Exhibit 10.1
CONVERTIBLE NOTE
AND BONUS PAYMENT AGREEMENT
This CONVERTIBLE NOTE AND BONUS PAYMENT AGREEMENT, dated as of February 28,
2002 (this "Agreement"), among (i) Essential Therapeutics, Inc., a Delaware
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corporation ("Parent"), (ii) those holders listed on Schedule 1 attached hereto
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(the "Note Payees") of convertible promissory notes issued by Maret Corporation,
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a Delaware corporation (the "Company"), (iii) those directors, officers,
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employees and consultants of the Company who are listed on Schedule 2 attached
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hereto and who execute and deliver this Agreement in the space provided for
their signatures (the "Management Payees"), (iv) the Company, and (v) and solely
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with respect to Section1.02(d)(i) hereof, Terence E. Winters, acting solely as
the Stockholder Representative referred to herein. Capitalized terms used herein
without definition shall have the meaning ascribed thereto in the Merger
Agreement.
WHEREAS, the Company is to be acquired by Parent through the merger of MC
Merger Corp., a Delaware corporation and wholly owned subsidiary of Parent
("Subcorp"), with and into the Company, as a result of which the Company will be
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the surviving corporation (the "Merger"), all in accordance with the General
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Corporation Law of the State of Delaware ("Delaware Law") and subject to the
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terms of that Agreement and Plan of Merger, of even date herewith, by and among
Parent, Subcorp, the Company and Terence E. Winters in his capacity as the
Stockholder Representative thereunder (the "Merger Agreement"); and
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WHEREAS, it is a condition to the willingness of the parties to enter into
the Merger Agreement that the parties hereto execute and deliver this Agreement
simultaneously with the execution and delivery of the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
THE PAYMENTS
SECTION 1.01. The Note Payments.
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(a) Note Payment Shares. Immediately prior to, but subject to, the
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consummation of the Merger, all outstanding principal and accrued but unpaid
interest owed by the Company to each Note Payee immediately prior to the
Effective Time (such principal and interest being hereinafter referred to, in
the case of such Note Payee, as the "Amount Due") under any promissory note,
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convertible promissory note or other instrument issued by the Company and then
held by such Note Payee (collectively, the "Notes" and each individually a
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"Note") shall (automatically and without further action by such Note Payee, the
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Company or Parent) be cancelled, and, in exchange and as full payment for such
Amount Due, Parent shall, subject to the remaining provisions of this Section
1.01, issue to such Note Payee the number of shares of Parent Common Stock set
forth opposite such Note Payee's name on Schedule 1 hereto
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under the caption "Note Payment Shares". The aggregate number of shares of
Parent Common Stock that Parent is required to issue to all of the Note Payees
pursuant to this Section 1.01 shall be referred to as the "Note Payment Shares".
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(b) Schedule 1. Schedule 1 hereto sets forth, opposite each Note
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Payee's name, the Note or Notes held by such Note Payee on the date of this
Agreement (each identified by the date of issue of each such Note and the
original principal amount thereof), and the number of Note Payment Shares to be
issued to such Note Payee. Each of the Company and the Note Payees hereby
represents and warrants to Parent and the Surviving Corporation that Schedule 1
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hereto is, and at the Closing will be, true, correct and complete, and that the
Company does not owe any amount to any of the Note Payees other than the amounts
set forth on Schedule 1 hereto. Parent and the Surviving Corporation shall be
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entitled to rely on Schedule 1 without any obligation to verify the same and
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shall have no liability to any Note Payee or any other party as a result of such
reliance.
(c) No Further Obligation. From and after the Effective Time, all of
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the Notes shall be terminated, canceled and of no further force or effect, and
none of Parent, Company or the Surviving Corporation shall have any liability or
obligation of any kind whatsoever to the Note Payees under the Notes.
(d) Transfer of Title. Each Note Payee hereby covenants and agrees
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that such Note Payee shall not transfer record or beneficial ownership of any of
the Notes at any time during the period commencing on the date hereof and ending
on the effective date of termination of this Agreement.
SECTION 1.02. The Bonus Payments.
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(a) Management Payment Shares.
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(i) At Closing. Immediately prior to, but subject to, the
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consummation of the Merger, all stay-bonus obligations owed by the Company to
each Management Payee immediately prior to the Effective Time (in the case of
each Management Payee, the "Management Stay-Bonus" and, collectively with the
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Management Stay-Bonus owed to each other Management Payee, the "Management
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Stay-Bonuses") shall (automatically and without further action by such
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Management Payee, the Company or Parent) be cancelled, and, in exchange and as
full payment for such Management Stay-Bonus, Parent shall, subject to the
remaining provisions of this Section 1.02, issue to such Management Payee the
number of shares of Parent Common Stock set forth opposite such Management
Payee's name on Schedule 2 hereto under the caption "Aggregate Management
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Payment Shares". The aggregate number of shares of Parent Common Stock that
Parent is required to issue to all of the Management Payees pursuant to this
Section 1.02 shall be 100,000 shares (subject to adjustment pursuant to the next
sentence). Any references in this Section 1.02 or in Schedule 2 hereto to any
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number of shares of Parent Common Stock 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 after the date hereof and prior to
the Effective Time. The aggregate number of shares of Parent Common Stock that
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Parent is required to issue to all of the Management Payees pursuant to this
Section 1.02 shall be referred to as the "Management Payment Shares".
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(ii) Escrow. Notwithstanding any provisions of this Agreement to
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the contrary, ten percent (10%) of the shares that each Management Payee would
otherwise be entitled to receive pursuant to Section 1.02(a) above, resulting in
an aggregate of 10,000 of the Management Payment Shares (the "Management
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Escrowed Shares"), shall be deposited with, and held by, the Escrow Agent
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pursuant to the terms of the Escrow Agreement as Escrowed Property thereunder,
for the purpose of providing for the payment of any and all indemnification
claims made by Parent pursuant to Article IX of the Merger Agreement. By
executing this Agreement, each Management Payee agrees to be bound by the terms
and obligations of the Escrow Agreement. The aggregate number of shares of
Parent Common Stock that Parent is required to issue to all of the Management
Payees pursuant to this Section 1.02, less the Management Escrowed Shares, shall
be referred to as the "Management Closing Shares".
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(b) Schedule 2. Schedule 2 hereto sets forth, opposite each Management
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Payee's name, the Management Stay-Bonus owed by the Company to such Management
Payee, and the aggregate number of Management Payment Shares to which such
Management Payee would be entitled under this Section 1.02 if the Effective Time
were occurring on the date hereof, which aggregate number of Management Payment
Shares is allocated on Schedule 2 to reflect for each Management Payee such
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Management Payee's portion of the Management Closing Shares and the Management
Escrowed Shares. Each of the Company and each Management Payee hereby represents
and warrants to Parent and the Surviving Corporation that Schedule 2 hereto is,
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and at the Closing will be, true, correct and complete, and that the Company
does not owe any stay-bonus or other kind of bonus to any of the Management
Payees other than the Management Stay-Bonuses set forth on Schedule 2 hereto
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(other than bonuses reserved for in the Company's unaudited financial statements
for the year ended December 31, 2001 owing to Gere Di Zerega and Kathleen
Rodgers in the aggregate amount of $28,400). Parent and the Surviving
Corporation shall be entitled to rely on Schedule 2 without any obligation to
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verify the same and shall have no liability to any Management Payee or any other
party as a result of such reliance.
(c) No Further Obligation. From and after the Effective Time, all of
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the Management Stay-Bonuses shall be deemed to be paid in full, and none of
Parent, Company or the Surviving Corporation shall have any liability or
obligation of any kind whatsoever to the Management Payees with respect to the
Management Stay-Bonuses and all other bonuses owed by the Company to any of the
Management Payees (other than bonuses reserved for in the Company's unaudited
financial statements for the year ended December 31, 2001 owing to Gere Di
Zerega and Kathleen Rodgers in the aggregate amount of $28,400).
(d) Additional Management Payee Agreements.
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(i) Appointment of Stockholder Representative. By signing below,
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each Management Payee hereby agrees that the Stockholder Representative
appointed pursuant to the terms of the Merger Agreement, which appointee will
initially be, Terence E. Winters, shall
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be his, her or its true and lawful agent and attorney-in-fact to enter into any
agreement in connection with the transactions contemplated by the Escrow
Agreement, to exercise all or any of the powers, authority and discretion
conferred on him under any such agreement, to give and receive notices on their
behalf and to be his, her or its exclusive representative with respect to any
matter, suit, claim, action or proceeding arising with respect to any
transaction contemplated by any such agreement, including, without limitation,
the defense, settlement or compromise of any claim, action or proceeding for
which Parent or the Surviving Corporation, may be entitled to indemnification
and, the Stockholder Representative agrees to act as, and to undertake the
duties and responsibilities of, such agent and attorney-in-fact. All actions,
decisions and instructions of the Stockholder Representative shall be conclusive
and binding upon all of the Management Payees and no Management Payee shall have
any cause of action against the Stockholder Representative for any action taken,
decision made or instruction given by the Stockholder Representative under this
Agreement or the Escrow Agreement (or for any failure to take such action, make
such decision or give such instruction).
(ii) Release. Each Management Payee hereby agrees to release the
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Company, Parent and the Surviving Corporation and their respective affiliates
(as such term is defined in the Merger Agreement), and all of their respective
past and present directors, trustees, officers, shareholders, employees, agents,
successors and assigns, and all others connected with any of them, both
individually and in their official capacities, from any and all causes of
action, rights or claims that such Management Payee may have had in the past,
now have or might now have, in any way related to, connected with or arising out
of such Management Payee's relationship, in any capacity, with the Company,
including, without limitation, any claims pursuant to any other federal, state
or local law, regulation or other requirement, or pursuant to any written or
oral contract, agreement or understanding between such Management Payee and the
Company.
(iii) Non-Disparagement. Further, each Management Payee hereby
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agrees that such Management Payee will continue to use such Management Payee's
best efforts to support and promote the interests and reputation of the Company,
Parent and/or the Surviving Corporation in the community; that such Management
Payee will not disparage the Company, Parent and/or the Surviving Corporation or
any of the people or organizations associated with it; and that Management Payee
will not otherwise do or say anything that is intended to injure the good morale
of the employees of the Company, Parent and/or the Surviving Corporation or
otherwise harm its business or reputation.
(iv) Withholding. Each Management Payee agrees to pay to the
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Company, the Surviving Corporation or Parent, as applicable, such amounts as any
of the foregoing is required to deduct and withhold under the Code, or any
provision of state, local or foreign tax law, with respect to the issuance of
the Management Payment Shares (the "Withholding Amount"). In the absence of
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payment by any Management Payee of the Withholding Amount, each of the Company,
the Surviving Corporation and/or Parent shall be entitled to deduct and withhold
from any amounts due to any Management Payee the Withholding Amount. To the
extent that amounts are so withheld by Surviving Corporation or the Parent, as
the case may be, such withheld amounts shall be treated for all purposes of this
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Agreement as having been paid to such holder in respect of which such deduction
and withholding was made by Surviving Corporation or the Parent, as the case may
be.
(e) No Obligation. Notwithstanding any provision of this Agreement to
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the contrary, any person listed on Schedule 2 hereto that fails to execute and
deliver a signature page to this Agreement prior to the Closing contemplated by
the Merger Agreement (i) shall not be a Management Payee hereunder, (ii) shall
not be entitled to any Management Stay-Bonus, and (iii) shall not be entitled to
receive any Management Payment Shares.
SECTION 1.03. Closing. Immediately prior to the Closing contemplated by the
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Merger Agreement, each Note Payee shall deliver the original Note held by it for
cancellation. Within a reasonable period of time after the Effective Time,
Parent will cause to be delivered: (i) to each Note Payee and Management Payee,
those materials that Parent or its transfer agent will require from the Note
Payees and the Management Payees, which materials may include any certifications
Parent may request with respect to compliance with any withholding obligations
of Parent or the Surviving Corporation under the Code, (ii) to each Note Payee
that has surrendered all original Notes held by such Note Payee and all required
originals (duly completed and executed by such Note Payee) of all materials
delivered to such Note Payee pursuant to the foregoing clause (i), a certificate
registered in the name of such Note Payee representing the number of Note
Payment Shares due to such Note Payee; and (ii) to each Management Payee that
has surrendered all required originals (duly completed and executed by such
Management Payee) of all materials delivered to such Note Payee pursuant to the
foregoing clause (i), a certificate registered in the name of such Management
Payee representing the number of Management Payment Shares due to such
Management Payee.
ARTICLE II
ADDITIONAL AGREEMENTS
SECTION 2.01. Termination of Securities. Each of the Management Payees and
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Note Payees hereby agrees that any Company Option, Company Warrant or
Convertible Security held by such Management Payee or Note Payee, as the case
may be, immediately prior to the Closing contemplated by the Merger Agreement,
shall (automatically and without further action by such Management Payee or Note
Payee, as the case may be, the Company, the Surviving Corporation or Parent, and
notwithstanding any notice provisions provided for therein) be cancelled,
terminated and of no further force or effect immediately prior to such Closing.
SECTION 2.02. Waiver of Appraisal Rights. Each of those Management Payees
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and Note Payees that is also a Stockholder hereby agrees to waive all
dissenters' appraisal rights or similar rights or remedies to which he, she or
it may be entitled, available under Section 262 of the Delaware General
Corporation Law, or any other applicable law, in connection with the Merger and
the transactions contemplated thereby.
SECTION 2.03. Registration Rights. Each of the Management Payees and the
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Note Payees hereby agrees to be subject to, and bound by, all of the provisions
of Section 6.06 of the
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Merger Agreement to the same extent as if such Management Payee or Note Payee,
as the case may be, were a party to the Merger Agreement.
SECTION 2.04. Stockholder Questionnaire. Each of the Management Payees and
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the Note Payees is, simultaneously with the execution and delivery of this
Agreement, executing and delivering to Parent a properly completed Stockholder
Questionnaire.
ARTICLE III
TERMINATION, AMENDMENT AND WAIVER
SECTION 3.01. Termination. This Agreement shall terminate immediately upon,
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and simultaneously with, the termination of the Merger Agreement for any reason
whatsoever. Additionally, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing:
(a) by mutual written agreement of all of the parties hereto;
(b) by Parent, in the event of a material breach by the Company, any
Note Payee or any Management Payee of any representation, warranty, covenant,
obligation or agreement contained herein that has not been cured or is not
curable by the Closing Date; or
(c) by Company, in the event of a material breach by Parent of any
representation, warranty, covenant, obligation or agreement contained herein
that has not been cured or is not curable by the Closing Date.
SECTION 3.02. Effect of Termination. In the event of the termination of
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this Agreement pursuant to Section 3.01, this Agreement shall forthwith become
void, there shall be no liability under this Agreement on the part of Parent,
the Company, any Management Payee or any Note Payee and all rights and
obligations hereunder of any party hereto shall cease; provided, however, that
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any such termination shall not affect, impair, release or terminate the rights
or liabilities of any party hereto that accrued prior to the effectiveness of
any such termination.
SECTION 3.03. Amendment. This Agreement may not be amended except by an
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instrument in writing signed by all of the parties hereto.
SECTION 3.04. Waiver. At any time prior to the Closing, any party hereto
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may (a) extend the time for the performance of any obligation or other act of
any other party hereto and (b) waive compliance with any provision of this
Agreement. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.01. Notices. All notices, requests, claims, demands and other
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communications hereunder shall be in writing, and shall be deemed to have been
duly given if
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(a) delivered personally (effective upon delivery), (b) mailed by registered or
certified mail, return receipt requested, postage prepaid (effective five days
after dispatch), (c) sent via a reputable, established courier service that
guarantees next Business Day delivery (effective the next Business Day after
delivery to such courier) or (d) sent via telecopier (effective upon the
transmission of the telecopy in complete, readable form) addressed as set forth
below (or at such other address for a party as shall be specified in a notice
given in accordance with this Section 4.01):
if to Parent:
Essential Therapeutics, Inc.
1365 Main Street
Waltham, MA 02451
Attention: President
Facsimile: 781-647-4230
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attention: Julio E. Vega, Esq.
Facsimile: 617-951-8736
if to the Company:
Maret Corporation
4041 MacArthur Blvd.
Suite 375
Newport Beach, CA 92660
Attention: President
Facsimile: 949-225-0006
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, CA 92660
Attention: Lawrence B. Cohn, Esq.
Facsimile: 949-725-4100
if to any Note Payee or Management Payee, to the address for such Payee set
forth in the Company's books and records.
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SECTION 4.02. Entire Agreement; Assignment. This Agreement, including all
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exhibits, schedules and recitals hereto, together with the Merger Agreement, the
Voting Agreement, the Escrow Agreement and the Confidentiality Agreement,
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter
hereof. This Agreement shall not be assigned by operation of law or otherwise,
except that Parent may assign all or any of their rights and obligations
hereunder to any affiliate of Parent provided that no such assignment shall
relieve the assigning party of its obligations hereunder if such assignee does
not perform such obligations.
SECTION 4.03. Governing Law; Venue. Except to the extent that Delaware Law
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is mandatorily applicable to the rights and obligations of parties to this
Agreement, this Agreement shall be governed by, and construed in accordance with
the laws of the Commonwealth of Massachusetts applicable to contracts executed
in and to be performed in that Commonwealth. Subject to the provisions of
Section 4.05 below, all actions and proceedings arising out of or relating to
this Agreement shall be heard and determined exclusively in any Massachusetts
state or federal court sitting in the City of Boston.
SECTION 4.04. Waiver of Jury Trial. Each of Parent and the Company, and
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each Note Payee and Management Payee hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement or the
actions of Parent, the Company or any Note Payee or Management Payee in the
negotiation, administration, performance and enforcement thereof.
Section 4.05. Dispute Resolution. Except to the extent otherwise
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specifically provided below in this Section 4.05, all claims, controversies,
differences or disputes between or among any of the parties hereto arising from
or relating to this Agreement and the transactions contemplated hereby shall be
determined solely and exclusively by arbitration in accordance with the rules of
commercial arbitration then in effect of the American Arbitration Association,
or any successors thereto ("AAA"), in Boston, Massachusetts, unless the parties
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otherwise agree in writing. Each of the parties consents to venue for such
arbitrations in Boston, Massachusetts and to service of process by certified or
registered mail. Upon commencement of any arbitration pursuant hereto, the
parties shall jointly select an arbitrator. In the event the parties fail to
agree upon an arbitrator within twenty (20) days, then each party shall select
an arbitrator and such arbitrators shall then select a third arbitrator to serve
as the sole arbitrator; provided that if either party, in such event, fails to
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select an arbitrator within seven (7) days, such arbitrator shall be selected by
the AAA upon application of either party. Judgment upon the award of the agreed
upon arbitrator or the so chosen third arbitrator, as the case may be, shall be
binding and shall be entered by a court of competent jurisdiction. The parties
agree to abide by any decision rendered in any such arbitration as final and
binding and waive the right to submit the dispute to a public tribunal for a
jury or non-jury trial. The fees and expenses of the AAA in any such arbitration
shall be shared equally by the parties, unless otherwise ordered by the
arbitrator(s). Each party shall be responsible for all costs incurred by it in
preparing for and participating in the arbitration, unless the arbitrator(s)
order that a party shall be entitled to recover its actual out-of-pocket costs
and expenses, including without limitation reasonable attorneys' fees incurred
in connection with such arbitration. Notwithstanding
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anything to the contrary in this Section 4.05, in no event, however, shall this
Section 4.05 be deemed to preclude a party hereto from instituting legal action
seeking relief in the nature of a restraining order, an injunction, a specific
performance order or the like in order to protect his or its rights pending the
outcome of an arbitration hereunder.
SECTION 4.06. Headings. The descriptive headings contained in this
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Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 4.07. Counterparts. This Agreement may be executed and delivered
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(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
[The remainder of this page is intentionally left blank.
Signature page follows.]
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IN WITNESS WHEREOF, Parent, the Company and the undersigned Note Payees and
the Management Payees have caused this Agreement to be executed as an instrument
under deal as of the date first written.
ESSENTIAL THERAPEUTICS, INC.
By: /s/ Mark Skaletsky
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Name: Mark Skaletsky
Title: President and Chief Executive Officer
MARET CORPORATION
By: /s/ Leonard R. Borrmann
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Name: Leonard R. Borrmann
Title: President and Chief Executive Officer
STOCKHOLDER REPRESENTATIVE:
/s/ Terence E. Winters
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Terence E. Winters
[The remainder of this page is intentionally left blank.
Signature page follows.]
NOTE PAYEES:
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VALLEY VENTURES II, L.P.
By: VV II MANAGEMENT, L.L.C.
Its: General Partner
By: /s/ John M. Holbiman III
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Print Name: John M. Holbiman III
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Its: Manager
NEW YORK LIFE INSURANCE COMPANY
By: /s/ Ray E. Newton, III
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Print Name: Ray E. Newton, III
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Its: Managing Director
[The remainder of this page is intentionally left blank.
Signature page follows.]
COLUMBINE VENTURE FUND II, L.P.,
a Delaware Limited Partnership
By: Columbine Venture Management II,
a Delaware Partnership
Its: General Partner
By: /s/ Terence E. Winters
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Terence E. Winters
Its: General Partner
INNOCAL, L.P., a Delaware Limited Partnership
By: Innocal Associates, L.P., a Delaware
Limited Partnership
Its: General Partner
By: /s/ John E. Houlihan
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Print Name: John E. Houlihan
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Its: General Partner
/s/ John Patience
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John Patience
/s/ Jack W. Schuler
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Jack W. Schuler
[The remainder of this page is intentionally left blank.
Signature page follows.]
MANAGEMENT PAYEES:
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/s/ Gere di Zerega
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Gere di Zerega
/s/ Kathleen Rodgers
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Kathleen Rodgers
/s/ Helmer P.K. Agersborg
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Helmer P.K. Agersborg
/s/ Leonard Borrmann
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Leonard Borrmann
/s/ Gerald Messerschmidt
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Gerald Messerschmidt
/s/ James Oliver
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James Oliver
/s/ James Rock
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James Rock
/s/ Catherine Oyler
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Catherine Oyler
/s/ Randolph C. Steer
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Randolph C. Steer
/s/ Leigh Thompson
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Leigh Thompson
/s/ Terence E. Winters
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Terence E. Winters