EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
by and among
MICROCIDE PHARMACEUTICALS, INC.,
CALIFORNIA MP ACQUISITION, INC.
and
THE ALTHEXIS COMPANY, INC.
Dated as of July 27, 2001
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is dated as of July 27, 2001 (the
"Agreement"), by and among Microcide Pharmaceuticals, Inc., a Delaware
corporation ("Parent"), California MP Acquisition, Inc., a Delaware corporation
("Sub"), and The Althexis Company, Inc., a Delaware corporation (the "Company").
RECITALS:
A. The Boards of Directors of Parent, Sub and the Company have determined
that it is advisable and in the best interests of their respective stockholders
for Parent, Sub and the Company to enter into a business combination upon the
terms and subject to the conditions set forth herein.
B. In furtherance of such combination, the Boards of Directors of Parent,
Sub and the Company have each approved the merger of Sub with and into the
Company (the "Merger"), upon the terms and subject to the conditions set forth
herein, in accordance with the applicable provisions of the Delaware General
Corporation Law (the "DGCL").
C. Parent, Sub and the Company intend, by approving resolutions authorizing
this Agreement, to adopt this Agreement as a plan of reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations promulgated thereunder.
D. In connection with the execution of this Agreement, (i) stockholders of
the Company owning shares of Company Stock (as defined below) representing not
less than 51% of the outstanding common stock of the Company shall have executed
and delivered to Parent a stockholder support agreement, in the form attached
hereto as Exhibit A, (ii) certain employees of the Company shall have entered
into severance agreements with Parent in the form attached hereto as Exhibit B,
(iii) the Company and Parent shall have entered into an option agreement in the
form attached hereto as Exhibit C pursuant to which the Company shall grant
Parent an option to purchase shares of Company Common Stock (as defined below)
under certain circumstances, (iv) the Company and Parent shall have entered into
an option agreement in the form attached hereto as Exhibit C pursuant to which
Parent shall grant the Company an option to purchase shares of Parent Common
Stock (as defined below) under certain circumstances and (v) Parent shall have
entered into definitive agreements in form and substance reasonably acceptable
to Parent and the Company with regard to the Financing (as defined below).
E. Pursuant to the Merger, each outstanding share of Company Stock shall be
converted solely into the right to receive Parent Common Stock, upon the terms
and subject to the conditions set forth herein.
F. Concurrently with the closing of the transactions contemplated by this
Agreement, Parent shall issue and sell shares of Parent Preferred Stock (as
defined below) in a private placement for a minimum aggregate purchase price
equal to $55.0 million ($55,000,000).
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Sub and the Company hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the following
meanings:
"Actions" has the meaning set forth in Section 3.16.
1
"Affiliate" of a Person means any other Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" has the meaning set forth in the preamble.
"Ancillary Agreements" means the Severance Agreements, the First Amended
and Restated Executive Stock Purchase Agreement, the Stockholders Agreement, the
Stockholder Support Agreements, the Option Agreements and all other agreements
required hereunder to consummate the Merger.
"Arbitrable Claim" has the meaning set forth in Section 9.15.
"Assets" means the right, title and interest of the Company in its
properties, assets and rights of any kind, whether tangible or intangible, real
or personal, including without limitation the right, title and interest in the
following:
(a) all Contracts and Contract Rights;
(b) all Fixtures and Equipment;
(c) all Inventory;
(d) all Books and Records;
(e) all Proprietary Rights;
(f) all Permits;
(g) all return and other rights under or pursuant to all warranties,
representations and guarantees made by suppliers and other third parties in
connection with the Assets or services furnished to such Person;
(h) all cash, accounts receivable, deposits and prepaid expenses; and
(i) all goodwill.
"Average Parent Common Stock Price" means $4.00 per share (based on the
average of the closing prices of Parent Common Stock on the Nasdaq National
Market as reported in the Wall Street Journal for the twenty (20) Trading Days
ending on June 11, 2001).
"Balance Sheet" means the balance sheet of the Company as of the Balance
Sheet Date.
"Balance Sheet Date" means May 31, 2001.
"Benefit Arrangement" means, with respect to any Person, any employment,
consulting, severance or other similar contract, arrangement or policy (written
or oral) and each plan, arrangement, program, agreement or commitment (written
or oral) providing for insurance coverage (including, without limitation, any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
life, health or accident benefits (including, without limitation, any "voluntary
employees' beneficiary association" as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (a) is not a Welfare Plan, Pension
Plan or Multiemployer Plan, (b) is entered into, maintained, contributed to or
required to be contributed to, as the case may be, by such Person or any ERISA
Affiliate or under which such Person or any ERISA Affiliate may incur any
liability, and (c) covers any employee or former employee of such Person or any
ERISA Affiliate (with respect to their relationship with such any entity).
2
"Books and Records" means (a) all product, business and marketing plans,
sales and promotional literature and artwork relating to the Assets or the
Business, (b) all books, records, lists, ledgers, financial data, files,
reports, product and design manuals, plans, drawings, technical manuals and
operating records of every kind relating to the Assets or the Business
(including records and lists of customers, distributors, suppliers and
personnel) and (c) all telephone and fax numbers used in the Business, in each
case whether maintained as hard copy or stored in computer memory and whether
owned by the Company or its Affiliates.
"Business" means the discovery, development and commercialization of new
medicines to treat human diseases by the Company and all other business and
operations of the Company.
"Certificate of Merger" has the meaning set forth in Section 2.2.
"Certificates" means certificates which immediately prior to the Effective
Time represented outstanding shares of Company Stock.
"Closing" has the meaning set forth in Section 2.1(b).
"Closing Date" means the date of the Closing.
"Code" has the meaning set forth in the recitals.
"Company" has the meaning set forth in the preamble.
"Company Closing Certificate" has the meaning set forth in Section 7.1.
"Company Common Stock" means the common stock, par value $0.01 per share of
the Company.
"Company Disclosure Schedules" has the meaning set forth in Article 3.
"Company Material Adverse Effect" or "Company Material Adverse Change"
means a Material Adverse Effect with respect to the Company; provided, however,
that this definition shall exclude (i) the effect of changes in national
economic conditions or industry conditions generally or (ii) the effect of a
decrease in (a) the amount of cash on hand held by the Company or (b) revenues
generated by the Company, in the case of each of (a) and (b) in excess of any
decrease reflected in the written financial information prepared by the Company
and provided to Parent prior to the date hereof.
"Company Options" means options to purchase shares of Company Stock issued
by the Company (including, but not limited to, options issued to employees of
the Company); provided, however, "Company Options" shall not include the option
to purchase shares of Company Stock granted to Parent by the Company under the
Option Agreement.
"Company Preferred Stock" means the preferred stock, par value $0.01 per
share, of the Company.
"Company Proprietary Right" shall mean any Proprietary Right that is
(i) owned by, (ii) licensed to or (iii) was developed or created by or for the
Company.
"Company Registered Proprietary Rights" means all Registered Proprietary
Rights owned by, filed in the name of, assigned to or applied for by, the
Company.
"Company Stock" means the Company Common Stock and the Company Preferred
Stock.
"Company Stock Plans" means the Company's 1999 Stock Option Plan.
"Company Warrants" means warrants to purchase shares of Company Stock.
"Confidentiality Agreement" has the meaning set forth in Section 5.15.
3
"Consents" means any and all Permits and any and all consents, approvals or
waivers from third parties that are required for the consummation of the
transactions contemplated by this Agreement.
"Contract Rights" means all rights and obligations under the Contracts.
"Contracts" means, with respect to any Person, all agreements, contracts,
leases (whether for real or personal property), purchase orders, undertakings,
covenants not to compete, employment agreements, confidentiality agreements,
licenses, instruments, obligations and commitments to which such Person is a
party or by which such Person or any of such Person's assets (including, in the
case of the Company, the Assets) are bound or affected, whether written or oral.
"Court Order" means any judgment, decision, consent decree, injunction,
ruling or order of any foreign, federal, state or local court or governmental
agency, department or authority that is binding on any Person or its property
under applicable law.
"Default" means (a) a breach of or default under any Contract, (b) the
occurrence of an event that with the passage of time or the giving of notice or
both would constitute a breach of or default under any Contract or (c) the
occurrence of an event that with or without the passage of time or the giving of
notice or both would give rise to a right of termination, renegotiation or
acceleration under any Contract.
"DGCL" has the meaning set forth in the recitals.
"Effective Period" has the meaning set forth in Section 2.13(a).
"Effective Time" has the meaning set forth in Section 2.2.
"Employee Plans" means, with respect to any Person, all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans of such
Person.
"Employees" means, with respect to any Person, all officers and directors
of such Person and all other Persons employed by such Person on a full or part-
time basis together with all Persons retained as "independent contractors" as of
the relevant date.
"Encumbrance" means any claim, lien, pledge, option, charge, easement, tax
assessment, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes any agreement to give any of the
foregoing in the future, and any contingent sale or other title retention
agreement or lease in the nature thereof.
"Environmental Claims" means all notices of violation, liens, claims,
demands, suits, or causes of action for any damage, including, without
limitation, personal injury, property damage (including, without limitation, any
depreciation or diminution of property values), lost use of property or
consequential damages, arising directly or indirectly out of Environmental
Conditions or Environmental Laws. By way of example only (and not by way of
limitation), Environmental Claims include (i) violations of or obligations under
any contract related to Environmental Laws or Environmental Conditions between
the Company and any other person, (ii) actual or threatened damages to natural
resources, (iii) claims for nuisance or its statutory equivalent, (iv) claims
for the recovery of response costs, or administrative or judicial orders
directing the performance of investigations, responses or remedial actions under
any Environmental Laws, (v) requirements to implement "corrective action"
pursuant to any order or permit issued pursuant to the Resource Conservation and
Recovery Act, as amended, or similar provisions of applicable state law, (vi)
claims related to Environmental Laws or Environmental Conditions for
restitution, contribution, or indemnity, (vii) fines, penalties or liens of any
kind against property related to Environmental Laws or Environmental Conditions,
(viii) claims related to Environmental Laws or Environmental Conditions for
injunctive relief or other orders or notices of violation from federal, state or
local agencies or courts, and (ix) with regard to any present or former
employees, claims relating to exposure to or injury from Environmental
Conditions.
4
"Environmental Conditions" means the state of the environment, including
natural resources (e.g., flora and fauna), soil, surface water, ground water,
any present or potential drinking water supply, subsurface strata or ambient
air, relating to or arising out of the use, handling, storage, treatment,
recycling, generation, transportation, release, spilling, leaking, pumping,
pouring, emptying, discharging, injecting, escaping, leaching, disposal, dumping
or threatened release of Hazardous Substances by the Company or any of its
predecessors or successors in interest, or by its respective agents,
representatives, employees or independent contractors when acting in such
capacity on behalf of the Company. With respect to Environmental Claims by third
parties, Environmental Conditions also include the exposure of persons to
Hazardous Substances at the work place or the exposure of persons or property to
Hazardous Substances migrating from or otherwise emanating from or located on
property owned or occupied by the Company.
"Environmental Laws" means all applicable federal, state, district and
local laws, all rules or regulations promulgated thereunder, and all orders,
consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to pollution or protection of
the environment (including, without limitation, ambient air, surface water,
ground water, land surface, or subsurface strata), including, without
limitation, (i) laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals, industrial materials, wastes or
other substances into the environment and (ii) laws relating to the
identification, generation, manufacture, processing, distribution, use,
treatment, storage, disposal, recovery, transport or other handling of
pollutants, contaminants, chemicals, industrial materials, wastes or other
substances. Environmental Laws shall include, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Toxic Substances Control Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and Recovery
Act, as amended ("RCRA"), the Clean Water Act, as amended, the Safe Drinking
Water Act, as amended, the Clean Air Act, as amended, the Occupational Safety
and Health Act, as amended, and all analogous laws promulgated or issued by any
state or other Governmental Authority.
"Environmental Reports" means any and all written analyses, summaries or
explanations, in the possession or control of the Company, prepared for the
purpose of analyzing or assessing (a) any Environmental Conditions in, on or
about the properties of the Company or (b) the Company's compliance with
Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to any Person, any entity which is
(or at any relevant time was) a member of a "controlled group of corporations"
with, under "common control" with, or a member of an "affiliated service group"
with, or otherwise required to be aggregated with, such Person as set forth in
Section 414(b), (c), (m) or (o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Ratio" means the result of dividing (i) the Merger Shares by (ii)
the Number of Company Securities issued and outstanding immediately prior to the
Effective Time.
"Facilities" means all plants, offices, manufacturing facilities, stores,
warehouses, administration buildings and all real property and related
facilities leased by the Company, all as identified or listed on Schedule
3.8(c).
"Financing" means the sale and issuance of convertible preferred stock of
the Parent to certain investors for an aggregate purchase price of at least
$55.0 million ($55,000,000) on terms mutually agreeable with the investors,
Parent and the Company, the closing of which shall occur concurrently with the
Closing of the Merger.
"Financial Statements" means (a) the balance sheets of the Company (or its
predecessor, as the case may be) as of May 31, 2001 and the related statements
of income, changes in stockholders' equity and cash flows, of the Company for
the five-month period ended May 31, 2001.
5
"First Amended and Restated Executive Stock Purchase Agreement" means the
First Amended and Restated Executive Stock Purchase Agreement to be entered into
as of the Effective Time by and among Parent, Mark B. Skaletsky and the Company,
in the form attached hereto as Exhibit D.
"Fixtures and Equipment" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, and other tangible personal property owned by the
Company, wherever located.
"Funded Debt Adjustment" means (i) the Funded Debt of the Company as of the
Effective Time as set forth in the Funded Debt Notice minus (ii) $965,000,
provided that if the Funded Debt of the Company as of the Effective Time is less
than $965,000 then the Funded Debt Adjustment shall be zero.
"Funded Debt Notice" has the meaning set forth in Section 2.11.
"Funded Debt of the Company" means, without duplication, (a) all
obligations of the Company for borrowed money including, without limitation, all
obligations for accrued and unpaid interest thereon and any pre-payment premiums
or penalties (and associated expenses) with respect thereto, (b) any
reimbursement obligations of the Company in respect of any letters of credit,
(c) any capitalized lease obligations of the Company (as determined in
accordance with GAAP), and (d) all guarantees issued by the Company in respect
of any obligations of any other Person (other than the Company) of the type
described in clauses (a) through (c) above, all of which shall constitute
obligations of the Company at Closing, but shall not include any indebtedness
incurred by the Company pursuant to the bridge financing contemplated by Section
5.18.
"GAAP" means generally accepted accounting principles as applied in the
United States.
"Hazardous Substances" means all pollutants, contaminants, chemicals,
wastes, and any other carcinogenic, ignitable, corrosive, reactive, toxic or
otherwise hazardous substances or materials (whether solids, liquids or gases)
subject to regulation, control or remediation under Environmental Laws. By way
of example only, the term Hazardous Substances includes petroleum, urea
formaldehyde, flammable, explosive and radioactive materials, PCBs, pesticides,
herbicides, asbestos, sludge, slag, acids, metals, solvents and waste waters.
"Holder Inclusion Notice" has the meaning set forth in Section 2.13(a).
"HSR Act" means the Hart Scott Rodino Antitrust Improvements Act of 1976,
as amended.
"Incidental Shares" has the meaning set forth in Section 2.13(a).
"Inventory" means all merchandise owned and intended for resale.
"JAMS" has the meaning set forth in Section 9.15.
"knowledge" when used to qualify a representation or warranty in this
Agreement, means that where a representation or warranty is made to a Person's
knowledge, or with a similar qualification, such Person will be deemed to have
knowledge of any matter with respect to which any executive officer or director
of such Person has actual knowledge or would have knowledge after conducting a
reasonable investigation.
"Liability" means any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, whether accrued, absolute, contingent, matured,
unmatured, liquidated, unliquidated, known or unknown.
"License" means any Contract that grants a Person the right to use any
Proprietary Right, including, without limitation, any covenants not to sue with
respect to any Proprietary Right.
"Lease" means a real property lease or a personal property lease, as
applicable.
6
"Leased Property" has the meaning set forth in Section 3.8(c).
"Material Adverse Effect" or "Material Adverse Change" or a similar phrase
means, with respect to any Person, (a) any material adverse effect on or change
with respect to (i) the business, operations, assets (taken as a whole),
liabilities (taken as a whole), condition (financial or otherwise) or results of
operations, of such Person and its subsidiaries, taken as a whole, or (ii) the
right or ability of such Person to consummate any of the transactions
contemplated hereby or (b) any event or condition which, with the passage of
time, the giving or receipt of notice or the occurrence or nonoccurrence of any
other circumstance, action or event, would reasonably be expected to constitute
a "Material Adverse Effect" on or "Material Adverse Change" with respect to such
Person.
"Merger" has the meaning set forth in the preamble.
"Merger Common Shares" has the meaning set forth in Section 2.13(a).
"Merger Consideration" means $22.2 million ($22,200,000) less the Funded
Debt Adjustment.
"Merger Shares" means that number of shares of Parent Common Stock equal to
the quotient of the Merger Consideration divided by the Average Parent Common
Stock Price.
"Multiemployer Plan" means, with respect to any Person, any "multiemployer
plan," as defined in Section 4001(a)(3) or 3(37) of ERISA, which (a) such Person
or any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, after September 25, 1980, maintained, administered,
contributed to or was required to contribute to, or under which such Person or
any ERISA Affiliate may incur any liability and (b) covers any employee or
former employee of such Person or any ERISA Affiliate (with respect to their
relationship with any such entity).
"Note" has the meaning set forth in Section 5.18.
"Number of Company Securities" means the sum of (i) the number of shares of
Company Common Stock, (ii) the number of shares of Company Preferred Stock,
(iii) the number of Company Options, (iv) the number of Company Warrants, (v)
any other securities convertible into or otherwise exercisable or exchangeable
for Company Common Stock, Company Preferred Stock, Company Options or Company
Warrants (assuming, in the case of clauses (ii), (iii), (iv) and (v), the
conversion, exercise or exchange of such securities for Company Common Stock)
and (vi) all other capital stock of any class or series of the Company and all
rights to acquire any such capital stock; provided, however, "Number of Company
Securities" shall not include any shares subject to the option to purchase
shares of Company Stock granted to Parent by the Company under the Option
Agreement.
"Option Agreement" means an Option Agreement in the form attached hereto as
Exhibit C, dated the date hereof, and executed and delivered between Parent and
the Company.
"Parent" has the meaning set forth in the preamble.
"Parent Common Stock" means the common stock, par value $0.001 per share,
of Parent.
"Parent Closing Certificate" has the meaning set forth in Section 6.1.
"Parent Disclosure Schedules" has the meaning set forth in Article 4.
"Parent Material Adverse Effect" means a Material Adverse Effect with
respect to Parent; provided, however, that a Parent Material Adverse Effect
shall not include any adverse effect following the date of this Agreement which
is solely attributable to (i) the announcement of the transactions contemplated
by this Agreement or the Financing (other than the termination by the R.W.
Johnson Pharmaceutical Research Institute of its Research and License Agreement
with Parent pursuant to the terms thereof) or (ii) changes in national economic
conditions or industry conditions generally.
7
"Parent Options" means options to purchase shares of Parent Common Stock
issued by the Parent (including, but not limited to, options issued to employees
of the Company).
"Parent Preferred Stock" means the preferred stock, par value $0.001 per
share, of Parent.
"Parent Proprietary Right" shall mean any Proprietary Right that is (i)
owned by, (ii) licensed to or (iii) was developed or created by or for Parent.
"Parent SEC Documents" has the meaning set forth in Section 4.5.
"Pension Plan" means, with respect to any Person, any "employee pension
benefit plan" as defined in Section 3(2) of ERISA (other than a Multiemployer
Plan) which (a) such Person or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or, within the five (5) years
prior to the Closing Date, maintained, administered, contributed to or was
required to contribute to, or under which such Person or any ERISA Affiliate may
incur any liability (including, without limitation, any contingent liability)
and (b) covers any employee or former employee of such Person or any ERISA
Affiliate (with respect to their relationship with any such entity).
"Permitted Encumbrances" means (a) statutory liens of landlords, liens of
carriers, warehousepersons, mechanics and materialpersons incurred in the
ordinary course of business for sums (i) not yet due and payable, or (ii) being
contested in good faith, if, in either such case, an adequate reserve, shall
have been made therefor in such Person's financial statements, (b) liens
incurred or deposits made in connection with workers' compensation, unemployment
insurance and other similar types of social security programs or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and return of money bonds and similar
obligations, in each case in the ordinary course of business, consistent with
past practice, (c) easements, rights-of-way, restrictions and other similar
charges or encumbrances, in each case, which do not interfere with the ordinary
conduct of business of the Company and do not materially detract from the value
of the property upon which such encumbrance exists, (d) liens securing taxes,
assessments and governmental charges not yet delinquent, (e) such imperfections
of title, easements, encumbrances or restrictions which do not materially impair
the current use by the Company of the Assets subject thereto or the Company's
ability to sell or transfer such Assets without discharging any obligation, (f)
purchase money security interests incurred in the ordinary course of business
and consistent with past practice, and (g) liens related to leased furniture and
equipment.
"Permits" means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, necessary or desirable for
the past, present or anticipated conduct or operation of the Business or
ownership of the Assets.
"Person" means any person or entity, whether an individual, trustee,
corporation, limited liability company, general partnership, limited
partnership, trust, unincorporated organization, business association, firm,
joint venture, governmental agency or authority or any similar entity.
"Piggyback Notice" has the meaning set forth in Section 2.13(a).
"Proposed Acquisition Transaction" has the meaning set forth in Section
5.6.
"Proprietary Rights" means all (a) U.S. and foreign patents, patent
applications, patent disclosures and improvements thereto, including petty
patents and utility models and applications therefor, (b) U.S. and foreign
trademarks, service marks, trade dress, logos, trade names and corporate names
and the goodwill associated therewith and registrations and applications for
registration thereof, (c) U.S. and foreign copyrights and registrations and
applications for registration thereof, (d) U.S. and foreign mask work rights and
registrations and applications for registration thereof, (e) Trade Secrets, (f)
URL registrations, (g) other proprietary rights, (h) copies and tangible
embodiments thereof (in whatever form or medium) and (i) licenses granting any
rights with respect to any of the foregoing.
8
"Qualified Holders" has the meaning set forth in Section 2.13(a).
"Registered Proprietary Rights" shall mean all United States, international
and foreign: (i) issued patents and patent applications (including provisional
applications), (ii) registered trademarks and servicemarks, applications to
register trademarks and servicemarks, intent-to-use applications, other
registrations or applications to trademarks or servicemarks, (iii) registered
copyrights and applications for copyright registration, (iv) any mask work
registrations and applications to register mask works, and (v) any other
Proprietary Right that is the subject of an application, certificate, filing,
registration or other document issued by, filed with, or recorded by, any state,
government or other public legal authority.
"Registering Stockholders" has the meaning set forth in Section 2.13(a).
"Regulations" means any laws, statutes, ordinances, regulations, rules,
notice requirements, court decisions, agency guidelines, and orders of any
foreign, federal, state or local government and any other governmental
department or agency, including without limitation energy, motor vehicle safety,
public utility, zoning, building and health codes, Environmental Laws,
occupational safety and health and laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours.
"Related Party" means (i) any of the Company's officers, directors and
stockholders, and any officers, directors, partners, associates or relatives of
such officers, directors and stockholders, (ii) any Person in which the Company
or any stockholder of the Company or any Affiliate, associate or relative of any
such Person has any direct or indirect interest, and (iii) any direct or
indirect trustee or beneficiary of any stockholder of the Company.
"Representative" of any Person means any officer, director, principal,
attorney, accountant, agent, employee or other representative of such Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Severance Agreements" means the Severance Agreements to be entered into by
and between Parent and each of Mark B. Skaletsky, Paul Mellett, Manuel Navia and
Patrick Connelly, contemporaneously with the execution of this Agreement to
become effective at the Effective Time, in the form attached hereto as Exhibit
B.
"Stockholder" means each holder of an equity security of the Company at the
Effective Time.
"Stockholders Agreement" means the Stockholders Agreement to be entered
into as of the Effective Time by and among Parent, Manuel Navia, Patrick
Connelly, Mass Ventures LLC, Michael Dailey, Mark B. Skaletsky and Paul Mellett,
in the form attached hereto as Exhibit E.
"Stockholder Registration Statement" has the meaning set forth in Section
2.13(a).
"Stockholder Support Agreement" means a Stockholder Support Agreement in
the form attached hereto as Exhibit A.
"Sub" has the meaning set forth in the preamble.
"Surviving Corporation" has the meaning set forth in Section 2.1(a).
"Suspension Period" has the meaning set forth in Section 2.13(b).
9
"Takeover Statute" means a "fair price," "moratorium," "control share
acquisition" or other similar antitakeover statute or regulation enacted under
state or federal laws in the United States.
"Tax Return" means any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) including information returns, and any
documents with respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or other
information.
"Taxes" means any and all taxes, charges, fees, levies or other
assessments, including income, gross receipts, estimated, excise, value-added,
real or personal property, sales, withholding, social security, retirement,
unemployment, disability occupation, worker's compensation, use, service,
license, utility, net worth, payroll, ad volarem, franchise and transfer and
recording, imposed by the Internal Revenue Service or any taxing authority or
jurisdiction (whether domestic or foreign, including any federal, state, county,
local or foreign government or any subdivision or taxing agency thereof
(including a U.S. possession)), whether computed on a separate, consolidated,
unitary, combined or any other basis and whether disputed or not; and such term
shall include any interest whether paid or received, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments.
"Trade Secrets" means all trade secrets and confidential business
information (including ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
research and development information, software, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial,
marketing and business data, pricing and cost information, business and
marketing plans marketing mailing and e-mail lists, and customer and supplier
mailing and e-mail lists and information).
"Trading Day" means any day on which the Nasdaq National Market is open and
available for at least five (5) hours for the trading of securities.
"Transfer Agent" has the meaning set forth in Section 2.10.
"Welfare Plan" means, with respect to any Person, any "employee welfare
benefit plan" as defined in Section 3(1) of ERISA, which (a) such Person or any
ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or under which such Person or any ERISA Affiliate may incur any
liability and (b) covers any employee or former employee of such Person or any
ERISA Affiliate (with respect to their relationship with any such entity).
1.2 Interpretation Provisions.
(a) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement refer to this Agreement as a whole and
not to any particular provision of this Agreement, and article, section,
schedule and exhibit references are to this Agreement unless otherwise
specified. The meaning of defined terms shall be equally applicable to the
singular and plural forms of the defined terms. The terms "include" and
"including" are not limiting and mean "including without limitation."
(b) References to agreements and other documents shall be deemed to
include all subsequent amendments and other modifications thereto.
(c) References to statutes shall include all regulations promulgated
thereunder and references to statutes or regulations shall be construed as
including all statutory and regulatory provisions consolidating, amending
or replacing the statute or regulation.
(d) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement.
(e) The parties participated jointly in the negotiation and drafting
of this Agreement and the language used in this Agreement shall be deemed
to be the language chosen by the parties to express their mutual
10
intent. If an ambiguity or question of intent or interpretation arises,
then this Agreement will accordingly be construed as drafted jointly by the
parties to this Agreement, and no presumption or burden of proof will arise
favoring or disfavoring any party to this Agreement by virtue of the
authorship of any of the provisions of this Agreement.
(f) The schedules and exhibits to this Agreement are a material part
hereof and shall be treated as if fully incorporated into the body of the
Agreement.
ARTICLE 2
THE MERGER
2.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in Section 2.2
hereof), and upon the terms and subject to the conditions of this Agreement
and the DGCL, Sub shall be merged with and into the Company, the separate
corporate existence of Sub shall cease, and the Company shall continue as
the surviving corporation. The Company, as the surviving corporation after
the Merger, is hereinafter sometimes referred to as the "Surviving
Corporation."
(b) Closing. Unless this Agreement shall have been terminated pursuant
to Section 9.1, and subject to the satisfaction (or to the extent
permitted, the waiver) of the conditions set forth in Articles 6 and 7, the
closing of the transactions contemplated by this Agreement (the "Closing")
shall take place (i) at the offices of Latham & Watkins located at 135
Commonwealth Drive, Menlo Park, California 94025, as promptly as
practicable (and in any event within three (3) business days) after
satisfaction (or to the extent permitted, the waiver) of the conditions set
forth in Articles 6 and 7 or (ii) at such other time, date or place as
Parent and the Company may mutually agree.
2.2 Effective Time. As promptly as practicable after the satisfaction (or
to the extent permitted, the waiver) of the conditions set forth in Articles 6
and 7, and provided that this Agreement has not been terminated pursuant to
Section 9.1, the parties hereto shall cause the Merger to be consummated by
executing and filing a certificate of merger as contemplated by the DGCL (the
"Certificate of Merger"), with the Secretary of State of Delaware as provided in
Section 251 of the DGCL. The Merger shall be effective at the time indicated in
such Certificate of Merger (the "Effective Time").
2.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the DGCL.
2.4 Certificate of Incorporation; Bylaws.
(a) Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of Sub as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, until duly amended in accordance with applicable law.
(b) Bylaws. At the Effective Time, the Bylaws of Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter duly amended in accordance with
applicable law, the Certificate of Incorporation of the Surviving
Corporation and such Bylaws.
2.5 Directors and Officers. The directors of Sub immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation, and the officers of the Company immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation,
in each case until their respective successors are duly elected or appointed and
qualified in the manner provided in the Certificate of Incorporation and Bylaws
of the Surviving Corporation and in accordance with applicable law.
11
2.6 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any further action on the part of Parent, Sub or the Company:
(a) Company Stock. Subject to Sections 2.6(h) and 2.7, each share of
Company Stock issued and outstanding immediately prior to the Effective
Time shall be converted into the right to receive, and become exchangeable
for, such number of shares of validly issued, fully paid and nonassessable
Parent Common Stock as equals the Exchange Ratio.
(b) Shares of Parent Common Stock Issuable. The number of shares of
Parent Common Stock to be issued in connection with the Merger in exchange
for the acquisition by Parent of all outstanding shares of Company Stock,
all outstanding Company Options and Company Warrants and all other capital
stock of any class or series, and all rights to acquire any such capital
stock, shall not under any circumstances exceed the number of Merger
Shares.
(c) Sub Stock. Each share of common stock, par value $0.001 per share,
of Sub issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the
holder thereof, automatically be converted into and thereafter represent
one (1) validly issued, fully paid and nonassessable common share, par
value $0.001 per share, of the Surviving Corporation, so that thereafter
Parent will be the sole and exclusive owner of the capital stock of the
Surviving Corporation.
(d) Cancellation. Each share of Company Stock held in the treasury of
the Company immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically cease to be outstanding, be canceled and retired without
payment of any consideration therefor and cease to exist.
(e) Company Warrants. Each unexpired and unexercised Company Warrant
issued and outstanding immediately prior to the Effective Time shall be
assumed by Parent. Each Company Warrant so assumed by Parent shall continue
to have, and be subject to, the same terms and conditions as were
applicable to such Company Warrant immediately prior to the Effective Time,
provided that (i) such Company Warrant shall be exercisable for that number
of whole shares of Parent Common Stock equal to the product of the number
of shares of Company Stock that were issuable upon exercise of such Company
Warrant immediately prior to the Effective Time multiplied by the Exchange
Ratio (rounded down to the nearest whole number of shares of Parent Common
Stock) and (ii) the per share exercise price for the Parent Common Stock
issuable upon exercise of such assumed Company Warrant shall be equal to
the quotient determined by dividing the exercise price per share of Company
Stock at which such Company Warrant was exercisable immediately prior to
the Effective Time by the Exchange Ratio (rounded up to the nearest whole
cent).
(f) Company Options and Company Stock Plans. All unexpired and
unexercised Company Options then outstanding, whether vested or unvested,
together with each Company Stock Plan, shall be assumed by Parent in
accordance with the provisions described below.
(i) At the Effective Time, each unexpired and unexercised Company
Option then outstanding, whether vested or unvested, shall be, in
connection with the Merger, assumed by Parent, together with each
Company Stock Plan. Each Company Option so assumed by Parent under
this Agreement shall continue to have, and be subject to, the same
terms and conditions as were applicable to such Company Option
immediately prior to the Effective Time (including, but not limited
to, any repurchase rights or vesting provisions), provided that (x)
such Company Option shall be exercisable for that number of whole
shares of Parent Common Stock equal to the product of the number of
shares of Company Stock that were issuable upon exercise of such
Company Option immediately prior to the Effective Time multiplied by
the Exchange Ratio (rounded down to the nearest whole number of shares
of Parent Common Stock) and (y) the per share exercise price for the
Parent Common Stock issuable upon exercise of such assumed Company
Option shall be equal to the quotient determined by dividing the
exercise price per share of Company Stock at which such
12
Company Option was exercisable immediately prior to the Effective Time
by the Exchange Ratio (rounded up to the nearest whole cent).
(ii) It is the intention of the parties that the Company Options
assumed by Parent shall qualify following the Effective Time as
"incentive stock options" (as defined in Section 422 of the Code) to
the same extent the Company Options qualified as incentive stock
options immediately prior to the Effective Time and the provisions of
this Section 2.6(f) shall be applied consistent with this intent.
Following the Effective Time, Parent shall use its commercially
reasonable best efforts not to take any actions that would jeopardize
the treatment as incentive stock options of any such Company Options
that qualified as incentive stock options immediately prior to the
Effective Time.
(iii) Promptly following the Effective Time, Parent will issue to
each holder of an unexpired and unexercised Company Option an
instrument evidencing the foregoing assumption of such Company Option
by Parent.
(iv) Parent will reserve sufficient shares of Parent Common Stock
for issuance pursuant to this Section 2.6(f).
(v) Parent shall use reasonable efforts to file with the SEC on
or before the 30th day following the Closing Date a registration
statement on Form S-8 covering the shares of Parent Common Stock
issuable with respect to assumed Company Options to the extent the
shares of Parent Common Stock issuable upon exercise of such Company
Options qualify for registration on Form S-8.
(g) Adjustment to Exchange Ratio. The Exchange Ratio shall be
equitably adjusted to reflect fully the effect of any stock split, reverse
split, stock combination, stock dividend, reorganization, reclassification,
recapitalization or other like change with respect to Parent Common Stock
or Company Stock after the date hereof and prior to the Effective Date.
(h) Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued in connection with
the Merger, but in lieu thereof each Stockholder who would otherwise be
entitled to receive a fraction of a share of Parent Common Stock shall
receive from Parent an amount of cash equal to the product of (i) the
fraction of a share of Parent Common Stock to which such Stockholder would
otherwise be entitled multiplied by (ii) the Average Parent Common Stock
Price.
2.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Common Stock held by a holder who has demanded and
perfected appraisal rights for such shares in accordance with the DGCL and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal or dissenters' rights ("Dissenting Shares") shall not be
converted into or represent a right to a portion of the Merger Shares
pursuant to Section 2.6, but the holder thereof shall only be entitled to
such rights as are granted by the Company pursuant to the DGCL.
(b) Notwithstanding the provisions of Section 2.7(a) above, if any
holder of shares of Company Stock who demands appraisal of such shares
under the DGCL shall effectively withdraw or lose (through failure to
perfect or otherwise) the right to appraisal, then, as of the later of (i)
the Effective Time or (ii) the occurrence of such event, such holder's
shares shall automatically be exchanged for and represent only the right to
receive the portion of the Merger Shares as provided in Section 2.6,
without interest thereon, upon surrender to the Company of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice of its receipt of
any written demands for appraisal of any shares of Company Stock,
withdrawals of such demands, and any other instruments relating to the
Merger served pursuant to the DGCL and received by the Company and (ii) the
opportunity to participate in all negotiations and proceedings with respect
to demands for appraisal under the DGCL. The Company shall not, except with
the prior written consent of Parent (which consent shall not be
unreasonably withheld or delayed) or as may be required under applicable
law, voluntarily make any payment with respect to any demands for appraisal
of Company Stock or offer to settle or settle any such demands.
13
2.8 No Further Ownership Rights in Shares of Company Stock. The Parent
Common Stock delivered upon the surrender for exchange of Company Stock in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Stock, and there
shall be no further registration of transfers of shares of Company Stock which
were outstanding immediately prior to the Effective Time on the records of the
Surviving Corporation. If, after the Effective Time, the Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Agreement.
2.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, Parent shall issue in exchange for
such lost, stolen or destroyed Certificates, upon the making of an affidavit of
that fact by the holder thereof, such Parent Common Stock as may be required
pursuant to Section 2.6; provided, however, that Parent may, in its sole
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct or a personal indemnification undertaking as
indemnity against any claim that may be made against Parent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
2.10 Surrender of Certificates.
(a) Exchange of Certificates. As soon as reasonably practicable after
the Effective Time, Parent shall cause the transfer agent for the Parent
Common Stock (the "Transfer Agent") to mail to each holder of record of a
Certificate or Certificates whose shares were converted into the right to
receive Parent Common Stock pursuant to Section 2.6 and who did not
surrender such Certificates in connection with the Closing: (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Transfer Agent and shall be in such form and have such
other provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Parent Common Stock, in each case in
customary form for a stock-for-stock merger transaction. Upon surrender of
a Certificate to the Transfer Agent, together with such letter of
transmittal, duly executed, and any other documents reasonably required by
the Transfer Agent, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of
Merger Shares which such holder has the right to receive pursuant to the
provisions of Section 2.6, and the Certificate so surrendered shall
forthwith be cancelled. In the event of a transfer of ownership of Company
Stock which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Parent Common Stock
may be issued to a transferee if the Certificate representing such Company
Stock is presented to the Transfer Agent or Parent to evidence and effect
such transfer and that any applicable stock transfer or other taxes have
been paid. Until surrendered as contemplated by this Section 2.10(a), each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing the appropriate number of shares of Parent Common Stock to be
delivered upon the Closing Date in exchange therefor and cash in lieu of
any fractional shares of Parent Common Stock as contemplated by Section
2.6(h).
(b) Distributions With Respect to Unexchanged Shares of Company Stock.
No dividends or other distributions with respect to Parent Common Stock
declared or made after the Effective Time and with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate
with respect to the Parent Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate.
Subject to applicable law, promptly following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing the Parent Common Stock issued in exchange therefor, without
interest, at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time, if any,
theretofore payable with respect to such Parent Common Stock.
2.11 Certain Actions to be Taken With Respect to the Funded Debt of the
Company. On or before the date that is three (3) business days prior to the
date scheduled for the Closing, the Company will provide Parent
14
with a written certificate executed by its Chief Financial Officer (the "Funded
Debt Notice"), which certificate shall set forth all Funded Debt of the Company
as of the Effective Time. Upon request, the Company will provide reasonable
documentary support for its calculations and, with regard to any Funded Debt
required to be repaid in connection with the Merger, obtain pay-off letters from
the lenders and vendors involved.
2.12 Taking of Necessary Action; Further Action. Each of Parent, Sub and
the Company will take all such reasonable lawful action as may be necessary or
appropriate in order to effect the Merger in accordance with this Agreement as
promptly as practicable. If, at any time after the Effective Time, any such
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest Parent with full right, title and possession to all the
property, rights, privileges, power and franchises of the Company, the officers
and directors of Sub, Parent and the Company immediately prior to the Effective
Time are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
2.13 Registration Rights.
(a) Registration of Shares. Parent shall use reasonable efforts to
file with the SEC, on or before the 30th day following the Closing Date, a
registration statement on Form S-3, or on Form S-1 if Parent does not
qualify for Form S-3 (the "Stockholder Registration Statement"), covering
the resale to the public by the Stockholders (the "Registering
Stockholders") who hold or may hold shares of Parent Common Stock issued in
connection with the Merger (the "Merger Common Shares"). Parent shall use
its reasonable efforts to cause the Stockholder Registration Statement to
be declared effective by the SEC within ninety (90) days after the
Effective Time, and to remain effective until the third anniversary of the
Closing Date or such earlier time as all of the Merger Common Shares
covered by the Stockholder Registration Statement have been sold pursuant
thereto (the "Effective Period"). Thereafter Parent shall be entitled to
withdraw the Stockholder Registration Statement and the Stockholders shall
have no further right to offer or sell any of the Merger Common Shares
pursuant to the Stockholder Registration Statement (or any prospectus
relating thereto). The Merger Common Shares subject to the Stockholder
Registration Statement shall not be underwritten unless Parent shall
otherwise consent in its sole discretion.
From and after the date hereof and prior to the expiration of the
Effective Period, whenever Parent proposes to file a registration statement
relating to an offering in which Parent proposes to sell shares of Parent
Common Stock for its own account (other than registration statements on
Form S-4 or Form S-8 or any successor form for securities to be offered in
a transaction of the type contemplated by Rule 145 under the Securities Act
or to employees or consultants of Parent pursuant to any employee benefit
plan), it will, prior to such filing, give at least twenty (20) days'
written notice to all Registering Stockholders of its intention to do so
(subject to the limitations set forth below) (the "Piggyback Notice") and,
upon the written request of one or more Registering Stockholders given
within ten (10) days after the Parent Piggyback Notice is given (which
request shall state the intended method of disposition of such Merger
Common Shares) (the "Holder Inclusion Notice"), Parent shall use its
reasonable best efforts to cause all Merger Common Shares that Parent has
been requested by such Registering Stockholder or Registering Stockholders
to register to be registered under the Securities Act to the extent
necessary to permit their sale or other disposition in accordance with the
intended methods of distribution specified in the Holder Inclusion Notice,
provided that (i) Parent shall have the right to postpone or withdraw any
registration effected pursuant to this paragraph without obligation to any
Registering Stockholder and (ii) the number of Merger Common Shares
proposed to be sold by any such Registering Stockholder is at least twenty-
five percent (25%) of the total number of Merger Common Shares then held by
such Registering Stockholder. In connection with any offering under this
paragraph involving an underwriting, Parent shall not be required to
include any Merger Common Shares in such underwriting unless the holders
thereof accept the terms of the underwriting as agreed upon between Parent
and the underwriter(s) of such offering.
If in the opinion of the managing underwriter(s) of such offering the
registration of all, or part of, the shares of Parent Common Stock (the
"Incidental Shares") that the Registering Stockholders have requested to be
included pursuant to the immediately preceding paragraph and/or that other
holders of shares of Parent Common Stock or other securities of Parent
entitled to include shares of Parent Common
15
Stock in such registration have requested to be included (collectively, the
"Qualified Holders") would materially and adversely affect the success of
such public offering or the price that would be received for any shares of
Parent Common Stock offered in the offering, then, notwithstanding anything
in this Section 2.13 to the contrary, Parent shall only be required to
include in such registration (to the extent of the number of shares of
Parent Common Stock that Parent is so advised can be sold in such offering)
(i) first, the number of shares of Parent Common Stock proposed to be
included in such registration for the account of Parent and/or any
stockholders of Parent that have exercised demand registration rights in
accordance with the priorities, if any, then existing among Parent and/or
such stockholders of Parent with demand registration rights and (ii)
second, the shares of Parent Common Stock requested to be included in such
registration by all other stockholders of Parent (including, without
limitation, the Registering Stockholders) pro rata among such other
stockholders (including, without limitation, the Registering Stockholders)
on the basis of the number of shares of Parent Common Stock that each of
them requested to be included in such registration.
Notwithstanding anything in this Section 2.13 to the contrary, Parent
shall not be required to provide any advance notice to Registering
Stockholders in connection with any offering under this Section 2.13
involving an underwriting if Parent has been informed in writing that in
the opinion of the managing underwriter or underwriters the inclusion of
any Incidental Shares in such offering would materially and adversely
affect the success of the offering or the price that would be received for
any shares of Parent Common Stock offered in the offering. In such event,
Parent will provide written notice to all Registering Stockholders
containing a copy of such managing underwriter's or underwriters' opinion,
which notice need not be given prior to the filing of the applicable
registration statement.
(b) Limitations on Registration Rights. Notwithstanding anything in
this Section 2.13 to the contrary, if the Company shall furnish to the
Registering Stockholders a certificate signed by the President or Chief
Executive Officer of Parent stating that the Board of Directors of Parent
has made the good faith determination that (i) continued use by the
Registering Stockholders of the Stockholder Registration Statement filed by
Parent for purposes of effecting offers or sales of Merger Common Shares
pursuant thereto would require, under the Securities Act and the rules and
regulations promulgated thereunder, premature disclosure in Stockholder
Registration Statement (or the prospectus relating thereto) of material,
nonpublic information concerning Parent, its business or prospects or any
proposed material transaction involving Parent, (ii) such premature
disclosure would be materially adverse to Parent, its business or prospects
or any such proposed material transaction or would make the successful
consummation by Parent of any such material transaction significantly less
likely and (iii) it is therefore essential to suspend the use by the
Registering Stockholders of such Stockholder Registration Statement (and
the prospectus relating thereto) for purposes of effecting offers or sales
of Merger Common Shares pursuant thereto, then the right of the Registering
Stockholders to use such Stockholder Registration Statement (and the
prospectus relating thereto) for purposes of effecting offers or sales of
Merger Common Shares pursuant thereto shall be suspended for a period (the
"Suspension Period") of not more than 90 days in any twelve (12) month
period after delivery by the Company of the certificate referred to above
in this Section 2.13(b). During the Suspension Period, none of the
Registering Stockholders shall offer or sell any Merger Common Shares
pursuant to or in reliance upon such Stockholder Registration Statement (or
the prospectus relating thereto). Parent agrees that, as promptly as
practicable after the consummation, abandonment or public disclosure of the
event or transaction that caused Parent to suspend the use of the
Registration Statement (and the prospectus relating thereto) pursuant to
this Section 2.13(b), Parent will provide the Registering Stockholders with
revised prospectuses, if required, and will notify the Registering
Stockholders of their ability to effect offers or sales of Merger Common
Shares pursuant to or in reliance upon such Stockholder Registration
Statement.
Parent agrees that no other holder of Parent Stock seeking to resell
shares of Parent Common Stock pursuant to a shelf registration statement on
Form S-3 will be permitted to sell shares of Parent Common Stock pursuant
to such shelf registration statement during a Suspension Period. Parent
shall not be required to disclose to the Registering Stockholders the
reasons for requiring a suspension of sales hereunder, and the Registering
Stockholders shall not disclose to any third party the existence of any
such suspension.
16
(c) Registration Procedures. In connection with the filing by Parent
of the Stockholder Registration Statement, Parent shall furnish to each
Registering Stockholder a copy of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act.
Subject to Section 2.13(b), Parent shall prepare and file with the SEC such
amendments and supplements to the Stockholder Registration Statement and
the prospectus used in connection with such Stockholder Registration
Statement as may be reasonably necessary to keep such Stockholder
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Merger Common Shares
pursuant to such Stockholder Registration Statement until the earlier of
(i) such time as all such Merger Common Shares have been disposed of or
(ii) the third anniversary of the Closing Date. Parent shall furnish to
each Registering Stockholder a copy of any amendment or supplement to such
Stockholder Registration Statement or prospectus prior to filing the same
with the SEC, and shall not file any such amendment or supplement to which
any such requesting Registering Stockholder shall reasonably have objected
to in writing prior to the filing thereof on the grounds that such
amendment or supplement contains a material inaccuracy with respect to the
description of such Registering Stockholder.
If Parent has delivered preliminary or final prospectuses to the
Registering Stockholders and after having done so the prospectus is amended
or supplemented to comply with the requirements of the Securities Act as
described in the immediately preceding paragraph, Parent shall promptly
notify the Registering Stockholders and, if requested by Parent, the
Registering Stockholders shall immediately cease making offers or sales of
shares under the Stockholder Registration Statement and return all
prospectuses to Parent. Parent shall promptly provide the Registering
Stockholders with revised prospectuses and, following receipt of the
revised prospectuses, the Registering Stockholders shall be free to resume
making offers and sales under the Stockholder Registration Statement.
Parent shall furnish to each requesting Registering Stockholder such
number of conformed copies of the Stockholder Registration Statement and of
each such amendment and supplement thereto (in each case including all
exhibits thereto), such number of copies of the prospectus included in such
Stockholder Registration Statement (including each preliminary prospectus)
and such number of documents, if any, incorporated by reference in such
Stockholder Registration Statement or prospectus, as such requesting
Registering Stockholder may reasonably request.
Parent shall use its reasonable best efforts to register or qualify
the Merger Common Shares covered by the Stockholder Registration Statement
under the securities or "blue sky" laws of such states as the Registering
Stockholders shall reasonably request; provided, however, that Parent shall
not be required to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction.
Parent shall pay the expenses incurred by it in complying with its
obligations under this Section 2.13, including all registration and filing
fees, exchange listing fees and fees and expenses of Parent's counsel and
accountants, but excluding (i) any brokerage fees, selling commissions or
underwriting discounts incurred by the Registering Stockholders in
connection with sales under the Stockholder Registration Statement and (ii)
the fees and expenses of any counsel retained by Registering Stockholders.
(d) Requirements of Company Stockholders. Parent shall not be required
to include any Merger Common Shares in the Stockholder Registration
Statement unless the Registering Stockholder owning such shares (i)
furnishes to Parent in writing such information regarding such Registering
Stockholder and the proposed sale of Merger Common Shares by such
Registering Stockholder as Parent may reasonably request in writing in
connection with the Stockholder Registration Statement or as shall be
required in connection therewith by the SEC or any state securities law
authorities and (ii) upon the written request of Parent, confirms in
writing its indemnification obligations under Section 2.13(e)(ii).
(e) Indemnification. In the event that any Merger Common Shares of the
Registering Stockholders are included in a registration statement pursuant
to this Agreement:
(i) To the fullest extent permitted by law, Parent will indemnify
and hold harmless each Registering Stockholder, any underwriter (as
defined in the Securities Act), and each officer, director,
17
fiduciary, employee, member, general partner and limited partner (and
affiliates thereof) of such Registering Stockholder or such
underwriter, each broker or other person acting on behalf of such
Registering Stockholder and each person, if any, who controls such
Registering Stockholder or such underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities,
joint or several, to which they may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or any violation by Parent of the Securities Act or state
securities or blue sky laws applicable to Parent and leading to action
or inaction required of Parent in connection with such registration or
qualification under such Securities Act or state securities or blue
sky laws; and will reimburse on demand such Registering Stockholder,
such underwriter, such broker or other person acting on behalf of such
Registering Stockholder or such officer, director, fiduciary,
employee, member, general partner, limited partner, affiliate or
controlling person for any legal or other expenses reasonably incurred
by any of them in connection with investigating or defending any such
loss, claim, damage, liability or action, subject to the provisions of
this Section 2.13(c); provided, however, that (x) the indemnity
agreement contained in this Section 2.13(c) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of Parent
(which consent shall not be unreasonably withheld or delayed), nor
shall Parent be liable in any such case for any such loss, damage,
liability or action to the extent that it arises out of or is based
upon an untrue statement or alleged untrue statement or omission made
in connection with such registration statement, preliminary
prospectus, final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by the
Registering Stockholders, any underwriter for them or controlling
person with respect to them and (y) the foregoing indemnity shall not
inure to the benefit of any Registering Stockholder, underwriter,
broker or other person acting on behalf of such Registering
Stockholder or such officer, director, fiduciary, employee, member,
general partner, limited partner, affiliate or controlling person from
whom the Person asserting any loss, claim, damage, liability or action
purchased Merger Common Shares during a Suspension Period or if copies
of a revised prospectus were timely delivered to such Registering
Stockholder pursuant to Section 2.13(b) and a copy of revised
prospectus was not sent or given by or on behalf of such Registering
Stockholder to such Person, if required by law to have been delivered,
and such revised prospectus would have cured the defect giving rise to
such loss, claim, damage, liability or expense.
(ii) To the fullest extent permitted by law, each Registering
Stockholder will indemnify and hold harmless Parent, each of its
directors, each of its officers who have signed such registration
statement, each person, if any, who controls Parent within the meaning
of the Securities Act, any underwriter for Parent (within the meaning
of the Securities Act), and all other Registering Stockholders against
any losses, claims, damages or liabilities to which Parent or any such
director, officer, controlling person, underwriter or other
Registering Stockholders may become subject to, under the Securities
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based
upon any untrue or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
such registration statement, preliminary prospectus, final prospectus,
or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Registering
Stockholder expressly for use in connection with such registration;
and such Registering Stockholder will reimburse any legal or other
18
expenses reasonably incurred by Parent or any such director, officer,
controlling person, underwriter or other Registering Stockholder in
connection with investigating or defending any such loss, claim,
damage, liability or action, subject to the provisions of Section
2A.5(c); provided, however, that the maximum amount of liability of
each Registering Stockholder hereunder shall be limited to the
proceeds (net of underwriting discounts and commissions, if any)
actually received by such Registering Stockholder from the sale of
Merger Common Shares covered by such registration statement, and
provided further that the indemnity agreement contained in this
Section 2.13(e)(i) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement
is effected without the consent of those Registering Stockholder(s)
against which the request for indemnity is being made (which consent
shall not be unreasonably withheld or delayed).
Promptly after receipt by an indemnified party under this Section
2.13(e) of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.13(e), notify the indemnifying
party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in and, to the extent the
indemnifying party desires, jointly with any other indemnifying party
similarly noticed, to assume at its expense the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that,
if any indemnified party shall have reasonably concluded that there
may be one or more legal defenses available to such indemnified party
that are different from or additional to those available to the
indemnifying party, or that such claim or litigation involves or could
have an effect upon matters beyond the scope of the indemnity
agreement provided in this Section 2.13(e), the indemnifying party
shall not have the right to assume the defense of such action on
behalf of such indemnified party, and such indemnifying party shall
reimburse such indemnified party and any person controlling such
indemnified party for the fees and expenses of counsel retained by the
indemnified party that are reasonably related to the matters covered
by the indemnity agreement provided in this Section 2.13(e). Subject
to the foregoing, an indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party. The failure to notify an
indemnifying party promptly of the commencement of any such action, if
materially prejudicial to his ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified
party under this Section 2.13(e), but the omission so to notify the
indemnifying party will not relieve him of any liability that the
indemnifying party may have to any indemnified party otherwise other
than under this Section 2.13.
In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any
Registering Stockholder exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for
indemnification pursuant to this Section 2.13 but it is judicially
determined that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 2.13 provides for
indemnification in such case or (ii) contribution under the Securities
Act may be required on the part of any such Registering Stockholder or
any such controlling person in circumstances for which indemnification
is provided under this Section 2.13, then, in each such case, the
Company and such Registering Stockholder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportions so that
such holder is responsible for the portion represented by the
percentage that the public offering price of its Merger Common Shares
offered by the Stockholder Registration Statement bears to the public
offering price of all securities offered by such Stockholder
Registration Statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (i) no
such holder will be required to contribute any amount in excess of the
net proceeds to it of all Merger Common Shares sold by it pursuant to
such Stockholder Registration Statement, and (ii) no person or entity
guilty of fraudulent misrepresentation, within the meaning of Section
11(f) of the Securities Act, shall be entitled to contribution from
any person or entity who is not guilty of such fraudulent
misrepresentation.
19
Notwithstanding anything in this Section 2.13 to the contrary,
if, in connection with an underwritten public offering, Parent, the
Registering Stockholders and the underwriters enter into an
underwriting or purchase agreement relating to such offering that
contains provisions covering indemnification among the parties, then
the indemnification provision of this Section 2.13(e) shall be deemed
inoperative for purposes of such offering.
(f) Rule 144. Parent shall use its reasonable best efforts to comply
with the requirements of Rule 144(c) under the Securities Act, as such Rule
may be amended from time to time (or any similar rule or regulation
hereafter adopted by the SEC), regarding the availability of current public
information to the extent required to enable each Registering Stockholder
to sell Merger Common Shares without registration under the Securities Act
pursuant to the resale provisions of Rule 144 (or any similar rule or
regulation). Upon the written request of a Registering Stockholder, Parent
will deliver to such Registering Stockholder a written statement as to
whether it has complied with such requirements and, upon a Registering
Stockholder's compliance with the applicable provisions of Rule 144, will
take such action as may reasonably be required (including, without
limitation, causing legal counsel to issue an appropriate opinion) to cause
its transfer agent to effectuate any transfer of Merger Common Shares
properly requested by such Registering Stockholder, in accordance with the
terms and conditions of Rule 144.
(g) Transferees. The Stockholder Registration Statement and the
prospectus that is a part thereof shall provide appropriate disclosure
indicating that the term "selling stockholders" as used therein shall
include donees, transferees, pledges and other successors in interest of
the Registering Stockholders. Parent hereby covenants to file any amendment
to the Stockholder Registration Statement, or supplement the prospectus
that is a part thereof, to enable any Registering Stockholder's donees,
transferees, pledges or other successors in interest to sell any Merger
Common Shares pursuant to the Stockholder Registration Statement. All
rights of any Registering Stockholder under this Section 2.13(g) shall run
to the benefit of any donees, transferees, pledges or other successors in
interest of such Registering Stockholder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement of Parent and Sub to enter into this Agreement, the
Company hereby makes, as of the date hereof and as of the Closing Date, the
following representations and warranties to Parent and Sub which representations
and warranties are, as of the date hereof, and will be, as of the Closing Date,
true and correct, except as otherwise set forth in written disclosure schedules
(the "Company Disclosure Schedules") delivered to Parent prior to the date
hereof, a copy of which is attached hereto. The Company Disclosure Schedules are
numbered to correspond to the various sections of this Article 3 setting forth
certain exceptions to the representations and warranties contained in this
Article 3 and certain other information called for by this Agreement.
Notwithstanding any other provision of this Agreement or the Company Disclosure
Schedules, each exception set forth in the Company Disclosure Schedules will be
deemed to qualify each representation and warranty set forth in this Agreement
(i) that is specifically identified (by cross-reference or otherwise) in the
Company Disclosure Schedules as being qualified by exception or (ii) with
respect to which the relevance of such exception is reasonably apparent on the
face of the disclosure of such exception set forth in the Company Disclosure
Schedules.
3.1 Organization. The Company is a corporation duly organized, validly
existing and in standing under the laws of the State of Delaware, with all
requisite corporate power and authority to conduct its Business as it is
presently being conducted and to own or lease, as applicable, the Assets owned
or leased by it. The Company is duly qualified to conduct business as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law as a result of the conduct of
its Business or the ownership of its properties. Each jurisdiction in which the
Company is qualified to do business as a foreign corporation is set forth in
Schedule 3.1.
20
3.2 Capitalization.
(a) Stock. As of the date of this Agreement, the authorized
capitalization of the Company consists of (i) 10,000,000 shares of Company
Common Stock of which 4,181,065 shares are issued and outstanding and (ii)
5,000,000 shares of Company Preferred Stock. Of the authorized shares of
Company Preferred Stock, 400,000 shares have been designated as Series A
Preferred Stock, 359,885 of which are issued and outstanding. No additional
shares of capital stock of the Company will be issued after the date hereof
except for shares of Company Stock issuable upon the exercise of Company
Options and Company Warrants outstanding on the date hereof. The Company
has no other capital stock authorized, issued or outstanding. Schedule
3.2(a) sets forth the name of each holder of shares of Company Stock, as
well as the number of shares of Company Stock held by each such holder.
(b) Warrants. As of the date of this Agreement, no shares of Company
Common Stock and 6,567 shares of Company Preferred Stock are reserved for
issuance upon the exercise of outstanding Company Warrants. Schedule 3.2(b)
sets forth the name of each holder of Company Warrants, as well as the
number of Company Warrants held by each such holder, the number of shares
of Company Stock for which each such Company Warrant is exercisable, the
date upon which each such Company Warrant becomes exercisable and the price
per share of Company Stock for which each such Company Warrant is
exercisable (without taking into account whether or not such Company
Warrant is in fact exercisable on the date hereof). True and correct copies
of the forms of warrant agreements governing all Company Warrants have been
previously provided or made available to Parent.
(c) Options. As of the date of this Agreement, 400,000 shares of
Company Common Stock are reserved for issuance upon the exercise of
outstanding Company Options. Schedule 3.2(c) sets forth the name of each
holder of Company Options, as well as the number of the Company Options
held by each such holder, the number of shares of Company Common Stock for
which each such Company Option is exercisable, the date upon which each
such Company Option becomes exercisable and the price per share of Company
Common Stock for which each such Company Option is exercisable (without
taking into account whether or not such Company Option is in fact
exercisable on the date hereof). A true and correct copy of the plan
document governing all Company Options, which contains the forms of option
agreement used in all cases, has been previously provided or made available
to Parent.
(d) No Other Capital Stock, Options, Warrants. Except for the Company
Warrants and Company Options referred to above, there are no outstanding
options, warrants, convertible securities or rights of any kind to purchase
or otherwise acquire any shares of capital stock or other securities of the
Company. Except for up to 6,567 shares of Company Preferred Stock reserved
for issuance upon exercise of Company Warrants up to 400,000 shares of
Company Common Stock reserved for issuance upon exercise of outstanding
Company Options and up to 359,885 shares of Company Common Stock reserved
for issuance upon the Conversion of Company Preferred Stock, no shares of
capital stock of the Company are reserved for issuance.
(e) Valid Issuances. All outstanding shares of Company Stock are, and
any shares of Company Stock issued upon exercise of any Company Warrant or
Company Option will be, validly issued, fully paid and non-assessable and
not subject to any preemptive or similar rights created by statute, the
Company's Certificate of Incorporation or Bylaws, or any Contract. The
outstanding shares of Company Stock, Company Warrants and Company Options
have been, and the shares of Company Stock issuable upon the exercise of
outstanding Company Warrants and Company Options will be, issued in
compliance with all federal and state corporate and securities laws.
3.3 Stockholders' Agreements, etc. Except as set forth on Schedule 3.3,
there are no stockholder agreements, voting trusts, proxies or other agreements
or understandings with respect to or concerning the purchase, sale or voting of
the capital stock of the Company.
21
3.4 Authorization. The Company has all necessary corporate power and
authority to enter into this Agreement and the Ancillary Agreements to which the
Company is a party and has taken all corporate action necessary to consummate
the transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. This Agreement has been duly executed and delivered by
the Company, and this Agreement is, and upon execution and delivery thereof each
Ancillary Agreement to which the Company is a party will be, a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights of creditors or (b) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
3.5 Officers and Directors. Schedule 3.5 contains a true, correct and
complete list of all the officers and directors of the Company.
3.6 Bank Accounts. Schedule 3.6 contains a list of all of the Company's
bank accounts, safe deposit boxes and persons authorized to draw thereon or have
access thereto.
3.7 Subsidiaries. The Company does not own or hold any equity interest of
any kind in any other Person.
3.8 Real Property.
(a) General. The Company leases all real property necessary for the
conduct of the Business as presently conducted.
(b) Owned Real Property. Schedule 3.8(b) hereto sets forth all
Facilities owned by the Company or to be acquired by it prior to the
Effective Time. With respect to each parcel of owned real property, except
as set forth on Schedule 3.8(b), (i) the Company has good and marketable
fee simple title to such parcel of real property, free and clear of any and
all Encumbrances other than Permitted Encumbrances, (ii) there are no
Leases, subleases, licenses, options, rights, concessions or other
agreements, written or oral, granting to any party or parties the right of
use or occupancy of any portion of such parcel of real property, except for
those which constitute a Permitted Encumbrance, (iii) there are no
outstanding options or rights of first refusal in favor of any other party
to purchase any such parcel of real property or any portion thereof or
interest therein, (iv) there are no parties (other than the Company) who
are in possession of or who are using any such parcel of real property,
except in connection with a Permitted Encumbrance, and (v) there is no (A)
pending or threatened condemnation proceeding relating to such parcel of
real property, (B) pending or threatened Action relating to such parcel of
real property, or (C) other matter adversely affecting the current or
currently proposed use, occupancy or value of, such parcel of real
property.
(c) Leased Real Property. Schedule 3.8(c) sets forth all Leases
pursuant to which Facilities are leased by the Company (as lessee), true
and correct copies of which have been delivered or made available to
Parent. Such Leases constitute all Leases, subleases or other occupancy
agreements pursuant to which the Company occupies or uses Facilities.
Except as set forth on Schedule 3.8(c), the Company has good and valid
leasehold title to, and enjoys peaceful and undisturbed possession of, all
leased property described in such Leases (the "Leased Property"), free and
clear of any and all Encumbrances other than any Permitted Encumbrances
which would not permit the termination of the Lease therefor by the lessor.
With respect to each such parcel of Leased Property (i) there are no
pending or threatened condemnation proceedings relating to, or any pending
or threatened Actions relating to, the Company's leasehold interests in
such Leased Property or any portion thereof, (ii) neither the Company nor
any third party has entered into any sublease, license, option, right,
concession or other agreement or arrangement, written or oral, granting to
any person the right to use or occupy such Leased Property or any portion
thereof or interest therein, except in connection with a Permitted
Encumbrance, and (iii) the Company has not received notice of any pending
or threatened special assessment relating to such Leased Property or
otherwise has any knowledge of any pending or threatened special assessment
relating thereto.
22
With respect to each Lease listed on Schedule 3.8(c), (i) there has
been no default under any such Lease by the Company or by any other party,
(ii) the execution, delivery and performance of this Agreement and the
Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby will not cause a default under any such Lease, (iii)
such Lease is a valid and binding obligation of the lessor, is in full
force and effect with respect to and is enforceable against the lessor in
accordance with its terms, except as the enforceability thereof may be
limited by (1) applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or similar laws in effect which
affect the enforcement of creditors' rights generally or (2) general
principles of equity, whether considered in a proceeding at law or in
equity, (iv) no action has been taken by the Company, and no event has
occurred which, with notice or lapse of time or both, would permit
termination, modification or acceleration by a party thereto other than the
Company without the consent of the Company under any such Lease, (v) no
party has repudiated to the Company any term thereof or threatened to the
Company to terminate, cancel or not renew any such Lease and (vi) the
Company has not assigned, transferred, conveyed, mortgaged or encumbered
any interest therein or in any leased property subject thereto (or any
portion thereof).
3.9 Personal Property.
(a) General. The Company owns or leases all personal property Assets
necessary for the conduct of the Business as presently conducted, and the
personal property Assets (taken as a whole) are in such operating condition
and repair (subject to normal wear and tear) as is necessary for the
conduct of the Business as presently conducted.
(b) Owned Personal Property. Except as set forth on Schedule 3.9(b),
the Company has good and marketable title to all such personal property
owned by it, free and clear of any and all Encumbrances other than
Permitted Encumbrances. With respect to each such item of personal property
(i) there are no Leases, subleases, licenses, options, rights, concessions
or other agreements, written or oral, granting to any party or parties the
right of use of any portion of such item of personal property, (ii) there
are no outstanding options or rights of first refusal in favor of any other
party to purchase any such item of personal property or any portion thereof
or interest therein and (iii) there are no parties (other than the Company)
who are in possession of or who are using any such item of personal
property.
(c) Leased Personal Property. The Company has good and valid leasehold
title to all of such Fixtures and Equipment, vehicles and other tangible
personal property Assets leased by it from third parties, free and clear of
any and all Encumbrances other than Permitted Encumbrances which would not
permit the termination of the lease therefor by the lessor. Schedule 3.9(c)
sets forth all Leases for personal property involving annual payments of
more than $25,000.
With respect to each Lease listed on Schedule 3.9(c), (i) there has
been no default under such Lease by the Company or by any other party, (ii)
the execution, delivery and performance of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby will not cause (with or without notice and with or without the
passage of time) a default under any such Lease, (iii) such Lease is a
valid and binding obligation of the applicable lessor, is in full force and
effect and is enforceable by the Company in accordance with its terms,
except as the enforceability thereof may be limited by (1) applicable
bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance
or similar laws in effect which affect the enforcement of creditors' rights
generally or (2) general principles of equity, whether considered in a
proceeding at law or in equity, (iv) no action has been taken by the
Company and no event has occurred which, with notice or lapse of time or
both, would permit termination, modification or acceleration by a party
thereto other than by the Company without the consent of the Company under
any such Lease, (v) no party has repudiated any term thereof or threatened
to terminate, cancel or not renew any such Lease, and (vi) the Company has
not assigned, transferred, conveyed, mortgaged or encumbered any interest
therein or in any leased property subject thereto (or any portion thereof).
23
3.10 Environmental Matters.
(a) Compliance. The Company is in compliance with all Environmental
Laws, including, without limitation, all Permits required thereunder to
conduct the Business as currently being conducted or proposed to be
conducted. All such Permits are listed on Schedule 3.10(a). The Company has
not received any notice to the effect that, or otherwise has knowledge
that, (i) it is not in compliance with, or is in violation of, any such
Environmental Laws or Permits required thereunder or (ii) any currently
existing circumstances are reasonably likely to result in a failure of the
Company to comply with, or a violation by the Company of, any such
Environmental Laws or Permits required thereunder. The Company at all times
during its existence has been in compliance with all Environmental Laws.
(b) Environmental Claims. There are no existing or potential
Environmental Claims against the Company. The Company has not received any
written notification or otherwise has any knowledge, of any allegation of
any actual, or potential responsibility for, or any inquiry or
investigation regarding, any disposal, release or threatened release at any
location of any Hazardous Substance generated or transported by the
Company.
(c) Hazardous Substances. No underground tank or other underground
storage receptacle for Hazardous Substances is currently located on the
Facilities, and there have been no releases of any Hazardous Substances
from any such underground tank or related piping and there have been no
releases (i.e., any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing, or dumping) of Hazardous Substances in quantities exceeding the
reportable quantities as defined under federal or state law on, upon or
into the Facilities other than those authorized by Environmental Laws
including, without limitation, the Permits required thereunder. In
addition, there have been no such releases by predecessors of the Company
and no releases in quantities exceeding the reportable quantities as
defined under federal or state law on, upon, or into any real property in
the immediate vicinity of any of the real properties of the Company other
than those authorized by Environmental Laws which, through soil or ground
water contamination, may have come to be located on the properties of the
Company.
(d) Environmental Indemnities. Except as set forth on Schedule
3.10(d), the Company is not a party, whether as a direct signatory or as
successor, assign or third-party beneficiary, or otherwise bound, to any
Lease or other Contract (excluding insurance policies disclosed on the
Schedules) under which the Company is obligated by or entitled to the
benefits of, directly or indirectly, any representation, warranty,
indemnification, covenant, restriction or other undertaking concerning
Environmental Conditions.
(e) No Releases. The Company has not released any other person from
any claim under any Environmental Law or waived any rights concerning any
Environmental Condition.
(f) Environmental Reports. Complete and accurate copies of the
Environmental Reports, as well as all other written environmental reports,
audits or assessments which have been conducted, either by the Company or
any person engaged by the Company for such purpose, at any facility owned
or formerly owned by the Company have been made available to Parent and a
list of all such reports, audits and assessments is set forth on Schedule
3.10(f).
3.11 Contracts.
(a) Disclosure. Schedule 3.11 sets forth a complete and accurate list
of all of the Contracts of the following categories:
(i) Contracts not made in the ordinary course of business;
(ii) License agreements, collaboration agreements, research
agreements, development agreements or royalty agreements (excluding
licenses that are commonly available on standard commercial terms,
such as software "shrink-wrap" licenses);
24
(iii) Confidentiality and non-disclosure agreements (whether the
Company is the beneficiary or the obligated party thereunder);
(iv) Contracts or commitments involving future expenditures or
Liabilities, actual or potential, in excess of $25,000 after the date
hereof or otherwise material to the Business or the Assets;
(v) Contracts or commitments relating to commission arrangements
with others that are material to the Business;
(vi) Employment contracts, consulting contracts, severance
agreements, "stay-bonus" agreements and similar arrangements,
including Contracts (A) to employ or terminate executive officers or
other personnel and other contracts with present or former officers or
directors of the Company or (B) that will result in the payment by, or
the creation of any Liability of the Company, the stockholders of the
Company or Parent to pay any severance, termination, "golden
parachute," or other similar payments to any present or former
personnel following termination of employment or otherwise as a result
of the consummation of the transactions contemplated by this
Agreement;
(vii) Indemnification agreements;
(viii) Promissory notes, loans, agreements, indentures, evidences
of indebtedness, letters of credit, guarantees, or other instruments
relating to an obligation to pay money, whether the Company shall be
the borrower, lender or guarantor thereunder (excluding credit
provided by the Company in the ordinary course of business to
purchasers of its products and obligations to pay vendors in the
ordinary course of business and consistent with past practice);
(ix) Contracts containing covenants limiting the freedom of the
Company, or any officer, director, Employee or Affiliate of the
Company, to engage in any line of business or compete with any Person
that relates directly or indirectly to the Business;
(x) Any Contract with the federal, state or local government or
any agency or department thereof;
(xi) Any Contract or other arrangement with a Related Party;
(xii) Leases of real or personal property involving annual
payments of more than $25,000; and
(xiii) Any other Contract under which the consequences of a
default or termination would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
Complete and accurate copies of all of the Contracts listed on
Schedule 3.11, including all amendments and supplements thereto, have been
made available to Parent. The Company has included as part of Schedule 3.11
a brief summary of the material terms of each oral Contract.
(b) Absence of Defaults. Except as set forth on Schedule 3.11(b), (i)
all of the Contracts are valid, binding and enforceable in accordance with
their terms with no existing or threatened Default or dispute; (ii) the
Company has fulfilled, or taken all action necessary to enable it to
fulfill when due, all of its obligations under each of such Contracts; and
(iii) all parties to such Contracts have complied with the provisions
thereof, no party is in Default thereunder and no notice of any claim of
Default has been given to the Company.
(c) Product Warranty. The Company has not committed any act, and there
has been no omission, which may result in, and there has been no occurrence
which may give rise to, product liability or Liability for breach of
warranty (whether covered by insurance or not) on the part of the Company,
with respect to products designed, manufactured, assembled, sold, repaired,
maintained, delivered or installed or services rendered prior to or on the
Closing Date which could reasonably be expected to result in Liability to
the Company exceeding $25,000 in the aggregate.
3.12 No Conflict or Violation; Consents. Except as set forth on Schedule
3.12, none of the execution, delivery or performance of this Agreement or any
Ancillary Agreement, the consummation of the transactions
25
contemplated hereby or thereby, nor compliance by the Company with any of the
provisions hereof or thereof, will (a) violate or conflict with any provision of
the Certificate of Incorporation or Bylaws of the Company, (b) violate, conflict
with, or result in a breach of or constitute a default (with or without notice
or the passage of time) under, or result in the termination of, or accelerate
the performance required by, or result in a right to terminate, accelerate,
modify or cancel under, or require a notice under, or result in the creation of
any Encumbrance upon any of the Assets under, any Contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, security interest or other
arrangement to which the Company is a party or by which the Company is bound or
to which any of the Assets are subject, (c) violate any applicable Regulation or
Court Order applicable to the Company or (d) impose any Encumbrance on any
Assets or the Business. Except as set forth on Schedule 3.12, no notices to,
declaration, filing or registration with, approvals or Consents of, or
assignments by, any Persons (including any federal, state or local governmental
or administrative authorities) are necessary to be made or obtained by the
Company in connection with the execution, delivery or performance of this
Agreement or any Ancillary Agreement to which it is a party or the consummation
of the transactions contemplated hereby or thereby.
3.13 Permits. Schedule 3.13 sets forth a complete list of all material
Permits, all of which are as of the date hereof, and will be as of the Closing
Date, in full force and effect. The Company has, and at all times has had, all
Permits required under any applicable Regulation in its operation of the
Business or in its ownership of the Assets, and owns or possesses such Permits
free and clear of all Encumbrances. The Company is not in default, nor has the
Company received any notice of any claim of default, with respect to any such
Permit. Except as otherwise governed by law, all such Permits are renewable by
their terms or in the ordinary course of business without the need to comply
with any special qualification procedures or to pay any amounts other than
routine filing fees and, except as set forth on Schedule 3.13, will not be
adversely affected by the completion of the transactions contemplated by this
Agreement or the Ancillary Agreements.
3.14 Financial Statements; Books and Records.
(a) General. The financial statements of the Company, including
without limitation the Financial Statements, are complete, are in
accordance with the Company's Books and Records and fairly present in the
financial condition, results of operations and cash flows of the Company as
of the dates and for the periods indicated thereby, in accordance with GAAP
consistently applied throughout the periods covered thereby.
(b) Internal Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed with management's authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with
management's authorization and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(c) Books and Records. The Books and Records, in reasonable detail,
accurately and fairly reflect the activities of the Company and the
Business and have been provided to Parent for its inspection.
(d) All Accounts Recorded. The Company has not engaged in any
transaction, maintained any bank account or used any corporate funds except
for transactions, bank accounts or funds which have been and are reflected
in the Books and Records.
(e) Corporate Records. The stock records and minute books of the
Company that have been made available to Parent fully reflect all minutes
of meetings, resolutions and other material actions and proceedings of its
stockholders, trustees and board of directors and all committees thereof,
all issuances, transfers and redemptions of capital stock and contain true,
correct and complete copies of their respective Certificate of
Incorporation and Bylaws of the Company and all amendments thereto through
the date hereof.
26
3.15 Absence of Certain Changes or Events. Except as set forth on Schedule
3.15, since the Balance Sheet Date there has not been any:
(a) Company Material Adverse Change;
(b) failure to operate the Business in the ordinary course so as to
use all commercially reasonable efforts to preserve the Business intact and
to preserve the continued services of the Company's employees and the
goodwill of strategic partners, suppliers, customers and others having
business relations with the Company or its Representatives;
(c) resignation or termination of any officer, director or manager, or
any increase in the rate of compensation payable or to become payable to
any officer, director or manager or Representative of the Company (other
than general, regularly-scheduled reviews), including the making of any
loan to, or the payment, grant or accrual of any bonus, incentive
compensation, service award or other similar benefit to, any such Person;
(d) any payment, loan or advance of any amount to or in respect of, or
the sale, transfer or lease of any properties or the Assets to, or entering
into of any Contract with, any Related Party except regular compensation to
Employees;
(e) sale, assignment, license, transfer or Encumbrance of any of the
Assets, tangible or intangible, singly or in the aggregate, other than
sales of products and services in the ordinary course of business and
consistent with past practice;
(f) new Contracts, or extensions, modifications, terminations or
renewals thereof, except for Contracts entered into, modified or terminated
in the ordinary course of business and consistent with past practice;
(g) actual or threatened termination of any customer account or group
of accounts or actual or threatened reduction in purchases or royalties
payable by any such customer or occurrence of any event that is likely to
result in any such termination or reduction;
(h) disposition or lapsing of any Proprietary Rights of the Company,
in whole or in part, or any disclosure of any trade secret, process or
know-how to any Person not an Employee;
(i) change in accounting methods or practices by the Company;
(j) revaluation by the Company of any of the Assets, including writing
off or establishing reserves with respect to inventory, notes or accounts
receivable (other than for which adequate reserves have been previously
established;
(k) damage, destruction or loss (whether or not covered by insurance)
adversely affecting the Assets, the Business or the prospects of the
Company;
(l) declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of the Company or any
redemption, purchase or other acquisition of any equity securities of the
Company;
(m) issuance or reservation for issuance by the Company of, or
commitment of it to issue or reserve for issuance, any shares of capital
stock or other equity securities or obligations or securities convertible
into or exchangeable for shares of capital stock or other equity
securities;
(n) increase, decrease or reclassification of the capital stock of the
Company;
(o) amendment of the Certificate of Incorporation or Bylaws of the
Company;
(p) capital expenditure or execution of any lease or any incurring of
liability therefor by the Company, involving payments or obligations in
excess of $25,000 in the aggregate;
(q) failure to pay any material obligation of the Company when due;
(r) cancellation of any indebtedness or waiver of any rights of
substantial value to the Company, except in the ordinary course of business
and consistent with past practice;
27
(s) indebtedness incurred by the Company for borrowed money or any
commitment to borrow money entered into by the Company, or any loans made
or agreed to be made by the Company;
(t) liability incurred by the Company except in the ordinary course of
business and consistent with past practice, or any increase or change in
any assumptions underlying or methods of calculating any bad debt,
contingency or other reserves;
(u) payment, discharge or satisfaction of any Liabilities of the
Company other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of Liabilities
reflected or reserved against in the Financial Statements or incurred in
the ordinary course of business and consistent with past practice since the
Balance Sheet Date;
(v) acquisition of any equity interest in any other Person; or
(w) agreement by the Company directly or indirectly to do any of the
foregoing.
3.16 Liabilities. Except as set forth in Schedule 3.16, the Company has no
Liabilities or obligations (absolute, accrued, contingent or otherwise) except
(i) Liabilities which are reflected and properly reserved against in the
Financial Statements, (ii) Liabilities incurred in the ordinary course of
business and consistent with past practice since the Balance Sheet Date, (iii)
Tax Liabilities and (iv) Liabilities arising under the Contracts (other than
obligations which are required to be reflected on a balance sheet prepared in
accordance with GAAP) set forth on Schedule 3.11. None of the Liabilities
described in this Section 3.16 relates to any breach of Contract, breach of
warranty, tort, infringement or violation of law or arose out of any action,
order writ, injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, investigation or dispute (collectively, "Actions").
3.17 Litigation. Except as set forth on Schedule 3.17, there is no Action,
pending or threatened or anticipated (i) against, relating to or affecting the
Company, any of the Assets or any of the Company's officers and directors as
such, (ii) which seeks to enjoin or obtain damages in respect of the
transactions contemplated hereby or by the Ancillary Agreements or (iii) with
respect to which there is a reasonable likelihood of a determination which would
prevent the Company from consummating the transactions contemplated hereby. None
of the Actions, if adversely determined against the Company, its respective
directors or officers, or any other Person could reasonably be expected to
result in a loss to the Company, individually or in the aggregate, in excess of
$25,000. There is no basis for any Action, which if adversely determined against
the Company, its directors or officers or any other Person could reasonably be
expected to result in a loss to the Company, individually or in the aggregate,
in excess of $25,000. There are currently no outstanding judgments, decrees or
orders of any court or any governmental or administrative agency against or
affecting the Company, the Business or any of the Assets. Schedule 3.17 contains
a complete and accurate description of all Actions to which the Company has been
a party or which relate to any of the Assets or the Company's officers or
directors as such, or any such Actions which were settled prior to the
institution of formal proceedings, other than Actions brought by the Company for
collection of monies owed in the ordinary course of business.
3.18 Labor Matters.
(a) General. The Company is not a party to any labor agreement with
respect to its Employees with any labor organization, group or association
and has not experienced any attempt by organized labor or its
representatives to make the Company conform to demands of organized labor
relating to its Employees or to enter into a binding agreement with
organized labor that would cover the Employees of the Company. There is no
unfair labor practice charge or complaint against the Company pending
before the National Labor Relations Board or any other governmental agency
arising out of the Company's activities, and the Company has no knowledge
of any facts or information which would give rise thereto; there is no
labor strike or labor disturbance pending or threatened against the Company
nor is any grievance currently being asserted against it; and the Company
has not experienced a work stoppage or other labor difficulty. There are no
controversies pending or threatened between the Company and its Employees,
and the Company is not aware of any facts which could reasonably result in
any such controversy.
28
(b) Compliance. The Company is in compliance in all material respects
with all applicable Regulations respecting employment practices, terms and
conditions of employment, wages and hours, equal employment opportunity,
and the payment of social security and similar taxes and is not engaged in
any unfair labor practice. The Company is not liable for any claims for
past due wages or any penalties for failure to comply with any of the
foregoing.
(c) Severance Obligations. Except as set forth on Schedule 3.18(c),
the Company has not entered into any severance, "stay-bonus" or similar
arrangement in respect of any present or former Employee that will result
in any obligation (absolute or contingent) of Parent or the Company to make
any payment to any present or former Employee following termination of
employment or upon consummation of the transactions contemplated by this
Agreement (whether or not employment is continued for any specified period
after the Effective Time). Except as set forth on Schedule 3.18(c), neither
the execution and delivery of this Agreement or any Ancillary Agreement nor
the consummation of the transactions contemplated hereby or thereby will
result in the acceleration or vesting of any other rights of any Person to
benefits under any Employee Plans.
(d) Highly Compensated Employees. Attached hereto as Schedule 3.18(d)
is a list of the names of all present Employees with total compensation
expected to exceed $75,000 in 2001 and their current compensation payable
by the Company. Notwithstanding any provision of this Agreement or any
Schedule to the contrary, the Company represents that from and after the
Effective Time no benefit or other compensation is payable to any Person
identified on Schedule 3.18(d) upon the voluntary resignation of such
Person from employment with Parent or the Company as a result of the
occurrence of the Effective Time.
3.19 Employee Benefit Plans.
(a) Employee Plans. Except as set forth on Schedule 3.19, there are
no, and since the formation of the Company, there have been no, Employee
Plans which cover or have covered employees of the Company or under which
the Company has contributed or has any obligation to contribute or with
respect to which the Company has any liability. With respect to each
Employee Plan, the Company has delivered or made available to Parent a
true, complete and correct copy of (i) such Employee Plan (or, if not
written, a written summary of its material terms) and the most recent
summary plan description, if any, related to such Employee Plan, (ii) each
trust agreement or other funding arrangement relating to such Employee
Plan, (iii) the most recent annual report (Form 5500) filed with the IRS
with respect to such Employee Plan (and, if the most recent annual report
is a Form 5500R, the most recent Form 5500C filed with respect to such
Employee Plan), (iv) the most recent actuarial report or financial
statement relating to such Employee Plan and (v) the most recent
determination letter, if any, issued by the IRS with respect to such
Employee Plan and any pending request for such a determination letter.
Neither the Company, nor any other person or entity, has any express or
implied commitment, whether legally enforceable or not, to modify, change
or terminate any Employee Plan, other than with respect to a modification,
change or termination required by ERISA or the Code.
(b) Compliance. Each Employee Plan has been administered in accordance
with its terms and all applicable laws, including ERISA and the Code, and
contributions required to be made under the terms of any of such Employee
Plans as of the date of this Agreement have been timely made or, if not yet
due, have been properly reflected on the most recent consolidated balance
sheet filed or incorporated by reference in the Company's financial
statements prior to the date of this Agreement. With respect to such
Employee Plans, no event has occurred and there exists no condition or set
of circumstances in connection with which the Company could be subject to
any liability (other than for routine benefit liabilities) under the terms
of, or with respect to, such Employee Plans, ERISA, the Code or any other
applicable Law.
(c) Qualification. The Company on behalf of itself and each ERISA
Affiliate hereby represents that: (i) each Employee Plan which is intended
to qualify under Section 401(a), Section 401(k), Section 401(m) or Section
4975(e)(6) of the Code has received a favorable determination letter from
the IRS as to its qualified status, and each trust established in
connection with any such Employee Plan which is intended
29
to be exempt from federal income taxation under Section 501(a) of the Code,
and no fact or event has occurred that could adversely affect the qualified
status of any such Employee Plan or the exempt status of any such trust and
(ii) each Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability (other than (A) liability for ordinary administrative expenses
typically incurred in a termination event or (B) if the Employee Plan is a
Pension Plan subject to Part 2 of Title I of ERISA, liability for the
accrued benefits as of the date of such termination (if and to the extent
required by ERISA) to the extent that either there are sufficient assets
set aside in a trust or insurance contract to satisfy such liability or
such liability is reflected on the most recent balance sheet included in
the Financial Statements prior to the date of this Agreement). No suit,
administrative proceeding, action or other litigation has been brought, or
is threatened, against or with respect to any such Employee Plan, including
any audit or inquiry by the IRS or United States Department of Labor (other
than routine benefits claims).
(d) Multiemployer Plans. No Employee Plan is a Multiemployer Plan or
other Pension Plan subject to Title IV of ERISA and neither the Company nor
any ERISA Affiliate has sponsored or contributed to or been required to
contribute to a multiemployer pension plan or other pension plan subject to
Title IV of ERISA. No material liability under Title IV of ERISA has been
incurred by the Company or any ERISA Affiliate that has not been satisfied
in full, and no condition exists that presents a material risk to the
Company or any ERISA Affiliate of incurring or being subject (whether
primarily, jointly or secondarily) to a liability thereunder. None of the
assets of the Company or any ERISA Affiliate is, or may reasonably be
expected to become, the subject of any lien arising under ERISA or Section
412(n) of the Code.
(e) Funding Deficiency. With respect to each Pension Plan set forth on
Schedule 3.19 that is subject to Title IV or Part 3 of Title I of ERISA or
Section 412 of the Code, (i) no reportable event (within the meaning of
Section 4043 of ERISA, other than an event that is not required to be
reported before or within 30 days of such event) has occurred or is
expected to occur, (ii) there was not an accumulated funding deficiency
(within the meaning of Section 302 of ERISA or Section 412 of the Code),
whether or not waived, as of the most recently ended plan year of such
Pension Plan; and (iii) there is no "unfunded benefit liability" (within
the meaning of Section 4001(a)(18) of ERISA).
(f) Retiree Welfare Benefits. Except as required by Law, no Employee
Plan provides any of the following retiree or post-employment benefits to
any person: medical, disability or life insurance benefits. The Company is
in compliance with (i) the requirements of the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") and the regulations
(including proposed regulations) thereunder and (ii) the applicable
requirements of the Health Insurance Portability and Accountability Act of
1996, as amended, and the regulations (including proposed regulations)
thereunder.
(g) Deductibility of Payments. There is no contract, agreement, plan
or arrangement covering any Employee or former Employee of the Company
(with respect to such Employee's relationship with the Company) that,
individually or collectively, requires the payment by the Company of any
amount (i) that is not deductible under Section 162(a)(1) or 404 of the
Code or (ii) that is an "excess parachute payment" pursuant to Section 280G
of the Code.
(h) Fiduciary Duties and Prohibited Transactions. The Company has not
engaged in, or has any liability in respect of, any transaction in
violation of Sections 404 or 406 of ERISA or any "prohibited transaction,"
as defined in Section 4975(c)(1) of the Code, for which no exemption exists
under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code, or has
otherwise violated the provisions of Part 4 of Title I, Subtitle B of ERISA
so as to create any liability of the Company. The Company has not
participated in a violation of Part 4 of Title I, Subtitle B of ERISA by
any plan fiduciary of any Welfare Plan or Pension Plan, and the Company has
not been assessed any civil penalty under Section 502(l) of ERISA.
(i) No Adoption. Neither the Company nor any ERISA Affiliate has
announced to Employees, former Employees, consultants or directors an
intention to create, or otherwise created, a legally binding
30
commitment to adopt, change or terminate any Employee Plan which is
intended to cover employees or former employees of the Company (with
respect to their relationship with the Company).
(j) Unpaid Contributions. Neither the Company nor any ERISA Affiliate
has any liability for unpaid contributions under Section 515 of ERISA.
3.20 Transactions with Related Parties. Except for employment agreements
and other compensation arrangements disclosed on Schedule 3.20, no Related Party
has (a) borrowed or loaned money or other property to the Company which has not
been repaid or returned, (b) any contractual relationship or other claims,
express or implied, of any kind whatsoever against the Company or (c) any
interest in any property used by the Company.
3.21 Compliance with Law. The Company and its predecessors have conducted
the Business in compliance in all material respects with all applicable
Regulations and Court Orders. The Company has not received any notice to the
effect that, or has otherwise been advised that, the Company or any predecessor
is not in compliance with any such Regulations or Court Orders, and the Company
has no reason to anticipate that any existing circumstances are likely to result
in any violation of any of the foregoing.
3.22 Intellectual Property.
(a) Schedule 3.22(a) lists all Company Registered Proprietary Rights
(including all trademarks and service marks that the Company have used with
the intent of creating or benefiting from any common law rights relating to
such marks) and lists any proceedings or actions pending as of the date
hereof before any court or tribunal (including the PTO or equivalent
authority anywhere in the world) related to any of the Company Registered
Proprietary Rights.
(b) The Company has all requisite right, title and interest in or
valid and enforceable rights under Contracts or Licenses to use all Company
Proprietary Rights necessary to the conduct of the Business as presently
conducted. Except as set forth on Schedule 3.22(b), each item of Company
Proprietary Rights, including all Company Registered Proprietary Rights
listed on Schedule 3.22(b), is owned exclusively by the Company (excluding
Proprietary Rights licensed to the Company under any License) and is free
and clear of any Encumbrances. Except as set forth on Schedule 3.22(b), the
Company (i) owns exclusively all trademarks, service marks and trade names
used by the Company in connection with the operation or conduct of the
Business, including the sale of any products or technology or the provision
of any services by the Company, provided, however, that the Company may use
trademarks, service marks and trade names of third parties which are
licensed to the Company or are in the public domain, and (ii) owns
exclusively, and have good title to, all copyrighted works that are
Company's products or other works of authorship that the Company otherwise
purport to own; provided, however, that such works may incorporate
copyrighted works or works of authorship, trademarks or trade names of
third parties which are licensed to the Company or are in the public
domain.
(c) To the extent that any Company Proprietary Rights have been
developed or created by any Person other than the Company, except as set
forth in Schedule 3.22(c), the Company has a written agreement with such
Person with respect thereto and the Company has either (i) obtained
ownership of, and is the exclusive owner of, all such Proprietary Rights by
operation of law or by valid assignment of any such rights or (ii) has
obtained a License under or to such Proprietary Rights.
(d) Except pursuant to agreements described in Schedule 3.22(d), the
Company has not transferred ownership of or granted any License of or other
right to use or authorized the retention of any rights to use, any
Proprietary Rights that are or were Company Proprietary Rights, to any
other Person.
(e) The Company Proprietary Rights constitute all the Proprietary
Rights necessary or desirable to conduct the Business as it currently is
conducted or as reasonably contemplated to be conducted, including, without
limitation, the design, development, distribution, marketing, manufacture,
use, import, license, and sale of the products, technology and services of
the Company (including products, technology,
31
or services currently under development). Each of the Company Proprietary
Rights owned or used by the Company immediately prior to the Closing
hereunder will be owned or available for use by the Company on identical
terms and conditions immediately subsequent to the Closing hereunder. The
Company has taken all necessary and desirable action to maintain and
protect each item of the Company Proprietary Rights that it owns or uses.
(f) Schedule 3.22(f) lists all Contracts and Licenses (including all
inbound Licenses) to which the Company is a party with respect to any
Proprietary Rights. Except as set forth in Schedule 3.22(f), no Person
other than the Company has ownership rights to improvements made by the
Company in Proprietary Rights that have been licensed to the Company.
(g) Schedule 3.22(g) lists all Contracts, Licenses and agreements
between the Company and any other Person wherein or whereby the Company has
agreed to, or assumed, any obligation or duty to warrant, indemnify,
reimburse, hold harmless, guaranty or otherwise assume or incur any
obligation or Liability or provide a right of rescission with respect to
the infringement or misappropriation by the Company or such other Person of
the Proprietary Rights of any Person other than the Company.
(h) Except as set forth in Schedule 3.22(h), the operation of the
Business as currently conducted or as presently proposed to be conducted,
including the Company's design, development, use, import, manufacture and
sale of the products, technology or services (including products,
technology or services currently under development) of the Company do not
infringe or misappropriate the Proprietary Rights of any Person, violate
the rights of any Person (including rights to privacy or publicity), or
constitute unfair competition or an unfair trade practice under any
applicable Law, and the Company has not received notice from any Person
claiming that such operation or any act, product, technology or service
(including products, technology or services currently under development) of
the Company infringes or misappropriates the Proprietary Rights of any
Person or constitutes unfair competition or trade practices under any
applicable Law.
(i) Except as set forth in Schedule 3.22(i), each item of Company
Registered Proprietary Rights is valid and subsisting, and all necessary
registration, maintenance, renewal fees, annuity fees and taxes due through
the date of this Agreement in connection with such Registered Proprietary
Rights have been paid and all necessary documents and certificates in
connection with such Company Registered Proprietary Rights have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the
purposes of maintaining such Registered Proprietary Rights. Schedule
3.22(i) lists all actions that must be taken by the Company within 180 days
from the date hereof, including the payment of any registration,
maintenance, renewal fees, annuity fees and taxes or the filing of any
documents, applications or certificates for the purposes of maintaining,
perfecting or preserving or renewing any Company Registered Proprietary
Rights. Except as set forth in Schedule 3.22(i), the Company has not
registered the copyright with the U.S. Copyright Office for the latest
version of each product or technology of the Company that constitutes or
includes a copyrightable work. In each case in which the Company has
acquired ownership of any Proprietary Rights from any Person, the Company
has obtained a valid and enforceable assignment sufficient to irrevocably
transfer all rights in such Proprietary Rights (including the right to seek
damages with respect to such Proprietary Rights) to the Company, to the
maximum extent required to protect the Company's ownership interests in and
to such Proprietary Rights in accordance with applicable Laws, the Company
has recorded each such assignment of Registered Proprietary Rights with the
relevant Governmental or Regulatory Authority, including the PTO, the U.S.
Copyright Office, or their respective equivalents in any relevant foreign
jurisdiction, as the case may be.
(j) Except as set forth in Schedule 3.22(j), there are no Contracts or
Licenses between the Company and any other Person with respect to Company
Proprietary Rights under which there is any claim (or facts that may
reasonably lead to a claim) known to the Company regarding the scope of
such Contract or License, or performance under such Contract or License,
including with respect to any payments to be made or received by the
Company thereunder.
32
(k) No Person is infringing or misappropriating any Company
Proprietary Rights.
(l) The Company has taken all commercially reasonable steps to protect
its rights in confidential information and trade secrets of the Company or
provided by any other Person to the Company subject to a duty of
confidentiality. Without limiting the generality of the foregoing, the
Company has, and enforces, a policy requiring each Employee, consultant and
independent contractor to execute proprietary information, confidentiality
and invention and copyright assignment agreements, and all current and
former employees, consultants and independent contractors of the Company
have executed such agreements, as applicable. Except as set forth in
Schedule 3.22(l), forms of all such agreements have been provided to Parent
or made available to Parent for review.
(m) No Company Proprietary Rights or product, technology or service of
the Company is subject to any Order or Action or Proceeding that restricts,
or that is reasonably expected to restrict in any manner, the use, transfer
or licensing of any Company Proprietary Rights by the Company or that may
affect the validity, use or enforceability of such Company Proprietary
Rights.
(n) Neither this Agreement nor any transactions contemplated by this
Agreement will result in Parent granting any rights or licenses with
respect to the Proprietary Rights of Parent to any Person pursuant to any
Contract to which the Company is a party or by which any of its Assets are
bound.
(o) The Company has taken all necessary and appropriate steps to
protect and preserve ownership of Company Proprietary Rights. The Company
has secured valid written assignments from all consultants and employees
who contributed to the creation or development of the Company Proprietary
Rights. In the event that any consultant is concurrently employed by the
Company and a third party, the Company has taken additional steps to ensure
that any Company Proprietary Rights developed by such a consultant does not
belong to the third party or conflict with the third party's employment
agreement such steps include, but are not limited to, ensuring that all
research and development work performed by such a consultant are performed
only on the Company's facilities and only using the Company's resources,
except as set forth in Schedule 3.22(q).
3.23 Tax Matters.
(a) Filing of Tax Returns. The Company has timely filed with the
appropriate taxing authorities all Tax Returns required to be filed through
the date hereof. The Tax Returns filed are complete and accurate. Except as
set forth on Schedule 3.23(a), the Company is not presently the beneficiary
of, and has no pending request for, any extension of time within which to
file any Tax Return. The Company has delivered to Parent complete and
accurate copies of the federal and state income Tax Returns of the Company
for the years 1998, 1999 and 2000, and has delivered or made available to
Parent complete and accurate copies of all other Tax Returns of the Company
for those years.
(b) Payment of Taxes. All Taxes due from the Company in respect of
periods (or portions thereof) ending before the Closing Date have been
timely paid, or an adequate reserve (in conformity with GAAP) has been
established therefor, as set forth in the Financial Statements, and the
Company has no Liability for Taxes in excess of the amounts so paid or the
reserves so established. Except as set forth on Schedule 3.23, all Taxes
that the Company is required by law to withhold or collect have been duly
withheld or collected and have been timely paid over to the appropriate
governmental authorities to the extent due and payable.
(c) Audits, Investigations or Claims. No deficiencies for Taxes of the
Company have been claimed, proposed or assessed by any taxing or other
governmental authority. Except as set forth on Schedule 3.23, there are no
pending or threatened audits, assessments or other Actions for or relating
to any Liability in respect of Taxes of the Company, and there are no
matters under discussion with any governmental authorities with respect to
Taxes that are likely to result in an additional Liability for Taxes.
Except as set forth on Schedule 3.23, the Company has not been notified
that any taxing authority intends to audit any of the Company's Tax
Returns. Except as set forth on Schedule 3.23, no extension of a statute of
limitations relating to Taxes is in effect with respect to the Company.
33
(d) Lien. Except for Permitted Encumbrances, there are no Encumbrances
for Taxes on any of the Assets.
(e) Tax Elections. The Company has not (i) consented at any time under
Section 341(f)(1) of the Code to have the provisions of Section 341(f)(2)
of the Code apply to any disposition of any Assets; (ii) agreed, or is
required, to make any adjustment under Section 481(a) of the Code by reason
of a change in accounting method or otherwise other than as a result of the
Merger; (iii) made an election, or is required, to treat any Asset as owned
by another Person pursuant to the provisions of Section 168(f) of the Code
or as tax-exempt bond financed property or tax-exempt use property within
the meaning of Section 168 of the Code; (iv) acquired and does not own any
assets that directly or indirectly secure any debt the interest on which is
tax exempt under Section 103(a) of the Code; or (v) made any of the
foregoing elections or is required to apply any of the foregoing rules
under any comparable state or local Tax provision. Since its formation, the
Company has never been an S Corporation within the meaning of the Code.
(f) Prior Affiliated Groups. The Company is not and has never been a
member of an affiliated group of corporations within the meaning of Section
1504 of the Code or any group that has filed a combined consolidated or
unitary state or local return.
(g) Tax Sharing Agreements. There are no Tax-sharing agreements or
similar arrangements (including indemnity arrangements) with respect to or
involving the Company, the Assets or the Business and, after the Closing
Date, none of the Company, the Assets or the Business shall be bound by any
such Tax-sharing agreements or similar arrangements or have any Liability
thereunder for amounts due in respect of periods prior to the Closing Date.
(h) Partnerships. The Company has no interest in nor is it subject to
any joint venture, partnership, limited liability company or other
arrangement or contract which is treated as a partnership for federal
income tax purposes.
(i) USRPHC. The Company is not and has not been a United State real
property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in section 897(c)(1)(A)(ii) of
the Code.
(j) Other Entity Liability. The Company does not have any Liability
for the Taxes of any Person (other than Taxes of the Company without regard
to the activities of any predecessor) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract or otherwise.
3.24 Insurance. Schedule 3.24 contains a complete and accurate list of all
policies or binders of insurance (showing as to each policy or binder the
carrier, policy number, coverage limits, expiration dates, annual premiums, a
general description of the type of coverage provided and any pending claims
thereunder) of which the Company is the owner, insured or beneficiary. All of
such policies are sufficient for (i) compliance with all Regulations and all of
the Contracts, (ii) covering all reasonably foreseeable damage to and
liabilities or contingencies relating to the Company's conduct of the Business
and (iii) providing replacement cost insurance coverage for all of the Assets,
Fixtures and Equipment and all leasehold improvements. The Company is not in
default under any of such policies or binders, and has not failed to give any
notice or to present any material claim under any such policy or binder in a due
and timely fashion. There are no facts known to the Company upon which an
insurer might be justified in reducing or denying coverage or increasing
premiums on existing policies or binders. There are no outstanding unpaid claims
under any such policies or binders. Such policies and binders are in full force
and effect on the date hereof and shall be kept in full force and effect by the
Company through the Closing Date.
3.25 Accounts Receivable. Except as contemplated by Schedule 3.25, the
accounts and notes receivable reflected in the Balance Sheet, and all accounts
or notes receivable arising since the Balance Sheet Date, represent bona fide
claims against debtors for sales, services performed or other charges arising on
or before the
34
date of recording thereof, and all the goods delivered and services performed
which gave rise to said accounts were delivered or performed in accordance with
the applicable orders, Contracts or customer requirements.
3.26 Purchase Commitments and Outstanding Bids. As of the date of this
Agreement, the aggregate of all Contracts for the purchase of Inventory by the
Company, other than in the ordinary course of business, does not exceed $25,000.
No outstanding purchase or outstanding lease commitment of the Company presently
is in excess of the normal, ordinary and usual requirements of the Business or
was made at any price in excess of the now current market price or contains
terms and conditions more onerous than those usual and customary in the
Company's business. There are outstanding no pending obligations to lease real
property in addition to those identified on Schedule 3.8(c).
3.27 Suppliers. Schedule 3.27 sets forth a complete and accurate list of
the names and addresses of the ten (10) suppliers with the greatest dollar
volume of sales to the Company during the last fiscal year and during the last
fiscal quarter, showing the approximate total purchases in dollars by the
Company from each such supplier during such fiscal year. Since the Balance Sheet
Date, there has been no adverse change in the business relationship of the
Company with any supplier named on Schedule 3.27. The Company has not received
any written communication from any supplier named on Schedule 3.27 of any
intention to return, terminate or materially reduce purchases from or supplies
to the Company.
3.28 Brokers; Transaction Costs. Except as set forth on Schedule 3.28, the
Company has not entered into and will not enter into any contract, agreement,
arrangement or understanding with any Person which will result in the obligation
of Parent, the Company or any other Person to pay any finder's fee, brokerage
commission, or similar payment in connection with the transactions contemplated
hereby.
3.29 No Other Agreements to Sell the Company or the Assets. The Company has
no legal obligation, absolute or contingent, to any other Person to sell the
Assets (other than Inventory in the ordinary course of business) or to sell any
capital stock of the Company or to effect any merger, consolidation or other
reorganization of the Company or to enter into any agreement with respect
thereto, except pursuant to this Agreement.
3.30 Foreign Corrupt Practices Act. Neither the Company nor any
predecessor, agent, employee or other Person associated with or acting on behalf
of the Company or any predecessor has, directly or indirectly, used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds, violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended, or made any bribe,
rebate, payoff, influence payment, kickback or other similar unlawful payment.
3.31 Financial Information. The Company has provided to Parent prior to the
date hereof certain written financial information prepared by the Company with
respect to the Business which information was prepared for internal use only.
The Company makes no representation or warranty regarding the accuracy of such
financial information or as to whether the estimates contained therein will be
achieved, except that the Company represents and warrants that such financial
information was prepared in good faith and is based on assumptions believed by
it to be reasonable as of the date of this Agreement.
3.32 Approvals. Schedule 3.32 contains a list of all material approvals or
consents relating to the Business which are required to be given to or obtained
by the Company from any Person in connection with the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
3.33 Takeover Statutes. No Takeover Statute applicable to the Company is
applicable to the Merger or the transactions contemplated hereby.
3.34 Material Misstatements or Omissions. No representations or warranties
by the Company in this Agreement or any Ancillary Agreement to which it is a
party or in any document, written information, exhibit,
35
statement, certificate or schedule heretofore or hereinafter furnished by the
Company or any of its Representatives to Parent or Sub pursuant hereto, or in
connection with the transactions contemplated by this Agreement or by such
Ancillary Agreements contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact necessary to
make the statements or facts contained therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
As an inducement of the Company to enter into this Agreement, Parent and
Sub hereby make, as of the date hereof and as of the Closing Date, the following
representations and warranties to the Company, which representations and
warranties are, as of the date hereof, and will be, as of the Closing Date, true
and correct, except as otherwise set forth in written disclosure schedules (the
"Parent Disclosure Schedules") delivered to the Company prior to the date
hereof, a copy of which is attached hereto. The Parent Disclosure Schedules are
numbered to correspond to the various sections of this Article 4 setting forth
certain exceptions to the representations and warranties contained in this
Article 4 and certain other information called for by this Agreement.
Notwithstanding any other provision of this Agreement or the Parent Disclosure
Schedules, each exception set forth in the Parent Disclosure Schedules will be
deemed to qualify each representation and warranty set forth in this Agreement
(i) that is specifically identified (by cross-reference or otherwise) in the
Parent Disclosure Schedules as being qualified by such exception or (ii) with
respect to which the relevance of such exception is reasonably apparent on the
face of the disclosure of such exception set forth in the Parent Disclosure
Schedules.
4.1 Organization. Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to conduct its business as it is presently being
conducted and to own or lease, as applicable, the assets owned or leased by it.
Parent is duly qualified to conduct business as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is necessary
under applicable law as a result of the conduct of its business or the ownership
of its properties. Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Sub has not engaged in
any business (other than in connection with this Agreement and the transactions
contemplated hereby) since the date of its incorporation.
4.2 Capitalization.
(a) Stock. As of the date of this Agreement, the authorized
capitalization of Parent consists of (i) 50,000,000 shares of Parent Common
Stock of which 11,519,313 shares are issued and outstanding and (ii)
5,000,000 shares of Parent Preferred Stock, none of which are issued and
outstanding. Parent has no other capital stock authorized, issued or
outstanding except as set forth on Schedule 4.2(a).
(b) Options. As of the date of this Agreement, 1,965,297 shares of
Parent Common Stock are reserved for issuance upon the exercise of
outstanding Parent Options.
(c) No Other Capital Stock, Options, Warrants. Except for Parent
Options referred to above, there are no outstanding options, warrants,
convertible securities or rights of any kind to purchase or otherwise
acquire any shares of capital stock or other securities of the Company.
Except for (i) up to 470,000 shares of Parent Common Stock reserved for
issuance pursuant to Parent's 1996 Amended Employee Stock Purchase Plan,
(ii) up to 150,000 shares of Parent Common Stock reserved for issuance upon
exercise of Parent Options granted under Parent's 1996 Directors' Stock
Option Plan, (iii) up to 2,830,000 shares of Parent Common Stock reserved
for issuance upon exercise of Parent Options granted under Parent's 1993
Amended Incentive Stock Plan and (iv) and up to 550,000 shares of Parent
Common Stock reserved for issuance pursuant to the exercise of Parent
Options granted under Parent's 2001 Incentive Stock Plan, no shares of
capital stock of Parent are reserved for issuance.
36
(d) Valid Issuances. All outstanding shares of Parent Common Stock
are, and any shares of Parent Common Stock issued upon exercise of any
Parent Option will be, validly issued, fully paid and non-assessable and
not subject to any preemptive or similar rights created by statute,
Parent's Certificate of Incorporation or Bylaws, or any Contract. The
outstanding shares of Parent Common Stock Parent Options have been, and the
shares of Parent Common Stock issuable upon the exercise of outstanding
Parent Options will be, issued in compliance with all federal and state
corporate and securities laws.
(e) The Merger Shares to be issued pursuant to the terms of this
Agreement have been duly authorized and, when issued in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable.
(f) The authorized capital stock of Sub consists of 1,000 shares of
common stock, par value $0.001 per share, of which 100 shares are issued
and outstanding. All of such outstanding shares are owned by Parent and are
validly issued, fully paid and non-assessable.
4.3 Authorization. Each of Parent and Sub has all necessary corporate power
and authority to enter into this Agreement and the Ancillary Agreements to which
it is a party and has taken all action necessary to consummate the transactions
contemplated hereby and thereby and to perform its respective obligations
hereunder and thereunder. This Agreement has been duly executed and delivered by
each of Parent and Sub, and this Agreement is, and upon execution and delivery
thereof each of the Ancillary Agreements to which Parent or Sub is a party will
be, a valid and binding obligation of Parent or Sub, as applicable, enforceable
against Parent or Sub, as applicable, in accordance with its terms, except that
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors or (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
4.4 No Conflict or Violation; Consents. Except as set forth on Schedule
4.4, none of the execution, delivery or performance of this Agreement or any
Ancillary Agreement, the consummation of the transactions contemplated hereby or
thereby, the consummation of the Financing, nor compliance by Parent or Sub with
any of the provisions hereof or thereof, will (a) violate or conflict with any
provision of the Certificate of Incorporation or Bylaws of Parent or Sub, (b)
violate, conflict with, or result in a breach of or constitute a default (with
or without notice of passage of time) under, or result in the termination of, or
accelerate the performance required by, or result in a right to terminate,
accelerate, modify or cancel under, or require a notice under, or result in the
creation of any Encumbrance upon any of its assets under, any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, security interest or
other arrangement to which Parent or Sub is a party or by which Parent or Sub is
bound or to which any of their respective assets are subject, (c) violate any
Regulation or Court Order applicable to Parent or Sub or (d) impose any
Encumbrance on any assets of Parent or Sub or their respective businesses.
Except for filings pursuant to applicable state securities or blue sky laws and
Regulation D of the Securities Act or as set forth on Schedule 4.4, no notices
to, declaration, filing or registration with, approvals or Consents of, or
assignments by, any Persons (including any federal, state or local governmental
or administrative authorities) are necessary to be made or obtained by Parent or
Sub in connection with the execution, delivery or performance of this Agreement
or any Ancillary Agreement to which Parent and/or Sub is a party or the
consummation of (i) the transactions contemplated hereby or thereby and (ii) the
Financing.
4.5 SEC Documents; Financial Statements. Parent has timely filed all
reports required to be filed with the SEC pursuant to the Exchange Act or the
Securities Act, and has previously provided or made available to the Company
true and correct copies of all reports filed by Parent with the SEC since
December 31, 2000 (the "Parent SEC Documents"). As of their respective dates,
the Parent SEC Documents complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such SEC Documents
or such other forms, reports or other documents, and none of the Parent SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in
37
light of the circumstances under which they were made, not misleading. The
financial statements of Parent, including the notes thereto, included in the
Parent SEC Documents have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC) and fairly present (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments, which were not individually
or in the aggregate material) in all material respects the consolidated
financial position of Parent and its subsidiaries as at the dates thereof and
the results of its operations and cash flows for the periods then ended.
4.6 Absence of Certain Changes or Events. Except as otherwise set forth in
the Parent SEC Documents filed prior to the date hereof or on Schedule 4.6,
since December 31, 2000, there has not been any Parent Material Adverse Effect.
4.7 Litigation. Except as described in the Parent SEC Documents filed prior
to the date hereof, there is no Action pending against Parent, or as to which
Parent has received written notice, individually or in the aggregate, (i) that
is reasonably likely to have a Parent Material Adverse Effect or (ii) with
respect to which there is a reasonable likelihood of a determination which would
prevent Parent from consummating the transactions contemplated hereby or the
Financing.
4.8 Compliance with Laws. Parent has conducted its business in compliance
in all material respects with all applicable Regulations and Court Orders.
Parent has not received any notice to the effect that, or has otherwise been
advised that, Parent is not in compliance with any such Regulations or Court
Orders, and Parent has no reason to anticipate that any existing circumstances
are likely to result in any violation of any of the foregoing that would have,
individually or in the aggregate, a Parent Material Adverse Effect.
4.9 Tax Matters. Neither Parent nor any of its Affiliates has taken or
agreed to take any action that, to Parent's knowledge, would prevent the Merger
from constituting a transaction qualifying as a reorganization under Section
368(a) of the Code.
4.10 Opinion of Financial Advisor. The financial advisor of Parent, J.P.
Morgan H&Q, has delivered to Parent an opinion dated the date of this Agreement,
a copy of which opinion has been delivered to the Company, as to the fairness,
from a financial point of view, of the Exchange Ratio.
4.11 Takeover Statutes. No Takeover Statute applicable to Parent is
applicable to the Merger or the transactions contemplated hereby.
4.12 Intellectual Property Rights. The Parent Proprietary Rights constitute
all the Proprietary Rights necessary or desirable to conduct the business of
Parent as it is currently conducted or as reasonably contemplated to be
conducted. The operation of the Parent's business as currently conducted or as
presently proposed to be conducted, including Parent's design, development, use,
import, manufacture and sale of the products, technology or services (including
products, technology or services currently under development) of Parent do not,
to Parent's knowledge, infringe or misappropriate the Proprietary Rights of any
Person, violate the rights of any Person (including rights to privacy or
publicity), or constitute unfair competition or an unfair trade practice under
any applicable Law, and Parent has not received notice from any Person claiming
that such operation or any act, product, technology or service (including
products, technology or services currently under development) of Parent
infringes or misappropriates the Proprietary Rights of any Person or constitutes
unfair competition or trade practices under any applicable Law.
4.13 ERISA Compliance. Parent and each of the Employee Plans established or
maintained by Parent or its ERISA Affiliates are in compliance in all material
respects with ERISA. Except as would not reasonably be expected to result in a
Parent Material Adverse Effect, no "reportable event" (as defined under ERISA)
has occurred or is reasonably expected to occur with respect to any Employee
Plan established or maintained by Parent or its ERISA Affiliates. Except as
would not reasonably be expected to result in a Parent Material
38
Adverse Effect, no Employee Plan established or maintained by Parent or its
ERISA Affiliates, if such Employee Plan were terminated, would have any "amount
of unfunded benefit liabilities" (as defined under ERISA). Except as would not
reasonably be expected to result in a Parent Material Adverse Effect, neither
Parent nor any of its ERISA Affiliates has incurred or reasonably expects to
incur any liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any Employee Plan established or maintained by Parent or any
of its ERISA Affiliates that is intended to be qualified under Section 401(a) of
the Code is so qualified and nothing has occurred, whether by action or failure
to act, which would cause the loss of such qualification, except where the
failure to so qualify would not reasonably be expected to result in a Parent
Material Adverse Effect.
4.14 Labor Matters. Except as set forth on Schedule 4.14, Parent has not
entered into any severance, "stay-bonus" or similar arrangement in respect of
any present or former Employee that will result in any obligation (absolute or
contingent) of Parent to make any payment to any present or former Employee
following termination of employment or upon consummation of (i) the transactions
contemplated by this Agreement (whether or not employment is continued for any
specified period after the Effective Time) and (ii) the Financing. Except as set
forth on Schedule 4.14, neither the execution and delivery of this Agreement or
any Ancillary Agreement, nor the consummation of the transactions contemplated
hereby or thereby, or the consummation of the Financing, will result in the
acceleration or vesting of any other rights of any Person to benefits under any
Employee Plans.
4.15 Liabilities. Except as set forth in Schedule 4.15, Parent has no
Liabilities or obligations (absolute, accrued, contingent or otherwise) except
(i) Liabilities which are reflected and properly reserved against in the
financial statements contained in the Parent SEC Documents filed prior to the
date hereof, (ii) Liabilities incurred in the ordinary course of business and
consistent with past practice since March 31, 2001 and (iii) Liabilities arising
under Contracts (other than obligations which are required to be reflected on a
balance sheet prepared in accordance with GAAP) of Parent. None of the
Liabilities described in this Section 4.15 relates to any breach of Contract,
breach of warranty, tort, infringement or violation of law or arose out of any
Action.
4.16 No Other Agreements to Sell Parent or Parent's Assets. Parent has no
legal obligation, absolute or contingent, to any other Person to sell a material
portion of its assets (other than Inventory in the ordinary course of business)
or to sell any capital stock of Parent or to effect any merger, consolidation or
other reorganization of Parent or to enter into any agreement with respect
thereto, except pursuant to this Agreement.
ARTICLE 5
ACTIONS BY THE COMPANY AND PARENT
The Company, Parent and Sub, each as indicated below, covenant as follows:
5.1 Conduct of Business. From the date hereof through the Closing Date, the
Company shall, except as otherwise expressly contemplated by this Agreement, or
as consented to by Parent in writing, operate the Business solely in the
ordinary course of business and in accordance with past practice and will not,
in any event, take any action inconsistent with this Agreement, the Ancillary
Agreements or the consummation of the Closing. Without limiting the generality
of the foregoing, the Company shall not, except as specifically contemplated by
this Agreement or as consented to by Parent in writing:
(a) incur any indebtedness for borrowed money (other than pursuant to
revolving credit lines or equipment lines in existence on the date hereof),
or assume, guarantee, endorse (other than endorsements for deposit or
collection in the ordinary course of business), or otherwise become
responsible for obligations of any other Person in excess of $25,000;
(b) issue (except pursuant to the exercise of Company Options and
Company Warrants outstanding on the date of this Agreement and disclosed in
Schedule 3.2) or commit to issue any shares of its capital
39
stock or any other securities or any securities convertible into shares of
its capital stock or any other securities, including, without limitation,
any options to acquire capital stock;
(c) declare, pay or incur any obligation to pay any dividend on its
capital stock or declare, make or incur any obligation to make any
distribution or redemption or pay any liquidation preference with respect
to its capital stock (except with respect to redemption of shares of
Company Common Stock from Employees at cost in connection with the
termination of an Employee's employment or association, as the case may be,
with the Company);
(d) make any change to the Company's Certificate of Incorporation or
Bylaws;
(e) mortgage, pledge or otherwise encumber any Assets or sell,
transfer, license or otherwise dispose of any Assets except for (i) the
sale of inventory to customers in the ordinary course of business and
consistent with past practice, (ii) Assets with an aggregate book value of
$25,000 or less, (iii) the grant of licenses in the ordinary course of
business and consistent with past practice, and (iv) pursuant to Contracts
listed on Schedule 3.11;
(f) cancel, release or assign any indebtedness owed to it or any
claims or rights held by it, except pursuant to Contracts listed on
Schedule 3.11;
(g) make any investment or commitment of a capital nature either by
purchase of stock or securities, contributions to capital, property
transfer or otherwise, or by the purchase of any property or assets of any
other Person in excess of $25,000 in the aggregate;
(h) terminate any material Contract or make any change in any material
Contract;
(i) enter into or modify any employment Contract, (ii) pay any
compensation to or for any Employee, officer or director other than in the
ordinary course of business and pursuant to existing employment
arrangements, (iii) pay or agree to pay any bonus, incentive compensation,
service award, severance, "stay bonus" or other like benefit or (iv) enter
into or modify any other Employee Plan;
(j) take any action that will result in (i) the acceleration or
vesting of any rights of any Person to benefits under any Employee Plan or
(ii) any obligation (absolute or contingent) of the Company to make any
payment to any present or former Employee following termination of
employment or upon consummation of the transactions contemplated by this
Agreement (whether or not employment is continued for any specified period
after the Effective Time);
(k) enter into or modify any Contract or other arrangement with a
Related Party;
(l) make any change in any method of accounting or accounting
practice;
(m) fail to comply with all Regulations applicable to the Assets and
the Business consistent with past practices, except for any such failures
that, individually or in the aggregate, are not reasonably likely to have a
Company Material Adverse Effect;
(n) fail to use its commercial best efforts to (i) maintain the
Business, (ii) retain the Employees so that such Employees will remain
available to the Surviving Corporation on and after the Closing Date, (iii)
maintain existing relationships with material collaborators, suppliers and
customers and others having business dealings with Parent and (iv)
otherwise to preserve the goodwill of the Business so that such
relationships and goodwill will be preserved on and after the Closing Date;
(o) make or change any election in respect of Taxes, adopt or change
any material accounting method in respect of Taxes, enter into any tax
allocation agreement, tax sharing agreement, tax indemnity agreement or
closing agreement, settle or compromise any claim, notice, audit report or
assessment in respect of Taxes, or consent to any extension or waiver of
the limitation period applicable to any claim or assessment in respect of
Taxes; or
(p) directly or indirectly take, agree to take or otherwise permit to
occur any of the actions described in Sections 5.1(a) through 5.1(o).
40
5.2 Conduct of Parent's Business. From the date hereof through the Closing
Date, Parent shall not, except as otherwise expressly contemplated by this
Agreement, or as consented to by the Company in writing, take any action
inconsistent with this Agreement, the Ancillary Agreements or the consummation
of the Closing. Without limiting the generality of the foregoing, Parent shall
not, except as specifically contemplated by this Agreement or as consented to by
the Company in writing:
(a) enter into or modify any employment Contract, (ii) pay any
compensation to or for any employee, officer or director other than in the
ordinary course of business and pursuant to existing employment
arrangements, (iii) pay or agree to pay any bonus, incentive compensation,
service award, severance, "stay bonus" or other like benefit or (iv) enter
into or modify any other employee benefit plan;
(b) take any action that will result in (i) the acceleration or
vesting of any rights of any Person to benefits under any Employee Plan or
(ii) any obligation (absolute or contingent) of Parent to make any payment
to any present or former Employee following termination of employment or
upon consummation of the transactions contemplated by this Agreement
(whether or not employment is continued for any specified period after the
Effective Time); or
(c) directly or indirectly take, agree to take or otherwise permit to
occur any of the actions described in Sections 5.2(a) or 5.2(b).
5.3 Approval of Stockholders of the Company.
(a) As soon as reasonably practicable after the date hereof, the
Company shall take all action necessary to obtain from its stockholders
necessary approval in connection with this Agreement and the transactions
contemplated hereby (including the Merger). The Company agrees that it will
submit to its stockholders a written consent in lieu of a meeting of such
stockholders (the "Stockholder Consent") (a) approving the execution,
delivery and performance by the Company of this Agreement and each of the
Ancillary Agreements to which it is a party, and the consummation of the
transactions contemplated hereby and thereby, (b) in the case of a holder
of Company Preferred Stock, agreeing not to treat the transactions
contemplated by this Agreement as a liquidation entitling such holder of
Company Preferred Stock to a liquidation preference, and (c) expressly
waiving any dissenters' appraisal or similar remedy available under the
DGCL or other applicable law. The Company, acting through its Board of
Directors, shall (i) recommend approval and adoption of this Agreement and
the Merger by the Stockholders and (ii) obtain the "approval of the
stockholders" of the Company within the meaning of the DGCL to this
Agreement and the transactions contemplated hereby and to enable the
Closing to occur as promptly as practicable. The Board of Directors of the
Company shall not withdraw, amend or modify in a manner adverse to Parent
its recommendation referred to in clause (i) of the preceding sentence (or
publicly announce its intention to do so), except that such Board of
Directors shall be permitted to withdraw, amend or modify its
recommendation (or publicly announce its intention to do so) if (x) the
Company has complied with Section 5.6, (y) a Superior Company Transaction
shall have been proposed by any Person other than Parent and such proposal
is pending at the time of such withdrawal, amendment or modification and
(z) the Company shall have notified Parent of such Superior Company
Transaction at least five days in advance of such withdrawal, amendment or
modification.
(b) "Superior Company Transaction" means any bona fide written
proposal with respect to a transaction involving all of the outstanding
Company Stock or all or substantially all of the Assets which the Board of
Directors of the Company determines, in its good faith judgment, (i)
contains terms which are more favorable and provide greater value to the
Company's stockholders than this Agreement and the Merger taken as a whole
and (ii) is reasonably capable of being completed on substantially the
terms proposed (including consideration as to whether such proposal is
fully financed, if applicable).
(c) Concurrently with the execution and delivery of this Agreement,
the Company has delivered to Parent an executed Stockholder Support
Agreement from Stockholders beneficially owning in the aggregate shares of
Company Common Stock representing not less than 51% of the issued and
outstanding Company Common Stock entitled to vote with respect to the
Merger.
41
5.4 Approval of Parent Stockholders. As soon as reasonably practicable
after the date hereof, Parent shall take all action necessary to obtain from its
stockholders necessary approval in connection with this Agreement and the
transactions contemplated hereby (including the Merger and the issuance of the
Merger Shares), including, without limitation, preparing, filing with the SEC
and mailing to its stockholders a proxy statement with respect thereto, and duly
calling, giving notice of, convening and holding a meeting or meetings of its
stockholders for such purpose. Parent, acting through its Board of Directors,
shall (i) recommend approval and adoption of this Agreement and the Merger by
the stockholders of Parent and (ii) use all commercially reasonable efforts to
obtain the "approval of the stockholders" of Parent within the meaning of the
DGCL to this Agreement and the transactions contemplated hereby and to enable
the Closing to occur as promptly as practicable. The Board of Directors of
Parent shall not withdraw, amend or modify in a manner adverse to the Company
its recommendation referred to in clause (i) of the preceding sentence (or
publicly announce its intention to do so), except that such Board of Directors
shall be permitted to withdraw, amend or modify its recommendation (or publicly
announce its intention to do so) if (x) Parent has complied with Section 5.6,
(y) a Superior Parent Transaction shall have been proposed by any Person other
than the Company and such proposal is pending at the time of such withdrawal,
amendment or modification and (z) Parent shall have notified the Company of such
Superior Parent Transaction at least five days in advance of such withdrawal,
amendment or modification.
(b) "Superior Parent Transaction" means any bona fide written proposal
with respect to a transaction involving a majority of the outstanding
Parent Common Stock or all or substantially all of the assets of Parent
which the Board of Directors of Parent determines, in its good faith
judgment, (i) contains terms which are more favorable and provide greater
value to Parent's stockholders than this Agreement and the Merger taken as
a whole and (ii) is reasonably capable of being completed on substantially
the terms proposed (including consideration as to whether such proposal is
fully financed, if applicable).
5.5 Access. From the date hereof through the Closing Date, each of the
Company and Parent shall, and shall cause its officers, Employees and
Representatives to, afford the Representatives of the other party upon
reasonable notice and at all reasonable times access to its business for the
purpose of inspecting the same, and to its officers, employees and
Representatives, properties, books and records, contracts and assets, and shall
furnish the other party and its Representatives, upon reasonable notice and in a
timely manner, all financial, operating and other data and information as the
other party, or its affiliates, through their respective Representatives, may
reasonably request.
5.6 Notification of Certain Matters. Each of the Company and Parent shall
give prompt notice to the other party of (i) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause any
representation or warranty of the party giving such notice contained in this
Agreement to be untrue or inaccurate in any material respect and (ii) any
material failure of the party giving such notice to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder or under any Ancillary Agreement; provided, however, that such
disclosure shall not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition, and provided further that no
party shall have the right to terminate this Agreement pursuant to Section 9.1
as a result of the other party's failure to promptly give such notice so long as
any such occurrence or failure required to be contained in such notice,
individually or in the aggregate, has not had and is not reasonably likely to
have a Material Adverse Effect with respect to the other party. Each of the
Company and Parent shall promptly notify the other party of any Default, the
threat or commencement of any Action, or any development that occurs before the
Closing that could reasonably be expected to result in a Material Adverse
Effect. In addition, the Company shall promptly notify Parent in the event it
determines to commence any Action or other legal proceeding and shall keep
Parent reasonably informed as to the status of any such Action or proceeding.
5.7 No Mergers, Consolidations, Sale of Stock, etc. Neither the Company nor
Parent will, directly or indirectly, through any Representative or otherwise,
(a) solicit any inquiries or proposals or enter into or continue any
discussions, negotiations or agreements relating to (i) the sale or exchange of
its capital stock, (ii) the merger of itself with, or the direct or indirect
disposition of a significant amount of its assets or its
42
business to, any Person other than Parent or the Company, as applicable, or
(iii) the licensing of the its Proprietary Rights to any Person, (except in the
ordinary course of business and consistent with past practice), or (b) provide
any assistance or any information to any Person in connection with any such
inquiry, proposal or transaction; provided, however, that nothing contained in
this Agreement shall prevent Parent or the Company from furnishing information
to, or entering into discussions or negotiations with, any Person in connection
with an unsolicited bona fide written Proposed Acquisition Transaction if and
only to the extent that (x) the Board of Directors of Parent or the Company, as
the case may be, determines that such Proposed Acquisition Transaction is
reasonably likely to result in a Superior Parent Transaction or Superior Company
Transaction, as the case may be, (y) prior to furnishing such information or
entering into such discussions or negotiations, the applicable Board of
Directors receives from such Person an executed confidentiality agreement with
terms no more favorable to such Person than those contained in the
Confidentiality Agreement and (z) prior to recommending a Superior Parent
Transaction or Superior Company Transaction, as the case may be, Parent or the
Company provides the other party at least five business days' prior notice of
its intention to make such a recommendation, during which time the Company or
Parent, as the case may be, may make, and in such case the other party shall
consider in good faith, a counterproposal to such Superior Parent Transaction or
Superior Company Transaction, as the case may be. Each of the Company and Parent
represents that it is not now engaged in discussions or negotiations with any
party other than the other party to this Agreement, with respect to any
transaction of the kind described in clauses (a) (i) through (a) (iii) of the
preceding sentence (a "Proposed Acquisition Transaction"). Each of the Company
and Parent agrees not to release any third party from, or waive any provision
of, any confidentiality or standstill agreement to which any of them is a party.
Each of the Company and Parent shall (x) promptly notify the other party (orally
and in writing) if any offer is made, any discussions or negotiations are sought
to be initiated, any inquiry, proposal or contact is made or any information is
requested with respect to any Proposed Acquisition Transaction, (y) promptly
notify the other party of the terms of any proposal which it may receive in
respect of any such Proposed Acquisition Transaction, including, without
limitation, the identity of the prospective purchaser or soliciting party and
(z) keep the other party informed of the status of such offer and the offeror's
efforts and activities with respect thereto.
Notwithstanding the foregoing, in the event that the Closing has not
occurred on or prior to November 30, 2001, each of Parent and the Company may
arrange for alternate financing through the issuance and sale of equity or debt
securities; provided, however, that (a) the negotiation and/or completion of any
such alternate financing shall not affect the rights and obligations of any
party under this Agreement, including, without limitation, each party's
obligations under Section 5.11 and (b) in the event that any such alternate
financing is completed prior to December 31, 2001, the purchaser of any such
securities shall, as a condition to the completion of such financing, execute an
irrevocable written consent approving the transactions contemplated hereby and
the Financing, which consent shall be reasonably acceptable in form and
substance (i) to Parent, in the case of such an alternate financing by the
Company or (ii) the Company, in the case of such an alternate financing by
Parent.
5.8 Nasdaq National Market Listing of Merger Shares. Parent shall use its
commercially reasonable efforts to cause the Merger Shares to be authorized for
listing on the Nasdaq National Market, subject to official notice of issuance.
5.9 Company's Auditors. The Company will use commercially reasonable
efforts to cause its management to facilitate on a timely basis (i) the
preparation of financial statements (including pro forma financial statements if
required) as required by Parent to comply with applicable SEC regulations and
(ii) the review of any Company or predecessor audit work papers, including, as
applicable, the review of selected interim financial statements and data.
5.10 Takeover Statutes; Stockholder Rights Plan. If any Takeover Statute or
stockholder rights plan is or may become applicable to the transactions
contemplated hereby or the Financing, the Boards of Directors of the Company and
Parent will grant such approvals and take such actions as are commercially
reasonably and necessary so that the transactions contemplated hereby and the
Financing may be consummated as promptly as practicable on the terms
contemplated hereby and by the Financing and otherwise act to eliminate
43
the effects of any Takeover Statute or stockholder rights plan on any of the
transactions contemplated hereby or by the Financing.
5.11 Further Assurances. Upon the terms and subject to the conditions
contained herein, the parties agree, in each case both before and after the
Closing, (i) to use all commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement and the Ancillary Agreements, (ii) to execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder and
thereunder, and (iii) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use their
respective reasonable commercial efforts (A) to obtain any necessary Consents
(including, without limitation, all filings required to be made under the HSR
Act with respect to this Agreement and the transactions contemplated hereby),
(B) to give all notices to, and make all registrations and filings with third
parties, including submissions of information requested by governmental
authorities, (C) to fulfill all other conditions to this Agreement and (D) to
cooperate in the preparation and distribution to the Stockholders of an
information statement as may be necessary to perfect an exemption from the
registration requirements of the Securities Act in connection with the issuance
of shares of Parent Common Stock to such Stockholders and the other transactions
contemplated by this Agreement. Notwithstanding the foregoing, (y) no amendment
or modification shall be made to any Contract to obtain any required Consent
without the prior written consent of Parent and (z) no party hereto or any of
their respective Affiliates shall be required to sell, transfer, divest or
otherwise dispose of any of its respective business, assets or properties in
connection with this Agreement or any of the transactions contemplated hereby.
5.12 Directors. At Effective Time, (a) certain members of the Board of
Directors of Parent shall resign from the Board of Directors of Parent and (b)
the Board of Directors of Parent shall appoint Mark B. Skaletsky to the Board of
Directors of Parent, to hold office in accordance with the Certificate of
Incorporation and Bylaws of Parent, and until his successor is duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of Parent and in accordance with applicable law. Mark
B. Skaletsky shall serve as the Chairman of the Board of Directors of Parent.
5.13 President and Chief Executive Officer. At the Effective Time, (a)
James E. Rurka shall resign from his position as Parent's President and Chief
Executive Officer and (b) the Board of Directors of Parent shall appoint Mark B.
Skaletsky as the President and Chief Executive Officer of Parent to serve at the
leisure of the Board of Directors of Parent.
5.14 Parent Name; Headquarters. In connection with the transactions
contemplated by this Agreement, Parent will (a) change its name to Essential
Therapeutics, Inc. and (b) relocate its corporate headquarters to Waltham,
Massachusetts.
5.15 Confidentiality Agreement. The parties acknowledge that Parent and the
Company have previously executed a Mutual Non-Disclosure Agreement, dated as of
May 14, 2001 (the "Confidentiality Agreement"), which shall continue in full
force and effect in accordance with its terms, except as may be expressly
modified herein.
5.16 Indemnification; Directors' and Officers' Insurance, etc.
(a) Parent shall, to the fullest extent permitted by law, cause the
Surviving Corporation (from and after the Effective Time) to honor all the
Company's obligations (including, to the extent provided as of the date
hereof, reimbursement and/or advances for payment of reasonable attorneys'
fees) to indemnify, defend and hold harmless (including any obligations to
advance funds for expenses) the current and former directors and officers
of the Company against all losses, claims, damages or liabilities arising
out of acts or omissions by any such directors and officers occurring prior
to the Effective Time to the maximum extent that such obligations of the
Company exist on the date of this Agreement, whether
44
pursuant to the Company's Certificate of Incorporation, the Company's
Bylaws, the DGCL, or otherwise, and such obligation shall survive the
Merger and shall continue in full force and effect in accordance with the
terms of the Company's Certificate of Incorporation, the Company's Bylaws,
the DGCL and individual indemnity agreements from the Effective Time until
the expiration of the applicable statute of limitations or agreement, as
the case may be, with respect to any claims against such directors or
officers arising out of such acts or omissions, provided, however, that the
Company shall have no such obligations with respect to any such losses,
claims, damages or liabilities arising out of or in connection with any
such acts or omissions (i) made by any such current or former director or
officer in bad faith, (ii) from which any such current or former director
or officer derived an improper personal benefit or (iii) which constitutes
a breach of any such current or former director's or officer's fiduciary
duties.
(b) Parent shall cause to be maintained in effect for a period of six
years from the Effective Time the current policies of directors' and
officers' liability insurance maintained by the Company (provided that
Parent may substitute therefor policies of at least the same coverage
containing terms and conditions which are not materially less advantageous)
with respect to matters or events occurring prior to the Effective Time.
(c) If the Surviving Corporation or any of its successors or assigns
(i) consolidates with or merges into another Person and the Surviving
Corporation shall not be the continuing or surviving corporation or entity
of such consolidation or merger and the continuing or surviving entity does
not assume the obligations of the Surviving Corporation set forth in this
Section 5.16 or (ii) transfers all or substantially all of its properties
and assets to any Person, then proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume, as a matter of
law or otherwise, the obligations set forth in this Section 5.16.
5.17 Tax Matters. Parent and the Company shall take no action following the
Merger that prevents the Merger from constituting a transaction qualifying as a
reorganization under Section 368(a) of the Code. Following the Merger, Parent or
one or more members of Parent's qualified group (as defined in Treasury
Regulation Section 1.368-1(d)(4)(ii)) will either continue the Company's
historic business or use a significant portion of the Company's historic
business assets in a business. Parent has no plan or intention to, and in the
one-year period following the Merger, Parent shall not, (a) liquidate the
Company, merge the Company into another Person or sell or otherwise dispose of
any of the stock of the Company, (b) cause or permit the Company to sell or
dispose of any of the Assets, except for dispositions made in the ordinary
course of business or (c) redeem or otherwise reacquire any of the Parent Common
Stock issued in the Merger. Notwithstanding the preceding sentence, Parent shall
not be precluded from (i) transferring all or part of the stock of the Company
to a corporation controlled by Parent within the meaning of Section 368(c) of
the Code or (ii) causing or permitting the Company to transfer all or part of
the Assets to a corporation controlled by the Company within the meaning of
Section 368(c) of the Code, provided that in the case of any transfer permitted
under this sentence Parent shall not cause or permit the transferee to make a
successive transfer of such stock or Assets other than to a corporation
controlled by such transferee within the meaning of Section 368(c) of the Code.
5.18 Bridge Financing. In the event that the Closing has not occurred on or
prior to September 30, 2001, the Company may from time to time request in
writing that Parent make working capital advances to the Company in an aggregate
amount not to exceed $1.5 million ($1,500,000). Within five business days after
receipt of such a request and subject to Parent's receipt from the Company of an
executed Note (as defined), Parent shall make the requested funds available to
the Company via wire transfer of immediately available funds. All working
capital advances made by Parent to the Company pursuant to this Section 5.18
shall be evidenced by a promissory note in the form attached hereto as Exhibit F
(the "Note"). The Note shall become due, and the principal and accrued interest
thereon shall be payable by the Company, immediately upon the termination of
this Agreement for any reason. Notwithstanding any other provision of this
Agreement, the Company shall have no rights to terminate this Agreement pursuant
to Section 9.1(f) after such date as Parent has made any working capital
advances to the Company pursuant to this Section 5.18.
45
ARTICLE 6
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to effect the Merger and complete the
related transactions contemplated by this Agreement are subject, in the
discretion of the Company, to the satisfaction or waiver, on or prior to the
Closing Date, of each of the following conditions:
6.1 Representations, Warranties and Covenants. All representations and
warranties of Parent and Sub contained in this Agreement shall be true and
correct at and as of the Closing Date (except for representations and warranties
which expressly refer to a particular date, which shall be true and correct as
of such date) as if such representations and warranties were made at and as of
the Closing Date, except (i) for changes contemplated by this Agreement and (ii)
where the reason for or circumstances giving rise to the failure of one or more
representations and warranties to be true and correct, individually or in the
aggregate and without regard to any qualification as to materiality or Parent
Material Adverse Effect, has not had and is not reasonably likely to have a
Parent Material Adverse Effect. Parent and Sub shall have performed in all
material respects all agreements and covenants required hereby to be performed
by them prior to or at the Closing Date. There shall be delivered to the Company
a certificate of Parent signed by its Chief Executive Officer to the foregoing
effect ("Parent Closing Certificate").
6.2 Consents. All Consents, approvals and waivers from governmental
authorities and other parties necessary to permit consummation of the Merger as
contemplated hereby and for the operation of the business of Parent after the
Closing (including all third party consents) shall have been obtained, except
for such non-governmental consents or approvals as would not, individually or in
the aggregate, have a Parent Material Adverse Effect. The Company shall be
satisfied that all approvals required under any Regulations to permit Parent and
Sub to carry out the transactions contemplated by this Agreement and the
Ancillary Agreements (including, without limitation, the expiration or
termination of the waiting period under the HSR Act) shall have been obtained,
except for such non-governmental consents or approvals as would not,
individually or in the aggregate, have a Parent Material Adverse Effect.
6.3 No Restraints or Court Orders. No temporary restraining order,
preliminary or permanent injunction, or other order issued by any court or
competent jurisdiction, or other legal restraint or prohibition preventing the
consummation of the Merger, will be in effect, and no petition or request by any
governmental authority or agency for any such injunction or other order will be
pending. There shall not be any Regulation or Court Order that makes the
acquisition of the Company Stock contemplated hereby illegal or otherwise
prohibited or that otherwise may have a Parent Material Adverse Effect.
6.4 Closing Documents. Parent shall have delivered to the Company the
documents and other items described in Section 8.2 and such other documents and
items as the Company may reasonably require.
6.5 Material Adverse Change. There shall not have been any Parent Material
Adverse Change.
6.6 Financing. The Company shall have entered into definitive agreements
with regard to the Financing, and such agreements shall be in full force and
effect. The consummation of the Financing shall occur simultaneously with the
Closing.
6.7 Nasdaq Listing. The shares of Parent Common Stock into which shares of
Company Stock will be converted in the Merger will have been authorized for
listing, subject to official notice of issuance, on the Nasdaq National Market.
6.8 Severance Agreements. Parent shall have entered into a Severance
Agreement with each of Mark B. Skaletsky, Paul Mellett, Manuel Navia, and
Patrick Connelly, and each such Severance Agreement shall be in full force and
effect.
46
6.9 Stockholders Agreement. Parent shall have entered into the Stockholders
Agreement with each of Mark B. Skaletsky, Paul Mellett, Manuel Navia, Patrick
Connelly, Mass Ventures LLC and Michael Dailey, and such Stockholders Agreement
shall be in full force and effect.
6.10 Option Agreement. Parent shall have entered into an Option Agreement
with the Company pursuant to which Parent shall have granted the Company an
option to purchase shares of Parent Common Stock under certain circumstances,
and such Option Agreement shall not have been terminated prior to the Effective
Time.
6.11 Stockholder Approval. The stockholders of Parent shall have approved
this Agreement and the transactions contemplated hereby (including the Merger)
and shall have taken all further actions related to the due authorization of the
Merger as may be required under the DGCL.
ARTICLE 7
CONDITIONS TO PARENT'S AND SUB'S OBLIGATIONS
The obligations of Parent and Sub to effect the Merger and complete the
related transactions contemplated by this Agreement are subject, in the
discretion of Parent, to the satisfaction or waiver, on or prior to the Closing
Date, of each of the following conditions:
7.1 Representations, Warranties and Covenants. All representations and
warranties of the Company contained in this Agreement shall be true and correct
at and as of the Closing Date (except for representations and warranties which
expressly refer to a particular date, which shall be true and correct as of such
date) as if such representations and warranties were made at and as of the
Closing Date, except (i) for changes contemplated by this Agreement and (ii)
where the reason for or circumstances giving rise to the failure of one or more
representations and warranties to be true and correct, individually or in the
aggregate and without regard to any qualification as to materiality or Company
Material Adverse Effect, has not had and is not reasonably likely to have a
Company Material Adverse Effect. The Company shall have performed in all
material respects all agreements and covenants required hereby to be performed
by it prior to or at the Closing Date. There shall be delivered to Parent a
certificate of the Company signed by its Chief Executive Officer to the
foregoing effect (the "Company Closing Certificate").
7.2 Consents. All Consents, approvals and waivers from governmental
authorities and other parties necessary to permit consummation of the Merger as
contemplated hereby and for the operation of the Business after the Closing
(including all required third party consents under the Contracts) shall have
been obtained except for such non-governmental consents or approvals as would
not, individually or in the aggregate, have a Company Material Adverse Effect.
Parent shall be satisfied that all approvals required under any Regulations to
permit the Company and the Stockholders to carry out the transactions
contemplated by this Agreement and the Ancillary Agreements (including, without
limitation, the expiration or termination of the waiting period under the HSR
Act) shall have been obtained, except for such non-governmental consents or
approvals as would not, individually or in the aggregate, have a Company
Material Adverse Effect.
7.3 No Restraints or Court Orders. No temporary restraining order,
preliminary or permanent injunction, or other order issued by any court of
competent jurisdiction, or other legal restraint or prohibition preventing the
consummation of the Merger, will be in effect, and no petition or request by any
governmental authority or agency for any such injunction or other order will be
pending. There shall not be any Regulation or Court Order that makes the
acquisition of the Company Stock contemplated hereby illegal or otherwise
prohibited or that otherwise may have a Company Material Adverse Effect.
7.4 Closing Documents. The Company shall have delivered to Parent the
documents and other items described in Section 8.1 and such other documents and
items as Parent may reasonably require.
47
7.5 Exemption under Federal and State Securities Laws. Parent shall have
received questionnaires and other documentation reasonably requested by Parent
from the Company and/or the Stockholders evidencing that, in connection with the
transactions contemplated by this Agreement, there are no more than 35
purchasers of securities from Parent (within the meaning of Rule 506 under the
Securities Act).
7.6 Stockholder Approval. The stockholders of Parent shall have approved
this Agreement and the transactions contemplated hereby (including the Merger)
and shall have taken all further actions related to the due authorization of the
Merger as may be required under the DGCL.
7.7 Tax Matters. No new elections with respect to Taxes, or changes in
current elections with respect to Taxes, affecting the Company shall have been
made after the date of this Agreement without the prior written consent of
Parent, which consent shall not be unreasonably withheld.
7.8 Severance Agreements. Each of Mark B. Skaletsky, Paul Mellett, Manuel
Navia, and Patrick Connelly shall have entered into an Severance Agreement with
Parent, and each such Severance Agreement shall be in full force and effect.
7.9 Stockholders Agreement. Each of Mark B. Skaletsky, Paul Mellett, Manuel
Navia, Patrick Connelly, Mass Ventures LLC and Michael Dailey shall have entered
into the Stockholders Agreement with Parent, and such Stockholders Agreement
shall be in full force and effect.
7.10 First Amended and Restated Executive Stock Purchase Agreement. Mark B.
Skaletsky and the Company shall have entered into the First Amended and Restated
Executive Stock Purchase Agreement, and such First Amended and Restated
Executive Stock Purchase Agreement shall be in full force and effect.
7.11 Execution of Stockholder Consents. Stockholders beneficially owning in
the aggregate shares of Company Stock representing not less than 51% of the
issued and outstanding Company Common Stock and not less than 51% of the issued
and outstanding Company Preferred Stock, in each case entitled to vote with
respect to the Merger, shall have duly executed and delivered the Stockholder
Consent.
7.12 Material Adverse Change. There shall not have been any Company
Material Adverse Change.
7.13 Financing. Parent shall have entered into definitive agreements with
regard to the Financing, and such agreements shall be in full force and effect.
The consummation of the Financing shall occur simultaneously with the Closing.
7.14 Option Agreement. Parent shall have entered into an Option Agreement
with the Company pursuant to which the Company shall have granted Parent an
option to purchase shares of Company Common Stock under certain circumstances,
and such Option Agreement shall not have been terminated prior to the Effective
Time.
7.15 FIRPTA Compliance. A statement in the form reasonably acceptable to
Parent for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.445-2(c)(3) shall be executed and delivered.
48
ARTICLE 8
CLOSING
On the Closing Date:
8.1 Deliveries by the Company. The Company shall deliver (or cause to be
delivered) to Parent:
(a) the Ancillary Agreements, other than the Severance Agreements, the
Option Agreements and the Stockholder Support Agreements (all of which
shall be executed and delivered on the date hereof), duly executed by each
party thereto other than Parent and Sub;
(b) any Consents that the Company has obtained in order to satisfy the
conditions in Section 7.2;
(c) the Company Closing Certificate; and
(d) Certificates representing the shares of Company Stock to be
canceled in connection with the Merger that have been obtained by the
Company on or prior to the Closing Date.
8.2 Deliveries by Parent. Parent shall deliver to the Company:
(a) the Ancillary Agreements, other than the Severance Agreements, the
Option Agreements and the Stockholder Support Agreements (all of which
shall be executed and delivered on the date hereof), duly executed by
Parent and/or Sub, as applicable;
(b) any Consents that Parent or Sub has obtained in order to satisfy
the conditions in Section 6.2;
(c) the Parent Closing Certificate; and
(d) certificates representing the Merger Shares to be issued to those
Stockholders that have delivered any Certificates and letter of transmittal
or affidavit, as provided in Section 2.10.
ARTICLE 9
MISCELLANEOUS
9.1 Termination. This Agreement may be terminated at any time prior to
Closing:
(a) by the written agreement of Parent and the Company;
(b) by Parent or the Company if the Closing shall not have occurred on
or before December 31, 2001, other than due to a breach of this Agreement
by the party seeking to terminate;
(c) by Parent if there is a breach of any representation or warranty
set forth in Article 3 or any covenant or agreement to be complied with or
performed by the Company pursuant to the terms of this Agreement, except
for breaches that, without regard to any qualifications as to materiality
or Company Material Adverse Effect contained in such representations,
warranties, covenants or agreements, have not had and are not reasonably
likely to have a Company Material Adverse Effect, and such breach persists
for fourteen (14) days or more after written notice is given, so long as
any such breach is not caused by the action or inaction of Parent or Sub;
(d) by the Company if there is a breach of any representation or
warranty set forth in Article 4 hereof or of any covenant or agreement to
be complied with or performed by Parent or Sub pursuant to the terms of
this Agreement, except for breaches that, without regard to any
qualifications as to materiality or Parent Material Adverse Effect
contained in such representations, warranties, covenants or agreements,
have not had and are not reasonably likely to have a Parent Material
Adverse Effect, and such breach persists for fourteen (14) days or more
after written notice is given, so long as any such breach is not caused by
the action or inaction of the Company or any of the Stockholders;
49
(e) by Parent or the Company if any required approval of the
stockholders of Parent for this Agreement, the Merger or the Financing
shall not have been obtained at a duly held meeting of stockholders or at
any adjournment thereof;
(f) subject to the provisions of Section 5.18, by the Company (but
only prior to approval by the Stockholders) to accept a Superior Company
Transaction in accordance with the provisions of Section 5.6, provided that
such termination under this Section 9.1(f) shall not be effective until the
Company has made payment of the fee and expenses required by Section 9.3;
(g) by Parent (but only prior to approval by the stockholders of
Parent) to accept a Superior Parent Transaction in accordance with the
provisions of Section 5.6, provided that such termination under this
Section 9.1(g) shall not be effective until Parent has made payment of the
fee and expenses required by Section 9.3;
(h) by the Company if Parent materially breaches its obligations
pursuant to Section 5.18, and such breach persists for two (2) business
days or more after written notice is given, so long as any such breach is
not caused by the action or inaction of the Company or any of the
Stockholders; or
(i) by Parent if, as of the date of the special meeting of
stockholders of Parent held in connection with the transactions
contemplated by this Agreement, the Company shall not have provided to
Parent written consents approving this Agreement and the Merger executed by
Stockholders beneficially owning in the aggregate shares of Company Common
Stock representing not less than 51% of the issued and outstanding Company
Common Stock and not less than 51% of the issued and outstanding Company
Preferred Stock, in each case to the extent required to approve the Merger.
9.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.1, this Agreement shall forthwith become void
and no party hereto shall have any liability to any other party except (i) as
set forth in Section 9.3, (ii) that no such termination shall relieve any party
from liability by reason of any willful breach by such party of its
representations, warranties, covenants or other agreements contained in this
Agreement; and (iii) the provisions of Sections 5.16, 9.3 through 9.19 of this
Agreement and the Confidentiality Agreement shall remain in full force and
effect and survive any termination of this Agreement.
9.3 Fees and Merger Expenses.
(a) Parent Merger Expenses. If the Company terminates this Agreement
pursuant to Section 9.1(f) or Parent terminates this Agreement pursuant to
Section 9.1(i), then the Company shall pay to Parent, within one business
day after request by Parent (accompanied by reasonably detailed
documentation to the extent reasonably requested by the Company) from time
to time, all of Parent's out-of-pocket expenses and fees actually incurred
in connection with this Agreement and the transactions contemplated herein
(including, without limitation, fees and expenses payable to all banks,
investment banking firms and other financial institutions and their
respective agents and counsel for arranging or providing financial advice
with respect to the Merger and all reasonable fees and expenses of counsel,
accountants, experts and consultants).
(b) Company Merger Expenses. If Parent or the Company terminates this
Agreement pursuant to Section 9.1(e) or if Parent terminates this Agreement
pursuant to Section 9.1(g), then Parent shall pay to the Company, within
one business day after request by the Company (accompanied by reasonably
detailed documentation to the extent reasonably requested by Parent) from
time to time, all of the Company's out-of-pocket expenses and fees actually
incurred in connection with this Agreement and the transactions
contemplated herein (including, without limitation, fees and expenses
payable to all banks, investment banking firms and other financial
institutions and their respective agents and counsel for arranging or
providing financial advice with respect to the Merger and all reasonable
fees and expenses of counsel, accountants, experts and consultants).
50
(c) Termination Fee.
(i) If the Company terminates this Agreement pursuant to Section
9.1(f), then the Company shall also pay concurrent with such
termination (in addition to any expenses payable pursuant to Section
9.3(a)) to Parent a fee of $1.0 million ($1,000,000).
(ii) If Parent terminates this Agreement pursuant to Section
9.1(g), then Parent shall also pay concurrent with such termination
(in addition to any expenses payable pursuant to Section 9.3(b)) to
the Company a fee of $1.0 million ($1,000,000).
9.4 Non-Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall terminate at
the Effective Time or upon the termination of this Agreement pursuant to Section
9.1, as the case may be, except that those covenants and agreements contained
herein that by their terms are to be performed after the Effective Time shall
survive the Effective Time.
9.5 Assignment. Neither this Agreement nor any of the rights or obligations
hereunder may be assigned (whether by operation of law or otherwise) by the
Company without the prior written consent of Parent, or by Parent or Sub without
the prior written consent of the Company.
9.6 Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered in person or by courier, sent by facsimile
transmission, sent via overnight delivery service or mailed by registered or
certified mail (such notice to be effective upon receipt), as follows:
If prior to the Closing, to the Company:
The Althexis Company, Inc.
1365 Main Street
Waltham, Massachusetts 02451
Attention: Mark B. Skaletsky
Fax: (781) 647-5552
With a copy to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: Julio E. Vega, Esq.
Fax: (617) 951-8736
If to Parent or Sub or, if after the Closing, to the Surviving Corporation:
Microcide Pharmaceuticals, Inc.
850 Maude Avenue
Mountain View, California 94043
Attention: James E. Rurka
Fax: (650) 428-3545
With a copy to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
Attention: Alan C. Mendelson, Esq.
Fax: (650) 463-2600
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others.
51
9.7 Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
Delaware, as applied to contracts under seal made, and entirely to be performed,
within Delaware, and without reference to principles of conflicts or choice of
laws.
9.8 Representation By Counsel. Each party hereto represents and agrees with
each other that it has been represented by or had the opportunity to be
represented by, independent counsel of its own choosing, and that it has had the
full right and opportunity to consult with its respective attorney(s), that to
the extent, if any, that it desired, it availed itself of this right and
opportunity, that it or its authorized officers (as the case may be) have
carefully read and fully understand this Agreement in its entirety and have had
it fully explained to them by such party's respective counsel, that each is
fully aware of the contents thereof and its meaning, intent and legal effect,
and that it or its authorized officer (as the case may be) is competent to
execute this Agreement and has executed this Agreement free from coercion,
duress or undue influence.
9.9 Entire Agreement; Amendments and Waivers. This Agreement, together with
the Confidentiality Agreement and the Ancillary Agreements and all exhibits and
schedules hereto and thereto, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties; provided that the Confidentiality Agreement shall remain in full force
and effect through the Effective Time. No supplement, modification or waiver of
this Agreement shall be binding unless executed in writing by the party to be
bound thereby. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
9.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.11 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
9.12 Expenses. Except as otherwise set forth herein, whether or not the
transactions contemplated by this Agreement are consummated each party shall pay
its own respective legal, accounting, advisory and other fees, and other
out-of-pocket expenses incurred in connection with the transactions contemplated
herein, and will not look to any other party for any contribution toward such
expenses.
9.13 Publicity. Except as required by law or on advice of counsel, no party
hereto shall issue any press release or make any public statement regarding the
transactions contemplated hereby without the prior approval of the other
parties, and the parties hereto shall issue a mutually acceptable press release
as soon as practicable after the date hereof and after the Closing Date.
Notwithstanding the foregoing, Parent shall be permitted to make any public
statement without obtaining the consent of any other party hereto if (i) the
disclosure is required by law or the requirements of the Nasdaq National Market
and (ii) Parent has first used its reasonable efforts to consult with (but not
to obtain the consent of) the other parties about the form and substance of such
disclosure.
9.14 Third Party Beneficiaries. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation; provided,
however, that the Registering Stockholders shall be deemed to be third party
beneficiaries solely with respect to Section 2.13.
9.15 Dispute Resolution. Subject to the provisions of Section 9.19, the
parties hereby agree that, in order to obtain prompt and expeditious resolution
of any disputes under this Agreement, each claim, dispute or controversy of
whatever nature, arising out of, in connection with, or in relation to the
interpretation,
52
performance or breach of this Agreement or the transactions contemplated hereby,
including without limitation any claim based on contract, tort or statute, or
the arbitrability of any claim hereunder (an "Arbitrable Claim"), shall be
settled by final and binding arbitration conducted in the State of Delaware. All
such Arbitrable Claims shall be settled by three (3) arbitrators in accordance
with the Commercial Arbitration Rules then in effect of the American Arbitration
Association. Such arbitrators shall be provided through the JAMS Endispute
("JAMS") by mutual agreement of the parties; provided that, absent such
agreement, the arbitrators shall be appointed by JAMS. In either event, such
arbitrators may not have any preexisting, direct or indirect relationship with
any party to the dispute. Each party hereto expressly consents to, and waives
any future objection to, such forum and arbitration rules. Judgment upon any
award may be entered by any state or federal court having jurisdiction thereof.
Except as required by law (including, without limitation, the rules and
regulations of the SEC and the Nasdaq Stock Market if applicable), neither party
nor the arbitrators shall disclose the existence, content, or results of any
arbitration hereunder without the prior written consent of all parties. Except
as provided herein, the Federal Arbitration Act shall govern the interpretation,
enforcement and all proceeding pursuant to this section.
Adherence to this dispute resolution process shall not limit the right of
the parties hereto to obtain any provisional remedy, including without
limitation, injunctive or similar relief, from any court of competent
jurisdiction as may be necessary to protect their respective rights and
interests pending arbitration. Subject to the foregoing sentence and Section
9.19, this dispute resolution procedure is intended to be the exclusive method
of resolving any Arbitrable Claims arising out of or relating to this Agreement.
The arbitration procedures shall follow the substantive law of the State of
Delaware, including the provisions of statutory law dealing with arbitration, as
it may exist at the time of the demand for arbitration, insofar as said
provisions are not in conflict with this Agreement and specifically excepting
therefrom sections of any such statute dealing with discovery and sections
requiring notice of the hearing date by registered or certified mail. The
arbitrators shall determine the prevailing party and shall include in their
award that party's reasonable attorneys' fees and costs.
9.16 Waiver of Jury Trial. Consistent with the intention of Section 9.12,
each signatory to this Agreement hereby waives its respective right to a jury
trial of any permitted claim or cause of action arising out of this agreement,
any of the transactions contemplated hereby, or any dealings between any of the
signatories hereto relating to the subject matter of this agreement or any of
the transactions contemplated hereby. The scope of this waiver is intended to be
all encompassing of any and all disputes that may be filed in any court and that
relate the subject matter of this agreement or any of the transactions
contemplated hereby, including, without limitation, contract claims, tort
claims, and all other common law and statutory claims. This waiver is
irrevocable, meaning that it may not be modified either orally or in writing,
and this waiver shall apply to any subsequent amendments, supplements or other
modifications to this agreement, any of the transactions contemplated hereby or
to any other document or agreement relating to the transactions contemplated
hereby.
9.17 Service of Process; Consent to Jurisdiction.
(a) SERVICE OF PROCESS. EACH OF THE PARTIES HERETO IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY PROCESS, PLEADING, NOTICES OR OTHER PAPERS
BY THE MAILING OF COPIES THEREOF BY REGISTERED, CERTIFIED OR FIRST CLASS
MAIL, POSTAGE PREPAID, TO SUCH PARTY AT SUCH PARTY'S ADDRESS SET FORTH
HEREIN, OR BY ANY OTHER METHOD PROVIDED OR PERMITTED UNDER DELAWARE LAW.
(b) CONSENT AND JURISDICTION. EACH PARTY HERETO IRREVOCABLY AND
UNCONDITIONALLY (I) AGREES THAT ANY SUIT, ACTION OR OTHER LEGAL PROCEEDING
ARISING OUT OF THIS AGREEMENT MAY BE BROUGHT IN THE UNITED STATES DISTRICT
COURT IN THE STATE OF DELAWARE OR, IF SUCH COURT DOES NOT HAVE JURISDICTION
OR WILL NOT ACCEPT JURISDICTION, IN ANY COURT OF GENERAL JURISDICTION IN
THE STATE OF DELAWARE; (II) CONSENTS TO THE JURISDICTION OF ANY SUCH COURT
IN ANY
53
SUCH SUIT, ACTION OR PROCEEDING; AND (III) WAIVES ANY OBJECTION WHICH SUCH
PARTY MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY SUCH COURT.
9.18 Attorney Fees. If any party to this Agreement brings an action to
enforce its rights under this Agreement in accordance with the provisions
hereof, the prevailing party shall be entitled to recover its actual out-of-
pocket costs and expenses, including without limitation reasonable attorneys'
fees reasonably incurred in connection with such action, including any appeal of
such action.
9.19 Specific Performance. Notwithstanding the provisions of Section 9.15,
the parties hereto agree that irreparable damage would occur in the event that
any covenant or agreement set forth in this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to injunctive relief to
prevent breaches of any covenant or agreement set forth in this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
* * * * * *
54
IN WITNESS WHEREOF, each party hereto has executed this Agreement or caused
this Agreement to be duly executed on its behalf by its officer thereunto duly
authorized, as of the day and year first above written.
MICROCIDE PHARMACEUTICALS, INC
/s/ James E. Rurka
By: _________________________________
Name: James E. Rurka
Title: President and Chief
Executive Officer
CALIFORNIA MP ACQUISITION, INC.
/s/ Donald D. Huffman
By: _________________________________
Name: Donald D. Huffman
Title: President
THE ALTHEXIS COMPANY,
/s/ Mark Skaletsky
By: _________________________________
Name: Mark Skaletsky
Title: Chief Executive Officer
55