: James S. Kuo
_____________________________
Title: President
_____________________________
Seller
By: /s/ Robert J. Capetola
_____________________________
Name: Robert J. Capetola
_____________________________
Title: President/CEO
_____________________________
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March 5, 1998