EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ENHANCE BIOTECH, INC.,
ARDENT ACQUISITION CORP.
AND
ARDENT PHARMACEUTICALS, INC.
DATED AUGUST 11, 2004
TABLE OF CONTENTS
PAGE
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ARTICLE I THE MERGER.............................................................................................8
SECTION 1.1 The Merger......................................................................................8
SECTION 1.2 Closing.........................................................................................9
SECTION 1.3 Effective Time..................................................................................9
SECTION 1.4 Effects of the Merger...........................................................................9
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving Corporation...........................9
SECTION 1.6 Directors and Officers..........................................................................9
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES..10
SECTION 2.1 Effect on Capital Stock......................................................................10
SECTION 2.2 Fractional Shares............................................................................12
SECTION 2.3 Exchange of Certificates.....................................................................13
SECTION 2.4 Certain Adjustments..........................................................................14
SECTION 2.5 Shares of Dissenting Shareholders............................................................15
SECTION 2.6 Stock Options................................................................................15
SECTION 2.7 Warrants.....................................................................................16
SECTION 2.8. Convertible Promissory Notes.................................................................16
SECTION 2.9. Tax-Free Reorganization......................................................................16
SECTION 2.10. Issuance of Restricted Shares................................................................17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................17
SECTION 3.1 Organization, Standing and Corporate Power.....................................................17
SECTION 3.2 Subsidiaries...................................................................................17
SECTION 3.3 Capital Structure..............................................................................18
SECTION 3.4 Authority; Noncontravention....................................................................19
SECTION 3.5 Financial Statements; Undisclosed Liabilities..................................................19
SECTION 3.6 Company Contracts..............................................................................20
SECTION 3.7 Absence of Certain Changes.....................................................................22
SECTION 3.8 Permits; Compliance with Applicable Laws.......................................................24
SECTION 3.9 Absence of Litigation..........................................................................25
SECTION 3.10 Tax Matters...................................................................................26
SECTION 3.11 Employee Benefit Plans........................................................................27
SECTION 3.12 Labor Matters.................................................................................30
SECTION 3.13 Environmental Matters.........................................................................31
SECTION 3.14 Intellectual Property.........................................................................32
SECTION 3.15 Insurance Matters.............................................................................34
SECTION 3.16 Transactions with Affiliates..................................................................34
SECTION 3.17 Voting Requirements...........................................................................34
SECTION 3.18 Brokers.......................................................................................35
SECTION 3.19 Real Property.................................................................................35
SECTION 3.20 Tangible Personal Property....................................................................35
SECTION 3.21 Investment Company............................................................................36
SECTION 3.22 Board Approval................................................................................36
SECTION 3.23 Books and Records.............................................................................36
SECTION 3.24 Accuracy of Information.......................................................................36
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT.............................................................36
SECTION 4.1 Organization, Standing and Corporate Power.....................................................37
SECTION 4.2 Subsidiaries...................................................................................37
SECTION 4.3 Capital Structure..............................................................................37
SECTION 4.4 Authority; Noncontravention....................................................................38
SECTION 4.5 Parent Documents...............................................................................39
SECTION 4.6 Parent Contracts...............................................................................40
SECTION 4.7 Absence of Certain Changes.....................................................................42
SECTION 4.8 Permits; Compliance with Applicable Laws.......................................................43
SECTION 4.9 Absence of Litigation..........................................................................43
SECTION 4.10 Tax Matters...................................................................................43
SECTION 4.11 Employee Benefit Plans........................................................................44
SECTION 4.12 Labor Matters.................................................................................45
SECTION 4.13 Environmental Matters.........................................................................45
SECTION 4.14 Intellectual Property.........................................................................46
SECTION 4.15 Insurance Matters.............................................................................47
SECTION 4.16 Transactions with Affiliates..................................................................48
SECTION 4.17 Voting Requirements...........................................................................48
SECTION 4.18 Brokers.......................................................................................48
SECTION 4.19 Investment Company............................................................................48
SECTION 4.20 Board Approval................................................................................48
SECTION 4.21 Books and Records.............................................................................48
SECTION 4.22 Accuracy of Information.......................................................................48
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.............................................................49
SECTION 5.1 Conduct of Business by the Company.............................................................49
SECTION 5.2 Advice of Changes..............................................................................50
SECTION 5.3 No Solicitation by the Company.................................................................50
SECTION 5.4 Conduct of Business by Parent..................................................................51
SECTION 5.5 No Solicitation by Parent......................................................................53
SECTION 5.6 Transition.....................................................................................53
ARTICLE VI ADDITIONAL AGREEMENTS................................................................................53
SECTION 6.1 Preparation of the Form S-4, Proxy/Information Statement.............. ........................53
SECTION 6.2 Shareholders' Meeting..........................................................................55
SECTION 6.3 Letters of Company's Accountants...............................................................55
SECTION 6.4 Access to Information; Confidentiality.........................................................55
SECTION 6.5 Commercially Reasonable Efforts...................................... .........................56
SECTION 6.6 Indemnification, Exculpation and Insurance.....................................................56
SECTION 6.7 Fees and Expenses..............................................................................57
SECTION 6.8 Public Announcements...........................................................................58
SECTION 6.9 Corporate Governance of Parent.................................................................58
SECTION 6.10 Agreements with Holders of Company Securities.................................................58
SECTION 6.11 Shareholder Litigation........................................................................59
SECTION 6.12 Voting Agreements and Lock-Up Agreements......................................................59
SECTION 6.13 Employee Benefits.............................................................................60
SECTION 6.14 Cashless Exercise of Stock Options............................................................60
SECTION 6.15 Directors and Officers Insurance..............................................................60
SECTION 6.16 Contingent Fee Shares.........................................................................61
ARTICLE VII CONDITIONS PRECEDENT................................................................................61
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger.....................................61
SECTION 7.2 Conditions to Obligations of Parent and Merger Sub.............................................62
SECTION 7.3 Conditions to Obligations of the Company.......................................................63
SECTION 7.4 Frustration of Closing Conditions..............................................................63
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER..................................................................64
SECTION 8.1 Termination....................................................................................64
SECTION 8.2 Effect of Termination..........................................................................65
SECTION 8.3 Amendment......................................................................................65
SECTION 8.4 Extension; Waiver..............................................................................65
ARTICLE IX GENERAL PROVISIONS...................................................................................65
SECTION 9.1 Nonsurvival of Representations, Warranties and Agreements......................................65
SECTION 9.2 Notices........................................................................................66
SECTION 9.3 Definitions....................................................................................66
SECTION 9.4 Interpretation.................................................................................67
SECTION 9.5 Counterparts...................................................................................68
SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries.................................................68
SECTION 9.7 Governing Law..................................................................................68
SECTION 9.8 Assignment.....................................................................................68
SECTION 9.9 Consent to Jurisdiction........................................................................68
SECTION 9.10 Headings......................................................................................69
SECTION 9.11 Severability..................................................................................69
SECTION 9.12 Enforcement...................................................................................69
EXHIBITS
Exhibit A - Lock-Up Period Legend
Exhibit B - Initial Lock-Up Period Legend
Exhibit C - Form of Employment Agreement for Christopher Every
Exhibit D - Form of Employment Agreement for Kwen-Jen Chang
Exhibit E - Form of Employment Agreement for Phillip S. Wise
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INDEX OF DEFINED TERMS
DEFINED TERMS SECTION DEFINED
- ------------- ---------------
5% Holder Section 6.12
Action Section 3.9(a)
Adjustment Event Section 2.4
affiliate Section 9.3(a)
Agreement Preamble
Aggregate Merger Consideration Section 2.1(l)(i)
Aggregate Series D-1 Merger Consideration Section 2.1(f)
Aggregate Series D-2 Merger Consideration Section 2.1(g)
AMEX Section 4.5(d)
Articles of Merger Section 1.3
Century Capital Section 6.16
Closing Section 1.2
Closing Date Section 1.2
Code Section 2.6(a)
Common Stock Merger Consideration Section 2.1(h)
Company Preamble
Company Acquisition Proposal Section 5.3(a)
Company Articles of Incorporation Section 3.3(d)
Company Convertible Promissory Note Section 2.8
Company Common Stock Recitals
Company Contract Section 3.6(b)
Company Disclosure Schedule Article III
Company Financial Statements Section 3.5
Company Material Contracts Section 3.6(b)
Company Preferred Stock Section 9.3(f)
Company Series A Preferred Stock Section 2.1(c)
Company Series B Preferred Stock Section 2.1(d)
Company Series C Preferred Stock Section 2.1(e)
Company Series D-1 Preferred Stock Section 2.1(f)
Company Series D-2 Preferred Stock Section 2.1(g)
Company Shareholder Meeting Section 6.2
Company Stock Certificates Section 2.3(b)
Company Stock Option Section 2.6(a)
Company Stock Plans Section 3.3(a)
Company Warrant Section 2.7
Contract Section 3.6(b)
Continuing Employees Section 6.3(a)
DGCL Recitals
Dissenting Shares. Section 2.5
Effective Time Section 1.3
Employee Plans Section 3.11(a)
v
Environmental Laws Section 3.13(d)(i)
Environmental Permits Section 3.13(d)(ii)
ERISA Section 3.11(a)
ERISA Affiliate Section 3.11(a)
Exchange Act Section 4.4(c)
Exchange Agent Section 2.3(a)
Excluded Parent Shares Section 2.1(l)(ii)
Feasibility Study, Option and License Agreement Section 2.1(l)(i)
Fiduciary Section 3.11(e)
Form S-4 Section 6.1(a)
GAAP Section 3.5
Government Entities Section 3.4(c)
Governmental Entity Section 3.4(c)
Hazardous Substances Section 3.13(d)(iii)
Indemnified Parties Section 6.6(a)
Indebtedness Section 3.6(b)(xii)
Initial Lock-Up Period Section 2.1(j)
Intellectual Property Section 3.4(a)
IRS Section 3.11(g)
ISO Section 2.6(a)
knowledge Section 9.3(e)
Letter of Transmittal Section 2.3(b)
Liens Section 3.2
Lock-Up Period Section 2.1(j)
material adverse change Section 9.3(b)
material adverse effect Section 9.3(b)
Merger Recitals
Merger Consideration Section 2.1(h)
Merger Sub Preamble
Multi-Employer Plans Section 3.11(d)
NCBCA Recitals
Other Company Documents Section 3.8(c)
Other Parent Documents Section 4.8(c)
Parent Preamble
Parent Acquisition Proposal Section 5.5(a)
Parent Authorized Preferred Stock Section 4.3
Parent Common Stock Section 4.3(a)
Parent Contracts Section 4.6
Parent Disclosure Schedule Article IV
Parent Employee Plans Section 4.11(a)
Parent Employee Stock Options Section 4.3(b)
Parent SEC Documents Section 4.5
Parent Stock Plans Section 4.3(a)
Permits Section 3.8(a)
Permitted Liens Section 3.9(b)
Permitted Parent Action Section 5.4
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person Section 9.3(c)
Preferred Merger Consideration Section 2.1(g)
Proxy/Information Statement Section 6.1(a)
Qualified Financing Section 2.1(l)(iii)
Related Person Section 3.16
Release Section 3.13(d)(iv)
Requisite Regulatory Approvals Section 7.1(b)
Resale Prospectus Section 6.1(a)
Residual Merger Consideration Section 2.1(l)(iv)
Restraints Section 7.2(c)
SEC Section 2.6(c)
Secretary Section 1.3
Securities Act Section 2.1(j)
Series A Merger Consideration Section 2.1(c)
Series B Merger Consideration Section 2.1(d)
Series C Merger Consideration Section 2.1(e)
Series D-1 Merger Consideration Section 2.1(f)
Series D-2 Merger Consideration Section 2.1(g)
Software Section 3.14(a)
SOXA Section 4.5(a)
subsidiary Section 9.3(d)
Surviving Corporation Section 1.1
Tangible Personal Property Section 3.20
Tax Section 3.10(i)(i)
Taxes Section 3.10(i)(i)
Tax Return Section 3.10(i)(ii)
vii
AGREEMENT AND PLAN OF MERGER (this "Agreement") made and entered into on this
11th day of August 2004, by and among ENHANCE BIOTECH, INC., a Delaware
corporation ("Parent"), ARDENT ACQUISITION CORP., a North Carolina corporation
and wholly owned subsidiary of Parent ("Merger Sub"), and ARDENT
PHARMACEUTICALS, INC., a North Carolina corporation (the "Company").
W I T N E S S E T H:
WHEREAS, each of Parent, Merger Sub and the Company desire Parent to consummate
a business combination with the Company in a transaction whereby, upon the terms
and subject to the conditions set forth in this Agreement, Merger Sub will merge
with and into the Company (the "Merger"), each outstanding share of common
stock, no par value, of the Company ("Company Common Stock") (other than shares
cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), will be
converted into the right to receive the Common Stock Merger Consideration and
each outstanding share of preferred stock of the Company (other than shares
cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares) will be
converted into the right to receive the Preferred Merger Consideration, and the
Company will be the surviving corporation in the Merger;
WHEREAS, the Board of Directors of the Company has determined and resolved that
the Merger and all of the transactions contemplated by this Agreement are in the
best interest of the holders of Company Common Stock and Company Preferred
Stock, that the Merger is fair and advisable, and has approved this Agreement in
accordance with the North Carolina Business Corporation Act, as amended (the
"NCBCA"), and has further resolved to recommend to all holders of Company Common
Stock and Company Preferred Stock that they authorize, approve and adopt this
Agreement and the transactions contemplated hereby; and
WHEREAS, the Board of Directors of Parent has determined and resolved that the
Merger and all of the transactions contemplated by this Agreement are in the
best interest of Parent and the holders of Parent Common Stock and has adopted
this Agreement in accordance with the Delaware General Corporation Law, as
amended (the "DGCL"), and Parent, as sole shareholder of Merger Sub, has adopted
this Agreement in accordance with the NCBCA.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement and in accordance with the NCBCA, at the Effective Time
Merger Sub shall be merged with and into the Company and the Company shall be
the surviving corporation in the Merger (the "Surviving Corporation") and, as
such, the Company shall continue its corporate existence as a direct, wholly
owned subsidiary of Parent under the laws of the State of North Carolina, and
the separate corporate existence of Merger Sub thereupon shall cease.
SECTION 1.2 CLOSING. Subject to the satisfaction or, to the extent
permitted by applicable law, waiver of the conditions to consummation of the
Merger contained in Article VII hereof, the closing of the Merger (the
"Closing") shall take place at 10:00 a.m., New York time, on a date to be
specified by the parties (the "Closing Date"), which date shall not be later
than the third business day next following the satisfaction or, to the extent
permitted by applicable law, waiver of the conditions set forth in Article VII
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or, to the extent permitted by
applicable law, waiver of those conditions), unless another time or date is
agreed to by the parties hereto. The Closing will be held at the offices of
Parent at 712 Fifth Avenue, 19th Floor, New York, New York 10019 or at such
other location as is agreed to by the parties hereto.
SECTION 1.3 EFFECTIVE TIME. Upon the terms and subject to the conditions
set forth in this Agreement, at the Closing the parties shall cause the Merger
to be consummated by filing with the Secretary of State of the State of North
Carolina (the "Secretary") articles of merger (the "Articles of Merger") duly
executed and so filed in accordance with the NCBCA and shall make all other
filings and recordings required under the NCBCA to effectuate the Merger and the
transactions contemplated by this Agreement. The Merger shall become effective
at such time as the Articles of Merger is duly filed with the Secretary, or at
such subsequent date or time as Parent and the Company mutually shall agree and
specify in the Articles of Merger (the time the Merger becomes so effective
being hereinafter referred to as the "Effective Time").
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 55-11-06 of the NCBCA.
SECTION 1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION. The certificate of incorporation of the Surviving Corporation shall
be amended and restated to mirror the certificate of incorporation of the Merger
Sub and as so amended shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended or restated as provided therein or by
applicable law. The by-laws of Merger Sub in effect immediately prior to the
Effective Time shall be the by-laws of the Surviving Corporation until
thereafter amended or restated as provided therein or by applicable law.
SECTION 1.6 DIRECTORS AND OFFICERS. The directors of Merger Sub at the
Effective Time shall, from and after the Effective Time, be and become the
directors of the Surviving Corporation until their successors shall have been
duly elected and qualified or until their earlier death, resignation or removal
in accordance with the certificate of incorporation and by-laws of the Surviving
Corporation and the NCBCA. The officers of Merger Sub at the Effective Time
shall, from and after the Effective Time, be and become the officers of the
Surviving Corporation until their successors shall have been duly appointed and
qualified or until their earlier death, resignation or removal in accordance
with the certificate of incorporation and the by-laws of the Surviving
Corporation.
9
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and automatically without any action on the part of any holder of
capital stock of Parent, Merger Sub or the Company, respectively:
(A) Capital Stock of Merger Sub. Each then outstanding share of
common stock, no par value, of Merger Sub shall be converted into and become one
duly authorized, validly issued, fully paid and nonassessable share of common
stock, no par value, of the Surviving Corporation.
(B) Cancellation of Treasury Stock and Parent Owned Stock. Each
share of Company Common Stock and Company Preferred Stock then issued and held
in the Company's treasury and each share of Company Common Stock and Company
Preferred Stock then owned by Parent, Merger Sub or any other wholly owned
subsidiary of Parent, shall be canceled and retired and shall cease to exist,
and no consideration shall be delivered in exchange therefor.
(C) Series A Convertible Exchangeable Preferred Stock. Each share of
the Series A Convertible Exchangeable Preferred Stock, no par value, of the
Company ("Company Series A Preferred Stock") issued and outstanding immediately
prior to the Effective Time (other than shares cancelled and retired pursuant to
Section 2.1(b) and Dissenting Shares), shall be converted into and become the
right to receive, subject to Section 2.2, 0.000041762166263% of the Residual
Merger Consideration (the "Series A Merger Consideration").
(D) Series B Convertible Exchangeable Preferred Stock. Each share of
the Series B Convertible Exchangeable Preferred Stock, no par value, of the
Company ("Company Series B Preferred Stock") issued and outstanding immediately
prior to the Effective Time (other than shares cancelled and retired pursuant to
Section 2.1(b) and Dissenting Shares), shall be converted into and become the
right to receive, subject to Section 2.2, 0.000029233509085% of the Residual
Merger Consideration (the "Series B Merger Consideration").
(E) Series C Convertible Preferred Stock. Each share of the Series C
Convertible Preferred Stock, no par value, of the Company ("Company Series C
Preferred Stock") issued and outstanding immediately prior to the Effective Time
(other than shares cancelled and retired pursuant to Section 2.1(b) and
Dissenting Shares), shall be converted into and become the right to receive,
subject to Section 2.2, 0.000002923350909% of the Residual Merger Consideration
(the "Series C Merger Consideration").
(F) Series D-1 Convertible Preferred Stock. Each share of the Series
D-1 Convertible Preferred Stock, no par value, of the Company ("Company Series
D-1 Preferred Stock") issued and outstanding immediately prior to the Effective
Time (other than shares cancelled and retired pursuant to Section 2.1(b) and
Dissenting Shares), shall be converted into and become the right to receive,
subject to Section 2.2, 1.111111111 shares of Parent Common Stock (the "Series
D-1 Merger Consideration"). The "Aggregate Series D-1 Merger Consideration"
shall be calculated by multiplying (i) the number of shares of Company Series
D-1 Preferred Stock outstanding immediately prior to the Effective Time and (ii)
the Series D-1 Merger Consideration.
10
(G) Series D-2 Convertible Preferred Stock. Each share of the Series
D-2 Convertible Preferred Stock, no par value, of the Company ("Company Series
D-2 Preferred Stock") issued and outstanding immediately prior to the Effective
Time (other than shares cancelled and retired pursuant to Section 2.1(b) and
Dissenting Shares), shall be converted into and become the right to receive,
subject to Section 2.2, 0.761904487 shares of Parent Common Stock (the "Series
D-2 Merger Consideration, together with the Series A Merger Consideration, the
Series B Merger Consideration, the Series C Merger Consideration and the Series
D-1 Merger Consideration, the "Preferred Merger Consideration"). The "Aggregate
Series D-2 Merger Consideration" shall be calculated by multiplying (i) the
number of shares of Company Series D-2 Preferred Stock outstanding immediately
prior to the Effective Time and (ii) the Series D-2 Merger Consideration.
(H) Company Common Stock. Each then outstanding share of Company
Common Stock (other than shares cancelled and retired pursuant to Section 2.1(b)
and Dissenting Shares), shall be converted into and become the right to receive,
subject to Section 2.2, 0.000002923350909% of the Residual Merger Consideration
(the "Common Stock Merger Consideration", together with the Preferred Merger
Consideration, the "Merger Consideration"). The Common Stock Merger
Consideration includes the amount of Parent Common Stock reserved for issuance
pursuant to Sections 2.6, 2.7 and 2.8 with respect to the Company Stock Options,
Company Warrants and Company Convertible Preferred Notes. Except as expressly
stated in writing elsewhere in this Agreement, the Merger Consideration consists
exclusively of shares of Parent Common Stock.
(I) If after the date hereof but prior to the Effective Time, any
holder of Company Preferred Stock converts such preferred stock into Company
Common Stock, in accordance with the terms of such preferred stock, then the
Preferred Merger Consideration allocated to such preferred stock shall be
reallocated to the Common Stock Merger Consideration.
(J) Shares of Parent Common Stock issued as Merger Consideration
shall be registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 6.1 hereof. Notwithstanding the
foregoing, (A) if Parent has consummated a Qualified Financing on or prior to
the Closing Date, all shares issued to each holder of Company Common Stock or
Company Preferred Stock, as the case may be, as Merger Consideration, in excess
of 30,000 shares of Parent Common Stock shall be subject to a lock-up period
restricting transfer of such shares for a period of 12 months after the Closing
Date (the "Lock-Up Period") and each certificate representing such shares shall
bear a restrictive legend substantially as set forth on Exhibit A attached
hereto or (B) if Parent has not consummated a Qualified Financing on or prior to
the Closing Date, the first 30,000 (or fewer) shares issued to each holder of
Company Common Stock or Company Preferred Stock, as the case may be, as Merger
Consideration shall be subject to a lock-up period (the "Initial Lock-Up
Period") restricting transfer of such shares for a period ending on the earlier
of (i) the 30th day following the date of consummation by Parent of a Qualified
Financing or (ii) the 180th day following the Closing Date, and each certificate
representing such shares shall bear a restrictive legend substantially as set
forth on Exhibit B attached hereto, and all additional shares issued to such
holders as Merger Consideration shall be subject to a restriction on transfer of
such shares for the Lock-Up Period, and each certificate representing such
shares shall bear a restrictive legend substantially as set forth on Exhibit A
attached hereto. Separate stock certificates shall be issued representing the
shares of Merger Consideration subject to either the Initial Lock-Up Period or
the Lock-Up Period.
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(K) At the Effective Time, the Company Preferred Stock and the
Company Common Stock shall cease to be outstanding and be cancelled and retired.
(L) As used in this Agreement:
(i) "Aggregate Merger Consideration" means the amount equal to
the following: (a) the sum of the number of Parent Common Stock outstanding at
the Effective Time, on a fully diluted basis, less any "Excluded Parent Shares"
as hereinafter defined, (b) divided by fifty-five percent (55%), (c) multiplied
by forty-five percent (45%) and (d) less 233,807 shares of Parent Common Stock.
The Aggregate Merger Consideration shall be further reduced (x) by 85,000, if a
Qualified Financing is not consummated prior to or on the Closing Date and (y)
by 85,000, if the Company does not enter into a Feasibility Study, Option and
License Agreement as described in Section 3.18 of the Company Disclosure
Schedule (the "Feasibility Study, Option and License Agreement") prior to or on
the Closing Date.
(ii) "Excluded Parent Shares" means (a) any shares of Parent
Common Stock issued in a Qualified Financing between the date hereof and the
Effective Time or (b) any shares of Parent Common Stock that may be issued upon
exercise, exchange or conversion of (x) any Parent securities sold to investors
in a Qualified Financing between the date hereof and the Effective Time or (y)
the warrant to purchase 1,500,000 shares of Parent Common Stock at an exercise
price of $3.00 per share issued to Bioaccelerate, Inc. on August 11, 2004.
(iii) "Qualified Financing" means an equity financing by
Parent of at least $10,000,000 with a minimum valuation of at least $1.50 per
share of Parent Common Stock.
(iv) "Residual Merger Consideration" means the amount equal to
the following: (a) the Aggregate Merger Consideration, (b) less the Aggregate
Series D-1 Merger Consideration and (c) less the Aggregate Series D-2 Merger
Consideration.
SECTION 2.2 FRACTIONAL SHARES. No certificates representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange of
Company Stock Certificates. In the event that a holder of a Company Stock
Certificate would be entitled to receive in the Merger a fractional share
interest in exchange for such Company Stock Certificate, then (i) any such
fractional share greater than or equal to one-half of a share (0.5) shall be
rounded up to the next whole share number and (ii) any such fractional share
less than one-half of a share (0.5) shall be rounded down to the preceding whole
share number.
12
SECTION 2.3 EXCHANGE OF CERTIFICATES.
(A) As soon as reasonably practicable following the Effective Time,
Parent shall deposit with Parent's transfer agent, Liberty Stock Transfer, or a
nationally reputable bank or trust company in the United States as may be
designated by Parent (the "Exchange Agent"), for the benefit of the holders of
shares of Company Common Stock and Company Preferred Stock and for exchange in
accordance with this Section 2.3, the Aggregate Merger Consideration issuable
pursuant to Section 2.1 less the merger consideration allocated and reserved
with respect to the (i) Company Stock Options, (ii) Company Warrants, and (iii)
Company Convertible Promissory Notes.
(B) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate (or
certificates) which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock or Company Preferred Stock, as the
case may be (the "Company Stock Certificates"), (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Company Stock Certificate(s) shall pass, only upon delivery of the
Company Stock Certificate(s) (or affidavits of loss in lieu of such
certificates) (the "Letter of Transmittal") to the Exchange Agent and shall be
in such form and have such other provisions as Parent or the Exchange Agent
reasonably may specify, together with a substitute Form W-9) and (ii)
instructions for use thereof in surrendering Company Stock Certificate(s) in
exchange for the Merger Consideration. Upon surrender to the Exchange Agent of a
Company Stock Certificate in proper form for cancellation, together with a duly
executed letter of transmittal, the holder of such Company Stock Certificate
shall be entitled to receive in exchange therefor a certificate (or
certificates) representing such whole number of shares of Parent Common Stock
such Company shareholder is entitled to receive pursuant to Section 2.1 and
Section 2.2 in such denominations and registered in such names as such holder
may request. The shares represented by the Company Stock Certificate so
surrendered shall forthwith be cancelled. The Letter of Transmittal shall
provide (i) procedures for holders whose Company Stock Certificates are lost,
stolen or destroyed to receive the Merger Consideration and (ii) procedures for
the transfer of ownership of shares of the Company Common Stock that is not
registered on the stock transfer books and records of the Company. Until
surrendered in accordance with this Section 2.3 and as specified in the Letter
of Transmittal, each Company Stock Certificate shall be deemed at all times from
and after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration as provided in this Article II.
(C) Notwithstanding any other provisions of this Agreement, no
dividends or other distributions declared or made after the Effective Time in
respect of shares of Parent Common Stock having a record date after the
Effective Time shall be paid to the holder of any unsurrendered Company Stock
Certificate until the holder shall surrender such Company Stock Certificate as
provided in this Section 2.3. Subject to applicable law, following surrender of
any such Company Stock Certificate, there shall be paid to the holder of the
certificates representing shares of Parent Common Stock issued in exchange
therefor, in each case without any interest thereon, (i) at the time of such
surrender, the amount of dividends or other distributions, if any, having a
record date after the Effective Time theretofor payable with respect to such
shares of Parent Common Stock and not paid, less the amount of all required
withholding Taxes in respect thereof, and (ii) at the appropriate payment date
subsequent to surrender, the amount of dividends or other distributions having a
record date after the Effective Time but prior to the date of such surrender and
having a payment date subsequent to the date of such surrender and payable with
respect to such shares of Parent Common Stock, less the amount of all required
withholding Taxes in respect thereof.
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(D) All shares of Parent Common Stock issued upon surrender of
Company Stock Certificates in accordance with this Article II and as specified
in the Letter of Transmittal shall be deemed to have been issued and paid in
full satisfaction of all rights pertaining to such shares of Company Common
Stock or Company Preferred Stock represented thereby and, as of the Effective
Time, the stock transfer books and records of the Company shall be closed and
there shall be no further registration of transfers on the stock transfer books
and records of the Company of shares of Company Common Stock and Company
Preferred Stock outstanding immediately prior to the Effective Time. If, after
the Effective Time, Company Stock Certificates are properly presented to the
Surviving Corporation for any reason (but otherwise in accordance with this
Article II and as specified in the Letter of Transmittal), they shall be
cancelled and exchanged as provided in this Section 2.3.
(E) At any time following the six-month anniversary of the Effective
Time, Parent shall be entitled to require the Exchange Agent to deliver to it
any remaining portion of the Merger Consideration not theretofore distributed to
former holders of shares of Company Common Stock and Company Preferred Stock
(including any interest received with respect thereto and other income resulting
from investments thereof by the Exchange Agent, as directed by Parent), and such
former holders shall be entitled to look only to the Parent (subject to
abandoned property, escheat and other similar laws) with respect to the Merger
Consideration and dividends or other distributions with respect to Parent Common
Stock, if any, payable upon due surrender of their Company Stock Certificates,
in all cases without any interest thereon and less all required withholding
Taxes. Notwithstanding the foregoing, neither the Parent nor the Exchange Agent
shall be liable to any holder of a Company Stock Certificate for Merger
Consideration (or dividends or distributions in respect thereof) delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
SECTION 2.4 CERTAIN ADJUSTMENTS. If after the date hereof and prior to the
Effective Time and to the extent permitted by this Agreement, the outstanding
shares of Parent Common Stock, Company Common Stock or Company Preferred Stock
shall be changed into a different number, class or series of shares by reason of
any reclassification, recapitalization or combination, forward stock split,
reverse stock split, stock dividend or rights issued in respect of such stock,
or any similar event shall occur (any such action, an "Adjustment Event"), the
Merger Consideration shall be adjusted correspondingly to provide to the holders
of Company Common Stock and the Company Preferred Stock the right to receive the
same economic effect as contemplated by this Agreement immediately prior to such
Adjustment Event and Parent's payment obligations likewise shall be
correspondingly adjusted such that it shall be required to pay and deliver not
more than the aggregate Merger Consideration contemplated by this Agreement. The
parties acknowledge and agree that Parent intends to increase it's authorized,
but unissued securities pursuant to Section 5.4(a), and that change shall not
result in any adjustment pursuant to this Section.
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SECTION 2.5 SHARES OF DISSENTING SHAREHOLDERS. Notwithstanding anything in
this Agreement to the contrary, any shares of Company Common Stock and Company
Preferred Stock that are outstanding as of the Effective Time and that are held
by a shareholder who has properly exercised his appraisal rights under Sections
55-13-20 through 55-13-28 of the NCBCA (the "Dissenting Shares) shall not be
converted into the right to receive the Merger Consideration; provided, however,
if any such holder shall have failed to perfect or shall have effectively
withdrawn or lost such shareholder's right to dissent from the Merger under the
NCBCA and to receive such consideration as may be determined to be due with
respect to such Dissenting Shares pursuant to and subject to the requirements of
the NCBCA, each share of such holder's Company Common Stock or Preferred Stock,
as the case may be, thereupon shall be deemed to have been converted into and to
have become, as of the Effective Time, the right to receive, without any
interest thereon, the Common Stock Merger Consideration or Preferred Merger
Consideration respectively, in accordance with Section 2.1. The Company shall
give Parent prompt written notice of (i) all demands for appraisal or payment
for shares of Company Common Stock or Company Preferred Stock received by the
Company prior to the Effective Time in accordance with the NCBCA and (ii) any
settlement or offer to settle any such demands.
SECTION 2.6 STOCK OPTIONS.
(A) At the Effective Time each outstanding option to purchase shares
of Company Common Stock (a "Company Stock Option") granted under the Company's
1997 stock option plan and granted outside said plan shall be automatically
amended to constitute an option to acquire such Common Stock Merger
Consideration as the holder of such Company Stock Option would have been
entitled to receive in the Merger had such holder exercised such Company Stock
Option in full immediately prior to the Effective Time; provided, however, that
with respect to any Company Stock Option which is an incentive stock option (an
"ISO") within the meaning of Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code"), the determination of the exercise price, number of
shares purchasable and terms and conditions of vesting shall in all respects
comply with Section 424(a) of the Code.
(B) As promptly as practicable after the Effective Time, Parent
shall deliver to each holder of a Company Stock Option a notice that accurately
reflects the changes to such options as contemplated by subsection (a) of this
Section 2.6.
(C) The Merger Consideration allocated to the Company Stock Options
shall be reserved out of the Common Stock Merger Consideration by Parent for
issuance upon the exercise of all Company Stock Options after the Effective
Time. Notwithstanding the foregoing, if any Company Stock Option expires or is
forfeited or cancelled, pursuant to its terms, after the Effective Date, the
Parent Common Stock underlying such stock option shall no longer be reserved and
shall be released as treasury stock to Parent. With respect to such Parent
Common Stock, Parent shall file, no later than 180 days after the Effective
Time, with the Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-8 and use its best efforts to have such registration
statement become and remain continuously effective under the Securities Act and,
if the Company is then listed on a national stock exchange, file with such
exchange a listing application and use its best efforts to have such shares
admitted to trading thereon upon exercises of Company Stock Options. Parent
shall also use its best efforts to ensure that all ISO's continue to qualify as
such at all times after the Effective Time.
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SECTION 2.7 WARRANTS.
(A) At the Effective Time, to the extent not exercised prior to the
Effective Time, each outstanding warrant to purchase shares of Company Common
Stock (a "Company Warrant") set forth on Schedule 2.7 of the Company Disclosure
Schedule hereof shall be automatically amended to constitute a warrant to
acquire such Common Stock Merger Consideration as the holder of such Company
Warrants would have been entitled to receive in the Merger had such holder
exercised such Company Warrant in full immediately prior to the Effective Time.
(B) As promptly as practicable after the Effective Time, Parent
shall deliver to each holder of a Company Warrant a notice that accurately
reflects the Common Stock Merger Consideration each such holder is entitled to
receive upon the exercise of such holder's Company Warrant.
(C) The Merger Consideration allocated to the Company Warrants shall
be reserved for issuance out of the Common Stock Merger Consideration by Parent
for issuance upon exercise in full of all Company Warrants after the Effective
Time and shall register such Parent Common Stock reserved for issuance upon the
exercise of the Company Warrants on the Form S-4. Notwithstanding the foregoing,
upon the expiration of the Company Warrants, such Parent Common Stock reserved
for issuance upon the exercise of the Company Warrants shall no longer be
reserved and shall be released as treasury stock to Parent.
SECTION 2.8. CONVERTIBLE PROMISSORY NOTES. At the Effective Time the
Convertible Promissory Note dated October 19, 1999 of the Company and the
Convertible Promissory Note dated April 14, 2000 of the Company (collectively,
the "Company Convertible Promissory Notes") shall remain as debt on the books of
the Surviving Company and Parent shall cause the Surviving Entity to exchange,
pursuant to the terms of such Company Convertible Promissory Notes, the Company
Convertible Promissory Notes for notes of the Surviving Entity. The Merger
Consideration allocated to the Company Convertible Promissory Notes shall be
reserved by Parent for issuance out of the Common Stock Merger Consideration
upon conversion of the Company Convertible Promissory Notes after the Effective
Time. Notwithstanding the foregoing, upon the repayment and retirement of the
outstanding debt evidenced by the Company Convertible Promissory Notes, such
Parent Common Stock reserved for issuance upon the conversion of the Company
Convertible Promissory Notes shall no longer be reserved and shall be released
as treasury stock to Parent.
SECTION 2.9. TAX-FREE REORGANIZATION. The Merger is intended to be a
reorganization within the meaning of Section 368 of the Code, and this Agreement
is intended to be a "plan of reorganization" within the meaning of the
regulations promulgated under Section 368 of the Code.
16
SECTION 2.10. ISSUANCE OF RESTRICTED SHARES. Any shares of Parent Common
Stock issued upon exercise of any Company Stock Option or Company Warrant, or
upon conversion of any Company Convertible Promissory Note, after the Effective
Time shall be issued as "restricted securities," as defined in the Securities
Act, unless such shares have been registered by Parent under the Securities Act
in a registration statement filed with, and declared effective by, the SEC after
the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Disclosure Schedule delivered by the Company to
Parent prior to the execution of this Agreement which hereby is incorporated by
reference in and constitutes an integral part of this Agreement (the "Company
Disclosure Schedule") and making specific reference to the particular
subsection(s) of this Agreement to which exception is being taken, the Company
hereby represents and warrants to Parent and Merger Sub as follows:
SECTION 3.1 Organization, Standing and Corporate Power.
(A) Each of the Company and its subsidiaries is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized and has the requisite
corporate or other power, as the case may be, and requisite authority to carry
on its business as presently being conducted. Each of the Company and its
subsidiaries is duly qualified or licensed to conduct business and is in good
standing in each jurisdiction listed in Section 3.1 of the Company Disclosure
Schedule. Each of the Company and its subsidiaries is duly qualified or licensed
to conduct business in each jurisdiction in which the nature of its business or
the ownership, leasing or operation of its properties makes such qualification
or licensing necessary, except for those jurisdictions where the failure to be
so qualified or licensed or to be in good standing individually or in the
aggregate would not reasonably be expected to have a material adverse effect on
the Company.
(B) The Company has delivered or made available to Parent prior to
the execution of this Agreement complete and correct copies of the certificate
of incorporation and by-laws or other organizational documents of the Company
and its subsidiaries, as in effect at the date of this Agreement, and which
shall be in effect as of the Closing Date.
SECTION 3.2 SUBSIDIARIES. Section 3.2 of the Company Disclosure Schedule
lists the names and jurisdiction of incorporation or organization of all the
subsidiaries of the Company, whether consolidated or unconsolidated. The
outstanding securities of the subsidiaries of the Company are set forth in
Section 3.2 of the Company Disclosure Schedules and all outstanding shares of
capital stock of, or other equity interests in, each such subsidiary: (i) have
been duly authorized, validly issued and are fully paid and nonassessable; (ii)
are owned directly or
17
indirectly by the Company, free and clear of all pledges, claims, liens,
charges, encumbrances, adverse claims, mortgages and security interests of any
kind or nature whatsoever (collectively, "Liens"); and (iii) are free of all
other restrictions (including restrictions on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests) that would
prevent the operation by the Surviving Corporation of such subsidiary's business
as presently conducted. Except as set forth above or in Section 3.2 of the
Company Disclosure Schedule, the Company does not own, directly or indirectly,
any capital stock of or other equity or voting interests in any person.
SECTION 3.3 CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock, 200,000 shares of
Company Series A Preferred Stock, 200,000 shares of Company Series B Preferred
Stock, 2,500,000 shares of Company Series C Preferred Stock, 2,200,000 Company
Series D-1 shares of Preferred Stock and 4,600,000 shares of Company Series D-2
Preferred Stock. As of the date hereof:
(A) (i) 23,943,307 shares of Company Common Stock are issued and
outstanding; (ii) no (0) shares of Company Common Stock are held by the Company
in its treasury and no (0) shares of Company Common Stock are held by
subsidiaries of the Company; (iii) 5,000,000 shares of Company Common Stock were
reserved for issuance pursuant to the Company's 1997 incentive stock option
plan, agreements and arrangements providing for equity-based compensation to any
director, employee, consultant or independent contractor of the Company or any
of its subsidiaries (collectively, the "Company Stock Plans"), of which
4,062,000 shares are subject to outstanding Company Stock Options (iv) an
additional 1,377,360 shares are subject to outstanding Company Stock Options
issued outside the Company Stock Plans and (v) 1,218,046 warrants to purchase
shares of Company Common Stock are issued and outstanding;
(B) (i) 120,150 shares of Company Series A Preferred Stock are
issued and outstanding, (ii) 120,150 shares of Company Series B Preferred Stock
are issued and outstanding, (iii) 1,000,000 shares of Company Series C Preferred
Stock are issued and outstanding, (iv) 795,715 shares of Company Series D-1
Preferred Stock are issued and outstanding and (v) 2,453,333 shares of Company
Series D-2 Preferred Stock are issued and outstanding;
(C) Section 3.3 of the Company Disclosure Schedule lists, as of the
close of business on the date hereof, all outstanding Company Stock Options, the
number of shares subject to each such Company Stock Option, the grant date,
exercise price, term and vesting schedule of each such Company Stock Option and
the names of the holders thereof.
(D) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable and are
not subject to preemptive rights created by statute, the Company's Articles of
Incorporation as amended by the Articles of Amendment (the "Company's Articles
of Incorporation") or any agreement to which the Company is a party or by which
the Company may be bound. Except as set forth in this Section and except for
changes since the date of this Agreement resulting from the exercise of Company
Stock Options outstanding on such date, there are outstanding (i) no shares of
capital stock or other voting securities of the Company, (ii) no securities of
the Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company, other than the Company Preferred Stock and
Company Convertible Promissory Notes, and (iii) no options or other rights to
acquire from the Company, and no obligation of the Company to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock of the Company, other than the Company Warrants.
18
SECTION 3.4 AUTHORITY; NONCONTRAVENTION. (A) The Company has the corporate
power and authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. Except for any required
approval by the Company's shareholders in connection with the consummation of
the Merger, all corporate acts and proceedings required to be taken by or on the
part of the Company to authorize the Company to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby have been
duly and validly taken. This Agreement constitutes a valid and binding agreement
of the Company.
(B) The execution and delivery of this Agreement does not and the
consummation of the transactions contemplated hereby will not conflict with or
result in a violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation under (i) any provision of the Company's
Articles of Incorporation, (ii) any loan or credit agreement, note, mortgage,
indenture, lease or other Company Material Contract or (iii) instrument, permit,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets.
(C) The execution, delivery and performance by the Company of this
Agreement and the consummation of the Merger by the Company require no consent,
approval, order or authorization of, action by or in respect of, or registration
or filing with, any governmental body, court, agency, official or authority
(each, a "Governmental Entity," collectively "Government Entities") other than
the filing of a certificate of merger in accordance with the Secretary.
(D) The execution and delivery of this Agreement and the
consummation of the Merger will not result in the creation of any Lien upon any
asset of the Company.
(E) Except as set forth in Section 3.4(e) of the Company Disclosure
Schedule, no consent, approval, waiver or other action by any person (other than
the governmental authorities referred to in (b) above) under any indenture,
lease, instrument or other material contract, agreement or document to which the
Company is a party or by which the Company is bound is required or necessary
for, or made necessary by reason of, the execution, delivery and performance of
this Agreement by the Company or the consummation of the Merger.
SECTION 3.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. (A) The Company
has furnished to the Parent true, correct and complete copies of: (i) audited
balance sheets of the Company and its subsidiaries as of December 31, 2002 and
December 31 2003 and an unaudited balance sheet of the Company and its
subsidiaries as of June 30, 2004; and (ii) audited income statements of the
Company and its subsidiaries as of December 31, 2002 and December 31, 2003 and
an unaudited income statement of the Company and its subsidiaries for the
three-month
19
periods ended March 31, 2004 and June 30, 2004 (collectively, the "Company
Financial Statements"). The Company Financial Statements have been prepared by
the Company and its subsidiaries on the basis of the books and records
maintained by the Company and its subsidiaries in the ordinary course of
business in a manner consistently used and applied throughout the periods
involved. The Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") and fairly present in all
material respects the financial condition of the Company and its subsidiaries as
at the respective dates thereof, except that the Company and its subsidiaries'
unaudited balance sheet as of June 30, 2004 and income statements for the
three-month periods ended March 31, 2004 and June 30, 2004 are subject to normal
year end adjustments in the ordinary course of business.
(B) Except for liabilities (i) set forth in Section 3.5 of the
Company Disclosure Schedule or (ii) reflected in the Company's audited financial
statements as at, and for the period ending, December 31, 2003, the Company has
no material liabilities or obligations, whether absolute, accrued, contingent or
otherwise. Since December 31, 2003, the Company has incurred no material
liabilities or obligations, whether absolute, accrued, contingent or otherwise
except (x) in the ordinary course of the Company's business consistent with past
practices or (y) in connection with the negotiation and consummation of this
Agreement and the transactions contemplated hereby.
SECTION 3.6 COMPANY CONTRACTS. (A) Section 3.6 of the Company Disclosure
Schedule lists all Company Material Contracts. Each Company Material Contract is
valid and binding on and enforceable against the Company (or, to the extent a
subsidiary of the Company is a party, such subsidiary) and, to the knowledge of
the Company, each other party thereto and is in full force and effect. Neither
the Company nor any of its subsidiaries is in breach or default under any
Company Material Contract. Neither the Company nor any subsidiary of the Company
knows of, or has received notice of, any violation, default, right of
acceleration of any obligation or loss of a material benefit under (nor, to the
knowledge of the Company, does there exist any condition which with the passage
of time or the giving of notice or both would result in such a violation,
default, right of acceleration of any obligation or loss of a material benefit,
under) any Company Material Contract by any other party thereto. Prior to the
date hereof, the Company has delivered to Parent true and complete copies of all
Company Material Contracts.
(B) As used in this Agreement, "Contract" shall mean any contract,
note, bond, restrictive agreement of any kind, mortgage, indenture, evidence of
indebtedness, guarantee, make-well or make-whole agreement, license agreement,
lease, arrangement, commitment or other instrument or obligation to which a
person or any of its subsidiaries is a party or by which such person or any of
its subsidiaries is bound or to which any of such person's or any of its
subsidiaries' assets or properties are subject, in each such case whether
written or oral. As used in this Agreement, "Company Contract" shall mean any
Contract of the Company or any of its subsidiaries. As used in this Agreement,
"Company Material Contract" shall mean any Contract which is material to the
Company including, without limitation, each of the following:
(i) any Contract that (A) involves the payment or potential
payment, pursuant to the terms of any such Contract, by or to the Company or any
of its subsidiaries, of more than $50,000 individually or more than $200,000 in
the aggregate and (B) cannot be terminated within thirty (30) calendar days
after giving notice of termination without resulting in any material cost or
penalty to the Company or any of its subsidiaries;
20
(ii) any Contract which contains provisions which in any
non-de minimis manner restrict, or may restrict, the conduct of business as
presently conducted by the Company or any of its subsidiaries;
(iii) any Contract restricting in any way the right of the
Company or any subsidiary to engage in business or to compete in any business;
(iv) any Contract providing for the indemnification or surety
by the Company or any subsidiary of the Company;
(v) any strategic alliance, revenue sharing joint venture or
partnership agreement of the Company or any subsidiary of the Company;
(vi) any Contract which grants any right of first or last
refusal or right of first or last offer or similar right or that limits or
purports to limit the ability of the Company or any of its subsidiaries to own,
operate, sell, transfer, pledge or otherwise dispose of any material amount of
assets or business;
(vii) any Contract providing for any material future payments
that are conditioned, in whole or in part, on a change of control of the Company
or any of its subsidiaries;
(viii) any employment agreement or any agreement or
arrangement with any officer, director or key employee of the Company or any
subsidiary of the Company;
(ix) any Contract of the Company or any of its subsidiaries
providing for or pertaining to employment or consultation services for a
specified or unspecified term except for (A) Contracts involving payment of less
than $50,000 individually or less than $200,000 in the aggregate, and (B)
Contracts which can be terminated within thirty (30) calendar days after giving
notice of termination without resulting in any material cost or penalty to the
Company or any of its subsidiaries, including, without limitation, any material
severance pay or post-employment liabilities or obligations of the Company or
any of its subsidiaries;
(x) any Contract pertaining to the use of or granting of any
right to use or practice any rights under any Intellectual Property of the
Company, whether the Company is the licensee or licensor thereunder, except for
Contracts under which the Company or any of its subsidiaries is a licensee or
"off-the-shelf" software provided that, to the Company's knowledge, there is no
default under any such Contract;
(xi) any Contract pursuant to which the Company or any of its
subsidiaries leases or uses any real property;
(xii) any Contract relating to Indebtedness of the Company or
any of its subsidiaries in excess of $50,000 or to preferred stock issued by the
Company or any of its subsidiaries (other than Indebtedness owing to or
preferred stock owned by the Company or any
21
of its wholly-owned subsidiaries). As used in this Agreement the term
"Indebtedness" means, with respect to a person, all obligations of such person
(i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases, (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other person, and (vi)
make-well or make-whole agreements entered into on behalf of any other person;
(xiii) any Contract with distributors, dealers, manufacturers,
manufacturer's representatives, sales agencies, franchisees, or pre-clinical or
clinical trial testing entities;
(xiv) any Contract relating to (A) the future disposition or
acquisition of any assets or properties of the Company or any of its
subsidiaries, other than dispositions or acquisitions in the ordinary course of
business consistent with past practice, and (B) any merger or other type of
business combination;
(xv) any Contract between or among the Company or any of its
subsidiaries, on the one hand, and any officer, director, employee or
shareholder of the Company or any of its subsidiaries, or any affiliate or
associate of the Company (other than the Company or any of its subsidiaries,
which inter-company transactions are not the subject of this clause), on the
other hand;
(xvi) any collective bargaining or similar labor Contracts;
(xvii) any Contracts that (A) limit or contain restrictions on
the ability of the Company or any of its subsidiaries to declare or pay
dividends on, to make any other distribution in respect of or to issue or
purchase, redeem or otherwise acquire its capital stock, to incur Indebtedness,
to incur or suffer to exist any lien, to purchase or sell any assets and
properties, to change the lines of business in which it participates or engages
or to engage in any business combination or (B) require the Company or any of
its subsidiaries to maintain specified financial ratios or levels of net worth
or other indicia of financial condition;
(xviii) any Contract that (A) involves the payment or
potential payment, pursuant to the terms of any such Contract, by or to the
Company or any of its subsidiaries, of more than $50,000 and (B) cannot be
terminated within thirty (30) calendar days after giving notice of termination
without resulting in any material cost or penalty to the Company or any of its
subsidiaries; and
(xix) any Contract not made in the ordinary course of business
which is material to the Company and its subsidiaries, taken as a whole, or
which reasonably would be expected (x) to delay the consummation of the Merger
or any of the transactions contemplated by this Agreement or (y) to have a
material adverse effect on the Company.
SECTION 3.7 ABSENCE OF CERTAIN CHANGES. Except for the execution and
delivery of this Agreement and the transactions to take place pursuant hereto on
the Closing Date, since December 31, 2003, (i) there has not been any material
adverse change in the Company or any event which either individually or when
aggregated with other event(s) has or reasonably would be expected to have a
material adverse effect on the Company, or (ii) there are not, to the Company's
knowledge, any facts, circumstances or events that make it reasonably likely
that the Company will not be able to fulfill its obligations under this
Agreement in all material respects. Without limiting the foregoing, except as
set forth in Section 3.7 of the Company Disclosure Schedule, there has not
occurred between December 31, 2003 and the date hereof: .
22
any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company or any subsidiary
not wholly owned by the Company, or any direct or indirect redemption, purchase
or other acquisition by the Company or any subsidiary of any such capital stock
of or any option or warrant with respect to the Company or any subsidiary not
wholly owned by the Company;
any authorization, issuance, sale or other disposition by the
Company or any subsidiary of any shares of capital stock of or option or warrant
with respect to the Company or any subsidiary, or any modification or amendment
of any right of any holder of any outstanding shares of capital stock of or any
option or warrant with respect to the Company or any subsidiary;
(x) any increase in the salary, wages or other compensation of any
officer, employee or consultant of the Company or any subsidiary whose annual
salary is, or after giving effect to such change would be, $50,000 or more; (y)
any establishment or modification of (A) targets, goals, pools or similar
provisions in respect of any fiscal year under any compensation or benefit plan,
employment Contract or other employee compensation arrangement or (B) salary
ranges, increase guidelines or similar provisions in respect of any compensation
or benefit plan, employment Contract or other employee compensation arrangement;
or (z) any adoption, entering into, amendment, modification or termination
(partial or complete) of any compensation or benefit plan except to the extent
required by applicable law and, in the event compliance with legal requirements
presented options, only to the extent that the option which the Company or
subsidiary reasonably believed to be the least costly was chosen;
(A) incurrences by the Company or any of the subsidiaries of
Indebtedness in an aggregate principal amount exceeding $50,000 (net of any
amounts discharged during such period), or (B) any voluntary purchase,
cancellation, prepayment or complete or partial discharge in advance of a
scheduled payment date with respect to, or waiver of any right of the Company or
any subsidiary under, any Indebtedness of or owing to the Company or any
subsidiary (in either case other than any Indebtedness of the Company or a
subsidiary owing to the Company or a wholly-owned subsidiary);
any physical damage, destruction or other casualty loss (whether or
not covered by insurance) affecting any of the plant, real or personal property
or equipment of the Company or any subsidiary in an aggregate amount exceeding
$50,000;
any material change in (x) any pricing, investment, accounting,
financial reporting, inventory, credit, allowance or tax practice or policy of
the Company or any subsidiary, (y) any method of calculating any bad debt,
contingency or other reserve of the Company or any subsidiary for accounting,
financial reporting or tax purposes or (z) the fiscal year of the Company or any
subsidiary;
23
any write-off or write-down of or any determination to write off or
down any of the assets and properties of the Company or any subsidiary in an
aggregate amount exceeding $50,000;
any acquisition or disposition of, or incurrence of a lien upon, any
assets and properties of the Company or any subsidiary, other than in the
ordinary course of business consistent with past practice;
any (x) amendment of the certificate or articles of incorporation or
by-laws (or other comparable corporate charter documents) of the Company or any
subsidiary, (y) reorganization, liquidation or dissolution of the Company or any
subsidiary or (z) merger or other type of business combination involving the
Company or any subsidiary and any other person (other than the Company or
another wholly-owned subsidiary of the Company);
any entering into, amendment, modification, termination (partial or
complete) or granting of a waiver under or giving any consent with respect to
any Contract which is required (or had it been in effect on the date hereof
would have been required) to be disclosed in the Disclosure Schedule pursuant to
Section 3.6;
any lapse, or any material breach or default under, or the
incurrence of any material penalty or loss or diminishment of rights under, or
the occurrence of any event which, with notice or the passage of time or both,
could constitute the same, with respect to any Company Material Contract;
capital expenditures or commitments for additions to property, plant
or equipment of the Company and any subsidiary constituting capital assets in an
aggregate amount exceeding $50,000, in the aggregate;
any commencement or termination by the Company or any subsidiary of
any line of business;
any transaction by the Company or any subsidiary with any officer,
director, or shareholder of the Company or any subsidiary, or any affiliate or
associate of any of them (other than the Company or any subsidiary) other than
on an arm's-length basis on terms substantially the same as those available from
unrelated third parties; or
any entering into of an agreement to do or engage in any of the
foregoing after the date hereof.
SECTION 3.8 PERMITS; COMPLIANCE WITH APPLICABLE LAWS.
(A) The Company and its subsidiaries own and/or possess all permits,
licenses, variances, authorizations, exemptions, orders, registrations and
approvals of all Governmental Entities which are required for the operation of
the respective businesses of the Company and its subsidiaries (the "Permits") as
presently conducted, except for those the failure to own or possess
24
would not reasonably be expected to have a material adverse effect on the
Company. Each such Permit is listed in Section 3.8 of the Company Disclosure
Schedule. Each of the Company and its subsidiaries is in compliance with the
terms of its Permits and all the Permits are in full force and effect and no
suspension, modification or revocation of any of them is pending or, to the
knowledge of the Company, threatened nor, to the knowledge of the Company, do
grounds exist for any such action, except where the failure to be in full force
and effect individually or in the aggregate would not reasonably be expected to
have a material adverse effect on the Company.
(B) Each of the Company and its subsidiaries is in compliance in all
respects with all applicable statutes, laws, regulations, ordinances, Permits,
rules, writs, judgments, orders, decrees and arbitration awards of each
Governmental Entity applicable to the Company or its subsidiaries, except where
the failure to be in compliance, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on the Company.
(C) Except for filings with respect to Taxes which is the subject of
Section 3.10, and not covered by this Section 3.8(c), the Company and each of
its subsidiaries have filed all regulatory reports, schedules, forms,
registrations and other documents, together with any amendments required to be
made with respect thereto, that they were required to file with each
Governmental Entity (the "Other Company Documents"), and have paid all fees and
assessments, if any, due and payable in connection therewith, except where the
failure to make such payments and filings individually or in the aggregate would
not have a material adverse effect on the Company.
SECTION 3.9 ABSENCE OF LITIGATION. (a) As used in this Agreement with
respect to any person, an "Action" is any litigation, action, suit, case,
proceeding, administrative charge or citation, investigation or arbitration
against, relating to, or affecting such person or any of its subsidiaries or any
of their respective assets or properties. Section 3.9(a) of the Company
Disclosure Schedule contains a true and current summary description of each
pending and, to the Company's knowledge, threatened Action with respect to the
Company or any of its subsidiaries.
(B) Except as disclosed in Section 3.9(b) of the Company Disclosure
Schedule, there is no Action relating to the Company or any of its subsidiaries
by or before any Governmental Entity or otherwise pending or, to the best of the
Company's knowledge, threatened, which could reasonably be expected to have a
material adverse effect on the Company, nor are there any facts or circumstances
known to the Company or any of its subsidiaries which could reasonably be
expected to give rise to any such Action.
(C) Except as disclosed in Section 3.9(c) of the Company Disclosure
Schedule, there is no Action relating to the Company or any of its subsidiaries
by or before any Governmental Entity or otherwise pending or, to the best of the
Company's knowledge, threatened, which could reasonably be expected to delay,
prohibit, make illegal, or have a material adverse effect on the consummation of
this Agreement or the transactions contemplated hereby, or the benefits to the
parties hereto intended hereby and thereby.
(D) Prior to the execution of this Agreement, the Company has
delivered to Parent all responses of counsel for the Company and its
subsidiaries to auditors' requests for information delivered in connection with
the Company Financial Statements (together with any updates provided by such
counsel) regarding Actions pending or threatened against, relating to or
affecting the Company or any of its subsidiaries.
25
SECTION 3.10 TAX MATTERS.
(A) Each of the Company and each of its subsidiaries has (i) timely
filed (or there have been timely filed on its behalf) with the appropriate
Governmental Entities all United States federal income and other Tax Returns
required to be filed by it (giving effect to all extensions), except where the
failure to file any such Tax Returns in a timely fashion or at all would not
reasonably be expected to have a material adverse effect on the Company, and
such Tax Returns are true, correct and complete in all material respects; (ii)
timely paid in full (or there has been timely paid in full on its behalf) all
United States federal income and other material Taxes required to have been paid
by it; and (iii) made adequate provision (or adequate provision has been made on
its behalf) for all accrued Taxes not yet due. The accruals and provisions for
Taxes reflected in the Company's Financial Statements are adequate in accordance
with GAAP for all Taxes accrued or accruable through the date of such
statements.
(B) As of the date of this Agreement, no Federal, state, local or
foreign audits, suits or other administrative proceedings or court proceedings
are presently pending with regard to any Taxes or Tax Returns of the Company or
any of its subsidiaries, and neither the Company nor any subsidiary of the
Company has received a written notice of any material pending or proposed
claims, audits or proceedings with respect to Taxes.
(C) No deficiency or proposed adjustment which has not been settled
or otherwise resolved for any amount of Tax has been proposed, asserted, or
assessed in writing by any Governmental Entity against, or with respect to, the
Company or any of its subsidiaries. There is no action, suit or audit now in
progress, pending or, to the knowledge of the Company, threatened against or
with respect to the Company or any of its subsidiaries with respect to any
material Tax.
(D) Neither the Company nor any of its subsidiaries has been
included in any "consolidated," "unitary" or "combined" Tax Return (other than
Tax Returns which include only the Company and any of its subsidiaries) provided
for under the laws of the United States, any foreign jurisdiction or any state
or locality with respect to Taxes for any taxable year.
(E) No election under Section 341(f) of the Code has been made by
the Company or any of its subsidiaries.
(F) No claim has been made in writing by any Governmental Entities
in a jurisdiction where the Company or any of its subsidiaries does not file Tax
Returns that any such entity is, or may be, subject to taxation by that
jurisdiction.
(G) Each of the Company and each of its subsidiaries has made
available to Parent correct and complete copies of (i) all of their Tax Returns
filed within the past three years, (ii) all audit reports, letter rulings,
technical advice memoranda and similar documents issued by a Governmental Entity
within the past three years relating to the Federal, state, local or foreign
Taxes due from or with respect to the Company or any of its subsidiaries, and
(iii) any closing letters or agreements entered into by the Company or any of
its subsidiaries with any Governmental Entities within the past three years with
respect to Taxes.
26
(H) Neither the Company nor any of its subsidiaries has received any
notice of deficiency or assessment from any Governmental Entity for any amount
of Tax that has not been fully settled or satisfied, and to the knowledge of the
Company and its subsidiaries no such deficiency or assessment is proposed.
(I) For purposes of this Agreement:
(i) "Tax" or "Taxes" shall mean shall mean all federal, state,
county, local, foreign and other taxes of any kind whatsoever (including,
without limitation, income, profits, premium, excise, sales, use, occupancy,
gross receipts, franchise, ad valorem, severance, capital levy, production,
transfer, license, stamp, environmental, withholding, employment, unemployment
compensation, payroll related and property taxes, import duties and other
governmental charges and assessments), whether or not measured in whole or in
part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with contesting any proposed adjustment related to any of the foregoing.
(ii) "Tax Return" shall mean any return, information report or
filing with respect to Taxes, including any schedules attached thereto and
including any amendments thereof.
SECTION 3.11 EMPLOYEE BENEFIT PLANS.
(A) As used in this Agreement, the term "Employee Plan" shall mean,
with respect to any person, all pension, stock option, stock purchase, phantom
stock, bonus, compensation, benefit, welfare, profit-sharing, retirement,
disability, vacation, severance, hospitalization, medical, surgical, dental,
optical, psychiatric, insurance, incentive, deferred compensation, death and
other similar fringe or employee benefit plans, funds, programs or arrangements,
whether written or oral, in each of the foregoing cases which covers, is
maintained for the benefit of, or relates to any or all current or former
employees of such person or any other entity (an "ERISA Affiliate") related to
such person under Section 414(b), (c), (m) and (o) of the Code, including,
without limitation, subsidiaries of such person. Section 3.11 of the Company
Disclosure Schedule contains a true and complete list of all of the Company's
Employee Plans. Section 3.11 of the Company Disclosure Schedule identifies and
includes but is not limited to, each of the Company's Employee Plans that is
subject to Section 302 or Title IV of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or Section 412 of the Code. Neither the
Company nor any ERISA Affiliate of the Company has any commitment or formal
plan, whether or not legally binding, to create any additional Employee Plan or
modify or change any existing Employee Plan other than as may be required by the
express terms of such Employee Plan or applicable law.
(B) With respect to each Employee Plan that has been qualified or is
intended or required to be qualified under the Code or that is an "Employee
Benefit Plan" within the meaning of Section 3.3 of ERISA, such Employee Plan has
been duly approved and adopted by all necessary and appropriate action of the
Board of Directors of the Company (or a duly constituted committee thereof).
27
(C) With respect to the Employee Plans, all required contributions
for all periods ending before the Closing Date have been or will be paid in full
by the Closing Date. Subject only to normal retrospective adjustments in the
ordinary course, all required insurance premiums have been or will be paid in
full with regard to such Employee Plans for policy years or other applicable
policy periods ending on or before the Closing Date by the Closing Date. As of
the date hereof, none of the Employee Plans has unfunded benefit liabilities, as
defined in Section 4001(a)(16) of ERISA.
(D) The Company has no "multi-employer plans," as defined in Section
3(37) or Section 4001(a)(3) of ERISA or Section 414 ("Multi-Employer Plans"),
and never has had any such plans.
(E) With respect to each Employee Plan (i) no prohibited
transactions as defined in Section 406 of ERISA or Section 4975 of the Code have
occurred or are expected to occur as a result of the Merger or the transactions
contemplated by this Agreement, (ii) no action, suit, grievance, arbitration or
other type of litigation, or claim with respect to the assets of any Employee
Plan (other than routine claims for benefits made in the ordinary course of plan
administration for which plan administrative review procedures have not been
exhausted) is pending or, to the knowledge of the Company, threatened or
imminent against the Company, any ERISA Affiliate or any fiduciary, as such term
is defined in Section 3(21) of ERISA ("Fiduciary"), including, but not limited
to, any action, suit, grievance, arbitration or other type of litigation, or
claim regarding conduct that allegedly interferes with the attainment of rights
under any Employee Plan and (iii) the Company has no knowledge of any facts
which would give rise to or could give rise to any such actions, suits,
grievances, arbitration or other type of litigation, or claims with respect to
any Employee Plan. To the knowledge of the Company, neither the Company, nor its
directors, officers, employees or any Fiduciary has any liability for failure to
comply with ERISA or the Code for any action or failure to act in connection
with the administration or investment of such plan. None of the Employee Plans
is subject to any pending investigations or to the knowledge of the Company
threatened investigations from any Governmental Agencies who enforce applicable
laws under ERISA and the Code.
(F) Each of the Employee Plans is, and has been, operated in
accordance with its terms and each of the Employee Plans, and administration
thereof, is, and has been in compliance with the requirements of any and all
applicable statutes, orders or governmental rules or regulations currently in
effect, including, but not limited to, ERISA and the Code, except where the
failure to comply individually or in the aggregate would not have a material
adverse effect on the Company. All required reports and descriptions of the
Employee Plans (including but not limited to Form 5500 Annual Reports, Form 1024
Application for Recognition of Exemption Under Section 501(a), Summary Annual
Reports and Summary Plan Descriptions) have been timely filed and distributed as
required by ERISA and the Code. Any notices required by ERISA or the Code or any
other state or federal law or any ruling or regulation of any state or federal
administrative agency with respect to the Employee Plans, including but not
limited to any notices required by Section 204(h), Section 606 or Section 4043
of ERISA or Section 4980B of the Code, have been appropriately given.
28
(G) The Internal Revenue Service (the "IRS") has issued a favorable
determination letter with respect to each Employee Plan intended or required to
be "qualified" within the meaning of Section 401(a) of the Code that has not
been revoked and, to the knowledge of the Company, no circumstances exist that
could adversely affect the qualified status of any such plan and the exemption
under Section 501(a) of the Code of the trust maintained thereunder. Each
Employee Plan intended to satisfy the requirements of Section 125, 501(c)(9) or
501(c)(17) of the Code has satisfied such requirements in all material respects.
(H) With respect to each Employee Plan to which the Company or any
ERISA Affiliate made, or was required to make, contributions on behalf of any
employee during the five-year period ending on the last day of the most recent
plan year end prior to the Closing Date, (i) no liability under Title IV or
Section 302 of ERISA has been incurred by the Company or any ERISA Affiliate
that has not been satisfied in full, and (ii) to the knowledge of the Company,
no condition exists that presents a material risk to the Company or any ERISA
Affiliate of incurring any such liability and (iii) the present value of accrued
benefits under such plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such plan's actuary
with respect to such plan did not exceed, as of its latest valuation date, the
then current value of the assets of such plan allocable to such accrued
benefits. No Employee Plan or any trust established thereunder has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recently
ended fiscal year.
(I) No Employee Plan provides medical, surgical, hospitalization,
death or similar benefits (whether or not insured) for employees for periods
extending beyond their retirement or other termination of service, other than
(i) coverage mandated by Section 4980B of the Code, Section 601 of ERISA or
other applicable law, (ii) death benefits under any "pension plan," (iii)
benefits the full cost of which is borne by the employee (or his beneficiary) or
(iv) Employee Plans that can be amended or terminated by the Company without
consent. The Company does not have any current or projected liability with
respect to post-employment or post-retirement welfare benefits for retired,
former, or current employees of the Company.
(J) No material amounts payable under the Employee Plans will fail
to be deductible for Federal income tax purposes by virtue of Section 162(m) of
the Code.
(K) To the extent that the Company or any of its subsidiaries is
deemed to be a fiduciary with respect to any Plan that is subject to ERISA, the
Company or such subsidiary (i) during the past five years has complied with the
requirements of ERISA and the Code in the performance of its duties and
responsibilities with respect to such employee benefit plan and (ii) has not
knowingly caused any of the trusts for which it serves as an investment manager,
as defined in Section 3(38) of ERISA, to enter into any transaction that would
constitute a "prohibited transaction" under Section 406 of ERISA or Section 4975
of the Code, with respect to any such trusts, except for transactions that are
the subject of a statutory or administrative exemption.
(L) No person will be entitled to a "gross up" or other similar
payment in respect of excise taxes under Section 4999 of the Code with respect
to the transactions contemplated by this Agreement.
29
(M) None of the Employee Plans have been completely or partially
terminated and none has been the subject of a "reportable event" as that term is
defined in Section 4043 of ERISA. No amendment has been adopted which would
require the Company or any ERISA Affiliate to provide security pursuant to
Section 307 of ERISA or Section 401(a)(29) of the Code.
SECTION 3.12 LABOR MATTERS.
(A) With respect to employees of the Company and its subsidiaries:
(i) to the knowledge of the Company, no senior executive or key employee has any
plans to terminate employment with the Company or any of its subsidiaries; (ii)
there is no unfair labor practice charge or complaint against the Company or any
of its subsidiaries pending or, to the knowledge of the Company or any of its
subsidiaries, threatened before the National Labor Relations Board or any other
comparable Governmental Entity; (iii) there is no demand for recognition made by
any labor organization or petition for election filed with the National Labor
Relations Board or any other comparable Governmental Entity; (iv) there are, and
have been, no collective bargaining agreements; and (v) there is no litigation,
arbitration proceeding, governmental investigation, administrative charge,
citation or action of any kind pending or, to the knowledge of the Company,
proposed or threatened against the Company or any of its subsidiaries relating
to employment, employment practices, terms and conditions of employment or
wages, benefits, severance and hours.
(B) Section 3.12(b) of the Company Disclosure Schedule lists the
name, title, date of employment and compensation (whether cash or otherwise,
including such items as options) of each current officer and director of the
Company or any of its subsidiaries, and each current salaried employee of the
Company or any of its subsidiaries. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and thereby will
not (i) result in any payment (including severance, unemployment compensation,
tax gross-up, bonus or otherwise) becoming due to any current or former
director, employee or independent contractor of the Company or any of its
subsidiaries, from the Company or any of its subsidiaries under any Employee
Plan or otherwise, (ii) materially increase any benefits otherwise payable under
any Employee Plan or otherwise, or (iii) result in the acceleration of the time
of payment, exercise or vesting of any such benefits.
(C) Section 3.12(c) of the Company Disclosure Schedule lists all
contracts, agreements, plans or arrangements covering any employee, officer or
director of the Company or its subsidiaries containing "change of control,"
"stay-put," transition, retention, severance or similar provisions, and sets
forth the names and titles of all such employees, officers or directors, the
amounts payable under such provisions, whether such provisions would become
payable as a result of the Merger and the transactions contemplated by this
Agreement, and when such amounts would be payable to such employees, officers or
directors, all of which are in writing, have heretofore been duly approved by
the Company's Board of Directors, and true and complete copies of all of which
have heretofore been delivered to Parent. There is no contract, agreement, plan
or arrangement (oral or written) covering any employee, officer or director of
the Company that individually or collectively could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section 280G of
the Code.
30
SECTION 3.13 ENVIRONMENTAL MATTERS. Except for such matters which would
not, individually or in the aggregate, reasonably be expected to result in a
material adverse effect on the Company:
(A) (i) The Company and its subsidiaries are in compliance with all
applicable Environmental Laws; (ii) neither the Company nor any of its
subsidiaries has received any written communication from any person or
governmental entity that alleges that the Company or any of its subsidiaries are
not in compliance with applicable Environmental Laws; and (iii) there have not
been any Releases in any reportable quantity, or in violation of any
Environmental Law, of Hazardous Substances by the Company or any of its
subsidiaries, or, by any other party, at any property currently or formerly
owned, leased or operated by the Company or any of its subsidiaries that
occurred during the period of the Company's or any of its subsidiaries'
ownership, lease or operation of such property or, to the knowledge of the
Company and its subsidiaries, prior thereto, and no property now or previously
owned or leased by the Company or any subsidiary is listed or proposed for
listing on the National Priorities List promulgated pursuant to CERCLA or on any
similar state list of sites requiring investigation or clean-up.
(B) The Company and its subsidiaries have all Environmental Permits
necessary for the conduct and operation of their business, and all such permits
are in good standing or, where applicable, a renewal application has been timely
filed and is pending agency approval, and the Company and its subsidiaries are
in compliance with all terms and conditions of all such Environmental Permits
and are not required to make any expenditure in order to obtain or renew any
Environmental Permits.
(C) There are no Environmental claims pending or, to knowledge,
threatened, against the Company or any of its subsidiaries, or against any real
or personal property or operation that the Company or any of its subsidiaries
owns, leases or manages.
(D) Except as set forth on Section 3.13(d) of the Company Disclosure
Schedules, neither the Company, any of its subsidiaries, nor, to the knowledge
of the Company and its subsidiaries, any prior owner or lessee of any property
now or previously owned or leased by the Company or any subsidiary, has handled
any Hazardous Substance on any property now or previously owned or leased by the
Company or any subsidiary; and, without limiting the foregoing, to the knowledge
of the Company, (i) no polychlorinated biphenyl is or has been present, (ii) no
asbestos is or has been present, and (iii) there are no underground storage
tanks, active or abandoned.
(E) Neither the Company nor any subsidiary has transported or
arranged for the transportation of any Hazardous Substance to any location which
is the subject of any Action that could lead to claims against Parent, Merger
Sub, the Company or any subsidiary for clean-up costs, remedial work, damages to
natural resources or personal injury claims, including, but not limited to,
claims under CERCLA.
(F) There are no Liens arising under or pursuant to any
Environmental Law on any real property owned or leased by the Company or any
subsidiary, and no action of any Governmental Authority has been taken or, to
the knowledge of the Company and the subsidiaries, is in process which could
subject any of such properties to such Liens, and neither the Company nor any
subsidiary would be required to place any notice or restriction relating to the
presence of any Hazardous Substance at any property owned by it in any deed to
such property.
31
(G) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or which are in the
possession of, the Company or any subsidiary in relation to any property or
facility now or previously owned or leased by the Company or any subsidiary
which have not been delivered to Parent prior to the execution of this
Agreement.
(H) As used in this Agreement:
(i) "Environmental Laws" shall mean any and all binding and
applicable local, municipal, state, federal or international law, statute,
treaty, directive, decision, judgment, award, regulation, decree, rule, code of
practice, guidance, order, direction, consent, authorization, permit or similar
requirement, approval or standard concerning (A) occupational, consumer and/or
public health and safety, and/or (B) environmental matters (including without
limitation clean-up standards and practices), with respect to operations,
buildings, equipment, soil, sub-surface strata, air, surface water, or ground
water, whether set forth in applicable law or applied in practice, whether to
facilities such as those of the Company Properties in the jurisdictions in which
the Company Properties are located or to facilities such as those used for the
transportation, storage or disposal of Hazardous Substances generated by the
Company and/or its subsidiaries or otherwise.
(ii) "Environmental Permits" shall mean Permits required by
Environmental Laws.
(iii) "Hazardous Substances" shall mean any and all chemicals,
materials, substances, wastes, dangerous substances, hazardous substances, toxic
substances, radioactive substances, hazardous wastes, special wastes, controlled
wastes, oils, petroleum and petroleum products, hazardous chemicals and any
other materials which are regulated by the Environmental Laws or otherwise found
or determined to be potentially harmful to human health or the environment, and
any other chemical, material, substance or waste, exposure to which is now or
hereafter prohibited, limited or regulated by any Governmental Authority.
(iv) "Release" shall mean any spilling, leaking, pumping,
emitting, emptying, discharging, injecting, escaping, leaching, migrating,
dumping or disposing of Hazardous Substances (including, without limitation, the
abandonment or discarding of barrels, containers or other closed receptacles
containing Hazardous Substances) into the environment.
SECTION 3.14 INTELLECTUAL PROPERTY.
(A) Section 3.14(a) of the Company Disclosure Schedule sets forth,
for the Intellectual Property (as defined below) owned by or licensed by the
Company or any of its subsidiaries, a complete and accurate list (including date
of registration, expiration date, and whether owned or licensed) of all U.S. and
foreign (i) patents and patent applications, (ii) trademark or service mark
registrations and applications,
32
(iii) copyright registrations and applications, and (iv) Internet domain names.
The Company or one of its subsidiaries owns or has the valid right to use all
patents and patent applications, trademarks, service marks, trademark or service
mark registrations and applications, trade names, logos, designs, Internet
domain names, slogans and general intangibles of like nature, together with all
goodwill related to the foregoing, copyrights, copyright registrations, renewals
and applications, Software (as defined below), technology, trade secrets and
other confidential information, know-how, proprietary processes, formulae,
algorithms, models and methodologies, licenses, agreements and all other
proprietary rights (collectively, the "Intellectual Property"), owned by the
Company or used in the business of the Company as it currently is conducted.
"Software" means any and all (i) computer programs, including any and all
software implementations of algorithms, models and methodologies, whether in
source code or object code, (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise, (iii)
descriptions, flow-charts and other work product used to design, plan, organize
and develop any of the foregoing, (iv) the technology supporting and content
contained on any owned or operated Internet site(s), and (v) all documentation,
including user manuals and training materials, relating to any of the foregoing.
The Company and its subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their trade secrets. Neither
the Company nor any subsidiary is, or has received any notice that it is, in
default (or with the giving of notice or lapse of time or both, would be in
default) under any license to use such Intellectual Property, nor is there any
default (or any condition which, with the giving of notice or lapse of time or
both, would constitute a default) under any license out by the Company of any
such Intellectual Property. This Agreement and the transactions contemplated
hereby will not conflict with, or result in a default in respect of, or a
diminishment of rights with respect to (whether with the giving of notice or
lapse of time or both), any Intellectual Property licensed by the Company.
(B) All of the Intellectual Property owned by the Company or one of
its subsidiaries is free and clear of all Liens. The Company or one of its
subsidiaries is listed in the records of the appropriate United States, state
or, to the Company's knowledge, foreign agency as, the sole owner of record for
each application and registration listed in Section 3.14(a) of the Company
Disclosure Schedule.
(C) All of the registrations owned by the Company and listed in
Section 3.14(a) of the Company Disclosure Schedule are valid, subsisting,
enforceable, in full force and effect, and have not been cancelled, expired,
abandoned or otherwise terminated and all renewal fees in respect thereof have
been duly paid and are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications). There is no pending or, to the
Company's knowledge, threatened opposition, interference, invalidation or
cancellation proceeding before any court or registration authority in any
jurisdiction against the registrations and applications owned by the Company and
listed in Section 3.14(a) of the Company Disclosure Schedule or, to the
Company's knowledge, against any other Intellectual Property used by the Company
or its subsidiaries.
(D) To the knowledge of the Company, the conduct of the Company's
and its subsidiaries' business as currently conducted or planned by the Company
to be conducted does not, in any material respect, infringe upon (either
directly or indirectly such as through contributory infringement or inducement
to infringe), dilute, misappropriate or otherwise violate any Intellectual
Property owned or controlled by any third party.
33
(E) To the Company's knowledge, no third party is misappropriating,
infringing, diluting, or violating any Intellectual Property owned by or
licensed to or by the Company or its subsidiaries and no such claims have been
made against a third party by the Company or its subsidiaries.
(F) Each material item of Software, which is used by the Company or
its subsidiaries in connection with the operation of their businesses as
currently conducted, is either (i) owned by the Company or its subsidiaries,
(ii) currently in the public domain or otherwise available to the Company
without the need of a license, lease or consent of any third party, or (iii)
used under rights granted to the Company or its subsidiaries pursuant to a
written agreement, license or lease from a third party.
SECTION 3.15 INSURANCE MATTERS. The Company and its subsidiaries have all
material primary insurance with financially sound and nationally recognized
insurance carriers providing insurance coverage that is customary in amount and
scope for other companies in the industry in which the Company and its
subsidiaries operate. All such insurance policies are listed in Section 3.15 of
the Company Disclosure Schedule and are in full force and effect, all premiums
due and payable thereon have been paid and no written or oral notice of
cancellation or termination has been received and is outstanding. The insurance
coverage provided by the policies listed in Schedule 3.15 of the Company
Disclosure Schedule will not terminate or lapse by reason of the transactions
contemplated by this Agreement. Neither the Company nor any subsidiary has
received notice that any insurer under any policy listed in Schedule 3.15 of the
Company Disclosure Schedule is denying liability with respect to a claim
thereunder or defending under a reservation of rights clause.
SECTION 3.16 TRANSACTIONS WITH AFFILIATES. Except as disclosed in Section
3.16 of the Company Disclosure Schedule; there are (i) no outstanding amounts
payable to or receivable from, or advances by the Company or any of its
subsidiaries to, and neither the Company nor any of its subsidiaries is
otherwise a creditor of or debtor to, any officer, director, or shareholder of
the Company or any of its subsidiaries, or any affiliate or associate of any of
them (any such person, a "Related Person"), other than as part of the normal and
customary terms of such persons' employment or service as an officer, director
or employee of the Company or any of its subsidiaries; (ii) no Related Person
provides or causes to be provided any assets, services or facilities to the
Company or any subsidiary; (iii) neither the Company nor any subsidiary provides
or causes to be provided any assets, services or facilities to any Related
Person; and (iv) neither the Company nor any subsidiary beneficially owns,
directly or indirectly, any assets or property of any Related Person, that would
be required to be disclosed pursuant to Item 404 of Regulation S-K of the
Exchange Act if the Company were subject to Regulation S-K. Except as disclosed
in Section 3.16 of the Company Disclosure Schedule, each of the liabilities and
transactions listed in Section 3.16 of the Company Disclosure Schedule was
incurred or engaged in, as the case may be, on an arm's-length basis.
SECTION 3.17 VOTING REQUIREMENTS. The affirmative vote (in person or by
duly authorized and valid proxy at the Company Shareholders Meeting of the
holders of a majority of the outstanding shares of Company Common Stock and of
each class or series of Company Preferred Stock in favor of the adoption of this
Agreement is the only vote of the holders of any class or series of the
Company's capital stock required by applicable law and the Company's
organizational instruments to duly effect such adoption.
34
SECTION 3.18 BROKERS. Except as set forth in Section 3.18 of the Company
Disclosure Schedule, no broker, investment banker, financial advisor, finder,
consultant or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee, compensation or commission, however and whenever
payable, in connection with the Merger and the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.
SECTION 3.19 REAL PROPERTY. (A) Each of the Company and its subsidiaries
has good and marketable title in fee simple to all real properties owned by it
and all buildings, structures and other improvements located thereon and valid
leaseholds in all real estate leased by it, other than Permitted Liens. Section
3.19(a) of the Company Disclosure Schedule sets forth a complete list of all (i)
real property owned by the Company or its subsidiaries as of the date hereof and
(ii) real property leased, subleased, or otherwise occupied or used by the
Company and its Subsidiaries as lessee.
(B) As used in this Agreement, "Permitted Liens" shall mean: (i)
Liens for Taxes not yet due or delinquent or as to which there is a good faith
dispute and for which there are adequate provisions on the books and records of
the Company in accordance with GAAP, (ii) with respect to real property, any
Lien, encumbrance or other title defect which is not in a liquidated amount
(whether material or immaterial) and which does not, individually or in the
aggregate, interfere materially with the current use or materially detract from
the value or marketability of such property (assuming its continued use in the
manner in which it is currently used) and (iii) inchoate materialmen's,
mechanics', carriers', workmen's and repairmen's liens arising in the ordinary
course and not past due and payable or the payment of which is being contested
in good faith by appropriate proceedings. As used with respect to real property,
the term "Permitted Liens" shall also include any Lien reflected (A) on the
Company's and its subsidiaries' title reports and (B) in Section 3.19(b)(i) of
the Company Disclosure Schedule, provided, that none of the same shall
materially interfere with the use of such real property by the Company or any of
its subsidiaries as the same is currently used or planned to be used, and that
none of the same materially detracts from the economic value of such real
property.
SECTION 3.20 TANGIBLE PERSONAL PROPERTY. Except as would not materially
impair the Company and its operations or the operations of its subsidiaries, the
machinery, equipment, furniture, fixtures and other tangible personal property
(the "Tangible Personal Property") owned, leased or used by the Company or any
of its subsidiaries is in the aggregate sufficient and adequate to carry on
their respective businesses in all material respects as presently conducted and
is, in the aggregate and in all material respects, in good operating condition
and repair, normal wear and tear excepted. Section 3.20 of the Company
Disclosure Schedule lists the Company's Tangible Personal Property having a
replacement cost of not less than $500 for each item. The Company and its
subsidiaries are in possession of and have good title to, or valid leasehold
interests in or valid rights under contract to use, the Tangible Personal
Property material to the Company and its subsidiaries, taken as a whole, free
and clear of all Liens, other than Permitted Liens. No related party owns any
Tangible Personal Property utilized by the Company in its business as currently
conducted.
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SECTION 3.21 INVESTMENT COMPANY. Neither the Company nor any of its
subsidiaries is an investment company required to be registered as an investment
company pursuant to the Investment Company Act.
SECTION 3.22 BOARD APPROVAL. Pursuant to meetings duly noticed and
convened in accordance with all applicable laws and at each of which a quorum
was present, the Board of Directors of the Company, after full and deliberate
consideration, has (i) duly approved this Agreement and resolved that the Merger
and the transactions contemplated hereby are fair to, advisable and in the best
interests of the Company's shareholders, (ii) resolved to recommend that the
Company's shareholders approve the Merger and the transactions contemplated
hereby and (iii) directed that the Merger be submitted for consideration by the
holders of Company Common Stock and Company Preferred Stock.
SECTION 3.23 BOOKS AND RECORDS. Each of the Company and the subsidiaries
maintains and has maintained accurate books and records in accordance with GAAP
reflecting its assets and liabilities and accounts, notes and other receivables
and inventory are recorded accurately, and proper and adequate procedures are
implemented to effect the collection thereof on a current and timely basis.
SECTION 3.24 ACCURACY OF INFORMATION. To the knowledge of the Company,
neither this Agreement, the Company Disclosure Schedule nor any other document,
schedule, exhibit, certificate or instrument provided by the Company or any of
the Company's subsidiaries or any of their respective employees or agents to
Parent in connection with the transactions contemplated hereby contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained therein, not misleading. None of the
information supplied or to be supplied by the Company in writing specifically
for inclusion or incorporation by reference in (i) the Form S-4 will, at the
time the Form S-4 becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, not misleading or
(ii) the Proxy/Information Statement will, at the date it is first mailed to the
Company's shareholders and at the time of the Company Shareholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading, except
that no representation or warranty is made by the Company with respect to
statements made based on information supplied by Parent specifically for
inclusion or incorporation by reference in the Form S-4 or Proxy/Information
Statement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth on the Disclosure Schedule delivered by Parent to the
Company prior to the execution of this Agreement which is incorporated by
reference in and constitutes an integral part of this Agreement (the "Parent
Disclosure Schedule") and making specific reference to the particular
subsection(s) of this Agreement to which exception is being taken, Parent hereby
represents and warrants to the Company as follows:
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SECTION 4.1 ORGANIZATION, STANDING AND CORPORATE POWER.
(A) Each of Parent, its subsidiaries and Merger Sub is a corporation
or other legal entity duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is organized and has the
requisite corporate or other power, as the case may be, and requisite authority
to carry on its business as presently being conducted. Each of Parent and its
subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction listed in Section 4.1 of the Parent Disclosure
Schedule. Each of Parent and its subsidiaries is duly qualified or licensed to
conduct business in each jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in good standing individually or in the aggregate
would not reasonably be expected to have a material adverse effect on Parent.
(B) Parent has delivered or made available to the Company prior to
the execution of this Agreement complete and correct copies of the certificate
of incorporation and by-laws or other organizational documents of Parent, its
subsidiaries and Merger Sub, as in effect at the date of this Agreement, and
which shall be in effect as of the Closing Date (subject to any amendments
permitted under Section 5.4(a) hereof).
SECTION 4.2 SUBSIDIARIES. (A) Section 4.2 of the Parent Disclosure
Schedule lists the names and jurisdiction of incorporation or organization of
all the subsidiaries of Parent, whether consolidated or unconsolidated. The
outstanding securities of the subsidiaries of Parent are set forth in Section
4.2 of the Parent Disclosure Schedules and all outstanding shares of capital
stock of, or other equity interests in, each such subsidiary: (i) have been duly
authorized, validly issued and are fully paid and nonassessable and (ii) are
owned directly or indirectly by Parent, free and clear of all Liens. Except as
set forth above or in Section 4.2 of Parent Disclosure Schedule, Parent does not
own, directly or indirectly, any capital stock of or other equity or voting
interests in any person.
(B) Merger Sub is a newly formed corporation with no material assets
or liabilities, except for liabilities arising under this Agreement. Merger Sub
will not conduct any business or activities other than the issuance of its
capital stock to Parent prior to the Merger.
SECTION 4.3 CAPITAL STRUCTURE. (A) The authorized capital stock of Parent
consists of 100,000,000 shares of common stock, $0.001 par value (the "Parent
Common Stock"), and 25,000,000 shares of preferred stock, par value $0.001 per
share, of Parent ("Parent Authorized Preferred Stock"). As of the date hereof:
(i) 28,704,861 shares of Parent Common Stock were issued and outstanding; (ii)
no (0) shares of Parent Common Stock were held by Parent in its treasury; (iii)
no (0) shares of Parent Common Stock were held by subsidiaries of Parent; (iv)
approximately 8,680,000 shares of Parent Common Stock were reserved for issuance
pursuant to the stock-based plans identified in Section 4.3 of the Parent
Disclosure Schedule (such plans, collectively, the "Parent Stock Plans"), of
which approximately no (0) shares are subject to outstanding employee stock
options or other rights to purchase or receive Parent Common Stock
37
granted under the Parent Stock Plans (collectively, "Parent Employee Stock
Options"); and (v) 7,637,500 shares of Parent Common Stock are reserved for
issuance pursuant to convertible securities or warrants (including 5,500,000
warrants at $1.50 heretofore issued to Bioaccelerate, Inc. and 1,500,000
warrants at $3.00 to be issued to Bioaccelerate in consideration of the
$4,000,000 bridge financing heretofore agreed among the parties, and 637,500
shares reserved for issuance in respect of contingent obligations).
(B) All shares of capital stock of Parent outstanding as of the date
hereof have been, and all shares thereof which may be issued pursuant to this
Agreement or otherwise will be, when issued, duly authorized and validly issued
and are fully paid and nonassessable. All shares of capital stock of Parent
outstanding as of the date hereof have been, and all shares which shall be
issued as part of the Merger Consideration will be, when issued, not subject to
preemptive rights created by statute, the Parent's Articles of Incorporation or
any agreement to which Parent is a party or by which Parent may be bound. Except
as set forth in this Section and except for changes since the date of this
Agreement resulting from the exercise of Parent's employee stock options
outstanding on such date, there are outstanding (i) no shares of capital stock
or other voting securities of Parent, (ii) no securities of Parent convertible
into or exchangeable for shares of capital stock or voting securities of Parent,
and (iii) no options or other rights to acquire from Parent, and no obligation
of Parent to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock of Parent.
(C) Parent has a sufficient number of duly authorized but unissued
shares of Parent Common Stock to issue the maximum number of such shares
contemplated by Article II of this Agreement as the Merger Consideration.
SECTION 4.4 AUTHORITY; NONCONTRAVENTION. (A) Parent and Merger Sub have
the corporate power and authority to execute, deliver and perform this Agreement
and to consummate the transactions contemplated hereby. Except for any required
approval by Parent's shareholders in connection with the consummation of the
Merger, all corporate acts and proceedings required to be taken by or on the
part of Parent and Merger Sub to authorize Parent and Merger Sub, as the case
may be, to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby have been duly and validly taken. This
Agreement constitutes a valid and binding agreement of Parent and Merger Sub.
(B) The execution and delivery of this Agreement does not and the
consummation of the transactions contemplated hereby will not conflict with or
result in a violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation under (i) any provision of Parent's or
Merger Sub's articles of incorporation, (ii) any loan or credit agreement, note,
mortgage, indenture, lease or other Parent Contract or (iii) instrument, permit,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or Merger Sub or their properties or assets.
(C) The execution, delivery and performance by Parent and Merger Sub
of this Agreement and the consummation of the Merger by Parent and Merger Sub
requires no consent, approval, order or authorization of, action by or in
respect of, or registration or filing with, any Governmental Entity other than
the filing of a certificate of merger in accordance with the Secretary and with
respect to Parent, (ii) compliance with any applicable requirement of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); (iii)
compliance with the Securities Act; and (iv) compliance with any state
securities or blue sky laws.
38
(D) The execution and delivery of this Agreement and the
consummation of the Merger will not result in the creation of any Lien upon any
asset of Parent.
(E) Except as set forth in Section 4.4(e) of the Parent Disclosure
Schedule, no consent, approval, waiver or other action by any person (other than
the governmental authorities referred to in (b) above) under any indenture,
lease, instrument or other material contract, agreement or document to which
Parent is a party or by which Parent is bound is required or necessary for, or
made necessary by reason of, the execution, delivery and performance of this
Agreement by Parent or the consummation of the Merger.
SECTION 4.5 PARENT DOCUMENTS. (A) As of their respective filing dates, (i)
Parent's Annual Report on Form 10-KSB for its fiscal year ended January 31,
2004, and all reports, schedules, forms, information statements and other
documents (including exhibits) filed by Parent with the SEC subsequent to such
fiscal year end (together with all certifications required pursuant to the
Sarbanes-Oxley Act of 2002 ("SOXA"), the "Parent SEC Documents") complied in all
material respects with the 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 Parent SEC Documents, except as amended or supplemented by a
subsequently filed Parent SEC Document, and (ii) no Parent SEC Documents, as of
their respective dates, contained (except for such matters as were amended or
supplemented by a subsequently filed Parent SEC Document, if any), and no Parent
SEC Document filed subsequent to the date hereof through the Closing Date will
contain as of their respective dates, any untrue statement of a material fact or
omitted, and no Parent SEC Document filed subsequent to the date hereof and
through the Closing Date will omit as of their respective dates, to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of registration statements of Parent under the Securities
Act, in light of the circumstances under which they were made) not misleading
(excluding, for information furnished by Company or shareholders of Company for
inclusion therein, as to which no representation or warranty is given by
Parent).
(B) The financial statements of Parent included in the Parent SEC
Documents (including the related notes) complied as to form, as of their
respective dates of filing with the SEC (except as subsequently amended or
supplemented by a subsequent Parent SEC Document, if at all), in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP (except, in the case of unaudited statements, as permitted by
Quarterly Report on Form l0-QSB of the SEC) applied on a consistent basis during
the periods and at the dates involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial condition of Parent and
its subsidiaries at the dates thereof and the consolidated results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to notes and normal year-end audit adjustments that were not, or
with respect to any such financial statements contained in any Parent SEC
Documents to be filed subsequently to the date hereof are not reasonably
expected to be, material in amount or effect). Except for liabilities (i) set
forth in Section 4.5 of the Parent Disclosure Schedule, (ii) reflected in
Parent's audited financial statements as at, and for the period ending, January
31, 2004, including, without limitation, any liabilities described in any notes
thereto (or liabilities for which neither accrual nor footnote disclosure is
required pursuant to GAAP), (iii) incurred in the ordinary course of business
since January 31, 2004 consistent with Parent's past practices, or (iv) in
connection with the negotiation and consummation of this Agreement and the
transactions contemplated hereby, Parent has no material liabilities or
obligations, whether absolute, accrued, contingent or otherwise. Cacciamatta
Accountancy Corporation, who have expressed their opinion with respect to the
financial statements of Parent and its subsidiaries included in the Parent SEC
Documents (including the related notes), are independent public or certified
public accountants as required by the Securities Act and the Exchange Act.
39
(C) Each of Parent, its directors and its senior financial officers
has consulted to the extent necessary with Parent's independent auditors and
with Parent's outside counsel with respect to, and (to the extent applicable to
Parent) is familiar in all material respects with all of the requirements of,
SOXA. Parent hereby reaffirms, represents and warrants to the Company the
matters and statements made in the certifications filed with the SEC pursuant to
Sections 302 and 906 of SOXA as if such certifications were made as of the
Closing Date.
(D) Parent has applied for listing of the Parent Common Stock on the
American Stock Exchange (the "AMEX"). Parent shall use its commercially
reasonable efforts to effectuate the listing of the Parent Common Stock on AMEX.
If prior to the Effective Time, Parent Common Stock is listed on AMEX, Parent
shall comply with all the rules and regulations of such exchange.
SECTION 4.6 PARENT CONTRACTS. (A) Section 4.6 of the Parent Disclosure
Schedule lists all Parent Contracts. Each Parent Contract is valid and binding
on and enforceable against Parent (or, to the extent a subsidiary of Parent is a
party, such subsidiary) and, to the knowledge of Parent, each other party
thereto and is in full force and effect. Neither Parent nor any of its
subsidiaries is in breach or default under any Parent Contract. Neither the
Parent nor any subsidiary of the Parent knows of, or has received notice of, any
violation, default, right of acceleration of any obligation or loss of a
material benefit under (nor, to the knowledge of the Company, does there exist
any condition which with the passage of time or the giving of notice or both
would result in such a violation, default, right of acceleration of any
obligation or loss of a material benefit, under) any Parent Contract by any
other party thereto. Prior to the date hereof, Parent has made available to the
Company true and complete copies of all Parent Contracts.
(B) As used in this Agreement, "Parent Contracts" shall mean:
(i) any Contract that (A) involves the payment or potential
payment, pursuant to the terms of any such Contract, by or to Parent or any of
its subsidiaries, of more than $50,000 individually or more than $200,000 in the
aggregate and (B) cannot be terminated within thirty (30) calendar days after
giving notice of termination without resulting in any material cost or penalty
to Parent or any of its subsidiaries;
40
(ii) any Contract which contains provisions which in any
non-de minimis manner restrict, or may restrict, the conduct of business as
presently conducted by Parent or any of its subsidiaries;
(iii) any Contract restricting in any way the right of Parent
or any subsidiary to engage in business or to compete in any business;
(iv) any Contract providing for the indemnification or surety
by Parent or any of its subsidiaries;
(v) any strategic alliance, revenue sharing joint venture or
partnership agreement of Parent or any subsidiary of Parent;
(vi) any Contract which grants any right of first or last
refusal or right of first or last offer or similar right or that limits or
purports to limit the ability of Parent or any of its subsidiaries to own,
operate, sell, transfer, pledge or otherwise dispose of any material amount of
assets or business;
(vii) any Contract providing for any material future payments
that are conditioned, in whole or in part, on a change of control of Parent or
any of its subsidiaries;
(viii) any employment agreement or any agreement or
arrangement with any officer, director or key employee of Parent or any
subsidiary of Parent;
(ix) any Contract of Parent or any of its subsidiaries
providing for or pertaining to employment or consultation services for a
specified or unspecified term except for (A) Contracts involving payment of less
than $50,000 individually or less than $200,000 in the aggregate, and (B)
Contracts which can be terminated within thirty (30) calendar days after giving
notice of termination without resulting in any material cost or penalty to
Parent or any of its subsidiaries, including, without limitation, any material
severance pay or post-employment liabilities or obligations of Parent or any of
its subsidiaries;
(x) any Contract pertaining to the use of or granting of any
right to use or practice any rights under any Intellectual Property of Parent,
whether Parent is the licensee or licensor thereunder, except for Contracts
under which Parent or any of its subsidiaries is a licensee or "off-the-shelf"
software provided that, to Parent's knowledge, there is no default under any
such Contract;
(xi) any Contract pursuant to which Parent or any of its
subsidiaries leases or uses any real property;
(xii) any Contract relating to Indebtedness of Parent or any
of its subsidiaries in excess of $50,000 or to preferred stock issued by Parent
or any of its subsidiaries (other than Indebtedness owing to or preferred stock
owned by Parent or any of its wholly-owned subsidiaries);
41
(xiii) any Contract with distributors, dealers, manufacturers,
manufacturer's representatives, sales agencies, franchisees, or pre-clinical or
clinical trial testing entities;
(xiv) any Contract relating to (A) the future disposition or
acquisition of any assets or properties of Parent or any of its subsidiaries,
other than dispositions or acquisitions in the ordinary course of business
consistent with past practice, and (B) any merger or other type of business
combination;
(xv) any Contract between or among Parent or any of its
subsidiaries, on the one hand, and any officer, director, employee or
shareholder of Parent or any of its subsidiaries, or any affiliate or associate
of any Parent (other than Parent or any of its subsidiaries, which inter-company
transactions are not the subject of this clause), on the other hand;
(xvi) any collective bargaining agreement or labor contracts;
(xvii) any Contracts that (A) limit or contain restrictions on
the ability of Parent or any of its subsidiaries to declare or pay dividends on,
to make any other distribution in respect of or to issue or purchase, redeem or
otherwise acquire its capital stock, to incur Indebtedness, to incur or suffer
to exist any lien, to purchase or sell any assets and properties, to change the
lines of business in which it participates or engages or to engage in any
business combination or (B) require Parent or any of its subsidiaries to
maintain specified financial ratios or levels of net worth or other indicia of
financial condition;
(xviii) any Contract that (A) involves the payment or
potential payment, pursuant to the terms of any such Contract, by or to Parent
or any of its subsidiaries, of more than $50,000 and (B) cannot be terminated
within thirty (30) calendar days after giving notice of termination without
resulting in any material cost or penalty to Parent or any of its subsidiaries;
and
(xix) any Contract not made in the ordinary course of business
which is material to Parent and its subsidiaries, taken as a whole, or which
reasonably would be expected (x) to delay the consummation of the Merger or any
of the transactions contemplated by this Agreement or (y) to have a material
adverse effect on Parent.
SECTION 4.7 ABSENCE OF CERTAIN CHANGES. Except for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby, and
except as disclosed in the Parent SEC Documents filed and publicly available
prior to the date hereof, since January 31, 2004, there has not been any of the
following: (i) any material adverse change in Parent or any event which either
individually or when aggregated with other event(s) has or reasonably would be
expected to have a material adverse effect on Parent, or (ii) to Parent's
knowledge, any facts, circumstances or events that make it reasonably likely
that Parent will not be able to fulfill its obligations under this Agreement in
all material respects, or (iii) any occurrence which would be required to be
disclosed in Parent's annual report on Form 10-KSB if the end of the period for
which such report was due was the date hereof, but not including, with respect
to this clause (iii), disclosure that would be reported only in financial
statements or notes thereto, or management's discussion or analysis concerning
the same, in respect of periods ending on the date hereof.
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SECTION 4.8 PERMITS; COMPLIANCE WITH APPLICABLE LAWS.
(A) Each of Parent and its subsidiaries is in compliance with all
applicable statutes, laws, regulations, ordinances, permits, rules, writs,
judgments, orders, decrees or arbitration awards of any Governmental Entity
applicable to Parent or its subsidiaries except where the failure to be in
compliance individually or in the aggregate would not have a material adverse
effect on the Parent.
(B) Except for filings with the SEC and filings with respect to
Taxes, which are the subject of Sections 4.5 and 4.10, respectively, and not
covered by this Section 4.8(b), the Parent and each of its subsidiaries have
filed all regulatory reports, schedules, forms, registrations and other
documents, together with any amendments required to be made with respect
thereto, that they were required to file with each Governmental Entity (the
"Other Parent Documents"), and have paid all fees and assessments due and
payable in connection therewith, except where the failure to make such payments
and filings individually or in the aggregate would not have a material adverse
effect on the Parent.
SECTION 4.9 ABSENCE OF LITIGATION. (a) Section 4.9(a) of Parent Disclosure
Schedule contains a true and current summary description of each pending and, to
Parent's knowledge, threatened Action with respect to Parent or any of its
subsidiaries.
(B) Except as disclosed in Section 4.9(b) of Parent Disclosure
Schedule, there is no Action relating to Parent or any of its subsidiaries by or
before any Governmental Entity or otherwise pending or, to the best of Parent's
knowledge, threatened, which could reasonably be expected to have a material
adverse effect on Parent, nor are there any facts or circumstances known to
Parent or any of its subsidiaries which could reasonably be expected to give
rise to any such Action.
(C) Except as disclosed in Section 4.9(c) of Parent Disclosure
Schedule, there is no Action relating to Parent or any of its subsidiaries by or
before any Governmental Entity or otherwise pending or, to the best of Parent's
knowledge, threatened, which could reasonably be expected to delay, prohibit,
make illegal, or have a material adverse effect on the consummation of this
Agreement or the transactions contemplated hereby, or the benefits to the
parties hereto intended hereby and thereby.
(D) Prior to the execution of this Agreement, Parent has delivered
to the Company all responses of counsel for Parent and its subsidiaries to
auditors' requests for information delivered in connection with Parent's audited
financial statements for the period ended January 31, 2004 (together with any
updates provided by such counsel) regarding Actions pending or threatened
against, relating to or affecting the Company or any of its subsidiaries
SECTION 4.10 TAX MATTERS.
(A) Each of the Parent and each of its subsidiaries has (i) timely
filed (or there have been timely filed on its behalf) with the appropriate
Governmental Entities all United States
43
federal income and other Tax Returns required to be filed by it (giving effect
to all extensions), except where the failure to file any such Tax Returns in
timely fashion or at all would not reasonably be expected to have a material
adverse effect, and such Tax Returns are true, correct and complete in all
material respects; (ii) timely paid in full (or there has been timely paid in
full on its behalf) all income and other material Taxes required to have been
paid by it; and (iii) made adequate provision (or adequate provision has been
made on its behalf) for all accrued Taxes not yet due. The accruals and
provisions for Taxes reflected in the Parent's audited consolidated balance
sheet as of January 31, 2004 (and the notes thereto) and the most recent
quarterly financial statements (and the notes thereto) are adequate in
accordance with GAAP for all Taxes accrued or accruable through the date
thereof.
(B) As of the date of this Agreement, no Federal, state, local or
foreign audits, suits or other administrative proceedings or court proceedings
are presently pending with regard to any Taxes or Tax Returns of the Parent or
any of its subsidiaries, and neither the Parent nor any subsidiary of the Parent
has received a written notice of any material pending or proposed claims, audits
or proceedings with respect to Taxes.
(C) No claim has been made in writing by any Governmental Entities
in a jurisdiction where Parent or any of its subsidiaries does not file Tax
Returns that any such entity is, or may be, subject to taxation by that
jurisdiction.
(D) Neither the Parent nor any of its subsidiaries has received any
notice of deficiency or assessment from any Governmental Entity for any amount
of Tax that has not been fully settled or satisfied, and to the knowledge of the
Parent and its subsidiaries no such deficiency or assessment is proposed.
SECTION 4.11 EMPLOYEE BENEFIT PLANS.
(A) Section 4.11 of the Parent Disclosure Schedule contains a true
and complete list of all of Parent's and its subsidiaries' Employee Plans as of
the date hereof ("Parent Employee Plans"). With respect to the Employee Plans,
all required contributions for all periods ending before the Closing Date have
been or will be paid in full by the Closing Date.
(B) None of the Parent Employee Plans is subject to any pending
investigations or to the knowledge of Parent threatened investigations from any
Governmental Agencies who enforce applicable laws under ERISA and the Code.
(C) Each of the Parent Employee Plans is, and has been, operated in
accordance with its terms and each of the Parent Employee Plans, and
administration thereof, is, and has been in compliance with the requirements of
any and all applicable statutes, orders or governmental rules or regulations
currently in effect, including, but not limited to, ERISA and the Code, except
where the failure to comply individually or in the aggregate would not have a
material adverse effect on Parent.
(D) No material amounts payable under the Parent Employee Plans will
fail to be deductible for Federal income tax purposes by virtue of Section
162(m) of the Code.
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(E) Neither Parent nor any subsidiary of Parent has any current or
projected liability with respect to post-employment or post-retirement welfare
benefits for retired, former, or current employees of Parent or any subsidiary
of Parent.
SECTION 4.12 LABOR MATTERS.
(A) With respect to employees (and to the extent applicable, former
employees) of Parent and its subsidiaries: (i) to the knowledge of Parent, no
senior executive or key employee has any plans to terminate employment with
Parent or any of its subsidiaries; (ii) there is no unfair labor practice charge
or complaint against Parent or any of its subsidiaries pending or, to the
knowledge of Parent or any of its subsidiaries, threatened before the National
Labor Relations Board or any other comparable Governmental Entity; (iii) there
is no demand for recognition made by any labor organization or petition for
election filed with the National Labor Relations Board or any other comparable
Governmental Entity; (iv) there are, and have been, no collective bargaining
agreements; and (v) there is no litigation, arbitration proceeding, governmental
investigation, administrative charge, citation or action of any kind pending or,
to the knowledge of Parent, proposed or threatened against Parent or any of its
subsidiaries relating to employment, employment practices, terms and conditions
of employment or wages, benefits, severance and hours.
(B) Section 4.12(b) of the Parent Disclosure Schedule lists the
name, title, date of employment and current annual salary of each current
salaried employee of Parent.
(C) Section 4.12(c) of the Parent Disclosure Schedule lists all
contracts, agreements, plans or arrangements covering any employee, officer or
director of Parent or its subsidiaries, all of which are in writing, have
heretofore been duly approved by the Parent's Board of Directors, and true and
complete copies of all of which have heretofore been delivered to the Company.
SECTION 4.13 ENVIRONMENTAL MATTERS. Except for such matters which would
not, individually or in the aggregate, reasonably be expected to result in a
material adverse effect on Parent:
(A) (i) Parent and its subsidiaries are in compliance with all
applicable Environmental Laws; (ii) neither Parent nor any of its subsidiaries
has received any written communication from any person or governmental entity
that alleges that Parent or any of its subsidiaries are not in compliance with
applicable Environmental Laws; and (iii) there have not been any Releases in any
reportable quantity, or in violation of any Environmental Law, of Hazardous
Substances by Parent or any of its subsidiaries, or, by any other party, at any
property currently or formerly owned, leased or operated by Parent or any of its
subsidiaries that occurred during the period of Parent's or any of its
subsidiaries' ownership, lease or operation of such property or, to the
knowledge of Parent and its subsidiaries, prior thereto, and no property now or
previously owned or leased by Parent or any subsidiary is listed or proposed for
listing on the National Priorities List promulgated pursuant to CERCLA or on any
similar state list of sites requiring investigation or clean-up.
45
(B) Parent and its subsidiaries have all Environmental Permits
necessary for the conduct and operation of their business, and all such permits
are in good standing or, where applicable, a renewal application has been timely
filed and is pending agency approval, and Parent and its subsidiaries are in
compliance with all terms and conditions of all such Environmental Permits and
are not required to make any expenditure in order to obtain or renew any
Environmental Permits.
(C) There are no Environmental claims pending or, to knowledge,
threatened, against Parent or any of its subsidiaries, or against any real or
personal property or operation that Parent or any of its subsidiaries owns,
leases or manages.
(D) Neither Parent, any of its subsidiaries, nor, to the knowledge
of Parent and its subsidiaries, any prior owner or lessee of any property now or
previously owned or leased by Parent or any subsidiary, has handled any
Hazardous Substance on any property now or previously owned or leased by Parent
or any subsidiary; and, without limiting the foregoing, to the knowledge of
Parent (i) no polychlorinated biphenyl is or has been present, (ii) no asbestos
is or has been present, and (iii) there are no underground storage tanks, active
or abandoned.
(E) Neither Parent nor any subsidiary has transported or arranged
for the transportation of any Hazardous Substance to any location which is the
subject of any Action that could lead to claims against Parent, Merger Sub, the
Company or any subsidiary for clean-up costs, remedial work, damages to natural
resources or personal injury claims, including, but not limited to, claims under
CERCLA.
(F) There are no Liens arising under or pursuant to any
Environmental Law on any real property owned or leased by Parent or any
subsidiary, and no action of any Governmental Authority has been taken or, to
the knowledge of Parent and the subsidiaries, is in process which could subject
any of such properties to such Liens, and neither Parent nor any subsidiary
would be required to place any notice or restriction relating to the presence of
any Hazardous Substance at any property owned by it in any deed to such
property.
(G) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or which are in the
possession of, Parent or any subsidiary in relation to any property or facility
now or previously owned or leased by Parent or any subsidiary which have not
been delivered to the Company prior to the execution of this Agreement.
SECTION 4.14 INTELLECTUAL PROPERTY.
(A) Section 4.14(a) of Parent Disclosure Schedule sets forth, for
the Intellectual Property licensed to, or used in the business of, Parent or any
of its subsidiaries, a complete and accurate list of all U.S. and foreign (i)
patents and patent applications, (ii) trademark or service mark registrations
and applications, (iii) copyright registrations and applications, (iv) Internet
domain names, and (v) all licenses granted to or by Parent for the use of the
foregoing and all license agreements. To the knowledge of Parent, Parent or one
of its subsidiaries has the valid right to use the Intellectual Property,
licensed to Parent or used in the business of Parent as it currently is
conducted.
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(B) Neither Parent nor any of its subsidiaries owns any Intellectual
Property whether used in its business or otherwise except as disclosed in
Section 4.14 of Parent Disclosure Schedule, including Parent's rights, if any,
as a licensor under licenses disclosed therein.
(C) Except as disclosed in Section 4.14 of Parent Disclosure
Schedule, all Intellectual Property utilized in the business of Parent and its
subsidiaries is pursuant to license agreements with third parties, copies of
which have previously been provided to the Company. Each such license agreement
listed in Section 4.14 of Parent Disclosure Schedule is valid and binding on and
enforceable against Parent (or, to the extent a subsidiary of Parent is a party,
such subsidiary) and, to the knowledge of Parent, each other party thereto and
is in full force and effect. To the knowledge of Parent there is no pending or
threatened opposition, interference, invalidation or cancellation proceeding
before any court or registration authority in any jurisdiction against any
Intellectual Property used by Parent or its subsidiaries.
(D) To the knowledge of Parent, the conduct of Parent's and its
subsidiaries' business as currently conducted or planned by Parent to be
conducted does not, in any material respect, infringe upon (either directly or
indirectly such as through contributory infringement or inducement to infringe),
dilute, misappropriate or otherwise violate any Intellectual Property owned or
controlled by any third party.
(E) To Parent's knowledge, no third party is misappropriating,
infringing, diluting, or violating any Intellectual Property licensed to or by
Parent or its subsidiaries and no such claims have been made against a third
party by Parent or its subsidiaries.
(F) Parent and its subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of their trade
secrets. Neither Parent nor any subsidiary is, or has received any notice that
it is, in default (or with the giving of notice or lapse of time or both, would
be in default) under any license to use such Intellectual Property, nor is there
any default (or any condition which, with the giving of notice or lapse of time
or both, would constitute a default) under any license out by Parent of any such
Intellectual Property. This Agreement and the transactions contemplated hereby
will not conflict with, or result in a default in respect of, or a diminishment
of rights with respect to (whether with the giving of notice or lapse of time or
both), any Intellectual Property licensed by Parent.
SECTION 4.15 INSURANCE MATTERS. No later than the Effective Time, Parent
and its subsidiaries will have all material primary insurance with financially
sound and nationally recognized insurance carriers providing insurance coverage,
including, but not limited to, directors and officers liability insurance, that
is customary in amount and scope for other companies in the industry in which
Parent and its subsidiaries operate. As of the Effective Time, all such
insurance policies will be in full force and effect and all premiums due and
payable thereon will be paid. The insurance coverage provided by such policies
will not terminate or lapse by reason of the transactions contemplated by this
Agreement. As of the Effective Time, neither Parent nor any subsidiary will have
received notice that any insurer under any policy of Parent is denying liability
with respect to a claim thereunder or defending under a reservation of rights
clause.
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SECTION 4.16 TRANSACTIONS WITH AFFILIATES. There are (i) no outstanding
amounts payable to or receivable from, or advances by Parent or any of its
subsidiaries to, and neither Parent nor any of its subsidiaries is otherwise a
creditor of or debtor to, any officer, director, or shareholder of Parent or any
Related Person, other than as part of the normal and customary terms of such
persons' employment or service as an officer, director or employee of Parent or
any of its subsidiaries; (ii) no Related Person provides or causes to be
provided any assets, services or facilities to Parent or any subsidiary; (iii)
neither Parent nor any subsidiary provides or causes to be provided any assets,
services or facilities to any Related Person; and (iv) neither Parent nor any
subsidiary beneficially owns, directly or indirectly, any assets or property of
any Related Person, which, in the case of clauses (i) - (iv) above, if required
to be disclosed in Parent's Form 10-KSB, is not so disclosed. Each of the
liabilities and transactions identified on Parent's Form 10-KSB or in Section
4.16 of the Parent Disclosure Schedule, if such action occurred after January
31, 2004, was incurred or engaged in, as the case may be, on an arm's-length
basis.
SECTION 4.17 VOTING REQUIREMENTS. The consent or approval of the holders
of the outstanding shares of Parent Common Stock or any other class of Parent
capital stock is not required to approve the Merger and the transactions
contemplated by this Agreement under applicable law and the Parent's
organizational instruments.
SECTION 4.18 BROKERS. Except as set forth in Section 4.18 of the Parent
Disclosure Schedule, no broker, investment banker, financial advisor, finder,
consultant or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee, compensation or commission, however and whenever
payable, in connection with the Merger and the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent or Merger Sub.
SECTION 4.19 INVESTMENT COMPANY. Neither Parent nor any of its
subsidiaries is an investment company required to be registered as an investment
company pursuant to the Investment Company Act.
SECTION 4.20 BOARD APPROVAL. Pursuant to meetings duly noticed and
convened in accordance with all applicable laws and at each of which a quorum
was present, the Board of Directors of Parent, after full and deliberate
consideration, has duly adopted this Agreement and resolved that the Merger and
the transactions contemplated hereby are in the best interests of Parent's
shareholders. The Board of Directors of Merger Sub has duly approved this
Agreement and has determined that the Merger is advisable.
SECTION 4.21 BOOKS AND RECORDS. Each of Parent and its subsidiaries
maintains and has maintained accurate books and records in accordance with GAAP
reflecting its assets and liabilities and accounts, notes and other receivables
and inventory are recorded accurately, and proper and adequate procedures are
implemented to effect the collection thereof on a current and timely basis.
SECTION 4.22 ACCURACY OF INFORMATION. To the knowledge of Parent, neither
this Agreement, the Parent Disclosure Schedule nor any other document, schedule,
exhibit, certificate or instrument provided by the Parent, any of the Parent's
subsidiaries, Merger Sub or any of their
48
respective employees or agents to the Company in connection with the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained
therein, not misleading. None of the information supplied or to be supplied by
Parent specifically for inclusion or incorporation by reference in (i) the Form
S-4 will, at the time the Form S-4 becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or (ii) the Proxy/Information Statement will, at the date it is
first mailed to the Company's shareholders and at the time of the Company
Shareholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, in either case, no representation or warranty is made by
Parent with respect to statements made or incorporated by reference therein
based on information supplied by the Company specifically for inclusion or
incorporation by reference in the Form S-4 or Proxy/Information Statement. The
Form S-4 will comply as to form in all material respects with the requirements
of the Securities Act and the rules and regulations thereunder.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.1 CONDUCT OF BUSINESS BY THE COMPANY. Except as required by
applicable law or regulation and except as otherwise contemplated by this
Agreement, until the earlier of the termination of this Agreement or the
Effective Time, the Company shall, and cause its subsidiaries to conduct their
respective businesses in the ordinary course and consistent with past practices.
Except as set forth in Section 5.1 of the Company Disclosure Schedule, as
required by applicable law or regulation and except as otherwise contemplated by
this Agreement or except as previously consented to by Parent, in writing, after
the date hereof the Company shall not, and shall not permit any of its
subsidiaries to:
(A) amend or otherwise change its certificate of incorporation or by-laws;
(B) issue, sell, pledge, dispose of, encumber, or authorize the issuance,
sale, pledge, disposition, grant or encumbrance of (i) any shares of its capital
stock of any class, or options, warrants, convertible securities or other rights
of any kind to acquire shares of such capital stock, or any other ownership
interest, thereof, other than (x) any issuance pursuant to any outstanding
security or agreement of Company, or (y) any issuance or sale pursuant to any
plan for or agreement with any officer, director or employee of Company, or (ii)
any of its assets, tangible or intangible;
(C) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to its capital
stock;
(D) (i) reclassify, combine, split, or subdivide, directly or indirectly,
any of its capital stock, or (ii) redeem, purchase or otherwise acquire,
directly or indirectly, any of its capital stock, except from any officer,
director or employee upon termination of such officer, director or employee;
49
(E) (i) acquire (including, without limitation, for cash or shares of
stock, by merger, consolidation, or acquisition of stock or assets) any interest
in any corporation, partnership or other business organization or division
thereof or any assets, or make any investment either by purchase of stock or
securities, contributions of capital or property transfer, or purchase any
property or assets of any other person, (ii) incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse or otherwise
as an accommodation become responsible for, the obligations of any person, or
make any loans or advances, or (iii) enter into any Contract which constitutes a
Company Material Contract;
(F) make any capital expenditure or enter into any contract or commitment
therefor;
(G) amend, terminate or extend any Company Material Contract;
(H) delay or accelerate payment of any account payable or other liability
of the Company beyond or in advance of its due date or the date when such
liability would have been paid in the ordinary course of business consistent
with past practice;
(I) take any action, or permit any event or condition to occur or exist,
which would cause any representation or warranty of the Company to be untrue; or
(J) agree, in writing or otherwise, to take or authorize any of the
foregoing actions or any action which would make any representation or warranty
contained in Article III untrue or incorrect.
SECTION 5.2 ADVICE OF CHANGES. Each of the Company, as one party, and
Parent and Merger Sub, together as the second party, shall promptly advise the
other party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement; (iii) any suspension, termination, limitation,
modification, change or other alteration of any agreement, arrangement, business
or other relationship with any of the Company's or its subsidiaries' respective
customers, suppliers or sales or design personnel; and (iv) any change or event
having, or which, insofar as reasonably can be foreseen, could have a material
adverse effect on such party or on the accuracy and completeness of its
representations and warranties or the ability of such party to satisfy the
conditions set forth in Article VII; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement; and provided further
that a failure to comply with this Section 5.2 shall not constitute a failure to
be satisfied of any condition set forth in Article VII unless the underlying
untruth, inaccuracy, failure to comply or satisfy, or change or event would
independently result in a failure of a condition set forth in Article VII to be
satisfied.
SECTION 5.3 NO SOLICITATION BY THE COMPANY. (A) The Company will promptly
notify Parent after receipt of any offer or indication that any person is
considering making an offer with respect to a Company Acquisition Proposal or
any request for nonpublic information relating to the Company or for access to
the properties, books or records of the Company by any person that may be
considering making, or has made, an offer with respect to a Company Acquisition
Proposal and will keep Parent fully informed of the status and details of any
such offer, indication or request. "Company Acquisition Proposal" means any
proposal for a merger or other business combination involving the Company or the
acquisition of any equity interest in, or a substantial portion of the assets
of, the Company, other than the transactions contemplated by this Agreement.
50
(B) From the date hereof until the termination hereof, the Company and the
officers of the Company will not and the Company will use its best efforts to
cause its directors, employees and agents not to, directly or indirectly,
subject to the directors' fiduciary obligations under applicable law, (i) take
any action to solicit, initiate or encourage any offer or indication of interest
from any person or entity with respect to any Company Acquisition Proposal, (ii)
engage in negotiations with, or disclose any nonpublic information relating to
the Company or (iii) afford access to the properties, books or records of the
Company to, any person or entity that may be considering making, or has made, an
offer with respect to a Company Acquisition Proposal.
SECTION 5.4 CONDUCT OF BUSINESS BY PARENT. Except as required by
applicable law or regulation and except as otherwise contemplated by this
Agreement, until the earlier of the termination of this Agreement or the
Effective Time, Parent shall, and cause its subsidiaries to conduct their
respective businesses in the ordinary course and consistent with past practices.
Except as set forth in Section 5.4 of the Parent Disclosure Schedule, as
required by applicable law or regulation and except as otherwise contemplated by
this Agreement or except as previously consented to by the Company, in writing,
after the date hereof Parent shall not, and shall not permit any of its
subsidiaries to:
(A) amend or otherwise change its certificate of incorporation or by-laws,
other than to increase the number of authorized shares of Parent Common Stock or
Parent preferred stock, or to otherwise implement the terms and conditions of
this Agreement, or as permitted by this Agreement;
(B) issue, sell, pledge, dispose of, encumber or authorize the issuance,
sale, pledge disposition, grant or encumbrance of (i) any shares of its capital
stock of any class, or options, warrants, convertible securities or other rights
of any kind to acquire shares of such capital stock, or any other ownership
interest thereof, other than (x) any issuance in connection with a Qualified
Financing, (y) any issuance pursuant to any outstanding security or agreement of
Parent, or (z) any issuance or sale pursuant to any plan for or agreement with
any officer, director or employee of Parent; or (ii) any of its assets, tangible
or intangible, except pursuant to contracts or agreements identified in Parent
Disclosure Schedule;
(C) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to its capital
stock, except, if at all, with respect to shares which may be issued in a
Qualified Financing;
(D) (i) reclassify, combine, split, or subdivide, directly or indirectly,
any of its capital stock, or (ii) redeem, purchase or otherwise acquire,
directly or indirectly, any of its capital stock, except from any officer,
director or employee upon termination of such officer, director or employee;
51
(E) (i) acquire (including, without limitation, for cash or shares of
stock, by merger, consolidation, or acquisition of stock or assets) any interest
in any corporation, partnership or other business organization or division
thereof or any assets, or make any investment either by purchase of stock or
securities, contributions of capital or property transfer, or purchase any
property or assets of any other person, (ii) incur any indebtedness for borrowed
money other than pursuant to agreements disclosed in the Parent Disclosure
Schedule, or issue any debt securities other than pursuant to agreements
disclosed in the Parent Disclosure Schedule or assume, guarantee or endorse or
otherwise as an accommodation become responsible for, the obligations of any
person, or make any loans or advances other than pursuant to
licensing/development agreements entered into in the ordinary course of Parent's
business, consistent with past practice, or (iii) enter into any new Parent
Contract not otherwise permitted pursuant to this Agreement;
(F) make any capital expenditure or enter into any contract or commitment
therefore other than pursuant to licensing/development agreements disclosed in
Section 4.6 of the Parent Disclosure Schedule;
(G) amend, terminate or extend any Parent Contract;
(H) delay or accelerate payment of any account payable or other liability
of the Company beyond or in advance of its due date or the date when such
liability would have been paid in the ordinary course of business consistent
with past practice;
(I) take any action, or permit any event or condition to occur or exist,
which would cause any representation or warranty of Parent to be untrue; or
(I) agree, in writing or otherwise, to take or authorize any of the
foregoing actions or any action which would make any representation or warranty
contained in Article IV untrue or incorrect.
Notwithstanding the foregoing, and anything to the contrary in this
Agreement, the parties acknowledge and agree that Parent may negotiate, execute,
deliver and perform agreements to establish customary benefit and compensation
arrangements for its officers, directors and employees, appoint additional
officers or directors and hire new employees and enter into customary agreements
with them, enter in to customary arrangements to obtain insurance, enter into
formal arrangements concerning its occupancy and use of its current headquarters
space in New York, New York, amend, create and adopt such corporate governance
policies, procedures, rules and regulations, as may be appropriate in connection
with Parent's listing application or SOXA, take actions which are appropriate or
necessary to enhance the corporate staffing and operations of Parent, and take
actions which are appropriate or necessary to memorialize the registration
rights of Parent's stockholders as heretofore disclosed to Company's management
(each of the foregoing, a "Permitted Parent Action"), and no such Permitted
Parent Action shall be deemed to breach any Parent representation, warranty,
covenant or agreement in this Agreement, provided, that no such Permitted Parent
Action shall have a material adverse effect on Parent and that Parent shall
notify the Company of each such Permitted Parent Action. In appointing officers
or directors between the date of this Agreement and the Closing Date pursuant to
this paragraph, Parent shall only appoint, if any at all, (i) independent
directors, (ii) other directors to replace existing directors, and (iii) one or
more officers to replace functions currently performed by any officer or
officers being replaced. In no event will any contract with any officer be in an
amount which individually, or taken together with all other contracts with any
such newly appointed officers, in the aggregate, is material to Parent.
52
SECTION 5.5 NO SOLICITATION BY PARENT. (A) Parent will promptly notify the
Company after receipt of any offer or indication that any person is considering
making an offer with respect to a Parent Acquisition Proposal or any request for
nonpublic information relating to Parent or for access to the properties, books
or records of Parent by any person that may be considering making, or has made,
an offer with respect to a Parent Acquisition Proposal and will keep the Company
fully informed of the status and details of any such offer, indication or
request. "Parent Acquisition Proposal" means any proposal for a merger or other
business combination involving Parent or the acquisition of any equity interest
in, or a substantial portion of the assets of, Parent, other than (a) the
transactions contemplated by this Agreement or (b) a Qualified Financing, (c)
any other transaction which Parent may enter into without violating Section 5.4
of this Agreement.
(B) From the date hereof until the termination hereof, Parent and the
officers of Parent will not and Parent will use its best efforts to cause its
directors, employees and agents not to, directly or indirectly, subject to the
directors' fiduciary obligations under applicable law, (i) take any action to
solicit, initiate or encourage any offer or indication of interest from any
person or entity with respect to any Parent Acquisition Proposal, (ii) engage in
negotiations with, or disclose any nonpublic information relating to Parent or
(iii) afford access to the properties, books or records of Parent to, any person
or entity that may be considering making, or has made, an offer with respect to
a Parent Acquisition Proposal.
SECTION 5.6 TRANSITION. To the extent permitted by applicable law, Parent
and the Company shall, and shall cause their respective subsidiaries,
affiliates, officers and employees to, use their commercially reasonable efforts
to facilitate the integration of the Company and its subsidiaries with the
businesses of Parent and its subsidiaries to be effective as of the Closing
Date.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 PREPARATION OF THE FORM S-4, PROXY/INFORMATION STATEMENT . (A)
As promptly as practicable following the date of this Agreement, Parent shall
prepare and file with the SEC (and the Company shall cooperate and participate
in the preparation of) a Registration
53
Statement on Form S-4 (the "Form S-4"), in which an information statement (the
"Proxy/Information Statement") shall be included as a prospectus and in which a
resale prospectus (the "Resale Prospectus") shall be included for the purpose of
permitting the Parent Common Stock issued to those affiliates of the Company
identified in Section 6.10 of the Company Disclosure Schedule to be resold by
such affiliates as provided in the last sentence of this Section 6.1(a), subject
to the Initial Lock-Up Period and the Lock-Up Period.). Each of Parent and the
Company shall use their reasonable best efforts to have the Form S-4 and the
Resale Prospectus declared effective under the Securities Act and the
Proxy/Information Statement "cleared" by the SEC's staff for mailing in
connection with the Company Shareholder Meeting as promptly as practicable after
such filing. As promptly as practicable after the Form S-4 is declared
effective, the Company shall cause the Proxy/Information Statement to be mailed
to its shareholders. In the event that the Resale Prospectus has not remained in
effect, Parent shall file, with the SEC, no later than one (1) year after the
Effective Date, a registration statement under the Securities Act and a resale
prospectus covering all shares subject to the Resale Prospectus and those shares
held by affiliates of the Parent.
(B) The Company and Parent shall cooperate with one another (i) in
connection with the preparation of the Proxy/Information Statement and the Form
S-4, (ii) in determining whether any other action by or in respect of, or filing
with, any governmental body, agency or official, or authority or any actions,
consents, approvals or waivers are required to be obtained from parties to any
leases and other material contracts in connection with the consummation of the
Merger, and (iii) in seeking any such actions, consents, approvals or waivers or
making any such filings, furnishing information required in connection therewith
or with the Proxy/Information Statement or the Form S-4 and seeking timely to
obtain any such actions, consents, approvals or waivers.
(C) Parent shall use its commercially reasonable efforts to obtain
consent from its shareholders for all other actions contemplated herein which
require the consent of the shareholders of Parent, including without limitation
the actions set forth in Section 6.9.
(D) The Company shall furnish to Parent and to Parent's independent
certified public accountants such workpapers and supporting documentation, as
well as such consents by the Company's independent public certified accountants,
as Parent or Parent's independent certified public accountants may reasonably
require in order to include the Company's financial statements and the related
reports of Company's independent certified public accountants in Parent's filing
with the SEC on Form S-4 or any other filing required to be made by Parent with
the SEC.
(E) On or prior to the filing of Parent's registration statement on
Form S-4 contemplated by this Agreement, the Company shall have furnished or
arranged to be furnished to Parent and to Parent's independent certified public
accountants such Company financial statements, audited and unaudited (including,
without limitation, the Company Financial Statements and financial statements
for such additional periods as may be required under applicable laws and
regulations), workpapers and supporting documentation, as well as such consents
by the Company's independent public certified accountants, as are Parent or
Parent's independent certified public accountants shall have reasonably
requested or may reasonably require in order to include the Company financial
statements and the related reports of Company's independent certified public
accountants, in satisfaction of all applicable SEC rules and regulations, in
Parent's registration statement on Form S-4 to be filed with the SEC as
contemplated by this Agreement and rely upon the same. The Company's financial
statements included in the Form S-4 shall, at the time of filing of the Form
S-4, satisfy the relevant SEC financial reporting and filing requirements.
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(F) On or prior to the Effective Time, the Company shall have
furnished or arranged to be furnished to Parent and to Parent's independent
certified public accountants such workpapers and supporting documentation, as
well as such consents by the Company's independent public certified accountants,
as are Parent or Parent's independent certified public accountants shall have
reasonably requested or may reasonably require in order to include the Company
financial statements and the related reports of Company's independent certified
public accountants, in satisfaction of all applicable SEC rules and regulations,
in Parent's registration statement on Form S-4 as the same shall have been
amended, if at all, by Parent and as the Parent same shall have requested
acceleration of effectiveness by the SEC as contemplated by this Agreement, and
rely upon the same. The Company's financial statements included in the Form S-4
shall, at the time of effectiveness of the Form S-4, satisfy the relevant SEC
financial reporting and filing requirements.
(G) On or prior to the Effective Time, and in any event, as required
prior to such date in connection with any filings or disclosures Parent may deem
necessary to make under applicable securities laws, the Company will furnish to
Parent and to Parent's independent certified public accountants such financial
statements, and such workpapers and supporting documentation, as well as such
consents by the Company's independent public certified accountants, as Parent or
Parent's independent certified public accountants have reasonably requested or
may reasonably require in order to include the Company Financial Statements and
the related reports of Company's independent certified public accountants in
Parent's filing with the SEC on Form 8-K covering this Agreement or in other
disclosures or filings that Parent may deem it necessary to make under
applicable securities laws, and rely upon the same.
SECTION 6.2 SHAREHOLDERS' MEETING. The Company shall cause a meeting of
its shareholders (the "Company Shareholders Meeting") to be duly called and held
within 30 days following the effective date of the Form S-4 for the purpose of
voting on the adoption of this Agreement.
SECTION 6.3 LETTERS OF COMPANY'S ACCOUNTANTS. The Company shall cause to
be delivered to Parent two letters from the Company's independent accountants,
one dated a date not later than the second business day next preceding the date
on which the Form S-4 shall become effective and one dated a date not later than
the second business day next preceding the Closing Date, each addressed to
Parent, in form and substance reasonably satisfactory to Parent and customary in
scope and substance for comfort letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
SECTION 6.4 ACCESS TO INFORMATION; CONFIDENTIALITY. (A) Each party shall,
and shall cause its subsidiaries to, afford to the other party and to the
officers, current employees, accountants, counsel, financial advisors, agents,
lenders and other representatives of such party and its subsidiaries, reasonable
access during normal business hours during the period prior to the Effective
Time to all its respective properties, books, contracts, commitments, personnel
and records and, during such period, each party shall, and shall cause each of
its subsidiaries to, furnish promptly to the other party (a) a copy of each
material report, schedule, registration statement and other document filed by it
with any Governmental Entity and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
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(B) The parties will hold, and will use its best efforts to cause
its officers, directors, employees, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and information
concerning the other party and its subsidiaries furnished to it in connection
with the transactions contemplated hereby, except to the extent that such
information can be shown to have been (i) previously known on a nonconfidential
basis by the disclosing party, (ii) in the public domain through no fault of the
disclosing party, or (iii) later lawfully acquired by the disclosing party from
sources; provided that each party may disclose such information to its officers,
directors, employees, consultants, advisors and agents in connection with the
Merger so long as such persons are informed of the confidential nature of such
information and are directed to treat such information confidentially. Each
parties' obligation to hold such information in confidence shall be satisfied if
it exercises the same care with respect to such information as it would exercise
to preserve the confidentiality of its own similar information. Notwithstanding
any other provision of this Agreement, if this Agreement is terminated, such
confidence shall be maintained and all confidential materials shall be destroyed
or delivered to their owner, upon request.
SECTION 6.5 COMMERCIALLY REASONABLE EFFORTS. Except where otherwise
provided in this Agreement, each party will use its commercially reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Merger as soon as practicable after the
satisfaction of the conditions set forth in Article VIII hereof, provided that
the foregoing shall not require the Company, Parent or Merger Sub to take any
action or agree to any condition that might, in the reasonable judgment of the
Company or Parent, as the case may be, have a material adverse effect on the
Company or Parent, respectively.
SECTION 6.6 INDEMNIFICATION, EXCULPATION AND INSURANCE. (A) All rights to
indemnification and exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time now existing in favor of the current or former
directors or officers of the Company and its subsidiaries as provided in their
respective certificates of incorporation or by-laws (or comparable
organizational instruments and agreements) and any existing indemnification
agreements or arrangements of the Company and its subsidiaries shall survive the
Merger and shall continue in full force and effect in accordance with their
terms, and shall not be amended, repealed or otherwise modified for a period of
five years after the Effective Time in any manner that would adversely affect
the rights thereunder of such individuals for acts or omissions occurring at or
prior to the Effective Time.
(B) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any individual who is now or has been at any time prior
to the date of this Agreement, or who becomes prior to the Effective Time, a
director or officer of the Company or any of its subsidiaries (the "Indemnified
Parties"), is, or is threatened to be, made a party, or arising out of or
pertaining to (i) the fact that he is or was a director, officer or current
employee of the Company or any of its subsidiaries or their respective
predecessors or (ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after the Effective
Time, the parties hereto agree to cooperate and use their reasonable best
efforts to defend against and respond thereto.
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(C) For a period of five (5) years after the Effective Time, the
Surviving Corporation shall maintain in effect the tail insurance policy
purchased by the Company prior to the Effective Time providing the Company's
current directors' and officers' liability insurance covering acts or omissions
occurring prior to the Effective Time; provided, however, that the Surviving
Corporation may substitute therefor policies of Parent or its subsidiaries
(including self-insurance) containing terms with respect to scope of coverage
and amount no less favorable to such directors or officers; and provided
further, that Surviving Corporation shall not be obligated to maintain any such
insurance to the extent that doing so would require payments in addition to the
amounts paid for that tail insurance policy by the Company prior to the
Effective Time.
(D) From and after the Effective Time, the Parent shall cause the
Surviving Corporation to maintain in effect a directors' and officer's liability
insurance policy covering acts or omissions occurring after the Effective Time.
(E) Parent shall cause the Surviving Corporation or any successor
thereto, whether by consolidation, merger or transfer of substantially all of
its properties or assets, to comply with its obligations under this Section 6.6.
The provisions of this Section 6.6 shall survive the Effective Time and are
intended to be for the benefit of, and shall be enforceable by, each Indemnified
Party and other person named herein and his or her heirs and representatives.
(F) Prior to the Effective Time Parent shall obtain the insurance
policies required by Section 4.15 hereof.
SECTION 6.7 FEES AND EXPENSES. All costs, fees and expenses incurred in
connection with the Merger, this Agreement (including all instruments and
agreements prepared and delivered in connection herewith), and the transactions
contemplated by this Agreement shall be paid by the party incurring such fees or
expenses; provided that, the Company shall cause all of its fees and expenses to
be paid prior to the Merger, and shall cause it's principal creditors
(including, without limitation, its investment bankers, attorneys and
accountants) in respect of transaction costs to confirm to Parent immediately
prior to the Effective Time that all such fees and expenses are paid and none
are unbilled. In further explication of the preceding sentence, but without
limiting the same, all costs, fees and expenses (including, but not limited to,
legal and accounting fees) incurred by the Company in connection with the
Proxy/Information Statement shall be paid by the Company; provided, that the
parties acknowledge and agree that the Parent shall take the lead in preparing
the Form S-4, and the Parent shall pay its legal and accounting expenses in
connection with the Form S-4 and the Resale Prospectus.
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SECTION 6.8 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing, and shall provide each other the opportunity to
review, comment upon and concur with any press release or other public
statements or announcements (including pursuant to Rule 165 under the Securities
Act and Rule 14a-12 under the Exchange Act) and any broadly distributed internal
communications with respect to the Merger, this Agreement and the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement or announcement prior to such consultation,
except as either party may determine is required by applicable law, court
process or by obligations pursuant to any listing agreement with any national
securities exchange or inter-dealer quotation system of a registered national
securities association (provided prior notice is given to the other party with a
copy of any such disclosure).
SECTION 6.9 CORPORATE GOVERNANCE OF PARENT. At the Effective Time,
(A) Parent's principal place of operations shall be in the State of
North Carolina and the Parent may maintain its corporate headquarters in New
York, New York.
(B) At the Effective Time, (i) Parent's directors not continued in
office as hereinafter provided shall resign, (ii) the board shall be increased
from five to seven directors, and (iii) the seven seats initially shall be
filled by vote of the Parent's directors continuing in office to fill the
vacancies so created, as follows: the Chairman and CEO shall be Christopher
Every, three directors (at least two (2) of whom shall be independent) shall be
appointed by Parent with the consent of Company, not to be unreasonably
withheld, and three directors (at least two (2) of whom shall be independent)
shall be appointed by the Company with the consent of Parent, not to be
unreasonably withheld, to serve in accordance with Parent's articles of
incorporation and by-laws.
(C) Christopher Every will continue as Chief Executive Officer of
Parent pursuant to an Employment Agreement substantially in the form attached
hereto as Exhibit C.
(D) Parent's Board of Directors shall appoint Kwen-Jen Chang and
Phillip S. Wise as officers of the Parent pursuant to employment agreements,
substantially in the form attached hereto as Exhibits D and E, respectively.
(E) Prior to the Effective Time, the Parent will be in compliance
with the provisions of SOXA applicable to it as of such time and will have
implemented such programs and will have taken reasonable steps, upon the advice
of the Parents independent auditors and outside counsel, respectively, to ensure
Parent's future compliance with all provisions of SOXA which will become
applicable to Parent after the Effective Time.
SECTION 6.10 AGREEMENTS WITH HOLDERS OF COMPANY SECURITIES. The Company
shall use its reasonable best efforts to obtain and deliver to Parent not later
than 30 days after the date hereof a written agreement, reasonably acceptable to
Parent in form and in substance, of all persons who are (or may deemed to be)
"affiliates" of the Company for purposes of Rule 145 under the Securities Act
(each of whom shall be so identified in Section 6.10 of the Company Disclosure
Schedule). Notwithstanding any other provision of this Agreement, any person
whatsoever who shall not have executed and delivered to Parent a
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written agreement reasonably acceptable to Parent in form and substance as
provided in this Section 6.10 shall not be entitled to have the Merger
Consideration issued in the Merger to such person covered by (and shall not be
entitled to be included as a "selling stockholder" in) the Resale Prospectus.
The written agreement shall include, without limitation, provisions setting
forth the restrictions under the Initial Lock-Up Period and the Lock-Up Period,
customary stockholder information for inclusion of shares in the Resale
Prospectus, and customary agreements and indemnifications by such stockholders
in connection with the Resale Prospectus. Promptly after the expiration of such
30-day period, the Company shall cause to be delivered to each affiliate that
shall not so execute such written agreement as provided in this Section 6.10 a
statement disclosing that the shares of Parent Common Stock or other Merger
Consideration (including, without limitation, securities issuable to holders of
Company Options, Company Warrants, and Company Convertible Promissory Notes) to
be issued to such person are subject to transfer restrictions under each of Rule
145 and Rule 144 under the Securities Act and, therefore, may not be sold,
transferred or otherwise disposed of except pursuant to an effective
registration statement under, or in accordance with an available exemption from
the registration and prospectus delivery requirements of, the Securities Act,
and that the certificates evidencing such shares of Parent Common Stock or other
Parent securities, if applicable, shall bear appropriate restrictive legends and
stop transfer orders shall be maintained by the Parent's transfer agent in
respect of such shares.
SECTION 6.11 SHAREHOLDER LITIGATION. Each of the Company and Parent shall
give the other the reasonable opportunity to participate in the defense of any
shareholder litigation against the Company or Parent, as applicable, and its
directors relating to the transactions contemplated by this Agreement.
SECTION 6.12 VOTING AGREEMENTS AND LOCK-UP AGREEMENTS
(a) Within thirty (30) days of the date hereof, Parent shall use its
reasonable best efforts to obtain and deliver to the Company written agreements,
reasonably satisfactory to Company in form and in substance, from holders of
Parent Common Stock owning more than five percent (the "5% Holders") of Parent
Common Stock agreeing to be bound by the lock-up provisions set forth in Section
2.1(j) with respect to Parent Common Stock owned by such 5% Holders during the
Lock-Up Period.
(b) Within thirty (30) days of the date hereof, Company shall use
its reasonable best efforts to obtain and deliver to Parent irrevocable
agreements, reasonably satisfactory in form and in substance to Parent, from
Company's executive officers and directors and from the holders of not less than
a majority of the outstanding shares of each class of the Company's capital
stock that is required by applicable law to consent to the Merger, agreeing to
vote to approve the proposal to adopt this Agreement.
(c) Within thirty (30) days of the date hereof, Company shall use
its reasonable best efforts to obtain and deliver to Parent written agreements,
reasonably satisfactory to Parent in form and in substance, from Company's
executive officer and directors who hold Company Stock Options agreeing that all
shares of Parent Common Stock received after the Effective Time by them upon
exercise of such options will be subject to the lock-up provision set forth in
Section 2.1(j) during the Lock-Up Period.
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SECTION 6.13 EMPLOYEE BENEFITS. (A) Parent shall, or shall cause the
Surviving Corporation and its subsidiaries to, (i) give those employees who are,
as of the Effective Time, employed by the Company and its subsidiaries (the
"Continuing Employees") full credit for purposes of eligibility, vesting and
benefit accruals (other than for purposes of benefit accruals under any defined
benefit pension plan) under any employee benefit plans or arrangements
maintained by Parent, the Surviving Corporation or any subsidiary of Parent or
the Surviving Corporation for which such Continuing Employees shall be eligible,
for such Continuing Employees' service with the Company or any subsidiary of the
Company (or any predecessor entity) to the same extent recognized by the Company
and its subsidiaries, and (ii) waive all limitations as to preexisting
conditions, exclusions and waiting periods, to the extent the same may be waived
under any such plan, with respect to participation and coverage requirements
applicable to the Continuing Employees under any welfare plan that such
employees may be eligible to participate in after the Effective Time, other than
limitations or waiting periods that are already in effect with respect to such
employees and that have not been satisfied as of the Effective Time under any
welfare plan maintained for the Continuing Employees immediately prior to the
Effective Time, and (iii) provide credit under any such welfare plan for any
copayments, deductibles and out-of-pocket expenditures for the remainder of the
coverage period during which any transfer of coverage occurs.
(B) At the Effective Time, Surviving Corporation shall provide, or
shall cause to be provided, to the Continuing Employees compensation and
employee benefit plans, programs and arrangements that are, in the aggregate,
comparable to those generally provided to such employees as of the date hereof;
provided, however, that nothing herein shall restrict Parent's or the Surviving
Corporation's ability to amend or terminate such compensation and employee
benefit plans, programs and arrangements in accordance with their terms.
Notwithstanding anything contained herein to the contrary, each Continuing
Employee whose employment is terminated during the twelve-month period (or such
longer period as may be required by the terms of the applicable severance plan
or other agreement of the Company as listed on Section 3.12(b) of the Company
Disclosure Schedule) following the Effective Time shall be entitled to receive
severance pay and benefits equal to the severance pay and benefits under the
applicable severance plan or other agreement of the Company listed on Section
3.12(b) of the Company Disclosure Schedule.
(C) Subject to performance of the obligations set forth in Section
6.13(a) and (b) above, from and after the Effective Time, Parent shall not be
obligated to assume any compensation or employment benefit plans, programs or
arrangements of the Company or its subsidiaries.
SECTION 6.14 CASHLESS EXERCISE OF STOCK OPTIONS. Promptly upon the
effectiveness of the Registration Statement on Form S-8 with respect to the
Company Stock Options, Parent shall provide, either through an arrangement with
a broker-dealer or other Parent program, a procedure whereby holders of such
options can effect a cashless exercise of such options at the expense of such
holders.
SECTION 6.15 DIRECTORS AND OFFICERS INSURANCE. Prior to the Effective
Time, Parent shall obtain, from a financially sound and nationally recognized
insurance carrier, directors' and officers' liability insurance, reasonably
acceptable to the Company, covering its and any of its subsidiaries directors
and officers.
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SECTION 6.16 CONTINGENT FEE SHARES.
(A) Parent hereby covenants and agrees to issue to Century Capital
Associates, LLC ("Century Capital") 233,807 shares of Parent Common Stock at the
Effective Time.
(B) If a Qualified Financing is not consummated within ninety (90)
days of the consummation of the transactions contemplated hereby, Parent hereby
covenants and agrees to issue to Century Capital, 85,000 shares of Parent Common
Stock if Century Capital exercises its option to receive such shares pursuant to
the terms of the letter agreement listed in Section 3.18 of the Company
Disclosure Schedule.
(C) If the Company does not enter into the Feasibility Study, Option
and License Agreement within ninety (90) days of the consummation of the
transactions contemplated hereby, Parent hereby covenants and agrees to issue to
Century Capital 85,000 shares of Parent Common Stock if Century Capital
exercises its option to receive such shares pursuant to the terms of the letter
agreement listed in Section 3.18 of the Company Disclosure Schedule.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or, to the extent permitted by applicable law, waiver by each of
Parent and the Company on or prior to the Closing Date of the following
conditions:
(A) Shareholder Approvals. The Company shall have obtained the
consent of the holders of each class of its capital stock to the Merger, this
Agreement and the transactions contemplated hereby.
(B) Governmental and Regulatory Approvals. Other than the filing of
the Articles of Merger provided for under Section 1.3, all consents, approvals
and actions of, filings with and notices to any Governmental Entity required by
the Company, Parent or any of their subsidiaries under applicable law or
regulation to consummate the Merger and the transactions contemplated by this
Agreement, the failure of which to be obtained or made would result in a
material adverse effect on Parent's ability to conduct the business of the
Company in substantially the same manner as presently conducted, shall have been
obtained or made (all such approvals and the expiration of all such waiting
periods, the "Requisite Regulatory Approvals")
(C) No Injunctions or Restraints. No judgment, order, restraining
order and/or injunction (temporary or otherwise), decree, statute, law,
ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued
by any court or other Governmental Entity or other legal restraint or
prohibition (collectively, "Restraints") shall be in effect preventing or
materially delaying the consummation of the Merger; provided, however, that each
of the parties shall have used its best efforts to have such Restraint lifted,
vacated or rescinded.
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(D) Form S-4. The Form S-4 shall have become effective under the
Securities Act prior to the mailing by the Company and Parent of the
Proxy/Information Statement to the shareholders of the Company, and no stop
order or proceedings seeking a stop order shall have been entered or be pending
by the SEC.
(E) Stock Exchange Listing. The shares of Parent Common Stock
issuable to the Company's shareholders as contemplated by Article II shall meet
all listing requirements for listing on AMEX, other than any requirement with
respect to the minimum market price of Parent's Common Stock.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The
obligation of Parent and Merger Sub to effect the Merger is further subject to
satisfaction or waiver of the following conditions:
(A) Representations and Warranties of the Company. The
representations and warranties of the Company set forth herein and in the
Company Disclosure Schedule shall be true and correct at and as of the Closing
Date, as if made at and as of such time (except to the extent expressly made as
of an earlier date, in which case such representations and warranties shall be
true and correct as of such date); provided that no representation or warranty
of the Company shall be deemed untrue or incorrect for purposes of this Section
7.2(a) as a consequence of the existence of any fact, event or circumstance
inconsistent with such representation or warranty, unless such fact, event or
circumstance, individually or when aggregated with all other facts, events or
circumstances inconsistent with any representation or warranty of the Company,
has had or would be expected to result in a material adverse effect on the
Company, disregarding for these purposes any qualification or exception for, or
reference to, materiality in any such representation or warranty. Parent shall
have received a certificate of the Company's Chief Executive Officer and Chief
Financial Officer to the foregoing effect.
(B) Performance of Obligations of the Company. The Company shall
have performed, in all material respects, all obligations required to be
performed by it at or prior to the Closing Date under this Agreement
disregarding for these purposes any qualification or exception for, or reference
to, materiality in any such covenant. Parent shall have received a certificate
of the Company's Chief Executive Officer and Chief Financial Officer to the
foregoing effect.
(C) Regulatory Condition. No condition or requirement shall have
been imposed by one or more Governmental Entities in connection with any
required approval by them of the Merger that requires the Company or any of its
subsidiaries to be operated in a manner that would have a material adverse
effect on the Company or the Parent or on the consummation of this Agreement and
the transactions contemplated hereby.
(D) No Company Material Adverse Effect. There shall not be or exist
any change, effect, event, circumstance, occurrence or state of facts that has
had, has or which reasonably could be expected to have, a material adverse
effect on the Company.
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(E) Legal Opinion. Parent shall have received an opinion of Pryor
Cashman Sherman & Flynn LLP, counsel to the Company, in a form to be mutually
agreed by the parties to this Agreement prior to the Effective Time.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company to effect the Merger is further subject to satisfaction or waiver of
the following conditions:
(A) Representations and Warranties. The representations and
warranties of Parent set forth herein and in the Parent Disclosure Schedule
shall be true and correct at and as of the Closing Date, as if made at and as of
such time (except to the extent expressly made as of an earlier date, in which
case such representations and warranties shall be true and correct as of such
date); provided that no representation or warranty of Parent shall be deemed
untrue or incorrect for purposes of this Section 7.3 (a) as a consequence of the
existence of any fact, event or circumstance inconsistent with such
representation or warranty, unless such fact, event or circumstance,
individually or when aggregated with all other facts, events or circumstances
inconsistent with any representation or warranty of Parent, has had or would be
expected to result in a material adverse effect on Parent disregarding for these
purposes any qualification or exception for, or reference to, materiality in any
such representation or warranty. The Company shall have received a certificate
of Parent's Chief Executive Officer and Chief Financial Officer to the foregoing
effect.
(B) Performance of Obligations of Parent. Parent shall have
performed in all material respects all obligations required to be performed by
it at or prior to the Closing Date under this Agreement disregarding for these
purposes any qualification or exception for, or reference to, materiality in any
such covenant. The Company shall have received a certificate of Parent's Chief
Executive Officer and Chief Financial Officer to the foregoing effect.
(C) Regulatory Condition. No condition or requirement shall have
been imposed by one or more Governmental Entities in connection with any
required approval by them of the Merger that requires Parent or any of its
subsidiaries to be operated in a manner that would have a material adverse
effect on Parent or Company or on the consummation of this Agreement or the
transactions contemplated hereby.
(D) No Parent Material Adverse Effect. There shall not be or exist
any change, effect, event, circumstance, occurrence or state of facts that has
had, has or which reasonably could be expected to have, a material adverse
effect on Parent.
(E) Legal Opinion. The Company shall have received an opinion of
counsel to Parent, in a form to be mutually agreed by the parties to this
Agreement prior to the Effective Time.
SECTION 7.4 FRUSTRATION OF CLOSING CONDITIONS. Neither Parent nor the
Company may rely on the failure of any condition set forth in Section 7.1, 7.2
or 7.3, as the case may be, to be satisfied if such failure was caused by such
party's failure to use its own reasonable best efforts to consummate the Merger
and the other transactions contemplated by this Agreement, as required by and
subject to Section 6.5.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether or not the Company's shareholders have
approved the Agreement:
(A) by mutual written consent of Parent and the Company;
(B) by either Parent or the Company:
(I) if the Merger shall not have been consummated at or prior
to 5:00 p.m., New York time, on December 31, 2004, provided, however, that the
right to terminate this Agreement pursuant to this Section 8.1(b)(i) shall not
be available to any party whose failure to perform any of its obligations under
this Agreement results in the failure of the Merger to be consummated by such
time and date;
(II) if the Company's shareholders have not consented to the
Merger, this Agreement and the transactions contemplated hereby;
(III) if any Restraint having any of the effects set forth in
Section 7.1(c) shall be in effect and shall have become final and nonappealable;
provided, however, that the party seeking to terminate this Agreement pursuant
to this Section 8.1(b) (iv) shall have used its reasonable best efforts to
prevent the entry of such Restraint and to have such Restraint vacated or
removed;
(IV) if any Governmental Entity that must grant a Requisite
Regulatory Approval shall have denied the applicable Requisite Regulatory
Approval and such denial shall have become final and nonappealable;
(V) if the Parent's Common Stock price closes below $1.50 per
share on any five (5) trading days (whether such days are consecutive or not)
during the thirty (30) day period ending five (5) days before the Closing Date;
provided that the party desiring to terminate this Agreement pursuant to this
Section 8.1(b)(v) gives written notice to the other party at least three (3)
days prior to exercising its right to terminate the Agreement pursuant to this
Section 8.1(b)(v) and provides an opportunity for the non-terminating party to
meet with the terminating party to discuss the termination; or
(VI) if the other party shall have failed to deliver the
agreements it is to deliver pursuant to Section 6.10 or Section 6.12 of this
Agreement within thirty (30) days of the date hereof;
(C) by Parent, if the Company shall have breached any of its
representations, warranties, covenants or other agreements contained in this
Agreement, which breach (i) would give rise to the failure of a condition set
forth in Section 7.2(a) or (b), and (ii) is either incapable of being cured by
the Company or, if curable, is not cured within 15 days of receipt from Parent
of written notice thereof; or
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(D) by the Company, if Parent shall have breached any of its
representations, warranties, covenants or other agreements contained in this
Agreement, which breach (i) would give rise to the failure of a condition set
forth in Section 7.3(a) or (b), and (ii) is either incapable of being cured by
Parent or, if curable, is not cured within 15 days of receipt from the Company
written notice thereof.
The party desiring to terminate this Agreement pursuant to clause (b), (c)
or (d) of this Section 8.1 shall provide written notice of such
termination to the other party in accordance with Section 8.2, specifying
in reasonable detail the provision hereof pursuant to which such
termination is effected.
SECTION 8.2 EFFECT OF TERMINATION. If this Agreement is terminated by
either the Company or Parent as provided in Section 8.1, this Agreement
forthwith shall become void and have no effect, without any liability or
obligation on the part of Parent or the Company. This Section 8.2 and Article IX
shall survive such termination, provided, however, that nothing herein shall
relieve any party from any liability (in contract, tort or otherwise, and
whether pursuant to an action at law or in equity) for any knowing or willful
breach by a party of any of its representations, warranties, covenants or
agreements set forth in this Agreement or in respect of fraud by any party.
SECTION 8.3 AMENDMENT. This Agreement may be amended by the parties at any
time; provided, however, that after receipt of approval by the Company's
shareholders, there shall not be made any amendment that by law requires any
further approval by the shareholders of the Company without the further approval
of such shareholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties to be bound thereby.
SECTION 8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
8.3, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 9.1 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
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SECTION 9.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(A) if to Parent or Merger Sub, to:
Enhance Biotech, Inc.
712 Fifth Avenue
New York, New York 10019
Fax No.: (212) 581-1922
Attention: Andrew J. Cosentino
with a copy (which shall not constitute notice pursuant
to this Section 9.2) to:
such counsel to Parent as may be designated by Parent by
written notice to Company.
(B) if to the Company, to:
Ardent Pharmaceuticals, Inc.
631 United Drive, Suite 200
Durham, North Carolina 27713
Fax No.: (919) 806-1161
Attention: Phillip S. Wise
with a copy (which shall not constitute notice pursuant
to this Section 9.2) to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Fax No.: (212) 326-0806
Attention: Eric M. Hellige, Esq.
SECTION 9.3 DEFINITIONS. For purposes of this Agreement:
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(A) an "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person, where "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the ownership
of voting securities, by contract, as trustee or executor, or otherwise.
(B) "material adverse change" or "material adverse effect" means,
when used in reference to the Company or Parent, any change, effect, event,
circumstance, occurrence or state of facts that is, or which reasonably could be
expected to be, materially adverse to the business, assets, liabilities,
condition (financial or otherwise), cash flows or results of operations of such
party and its subsidiaries, considered as an entirety; provided, however, that
the following shall not be taken into account or given effect, either
individually or in the aggregate, in determining whether there has occurred or
there reasonably could be expected to occur, or whether there exists a change,
effect, event, circumstance, occurrence or state of facts that is or which
reasonably could be expected to be, a material adverse change or a material
adverse effect: (i) any change, effect, event, circumstance, occurrence or state
of facts relating to the United States economy or financial or securities
markets in general, unless (A) constituting or arising from a banking moratorium
or general suspension of trading for more than 10 consecutive trading days on
any national securities exchange or U.S. inter-dealer quotation system of a
registered national securities association or (B) involving a decline in the Dow
Jones Industrial Average of more than 35% measured over any five AMEX-trading
day period), (ii) any adverse change, effect, event, circumstance, occurrence or
state of facts relating to the biotech industry to the extent not affecting the
referent person to a disproportionately greater extent than other persons in
industries in which the referent person competes are or could reasonably be
expected to be affected, or (iii) any change, effect, event, circumstance,
occurrence or state of facts directly relating to and arising out of the public
announcement or performance of this Agreement and the transactions contemplated
hereby.
(C) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(D) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect not less than a majority of its Board of Directors
or other governing body (or, if there are no such voting interests, 50% or more
of the equity interests of which) is owned directly or indirectly by such first
person.
(E) "knowledge" means, (i) with respect to the Company, the
knowledge after reasonable due inquiry, of the Company's executive officers and
(ii) with respect to Parent, the knowledge after reasonable due inquiry of
Parent's executive officers.
(F) "Company Preferred Stock" means, collectively, the Company
Series A Preferred Stock, the Company Series B Preferred Stock, the Company
Series C Preferred Stock, the Company Series D-1 Preferred Stock and the Company
Series D-2 Preferred Stock
SECTION 9.4 INTERPRETATION. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words
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"without limitation unless the word "only" follows the words "include,"
"includes" or "including." The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this Agreement.
SECTION 9.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties. A facsimile copy of a signature
page shall be deemed to be an original signature page.
SECTION 9.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein) (a) constitute the
entire agreement, and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of this
Agreement and (b) except for the provisions of Section 6.6 which shall inure to
the benefit of and be enforceable by the persons referred to therein, are not
intended to confer upon any person other than the parties any rights or
remedies.
SECTION 9.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal substantive and procedural laws of
the State of Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law of such state.
SECTION 9.8 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
SECTION 9.9 CONSENT TO JURISDICTION. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any Federal court
located in the Southern District of New York or any New York state court located
in New York county in the event any dispute arises out of this Agreement or any
of the transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal court sitting in the Southern
District of New York or any New York state court located in New York county,
except for any action in another jurisdiction to enforce any judgment previously
obtained in any such Federal court sitting in the Southern District of New York
or New York state court located in New York county. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or any of the transactions
contemplated by this Agreement in any Federal court located in the Southern
District of New York or any New York state court located in New York county, and
hereby further irrevocably and unconditionally waive and agree not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
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SECTION 9.10 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.11 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.12 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, Parent, the Company and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
ENHANCE BIOTECH, INC.
By /s/Christopher Every
---------------------------------
Name: Christopher Every
Title: President and CEO
ARDENT ACQUISITION CORP.
By /s/Christopher Every
---------------------------------
Name: Christopher Every
Title: President and CEO
ARDENT PHARMACEUTICALS, INC.
By /s/Kwen-Jen Chang
---------------------------------
Name: Kwen-Jen Chang
Title: President and CEO
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EXHIBIT A
LOCK-UP PERIOD LEGEND
The shares represented by this Certificate are subject to restrictions on
transfer until ________, 2005 (one year from the date of issuance) as set forth
in Section 2.1(j) of that certain Merger Agreement, dated as of August 11, 2004,
among the Company, Ardent Acquisition Corp., and Ardent Pharmaceuticals, Inc.
Copies of the Merger Agreement are maintained and are available for inspection
at the principal office of the Company.
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EXHIBIT B
INITIAL LOCK-UP PERIOD LEGEND
The shares represented by this Certificate are subject to restrictions on
transfer until the earlier of (i) the 30th day following the consummation by the
Company of a Qualified Financing (as defined in the Merger Agreement dated as of
August 11, 2004 (the "Merger Agreement"), among the Company, Ardent Acquisition
Corp., and Ardent Pharmaceuticals, Inc.) or (ii) __________, 2005 (180 days from
the date of issuance) as set forth in Section 2.1(j) of the Merger Agreement.
Copies of the Merger Agreement are maintained and are available for inspection
at the principal office of the Company.
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