Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 28, 2002 (this
"Agreement"), among Essential Therapeutics, Inc., a Delaware corporation
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("Parent"), MC Merger Corp., a Delaware corporation and a wholly owned
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subsidiary of Parent ("Subcorp"), Maret Corporation, a Delaware corporation (the
"Company"), and solely with respect to Sections 2.04, 2.06, 2.07, 6.01, 6.07(a),
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8.04 and Articles IX and X hereof, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, acting solely as the
Stockholder Representative referred to herein.
WHEREAS, Subcorp, upon the terms and subject to the conditions of this
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Agreement and in accordance with the General Corporation Law of the State of
Delaware ("Delaware Law"), will merge with and into the Company (the "Merger");
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WHEREAS, the Board of Directors of the Company has (i) determined that the
Merger is fair to the holders of shares of the Company's capital stock and is in
the best interests of such holders (each a "Stockholder," and collectively, the
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"Stockholders"), and (ii) approved and adopted this Agreement, the Merger and
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the transactions contemplated hereby, and directed the submission of the Merger,
the Agreement and the transactions contemplated hereby to the Stockholders for
their approval in accordance with Delaware Law;
WHEREAS, as a condition to, and concurrently with, the execution of this
Agreement, certain directors, officers, employees and consultants of the
Company, and all holders of convertible promissory notes issued by the Company
(other than Parent) and outstanding on the date hereof (the "Note Payees"),
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Parent and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in his capacity as the Stockholder Representative
therein, have executed and delivered the Convertible Note and Bonus Payment
Agreement in the form attached hereto as Exhibit A (the "Payment Agreement"),
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pursuant to which, among other things, Parent has agreed that, simultaneous with
the closing of the Merger contemplated by this Agreement, (i) Parent shall issue
100,000 shares of Parent Common Stock (the "Management Payment Shares") to those
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directors, officers, employees and consultants of the Company that at the
Closing are parties to the Payment Agreement (the "Management Payees" and,
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together with the Note Payees, the "Payees") as full payment for all "stay"
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bonus obligations of the Company to the Management Payees, and (ii) Parent shall
issue 895,271 shares of Parent Common Stock to the Note Payees (the "Note
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Payment Shares") as full payment for all obligations of the Company to the Note
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Payees under such convertible promissory notes;
WHEREAS, as a condition to, and concurrently with the execution of, this
Agreement the Note Payees, certain of the Management Payees and certain other
Stockholders, have executed and delivered to Parent a Voting Agreement (the
"Voting Agreement") in the form attached hereto as Exhibit B, pursuant to which
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such stockholders have, among other things, agreed to vote all shares of capital
stock of the Company held by them in favor of the adoption of this Agreement,
the Merger and the matters related thereto and to grant Parent's designees an
irrevocable proxy to vote all such shares; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code").
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NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
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forth in Article VII, and in accordance with Delaware Law, at the Effective
Time, Subcorp shall be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Subcorp shall cease and the Company
shall continue as the surviving corporation of the Merger (the "Surviving
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Corporation"). Certain terms used in this Agreement not defined within the
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provisions in which they appear are defined in Sections 2.01(f) and 10.02
hereof.
SECTION 1.02 Closing; Effective Time. Subject to the fulfillment or waiver
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of all of the conditions contained in Article VII, as soon as is reasonably
practicable on or after one (1) Business Day following the satisfaction or
waiver of all the conditions contained in Article VII, a closing (the "Closing")
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will be held at the Boston offices of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ (or such other place as the parties may agree). The date
on which the Closing is actually held is referred to herein as the "Closing
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Date." On the Closing Date, Parent, Subcorp and the Company shall cause the
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Merger to be consummated by filing a certificate of merger (the "Delaware
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Certificate of Merger") with the Secretary of State of the State of Delaware, in
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such form as is required by, and executed in accordance with the relevant
provisions of, Delaware Law. The term "Effective Time" means the date and time
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of the filing of the Delaware Certificate of Merger with the Secretary of State
of the State of Delaware (or such later time as may be agreed by each of the
parties hereto and specified in the Delaware Certificate of Merger).
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of
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the Merger shall be as provided in the Delaware Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Subcorp shall vest in the
Surviving Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of each of the Company and Subcorp shall become the
debts, liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; By-laws.
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(a) At the Effective Time, the Certificate of Incorporation of
Subcorp, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation.
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(b) At the Effective Time, the By-laws of Subcorp, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation.
SECTION 1.05. Directors and Officers. The directors of Subcorp immediately
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prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation. The officers of Subcorp
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by virtue of
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the Merger and without any action on the part of Parent, Subcorp, the Company or
the Stockholders:
(a) All of the shares of the Company's Preferred Stock issued and
outstanding immediately prior to the Effective Time shall be converted, subject
to the provisions of Sections 2.01(c), 2.01(d), 2.01(g), 2.02(c) and 2.05 below,
into (i) the right to receive the Merger Closing Shares, which Merger Closing
Shares shall be allocated among the holders of Preferred Stock as set forth on
Schedule 2.01(b) attached hereto, and (ii) (subject to the provisions of Section
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2.06 hereof and of the Escrow Agreement) the right to receive the Merger
Escrowed Shares, which Merger Escrowed Shares shall be allocated among the
holders of Preferred Stock as set forth on Schedule 2.01(b) attached hereto. All
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of the shares of the Company's Common Stock issued and outstanding immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof and no payment shall be made with respect thereto.
(b) Schedule 2.01(b) of the Company Disclosure Schedule sets forth (i)
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the name of each holder of Preferred Stock, and, opposite each such holder's
name, (ii) (A) the number of shares of Parent Common Stock allocated to such
holder from the Merger Closing Shares, and (B) the number of shares of Parent
Common Stock allocated to such holder from the Merger Escrowed Shares.
(c) Notwithstanding any provision of this Agreement or the Payment
Agreement to the contrary, under no circumstances shall Parent issue more than
the Merger Shares in exchange for all of the issued and outstanding capital
stock of the Company, and under no circumstances shall Parent issue more than an
aggregate of 2,000,000 shares of Parent Common Stock as a result of issuing the
Merger Shares pursuant to this Agreement and as a result of issuing the Note
Payment Shares and the Management Payment Shares pursuant to the Payment
Agreement.
(d) Each Share held in the treasury of the Company and each Share
owned by Parent or any direct or indirect wholly owned subsidiary of Parent or
of the Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto.
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(e) Each share of common stock, $0.0001 par value per share, of
Subcorp issued and outstanding immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and nonassessable share of common
stock, $0.0001 par value per share, of the Surviving Corporation.
(f) For purposes of this Agreement, the following terms shall have the
following meanings:
"Common Stock" means the Company's common stock, $0.0001 par value per
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share.
"Company Stock" means, collectively, the Preferred Stock and the Common
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Stock.
"Escrowed Shares" means the Merger Escrowed Shares and the Payee Escrowed
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Shares.
"Merger Closing Shares" means the result of obtained by subtracting (A) the
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sum of (i) the Management Payment Shares, plus (ii) the Note Payment Shares,
plus (iii) the Merger Escrowed Shares, from (B) 2,000,000 shares of Parent
Common Stock.
"Merger Consideration" means (i) the aggregate number of shares of Parent
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Common Stock that the Stockholders have the right to receive pursuant to the
conversion of Company Stock in accordance with the provisions of Section
2.01(a), including the Merger Escrowed Shares, and (ii) any cash paid in lieu of
fractional shares in accordance with Section 2.02(c).
"Merger Escrowed Shares" means 190,000 shares of Parent Common Stock
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deposited and held in escrow pursuant to, and in accordance with, the provisions
of Section 2.06 hereof and of the Escrow Agreement.
"Merger Shares" means the result of obtained by subtracting (A) the sum of
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(i) the Management Payment Shares, plus (ii) the Note Payment Shares, from (B)
2,000,000 shares of Parent Common Stock.
"Parent Common Stock" means the common stock, par value $0.001 per share,
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of Parent.
"Payee Escrowed Shares" means 10,000 shares of Parent Common Stock
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deposited and held in escrow pursuant to, and in accordance with, the provisions
of the Payment Agreement and of the Escrow Agreement.
"Preferred Stock" means, collectively, the Series A Stock, the Series B
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Stock and the Series C Stock.
"Series A Stock" means the Company's Series A Convertible Preferred Stock,
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$0.0001 par value per share.
"Series B Stock" means the Company's Series B Convertible Preferred Stock,
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$0.0001 par value per share.
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"Series C Stock" means the Company's Series C Convertible Preferred Stock,
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$0.0001 par value per share.
"Shares" means shares of the Company's Common Stock and Preferred Stock.
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(g) Any references in this Agreement to share numbers or prices shall
be equitably adjusted to reflect fully the effect of any stock split, reverse
split, stock combination, stock dividend, reorganization, reclassification,
recapitalization or other like change with respect to Parent Common Stock or
Company Stock after the date hereof and prior to the Effective Date.
SECTION 2.02. Exchange of Certificates.
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(a) Exchange Procedures. Parent shall use commercially reasonable
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efforts to deliver within twenty 20 days after the Effective Time, or cause
Parent's transfer agent to deliver, transmittal materials that Parent or its
transfer agent will require from those Stockholders entitled to receive at the
Closing shares of Parent Common Stock in respect of their Shares, which
materials may include any certifications Parent may request with respect to
compliance with any withholding obligations of Parent or the Surviving
Corporation under the Code. Until surrendered as contemplated by this Section
2.02, each Certificate (as defined below) shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
applicable amounts of Merger Consideration payable pursuant to Section 2.01. As
promptly as practicable following the Effective Time, Parent will deliver to
each Stockholder who has completed such transmittal materials and returned them
to Parent, together with the certificate or certificates that immediately prior
to the Effective Time represented such holder's outstanding shares of Company
Stock (a "Certificate," or the "Certificates"), (i) a certificate representing
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any shares of Parent Common Stock issued in respect of such Company Stock less
applicable Merger Escrowed Shares and (ii) any cash payment to which such
Stockholder shall be entitled pursuant to Section 2.02(c) below.
(b) No Further Rights in Company Stock. All shares of Parent Common
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Stock issued upon conversion of the Shares in accordance with the terms hereof
(including any cash paid pursuant to Section 2.02(c)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such Shares.
(c) No Fractional Shares. No certificates or scrip representing
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fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any other rights of a stockholder of Parent. At
such time as Parent delivers a certificate representing any shares of Parent
Common Stock issued in respect of such Company Stock, each holder entitled to
payment of a fractional share interest shall be paid in lieu of such fractional
share interest an amount in cash equal to the product obtained by multiplying
(i) such fractional share interest to which such holder (after taking into
account all fractional share interests then held by such holder) would otherwise
be entitled by (ii) the Reference Market Value.
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(d) No Liability. Notwithstanding anything to the contrary in this
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Agreement, none of the Parent, the Surviving Corporation nor any party hereto
shall be liable to a holder of shares of Company Stock for any amount properly
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law.
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
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transfer books of the Company shall be closed and there shall be no further
registration of transfers of Shares thereafter on the records of the Company.
From and after the Effective Time, the holders of certificates representing
Shares outstanding immediately prior to the Effective Time shall cease to have
any rights with respect to such Shares except as otherwise provided herein or by
any Laws .
SECTION 2.04. Treatment of Other Securities.
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(a) Stock Options and Warrants. All options to purchase capital stock
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of the Company (the "Company Options") outstanding under the Company's Long-Term
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Incentive Plan (the "Company Stock Option Plan"), whether or not exercisable,
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whether or not vested, and whether or not performance-based, shall have been
exercised or terminated prior to the Closing Date. All warrants to purchase
Company Stock, all options not subject to the Company Stock Option Plan to
purchase shares of Company Stock, and all other rights to purchase or acquire
any securities of the Company (all of the foregoing, collectively, the "Company
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Warrants"), whether or not exercisable, whether or not vested, and whether or
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not performance-based, shall have been exercised or terminated prior to the
Closing Date. Parent shall not assume any Company Options or Company Warrants.
(b) Convertible Securities. Other than that certain convertible
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promissory note, dated December 20, 2001, issued by the Company to Parent (the
"Bridge Note"), all convertible promissory notes, and all other securities or
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rights convertible into any Company Stock or other securities of the Company
(all of the foregoing, collectively, the "Convertible Securities"), shall either
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(i) be repaid as provided by the Payment Agreement if subject to the provisions
thereof, or (ii) have been terminated, cancelled or converted into Company Stock
prior to the Closing Date. The Bridge Note and the Second Bridge Loan, if any,
will be cancelled contingent upon, and simultaneous with, the effectiveness of
the Merger. Parent shall not assume any Convertible Securities.
SECTION 2.05. Dissenting Shares.
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(a) Notwithstanding any provision of this Agreement to the contrary,
Shares that are outstanding immediately prior to the Effective Time and that are
held by Stockholders who shall have not voted in favor of the Merger or
consented thereto in writing and who shall have exercised dissenters' rights for
such Shares in accordance with Delaware Law and who, as of the Effective Time,
have not effectively withdrawn or lost such dissenters' rights (collectively,
the "Dissenting Shares"), shall not be converted into or represent the right to
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receive the Merger Consideration, but the holder thereof shall only be entitled
to such rights as are granted by Delaware Law. All Dissenting Shares held by
Stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their dissenters' rights shall thereupon be deemed
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to have been converted into and to have become exchangeable for, as of the later
of the Effective Time or the occurrence of such event, the right to receive the
Merger Consideration, without any interest thereon, upon surrender, in the
manner provided in Section 2.02, of their Certificates that formerly evidenced
such Shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
fair value of Shares received by the Company, withdrawals of such demands, and
any other instruments served pursuant to Delaware Law and received by the
Company, and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for fair value under Delaware Law. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to any demands for the fair value of Shares or offer to settle or settle
any such demands other than by operation of law or pursuant to a final order of
a court of competent jurisdiction.
SECTION 2.06 Escrow. In connection with the Closing, the Stockholder
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Representative, Parent, the Company and an escrow agent, shall execute and
deliver an escrow agreement in the form attached hereto as Exhibit 2.06 (the
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"Escrow Agreement"). Notwithstanding any provisions of this Agreement to the
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contrary, including without limitation the provisions of Section 2.01 hereof,
the Merger Escrowed Shares (all of which the Stockholders would otherwise be
entitled to receive pursuant to Section 2.01(a)(ii)) shall be deposited with,
and held by, the Escrow Agent pursuant to the terms of the Escrow Agreement. In
addition to the Merger Escrowed Shares, pursuant to the terms of the Payment
Agreement, the Payee Escrowed Shares shall also be deposited with, and held by,
the Escrow Agent pursuant to the terms of the Escrow Agreement. The escrow
created by the Escrow Agreement shall be for the purpose of providing for the
payment of any and all indemnification claims made by Parent pursuant to Article
IX hereof, all in accordance with the terms and conditions contained herein and
in the Escrow Agreement.
SECTION 2.07. Stockholder Representative. By virtue of the adoption of this
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Agreement and the approval of the Merger by the Stockholders, each Stockholder
(regardless of whether or not such Stockholder votes in favor of the adoption of
the Agreement and the approval of the Merger, whether at a meeting or by written
consent in lieu thereof) hereby initially appoints, as of the date of this
Agreement, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (together with his permitted successors, the
"Stockholder Representative"), as his, her or its true and lawful agent and
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attorney-in-fact to enter into any agreement in connection with the transactions
contemplated by this Agreement and any transactions contemplated by the Escrow
Agreement, to exercise all or any of the powers, authority and discretion
conferred on him under any such agreement, to give and receive notices on their
behalf and to be his, her or its exclusive representative with respect to any
matter, suit, claim, action or proceeding arising with respect to any
transaction contemplated by any such agreement, including, without limitation,
the defense, settlement or compromise of any claim, action or proceeding for
which Parent or the Surviving Corporation, may be entitled to indemnification
and, by virtue of his approval of the Agreement, the Stockholder Representative
agrees to act as, and to undertake the duties and responsibilities of, such
agent and attorney-in-fact. Parentand the Surviving Corporation may rely on
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ as being the Stockholder Representative for all purposes
until Parent
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and the Surviving Corporation have received written notice that the Stockholders
have appointed a substitute Stockholder Representative.
All actions, decisions and instructions of the Stockholder Representative
shall be conclusive and binding upon all of the Stockholders and no Stockholder
shall have any cause of action against the Stockholder Representative for any
action taken, decision made or instruction given by the Stockholder
Representative under this Agreement or the Escrow Agreement (or for any failure
to take such action, make such decision or give such instruction).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Subcorp that:
SECTION 3.01. Incorporation; Authority. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own or lease and
operate its properties and to carry on its business as presently conducted. The
Company has delivered to Parent complete and correct copies of its Certificate
of Incorporation and By-Laws and all amendments thereto.
SECTION 3.02. Corporate Power; Binding Effect. The Company has all
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requisite corporate power and full legal right to enter into this Agreement and
to perform, subject to obtaining any required approvals from the Stockholders
and the filing and recordation of appropriate merger documents as required by
Delaware Law, all of its agreements and obligations under this Agreement in
accordance with its terms. This Agreement and the transactions contemplated
hereby have been duly authorized by the Company's Board of Directors, and the
Agreement has been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery of the Agreement by Parent and
Subcorp, constitutes the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms, except as enforceability
(i) may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally, and
(ii) is subject to general principles of equity. The execution, delivery and
performance by the Company of this Agreement will not (a) result in any
violation of or in any conflict with the Company's Certificate of Incorporation
or By-Laws, or (b) result in any violation of or in any conflict with or default
or creation of any lien under, or the acceleration or vesting or modification or
any right or obligation under any provision of any agreement, instrument,
judgment, decree, order, statute, rule or regulation binding on or applicable to
the Company or its properties, or (c) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company is a party or by which the
Company or any property or asset of it is bound or affected.
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SECTION 3.03. Subsidiaries. The Company does not have any subsidiaries and
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does not own or hold of record and/or beneficially any shares of any class in
the capital stock of any corporation. The Company does not own any legal and/or
beneficial interests in any partnerships, business trusts or joint ventures or
in any other unincorporated trade or business enterprises, limited liability
companies or other entities.
SECTION 3.04. Qualification. The Company is duly qualified and in good
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standing as a foreign corporation in those jurisdictions listed on Schedule 3.04
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of the disclosure schedules delivered to Parent and Subcorp contemporaneously
herewith (the "Company Disclosure Schedule"), which constitute all the
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jurisdictions in which the character of the properties owned or leased or the
nature of the activities conducted by them makes such qualification necessary.
SECTION 3.05. Capitalization. The authorized capital stock of the Company
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consists of (a) 11,000,000 shares of Common Stock, (b) 2,500,000 shares of
Series A Stock, (c) 585,000 shares of Series B Stock, and (d) 6,500,000 shares
of Series C Stock. As of the date hereof, (a) 970,591 shares of Common Stock are
issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (b) 2,500,000 shares of Series A Stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (c)
500,000 shares of Series B Stock are issued and outstanding, all of which are
validly issued, fully paid and nonassessable, (d) 3,728,194 shares of Series C
Stock are issued and outstanding, all of which are validly issued, fully paid
and nonassessable, and (e) no shares of Common Stock or Preferred Stock are held
in the treasury of the Company. Schedule 3.05 of the Company Disclosure Schedule
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lists the name of all holders of Common Stock, Preferred Stock, Company Options,
Company Warrants and Convertible Securities, and identifies the number and type
of such securities held by such holders. All Company Options and Company
Warrants will be exercised or terminated and all Convertible Securities will be
cancelled, terminated or converted in shares of Company Stock prior to Closing.
There are no outstanding obligations of the Company to repurchase, redeem or
otherwise acquire any Company Stock, Company Options, Company Warrants or
Convertible Securities.
SECTION 3.06. Lawful Issuance. All of the outstanding shares of the Company
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Stock and all Company Options, Company Warrants and Convertible Securities were
issued in conformity with all applicable provisions of the Securities Act of
1933, as amended (the "Securities Act") and the rules and regulations
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thereunder, and in compliance with applicable state securities laws and all
rules and regulations thereunder. There exists no valid right to rescind any
purchase thereof from or issuance thereof by the Company.
SECTION 3.07. Financial Statements. Attached as Schedule 3.07 of the
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Company Disclosure Schedule are copies of: (i) the audited balance sheet of the
Company for its fiscal year ended December 31, 2000 (such audited balance sheet,
together with the notes thereto, being herein referred to as the "Audited
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Balance Sheet"), and the related statements of income, changes in stockholders'
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equity and cash flows for such fiscal year, accompanied by a report and opinion
thereon of the Company's certified public accountants; and (ii) the unaudited
balance sheet of the Company for the 12-month period ended December 31, 2001
(such unaudited balance sheet, together with the notes thereto, being herein
referred to as the "Unaudited Balance Sheet"), and the related statements of
income, changes in stockholders'
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equity and cash flows for the 12-month period then ended. Each of the foregoing
financial statements (including the related notes, where applicable) was
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with prior periods (subject, in the case of unaudited
statements, to normal year-end adjustments and the absence of footnotes
thereto); each of such balance sheets (including the related notes, where
applicable) fairly presents the financial condition of the Company as of its
date; and each of such statements of income and statements of changes in
stockholders' equity and cash flows fairly presents the results of operations,
changes in stockholders' equity and cash flows of the Company for the period
covered thereby.
SECTION 3.08. Absence of Certain Changes. Except as set forth on Schedule
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3.08 of the Company Disclosure Schedule, since the date of the Unaudited Balance
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Sheet and except for the transactions contemplated by this Agreement, there has
not been: (a) any materially adverse change in the assets, liabilities, sales,
income or business or prospects of the Company or in its relationships with
suppliers, partners, collaborators, customers or lessors; (b) any acquisition or
disposition by the Company of any asset or property other than in the ordinary
course of business; (c) any material damage, destruction or loss, whether or not
covered by insurance, adversely affecting, either in any case or in the
aggregate, the property or business of the Company; (d) any declaration, setting
aside or payment of any dividend or any other distributions in respect of any
class of the capital stock of the Company; (e) any issuance of any shares of any
class of the capital stock or any other securities of the Company or any direct
or indirect redemption, purchase or other acquisition of any class of the
capital stock or other securities of the Company; (f) any increase in the
compensation, pension or other benefits payable or to become payable by the
Company to any of their officers or employees, or any bonus or severance
payments or arrangements made to or with any of them; (g) any forgiveness or
cancellation of any debt or claim by the Company or any waiver of any right of
value; (h) any entry by the Company into any transaction other than in the
ordinary course of business; (i) any incurrence by the Company of any
obligations or liabilities, whether absolute, accrued, contingent or otherwise
(including, without limitation, liabilities as guarantor or otherwise with
respect to obligations of others), other than obligations and liabilities
incurred in the ordinary course of business; (j) any mortgage, pledge, lien,
lease, security interest or other charge or encumbrance on any of the assets,
tangible or intangible, of the Company; or (k) any change in accounting
principles, practices or methods used by the Company.
SECTION 3.09. Title to Property; Leases, Etc. Subject to Section 3.18 and
----- -- --------- ------ ---
the disclosure thereunder and except for liens for current taxes not yet due and
payable, the Company has good and marketable title to all of its properties and
assets, including without limitation, all those reflected in the Audited Balance
Sheet, all free and clear of all liens, pledges, charges, security interests,
mortgages, encumbrances or title retention agreements of any kind or nature. All
such properties and assets are in good condition and repair, reasonable wear and
tear excepted, and are adequate and sufficient to carry on the business of the
Company as presently conducted. Schedule 3.09(a) sets forth a complete and
-------- ------
correct list of all capital assets of the Company. The Company does not own any
real property. Schedule 3.09(b) sets forth all personal property leases to which
-------- ------
the Company is a party or by which it is bound and that are necessary for the
conduct of the business of the Company in substantially the same manner as the
business of the Company has heretofore been conducted and all real property
leases to
-10-
which the Company is a party or by which it is bound (all such personal property
leases and real property leases, collectively, the "Leases"). Except as
------
disclosed in Schedule 3.09(b), each Lease is the legal, valid and binding
-------- ------
obligation of the Company, and of each other party thereto, enforceable against
each such party thereto in accordance with its terms. With respect to the
Leases, there exists no default by the Company nor any default or, to the
knowledge of the Company, threatened default by any third party thereunder, that
has affected or could reasonably be expected to affect the rights and privileges
thereunder of the Company or result in any liability of the Company. Except as
provided in Schedule 3.09(b), the consummation of the transactions contemplated
-------- ------
by this Agreement will not result in any default, penalty or modification to any
Lease.
SECTION 3.10. Indebtedness. Except as set forth on Schedule 3.10 of the
------------- -------- ----
Company Disclosure Schedule or reflected in the Unaudited Balance Sheet, the
Company has no Indebtedness outstanding at the date hereof. The Company is not
in default with respect to any outstanding Indebtedness or any instrument
relating thereto, nor is there any event that, with the passage of time or
giving of notice, or both, would result in a default, and no such Indebtedness
or any instrument or agreement relating thereto purports to limit the issuance
of any securities by the Company or the operation of the business of the
Company. Complete and correct copies of all instruments (including all
amendments, supplements, waivers and consents) relating to any Indebtedness of
the Company have been furnished to Parent.
SECTION 3.11. Absence of Undisclosed Liabilities. Except to the extent (i)
------- -- ----------- ------------
reflected or reserved against in the Unaudited Balance Sheet, (ii) incurred in
the ordinary course of business after the date of the Unaudited Balance Sheet,
(iii) incurred as fees and expenses in connection with the transactions
contemplated by this Agreement, and (iv) described on Schedule 3.11(a) of the
-------- -------
Company Disclosure Schedule, the Company has no liabilities or obligations of
any nature, whether accrued, absolute, contingent or otherwise (including,
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others) and whether due or to become due, including, without
limitation, any liabilities for taxes due or to become due, other governmental
charges, duties, penalties, interest, fines, vacation pay, uninsured workmen's
compensation claims, employee compensation, professional fees, commissions,
benefits or bonuses or pension plan obligations or liabilities for insurance
premiums. All liabilities of the Company for fees and expenses incurred in
connection with the negotiation and execution of this Agreement and the
transactions contemplated hereby, and the amounts thereof, are listed on
Schedule 3.11(b) of the Company Disclosure Schedule.
-------- ------
SECTION 3.12. Taxes; Net Operating Losses.
----- --- --------- -------
(a) For purposes of this Agreement, "Taxes" shall mean any federal, state,
local, or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental, customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not. For purposes of this Agreement, a
"Tax Return" shall mean any return, declaration, report, claim for refund, or
information return or statement
-11-
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
(b) Except as disclosed on Schedule 3.12 of the Company Disclosure
-------- ----
Schedule, the Company has filed any and all Tax Returns that it was required to
file, each such Tax Return was prepared in substantial compliance with all
applicable laws and regulations and each such Tax Return was true, correct and
complete in all respects. All Taxes owed by the Company (whether or not shown on
any Tax Return) have been paid or reserved against in the Unaudited Balance
Sheet. Except as disclosed on Schedule 3.12 of the Company Disclosure Schedule,
-------- ----
the Company is not currently the beneficiary of any extension of time within
which to file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no security interests on any
of the assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Tax, except for liens for current Taxes not yet due
and payable.
(c) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(d) There is no dispute or claim concerning any tax liability of the
Company either (i) claimed or raised by any authority in writing or (ii) as to
which the Company has knowledge based upon contact with any agent of such
authority. Schedule 3.12 of the Company Disclosure Schedule lists all federal,
-------- ----
state, local, and foreign income Tax Returns filed with respect to the Company
for taxable periods ended on or after December 31, 1998, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently
are the subject of audit. The Company has delivered to Parent correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company filed or
received since January 1, 1999.
(e) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(f) The Company has not filed a consent under Code ss. 341(f)
concerning collapsible corporations. The Company has not made any payment, and
is not party to any agreement that would require it to make a payment, that
would not be deductible as a result of the application of Section 162(m) or 280G
of the Code. The Company is not, and has not been at any time within the last
five years, a U.S. real property holding corporation within the meaning of Code
ss. 897. The Company has not been a member of an affiliated group filing a
consolidated federal income tax return, and does not have any liability for
Taxes of another person under Treasury Regulations ss. 1.1502-6, any similar
provision of state, local or foreign law, as a transferee or successor, by
contract, or otherwise.
(g) The net operating loss available for carryover by the Company for
federal income tax purposes to its tax year beginning January 1, 2001 is
$12,170,000. Except as set forth
-12-
in the Audited Balance Sheet, the Company is aware of no restriction on the use
of such net operating loss other than any restriction that may result from the
Merger.
SECTION 3.13. Litigation, etc. Except as set forth on Schedule 3.13 of the
---------- --- -------- ----
Company Disclosure Schedule, no action, suit, proceeding or investigation
(whether conducted by any judicial or regulatory body or other person) is
pending or threatened against the Company (nor to the knowledge of the Company
is there any basis therefor). Except as set forth on Schedule 3.13 of the
-------- ----
Company Disclosure Schedule, each of the claims, actions, suits, proceedings and
investigations listed on Schedule 3.13 of the Company Disclosure Schedule has
-------- ----
been reported to the proper insurance carrier in accordance with the applicable
insurance policy and as necessary to insure coverage thereof and has been
accepted for coverage by the applicable insurer.
SECTION 3.14. Safety, Zoning and Environmental Matters. Neither that
------- ------ --- ------------- -------
portion of the facilities, offices or properties leased by the Company nor the
activities carried on therein by the Company are in violation of any zoning,
health or safety law or regulation. Neither the Company nor, to the knowledge of
the Company, any operator of its past or present properties is or has been in
violation, or alleged violation, of, or has any liability or threatened
liability under, any judgment, decree, order, law, license, rule or regulation
pertaining to environmental matters, including without limitation, those arising
under any federal, state or local statute, regulation, ordinance, order or
decree relating to health, safety or the environment (hereinafter "Environmental
-------------
Laws").
---
SECTION 3.15. Contracts. Except for the contracts, agreements and other
----------
arrangements listed on Schedule 3.15 of the Company Disclosure Schedule and
-------- ----
contracts, agreements or other arrangements that have been fully performed and
with respect to which the Company has no further obligations or liabilities, the
Company is not a party to or otherwise bound by any:
(a) mortgage, indenture, note, installment obligation or other
instrument relating to the borrowing of money;
(b) guarantee of any obligation or any letter of credit, bond or other
indemnity (excluding endorsements of instruments for collection in the ordinary
course of the operation of its business);
(c) offset, countertrade, distributor, sales representative or sales
agency (including any foreign agents or representatives) agreement;
(d) agreement for the sale or lease of any of its assets, excluding
sales of its products in the ordinary course of its business, or entered into
other than in the ordinary course of the operation of its business;
(e) agreement requiring the payment by the Company for the purchase or
lease of any real estate, machinery, equipment or other capital assets;
-13-
(f) contract, agreement, legal commitment or proposal for the sale of
products or the performance of services;
(g) capital lease or real property lease or sublease;
(h) contract or agreement requiring the Company to purchase all or
substantially all of its requirements for a particular product from a supplier;
(i) license, development or other agreement relating to any of the
patents, trademarks, trade names or copyrights referred to on Schedule 3.18 of
-------- ----
the Company Disclosure Schedule or agreement relating to technology, know-how or
processes that the Company has licensed from or to any other Person or
authorized for use by any other Person or been authorized by any other Person
for use by the Company;
(j) contract or agreement pursuant to which the Company has agreed to
indemnify or hold harmless any other Person;
(k) contract, agreement, legal commitment or proposal for the purchase
of inventories, equipment, raw materials, supplies, services or that imposes any
non-competition or exclusive dealing obligations on the Company;
(l) (i) employment agreement, (ii) consulting agreement, or (iii)
agreement providing for severance payments or other additional rights or
benefits (whether or not (a) optional, or (b) in the event of the sale or other
change in control of the Company);
(m) contract or other agreement with any current or former officer,
director, employee or consultant of the Company or any present or former
stockholder of the Company or with any partnership, corporation, joint venture
or any other entity in which any such Person has an interest;
(n) consulting, research or co-development agreements relating to any
product or Intellectual Property; or
(o) any other agreement, arrangement, commitment or contract (whether
written or oral) that is material to the financial condition, operations,
results of operations or business of the Company.
The Company has delivered or has caused to be delivered to Parent correct
and complete copies of each contract, agreement or other arrangement listed on
Schedule 3.15 of the Company Disclosure Schedule, as amended to date, and true
-------- ----
and complete summaries of all intracompany and intercompany billing practices
and procedures of the Company. Each such contract, agreement or other
arrangement is a valid, binding and enforceable obligation of the Company and,
to the Company's knowledge, the other party or parties thereto, and is in full
force and effect. Except as set forth on Schedule 3.15 of the Company Disclosure
-------- ----
Schedule, neither the Company nor, to the Company's knowledge, the other party
or parties thereto, is in breach or non-compliance of any term of any such
contract, agreement or other arrangement.
-14-
Except as set forth on Schedule 3.15 of the Company Disclosure Schedule, the
-------- ----
Company has not received notice of any default notice or threat thereof with
respect to any such contract, agreement or other arrangement and the Company
does not have a reasonable basis for suspecting that such action will be
forthcoming. Subject to obtaining any necessary consents by the other party or
parties to any such contract, agreement or other arrangement (the requirement of
any such consent being reflected on Schedule 3.15 of the Company Disclosure
-------- ----
Schedule), no contract, agreement or other arrangement listed on Schedule 3.15
-------- ----
includes or incorporates any provision the effect of which may be to enlarge or
accelerate any obligations of the Company or give additional rights to any other
party thereto or will in any other way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement.
SECTION 3.16. Employee Benefit Plans. Except as described on Schedule 3.16
-------- ------- ------ -------- ----
of the Company Disclosure Schedule, the Company does not contribute to, or
participate in, or has since its incorporation maintained, contributed to, or
participated in, any pension, profit-sharing, deferred compensation, bonus,
stock appreciation right, severance, group or individual health, dental,
medical, life insurance, survivor benefit, or similar plan, policy or
arrangement, whether formal or informal, for the benefit of any director,
officer, consultant or employee, whether active or terminated, of the Company.
SECTION 3.17. Potential Conflicts of Interest. Except as disclosed on
--------- --------- -- --------
Schedule 3.17 of the Company Disclosure Schedule, to the knowledge of the
-------- ----
Company, no Stockholder, officer or director of the Company (a) owns, directly
or indirectly, any interest in (excepting not more than 5% stock holdings for
investment purposes in securities of publicly held and traded companies) or is
an officer, director, employee or consultant of any Person that is a competitor,
lessor, lessee, customer or supplier of the Company; (b) owns, directly or
indirectly, in whole or in part, any tangible or intangible property that the
Company is using or the use of which is necessary for the business of the
Company; or (c) has any cause of action or other claim whatsoever against, or
owes any amount to, the Company except for claims in the ordinary course of
business, such as for accrued vacation pay, accrued benefits under employee
benefit plans and similar matters and agreements.
SECTION 3.18. Trademarks, Patents, etc.
---------- ------- ---
(a) Schedule 3.18(a) of the Company Disclosure Schedule sets forth a
-------- -------
complete and accurate list of (i) all patents, trademarks, trade names and
copyrights registered in the name of, owned by, or licensed to the Company or
used by the Company in connection with its business, all applications therefor,
and all licenses and other agreements relating thereto, and (ii) all agreements
relating to Intellectual Property that the Company has licensed to, or
authorized for use by, others or that has been licensed to or authorized for use
by the Company (the "Third Party IP Licenses").
----- ----- -- --------
(b) Except to the extent set forth on Schedule 3.18(b) of the Company
-------- ------
Disclosure Schedule, the Company is the sole and exclusive licensee or owner of
the entire legal and beneficial right, title and interest in and to the
Intellectual Property listed on Schedule 3.18(a) of the Company Disclosure
-------- ------
Schedule, free and clear of any lien, charge, security interest or other
-15-
encumbrance, and has the sole and exclusive right to use all Intellectual
Property used or necessary for the ordinary course of business as presently
conducted and the consummation of the transactions contemplated hereby will not
alter or impair any such right. Each of the Third Party IP Licenses described on
Schedule 3.18(a) of the Company Disclosure Schedule is a valid, binding and
-------- ------
enforceable obligation of the Company and, to the Company's knowledge, the other
party or parties thereto, and is in full force and effect, and, subject to the
Company obtaining the consents referred to on Schedule 3.26 of the Company
-------- ----
Disclosure Schedule hereto prior to the Closing Date, any successors and assigns
of the Company and each other party thereto, including any successors to the
business of such entity through merger, sale of all or substantially all of the
stock, assets or other interest in or of such party.
(c) Except as disclosed on Schedule 3.18(c) of the Company Disclosure
Schedule, neither the Company nor, to the Company's knowledge, the other party
or parties thereto, is in breach of any license, sublicense or other agreement,
including the Third Party IP Licenses, relating to Intellectual Property. The
Company has complied with all of its obligations of confidentiality in respect
of the Intellectual Property of others and has no knowledge of any violation of
such obligations of confidentiality as are owed to the Company.
(d) Except as disclosed on Schedule 3.18(d) of the Company Disclosure
-------- ------
Schedule, the Company has received no notice, either written or verbal, that the
use of the Intellectual Property owned by or licensed to the Company in the
manner currently used by the Company infringes or will infringe a third party's
patent, trademark or other Intellectual Property rights. Except as disclosed on
Schedule 3.18(d) of the Company Disclosure Schedule, the Company has received no
-------- ------
indication or notice that any of the Intellectual Property owned by or licensed
to the Company is or will be the subject of an interference proceeding,
opposition proceeding, reissue or reexamination proceeding, nullity action or
other legal proceeding affecting such Intellectual Property rights in any court
or regulatory or governmental office or tribunal and the Company has not made
any dedication of any such Intellectual Property rights to the public. The
Company has not sent any notices or made any threats, either written or verbal,
regarding any Intellectual Property owned by or licensed to the Company or
contemplated to be used by the Company in the conduct of its business. Except as
disclosed on Schedule 3.18(d) of the Company Disclosure Schedule, the Company
-------- ------
has not commenced any interference proceedings, opposition proceedings, nullity
actions or other legal proceedings with respect to the Intellectual Property
rights of any third party. Except as disclosed on Schedule 3.18(d) of the
-------- ------
Company Disclosure Schedule, no claims have been asserted and, to the knowledge
of the Company, no unasserted claims are pending, by any Person regarding the
use of any Intellectual Property owned or licensed to the Company, or
challenging or questioning the validity or effectiveness of any license or
agreement relating to such Intellectual Property, and to the knowledge of the
Company there is no basis for such claim. Except as set forth on Schedule
--------
3.18(d) of the Company Disclosure Schedule, the Company has not received notice
------
of any default notice or threat thereof with respect to any Third Party IP
License, agreement or other arrangement relating to the Company's Intellectual
Property and the Company has no reasonable basis for suspecting that such action
will be forthcoming. To the Company's knowledge, each of the patents to which
the Third Party IP Licenses described on Schedule 3.18(a) of the Company
-------- ------
Disclosure Schedule relate (the "Patents"), are currently in compliance with
-------
formal legal requirements (including payment of filing, examination and
maintenance fees
-16-
and proofs of working or use). Except as disclosed on Schedule 3.18(d) of the
-------- ------
Company Disclosure Schedule, the Company has no knowledge of any facts that
could cause the Patents to be invalid or unenforceable. Except as set forth on
Schedule 3.18(d) of the Company Disclosure Schedule and to the knowledge of the
-------- ------
Company, there is no potentially interfering patent or patent application of any
third party; and, to the knowledge of the Company, no Patent is infringed or has
been challenged or threatened in any way.
(e) Except as set forth on Schedule 3.18(e) of the Company Disclosure
-------- ------
Schedule, the Company's ability to use any of the Intellectual Property
registered in the name of, owned by, or licensed to the Company set forth on any
of the schedules referred to in this Section 3.18 will not be adversely affected
by the consummation of the transactions contemplated hereby.
(f) The Company has no knowledge of any reason that, following the
consummation of the transactions contemplated hereby, Parent will not have the
ability to use any of the Intellectual Property registered in the name of, owned
by, or licensed to the Company set forth on any of the schedules referred to in
this Section 3.18 to develop and commercialize any of the Company's drug
candidates for the indications for which the Company is currently developing
such drug candidates.
SECTION 3.19. Insurance. Schedule 3.19 of the Company Disclosure Schedule
--------- ------------
lists all of the policies and other insurance owned or held by the Company. All
such policies are in full force and effect, are sufficient for compliance by the
Company with all requirements of law and of all agreements to which the Company
is a party, are valid, outstanding and enforceable policies and provide that
they will remain in full force and effect through the respective dates set forth
in such Schedule, and will not in any way be affected by, or terminate or lapse
by reason of, the transactions contemplated by this Agreement.
SECTION 3.20. Bank Accounts; Signing Authority; Powers of Attorney. Except
---- -------- ------- --------- ------ -- --------
as set forth on Schedule 3.20 of the Company Disclosure Schedule, the Company
-------- ----
does not have any account or safe deposit box in any bank and no Person is
authorized, whether singly or jointly, to sign any checks on behalf of the
Company, to withdraw any money or other property from any bank, brokerage or
other account of the Company or to act under any power of attorney granted by
the Company at any time for any purpose. Schedule 3.20 of the Company Disclosure
-------- ----
Schedule also sets forth the names of all persons authorized to borrow money or
sign notes on behalf of the Company.
SECTION 3.21. Governmental Consent; Non-Contravention. Schedule 3.21 of the
------------ ------- ------------------ -------- ----
Company Disclosure Schedule sets forth all approvals, licenses, permits or other
authorizations issued by any governmental agency to the Company related to its
properties or businesses. No consent, approval or authorization of or
registration, designation, declaration or filing with any Governmental
Authority, federal or other, on the part of the Company is required in
connection with the Merger or the consummation of any other transactions
contemplated hereby. The Company has not sold any products prior to the date
hereof.
-17-
SECTION 3.22. Minute Books. The minute books of the Company made available
------ -----
to Parent for inspection accurately record therein all corporate actions taken
by the Board of Director, and any committees thereof, and stockholders of the
Company.
SECTION 3.23. Brokers. No finder, broker, agent, investment banker or other
-------
intermediary has acted for or on behalf of the Company in connection with the
negotiation or consummation of the transactions contemplated hereby.
SECTION 3.24. Compliance with Other Instruments, Laws, Etc.
---------- ---- ----- ----------- ---- ---
(a) The Company has complied with, and is in compliance with, (i) all
laws, statutes, governmental regulations and all judicial or administrative
tribunal orders, judgments, writs, injunctions, decrees or similar commands
applicable to its business, (ii) all unwaived terms and provisions of all
contracts, agreements and indentures to which the Company is a party, or by
which the Company or any of its properties is subject, and (iii) its Certificate
of Incorporation and By-Laws, each as amended to date except, in the cases of
clauses (i) and (ii) above, as could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Company.
Except as set forth on Schedule 3.24(a) of the Company Disclosure Schedule, the
-------- ------
Company has not committed, been charged with, or been under investigation with
respect to, nor does the Company have any knowledge of, any violation by the
Company of any provision of any federal, state or local law or administrative
regulation.
(b) Schedule 3.24(b) of the Company Disclosure Schedule lists each of
-------- -------
the following documents (and all amendments, supplements and responses thereto),
true and correct copies of which have previously been furnished to Parent: each
inspection report, questionnaire, inquiry, demand or request for information
received by the Company from, and each statement, report or other document filed
by the Company with, any federal, state or local government body or
administrative agency (except for routine and immaterial matters), and equal
employment opportunity, health and environmental agencies.
(c) The Company has and maintains and Schedule 3.24(c) of the Company
-------- -------
Disclosure Schedule sets forth a complete and correct list of, all such
licenses, permits and other authorizations from all such governmental
authorities, including without limitation all FDA permits or other preliminary
approvals, as are required for the conduct of its business or in connection with
the ownership or use of its properties. Except as expressly designated in
Schedule 3.24(c) of the Company Disclosure Schedule, all of the permits,
-------- -------
licenses and other authorizations listed therein are in full force and effect,
and the Company is not in breach or non-compliance, nor, to the knowledge of the
Company, is considered by the issuer thereof to be in breach or non-compliance
with any term or condition thereof. True and complete copies of each of such
permits, licenses and authorizations have previously been delivered to Parent.
None of such permits, licenses and other authorizations will terminate, be
revoked (or become revocable) or otherwise be adversely affected as a result of
the consummation of the transactions contemplated by this Agreement.
SECTION 3.25. Assignment of Trade Secrets. Each person presently or
---------- -- ----- -------
previously employed by the Company (including independent contractors, if any)
with access authorized
-18-
by the Company to confidential information relating to the Company's
Intellectual Property has executed a confidentiality and non-disclosure
agreement pursuant to an agreement substantially in the form of agreement
previously provided to Parent, or is otherwise legally bound to preserve the
confidentiality of such information, and such confidentiality and non-disclosure
agreements constitute valid and binding obligations of the Company and, to the
Company's knowledge, of such person, enforceable in accordance with their
respective terms. Except as set forth on Schedule 3.25 of the Company Disclosure
-------- ----
Schedule, all of the Intellectual Property owned by the Company was developed
and created solely and exclusively by employees of the Company (and all rights
in and to all Company Intellectual Properties are owned by the Company) without
the assistance of any third party or entity or was created by or with the
assistance of third parties who assigned ownership of their rights (including
all intellectual property rights) in such Intellectual Property to the Company
by means of valid and enforceable consultant confidentiality and invention
assignment agreements, copies of which have been delivered to Parent. Schedule
--------
3.25 of the Company Disclosure Schedule sets forth those agreements to which the
----
officers, employees or consultants of the Company are a party concerning, the
Patents of the Company. Any inventions or trade secrets, or any interest
therein, developed or made by such officer, employee or consultant under such
agreements with respect to the Patents have been assigned to the Company. No
such agreement requires such officer, employee or consultant to keep
confidential from the Company any trade secrets with respect to the Patents.
SECTION 3.26. Consents. Except as set forth on Schedule 3.26 of the Company
-------- -------- ----
Disclosure Schedule, no permit, approval, authorization or consent of any Person
is required in connection with the execution, delivery and performance by the
Company of this Agreement, or the consummation of the transactions contemplated
hereby.
SECTION 3.27. Takeover Statutes. The Company has taken or will have taken
-------- --------
prior to the Closing all action required to be taken by it in order to exempt
this Agreement and the transactions contemplated hereby from, and this Agreement
and the transactions contemplated hereby are exempt from, the requirements of
any "moratorium," "control share," "fair price," "affiliate transaction,"
"business combination" or other anti-takeover laws and regulations of any state.
SECTION 3.28. Disclosure to Stockholders. The information supplied by the
---------- -- ------------
Company for inclusion in the solicitation of consent and information statement
with respect to any stockholders' meeting for approval of this Agreement and the
transactions contemplated hereby, or in connection with any written consent of
stockholders of the Company, which shall include information regarding Parent in
connection with the issuance of its securities in the Merger, to be sent to the
Stockholders of the Company (such solicitation of consent and information
statement, as amended or supplemented is referred to herein as the "Information
-----------
Statement") shall not, on the date the Information Statement is first mailed to
--------
the Stockholders contain any statement that is false or misleading with respect
to any material fact regarding the Company or its business, or omit to state any
material fact regarding the Company or its business necessary in order to make
the statements regarding the Company or its business made therein, in light of
the circumstances under which they are made, not false or misleading. Whenever
any event occurs that should be set forth in an amendment or supplement to the
-19-
Information Statement, the Company or Parent, as the case may be, will promptly
inform the other of such occurrence and cooperate in making any appropriate
amendment or supplement, and/or mailing to stockholders of the Company, such
amendment or supplement. Notwithstanding the foregoing, the Company makes no
representation, warranty or covenant with respect to any information supplied by
Parent or Subcorp that is contained in any of the foregoing documents, whether
such information is incorporated directly into the foregoing documents or forms
the basis for information provided by the Company.
SECTION 3.29. Employee Matters. The Company is in compliance with all
-------- -------
currently applicable federal, state, local and foreign laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, and is not engaged in any unfair labor practice, except for any
noncompliance that would not have individually, or in the aggregate, a material
adverse effect on the Company. There are no pending claims against the Company
under any workers compensation plan or policy or for long term disability. The
Company does not have any obligations under COBRA or any similar state law with
respect to any former employees or qualifying beneficiaries thereunder. There
are no controversies pending or, to the knowledge of the Company, threatened,
between the Company and any of their respective employees or former employees.
The Company is not a party to any collective bargaining agreement or other labor
unions contract nor does the Company know of any activities or proceedings of
any labor union or other group to organize any such employees. The Company has
not incurred any liability under, and have complied in all respects with, the
Worker Adjustment Retraining Notification Act (the "WARN Act"), and no fact or
---- ---
event exists that could give rise to liability under the WARN Act. Section 3.29
------- ----
of the Company Disclosure Schedule contains a list of all employees, if any, who
are currently on a leave of absence (whether paid or unpaid), the reasons
therefor, the expected return date, and whether reemployment of such employee is
guaranteed by contract or statute, and a list of all employees, if any, who have
requested a leave of absence to commence at any time after the date of this
Agreement, the reason therefor, the expected length of such leave, and whether
reemployment of such employee is guaranteed by contract or statute.
SECTION 3.30. Vote Required. The consent of (i) the holders of a majority
---- --------
of the outstanding shares of Common Stock and Preferred Stock issued and
outstanding, voting together as a single class, and (ii) the holders of more
than sixty percent (60%) of the shares of Series C Stock, are the only consents
of the holders of any of Common Stock and Preferred Stock necessary to approve
this Agreement and the transactions contemplated hereby.
SECTION 3.31. Board Approval. The Board of Directors of the Company has
----- --------
unanimously (i) approved this Agreement and the Merger, (ii) determined that the
Merger is in the best interests of the stockholders of the Company and is on
terms that are fair to such stockholders, and (iii) recommended that the
stockholders of the Company approve this Agreement and the Merger.
SECTION 3.32. Accounts Payable. As of the date hereof and at the Effective
-------- -------
Time, the accounts payable recorded in the records and books of account of the
Company are set forth on Schedule 3.32 of the Company Disclosure Schedule. All
-------- ----
accounts payable recorded in the
-20-
records and books of account of the Company represent and will represent all of
the payables that have arisen from bona fide transactions in the ordinary course
of the Company's business. Said payables, have been recorded in the records and
books of account of the Company in accordance with generally accepted accounting
principles, consistent with past practice.
SECTION 3.33. Merger Shares Allocation. As of the date hereof, Schedule
------ ------ ---------- --------
2.01(b) of the Company Disclosure Schedule sets forth the allocation of the
------
Merger Shares among holders of Company Stock as if the Effective Time had
occurred on the date of this Agreement. As of the Effective Time, Schedule
--------
2.01(b) of the Company Disclosure Schedule shall set forth the allocation of the
------
Merger Shares among holders of Company Stock at the Effective Time.
SECTION 3.34. Representations Complete. None of the representations or
--------------- --------
warranties made by the Company herein or in any schedule hereto, including the
Company Disclosure Schedule, or certificate furnished by the Company pursuant to
this Agreement, when all such documents are read together in their entirety,
contains or will contain at the Effective Time any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBCORP
Parent and Subcorp hereby, jointly and severally, represent and warrant to
the Company that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Each of Parent
------------ --- -------------- ------------
and Subcorp is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. Each of Parent and Subcorp
is duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, have a
Parent Material Adverse Effect. The term "Parent Material Adverse Effect" means
------ ------- ------- ------
any change or effect that, when taken individually or together with all other
adverse changes and effects, is or is reasonably likely to be materially adverse
to the business, results of operations or financial condition of Parent and its
subsidiaries, taken as a whole, or otherwise affect the ability of Parent and
Subcorp to consummate the transactions contemplated hereby.
SECTION 4.02. Authority Relative to this Agreement. Each of Parent and
--------- -------- -- ---- ---------
Subcorp has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Merger and the other transactions contemplated hereby. The execution and
delivery of this Agreement by Parent and Subcorp and the consummation by Parent
and Subcorp of the Merger and the other transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action
-21-
and no other corporate proceedings on the part of Parent or Subcorp are
necessary to authorize this Agreement or to consummate the Merger and the other
transactions contemplated hereby (other than the filing and recordation of
appropriate merger documents as required by Delaware Law). This Agreement has
been duly and validly executed and delivered by Parent and Subcorp and, assuming
the due authorization, execution and delivery by the Company, constitutes a
legal, valid and binding obligation of each of Parent and Subcorp enforceable
against each of Parent and Subcorp in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents.
-- -------- -------- ------- --- --------
(a) The execution and delivery of this Agreement by Parent and Subcorp
do not, and the performance of this Agreement by Parent and Subcorp will not,
(i) conflict with or violate the Certificate of Incorporation or By-Laws, each
as amended to date, of Parent or Subcorp, (ii) conflict with or violate any
judgment, decree, order, statute, rule or regulation binding on or applicable to
Parent or Subcorp or its properties, except for such conflicts or violations
that would not, individually or in the aggregate, have a Parent Material Adverse
Effect, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or other encumbrance on any property or
asset of Parent or Subcorp pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or Subcorp is a party or by which Parent or Subcorp
or any property or asset of either of them is bound or affected, except for any
such breaches, defaults or other occurrences that would not, individually or in
the aggregate, have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and Subcorp
do not, and the performance of this Agreement by Parent and Subcorp will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic, foreign or
supranational, except for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act, state
-------- ---
blue sky laws and state takeover laws (each of which consents, approvals or
filings shall have been obtained or made prior to the Effective Time to the
extent required to have been obtained or made by such time), filing and
recordation of appropriate merger documents as required by Delaware Law and the
rules of the NASDAQ Stock Market ("Nasdaq") and where failure to obtain such
------
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger, and would
not, individually or in the aggregate, have a Parent Material Adverse Effect.
SECTION 4.04. SEC Filings; Financial Statements. Parent has filed all
--- -------- --------- ----------
forms, reports and documents required to be filed by it with the SEC since
January 1, 2001 (collectively, as the "Parent SEC Reports"). The Parent SEC
------ --- -------
Reports (i) were prepared in accordance with the requirements of the Securities
Act and the Exchange Act, as the case may be, and the rules and regulations
thereunder, and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in
-22-
order to make the statements made therein, in the light of the circumstances
under that they were made, not misleading.
SECTION 4.05. Litigation. Except as stated in the Parent SEC Reports, no
----------
action, suit, proceeding or, to the knowledge of Parent, investigation (whether
conducted by any judicial or regulatory body or other person) is pending or, to
the knowledge of Parent, threatened against Parent that questions the validity
or this Agreement or any action taken or to be taken pursuant hereto or that
will have a Parent Material Adverse Effect.
SECTION 4.06. Compliance with Other Instruments, Laws, etc. Parent has
---------- ---- ----- ------------ ----- ----
complied with, and is in compliance with, (i) all laws, statutes, governmental
regulations and all judicial or administrative tribunal orders, judgments,
writs, injunctions, decrees or similar commands applicable to its business, (ii)
all unwaived terms and provisions of all contracts, agreements and indentures to
which Parent is a party or by which Parent or any of its properties is subject,
and (iii) its Certificate of Incorporation and By-laws, each as amended to date,
other than in each case where the failure to so comply would not reasonably be
expected to have a Parent Material Adverse Effect. To the knowledge of Parent,
Parent has not committed, been charged with, or been under investigation with
respect to, any violation by Parent of any provision of any federal, state or
local law or administrative regulation, other than such violations that would
not reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.07. Absence of Certain Changes or Events. Except as otherwise set
------- -- ------- ------- -- -------
forth in the Parent SEC Reports filed prior to the date hereof, since September
30, 2001, there has not been any Parent Material Adverse Effect.
SECTION 4.08. Takeover Statutes. Parent has taken or will have taken prior
-------- ---------
to the Closing all action required to be taken by it in order to exempt this
Agreement and the transactions contemplated hereby from, and this Agreement and
the transactions contemplated hereby are exempt from, the requirements of any
"moratorium," "control share," "fair price," "affiliate transaction," "business
combination" or other anti-takeover laws and regulations of any state.
SECTION 4.09. Brokers. No finder, broker, agent, investment banker or other
-------
intermediary has acted for or on behalf ofParent in connection with the
negotiation or consummation of the transactions contemplated hereby.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger. The
------- -- -------- -- --- ------- ------- --- ------
Company covenants and agrees that, between the date of this Agreement and the
earlier of the termination of this Agreement or the Effective Time, unless
Parent shall otherwise agree in writing, the businesses of the Company shall be
conducted only in, and the Company shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice; and
the Company shall use commercially reasonable efforts to preserve substantially
intact its business organization, to keep available the services of the current
officers, employees
-23-
and consultants of the Company and to preserve the current relationships of the
Company with customers, suppliers and other persons with which the Company has
significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement or as set forth on Schedule 5.01 of the
-------- ----
Company Disclosure Schedule, the Company shall not, between the date of this
Agreement and the earlier of the termination of this Agreement or the Effective
Time, directly or indirectly do, or propose to do, any of the following without
the prior written consent of Parent:
(a) amend or otherwise change the Company's Certificate of
Incorporation or By-laws;
(b) except for the issuance of shares of Company Stock in connection
with the exercise of Company Options and Company Warrants outstanding as of the
date of this Agreement or upon the conversion of Convertible Securities
outstanding as of the date of this Agreement, issue, sell, pledge, dispose of,
grant, encumber, or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of, (i) any shares of Common Stock or Preferred Stock, (ii) any
Company Options, Convertible Securities or Company Warrants, or (iii) any other
rights of any kind to acquire any other ownership interest of the Company
(including, without limitation, any phantom interest);
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock or other securities;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock or other
securities;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership,
other business organization or any division thereof or any material amount of
assets; (ii) incur any indebtedness for borrowed money or issue any debt
securities, other than the Second Bridge Loan, or assume, guarantee or endorse,
or otherwise as an accommodation become responsible for, the obligations of any
person, or make any loans or advances; (iii) enter into, amend or terminate any
contract or agreement material to the business, results of operations or
financial condition of the Company; (iv) authorize any capital expenditure; or
(v) enter into or amend any contract, agreement, commitment or arrangement with
respect to any matter set forth in this subsection (e);
(f) increase the compensation payable or to become payable to its
officers, consultants or employees, or grant, pay or agree to pay any bonus,
severance or termination pay to, or enter into any employment or severance
agreement with any director, officer, consultant or other employee of the
Company, or establish, adopt, enter into or amend any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer, consultant or employee;
-24-
(g) take any action with respect to accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable);
(h) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction, in the ordinary course of business and
consistent with past practice and without violation of any of the Company's
obligations pursuant to this Article V, of liabilities reflected or reserved
against in the Unaudited Balance Sheet (and as set forth on Schedules 3.11(a)
and 3.32 of the Company Disclosure Schedule), or subsequently incurred in the
ordinary course of business and consistent with past practice;
(i) increase its payables and/or liabilities (other than payment of
normal, base salaries, wages, benefits and other operating expenses necessary to
operate the business of the Company in the ordinary course of business and
consistent with past practice) over current levels;
(j) commence a lawsuit other than in such cases where the Company in
good faith determines that the failure to commence a suit would result in the
material impairment of a valuable asset or a valuable aspect of its business,
provided that the Company consults with Parent prior to filing such suit;
(k) enter into, amend or terminate any real property leases or
personal property leases; or
(l) sell, lease, license or otherwise dispose of or encumber any of
the Company's properties or assets, except for sales of assets (other than
capital assets or intellectual property of the Company) in the ordinary course
of business, consistent with past practices, that are not material, individually
or in the aggregate, to the Company or its business.
(m) purchase, lease, license or otherwise acquire any properties or
assets, except for purchases of assets (other than capital assets or
intellectual property) in the ordinary course of business, consistent with past
practices, that are not material, individually or in the aggregate, to the
Company or its business and that do not involve an expenditure of more than
$5,000 individually or $25,000 in the aggregate.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Notices; Consents; Filings. The Company shall use
-------- --------- --------
reasonable best efforts to obtain any third party consent necessary for the
consummation of the transactions contemplated hereby, including, but not limited
to, the consents listed on Schedule 3.26 of the Company Disclosure Schedule.
-------- ----
-25-
SECTION 6.02. Access to Information; Confidentiality.
------ -- ----------- ---------------
(a) From the date hereof to the earlier of the termination of this
Agreement and the Effective Time, upon reasonable notice and subject to
restrictions contained in confidentiality agreements to which such party is
subject (from which such party shall use commercially reasonable efforts to be
released), the Company will provide to Parent and Subcorp (and their respective
representatives) reasonable access during regular business hours and at mutually
agreeable locations, to all information and documents that Parent or Subcorp may
reasonably request regarding the business, assets, liabilities, employees and
other aspects of the Company. Parent and Subcorp shall keep such information
confidential in accordance with the terms of the Reciprocal Confidential
Disclosure Agreement, dated December 13, 2001, between Parent and the Company
(the "Confidentiality Agreement").
--------------- ---------
(b) No investigation pursuant to this Section 6.02 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 6.03. Exclusivity. From the date of this Agreement through the
-----------
earlier of the termination of this Agreement or the Closing Date, the Company
shall not, nor shall the Company authorize or permit any of its officers,
directors, employees, affiliates, investment bankers, advisors, representatives
or agents, directly or indirectly, to (a) solicit, initiate or encourage the
submission of any Proposal (as defined below) or (b) participate in any
discussions or negotiations regarding, or furnish to any person or entity any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Proposal. For purposes of this letter, the term
"Proposal" means any proposal with respect to (i) a merger, consolidation, share
--------
exchange, strategic alliance, business combination or other similar transaction
(including, but not limited to, any transaction in which a third party could
become the direct or indirect beneficial owner of any capital stock of the
Company) involving the Company or any subsidiary of the Company, or any purchase
of all or any significant portion of the assets of the Company or any subsidiary
of the Company or (ii) any financing of the Company. The Company shall promptly
advise Parent orally and in writing of (A) the receipt by it (or, to the extent
known by the Company, by any of the persons or entities referred to above) after
the date hereof of any Proposal, or any inquiry that could reasonably be
expected to lead to a Proposal (but the Company shall not be required to
disclose the identity of the person making any such Proposal or inquiry) and (B)
the material terms and conditions of any such Proposal or inquiry. If the
Company breaches the provisions of this Section 6.03, then immediately upon the
occurrence of such breach, (i) the Company shall reimburse Parent for all fees
and expenses incurred in connection with the negotiation and preparation of the
definitive agreement, including, without limitation, all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties
incurred by Parent, (ii) the Company shall pay Parent a termination fee of
$100,000 in cash, and (iii) all amounts theretofore loaned by Parent to the
Company shall become immediately due and payable upon written demand therefor by
Parent, including, but not limited to all amounts loaned under the Bridge Note
or the Second Bridge Loan, if any. The remedies for the Company's breach of this
Section 6.03 as set forth herein,
-26-
shall be in addition to any other remedy at law or in equity available to Parent
and Subcorp in connection with any such breach.
SECTION 6.04. Public Announcements. Parent and the Company shall consult
------ --------------
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger and related transactions
and shall not issue any such press release or make any such public statement
prior to such consultation and the delivery of the written consent to such
public statement by each of Parent and the Company, except as may be required by
Law or the National Association of Securities Dealers, Inc.
SECTION 6.05. Bridge Financing. In the event that the Closing has not
------ ----------
occurred on or before March 1, 2002, then Parent agrees to make a loan to the
Company of up to $500,000 (the "Second Bridge Loan"), of which $100,000 shall
------ ------ ----
have been advanced prior to the date of this Agreement and the balance shall be
advanced from time to time following March 1, 2002, as the Company shall
reasonably request, until this Agreement terminates for any reason. In addition,
if Parent terminates this Agreement for any reason, then, on the date of such
termination and upon the Company's request, Parent agrees to make the Second
Bridge Loan. The Second Bridge Loan shall be made on the same terms as the loan
made pursuant to the Bridge Note.
SECTION 6.06. Registration Rights.
------------ ------
(a) Registration of Shares. Subject to the provisions of Section
------------ -- -------
6.06(d), Parent shall use its best efforts to file with the SEC, on or before
the date that is six (6) months following the Closing Date (the "Filing Date"),
------ ----
a registration statement on Form S-3 or any successor form thereto, or on Form
S-1 if Parent does not qualify for Form S-3 or any successor form thereto (the
"Stockholder Registration Statement"), covering the resale to the public by the
----------- ------------ --------
Management Payees, the Note Payees and any other Stockholders (collectively, the
"Registering Stockholders") who hold or may hold shares of Parent Common Stock
----------- ------------
issued in connection with the Merger or issued pursuant to the Payment Agreement
(the "Registrable Shares"). Parent shall use its reasonable best efforts to
----------- ------
cause the Stockholder Registration Statement to be declared effective by the SEC
within ninety (90) days after the Filing Date, and to remain effective until the
second (2nd) anniversary of the Closing Date or such earlier time as all of the
Registrable Shares covered by the Stockholder Registration Statement have been
sold pursuant thereto (the "Effective Period"). Thereafter Parent shall be
--------- ------
entitled to withdraw the Stockholder Registration Statement and the Registering
Stockholders shall have no further right to offer or sell any of the Registrable
Shares pursuant to the Stockholder Registration Statement (or any prospectus
relating thereto). The Registrable Shares subject to the Stockholder
Registration Statement shall not be underwritten unless Parent shall otherwise
consent in its sole discretion.
(b) Limitations on Registration Rights. Notwithstanding anything in
----------- -- ------------ ------
this Section 6.06 to the contrary, if the Company shall furnish to the
Registering Stockholders a certificate signed by the President, Chief Executive
Officer or Chief Financial Officer of Parent stating that Parent has made the
good faith determination that (i) continued use by the Registering Stockholders
of the Stockholder Registration Statement filed by Parent for purposes of
effecting offers or sales of Registrable Shares pursuant thereto would require,
under the Securities Act and the rules and regulations promulgated thereunder,
premature disclosure in Stockholder
-27-
Registration Statement (or the prospectus relating thereto) of material,
nonpublic information concerning Parent, its business or prospects or any
proposed material transaction involving Parent, (ii) such premature disclosure
would be materially adverse to Parent, its business or prospects or any such
proposed material transaction or would make the successful consummation by
Parent of any such material transaction significantly less likely, and (iii) it
is therefore advisable to suspend the use by the Registering Stockholders of
such Stockholder Registration Statement (and the prospectus relating thereto)
for purposes of effecting offers or sales of Registrable Shares pursuant
thereto, then the right of the Registering Stockholders to use such Stockholder
Registration Statement (and the prospectus relating thereto) for purposes of
effecting offers or sales of Registrable Shares pursuant thereto shall be
suspended for a period (the "Suspension Period") of not more than ninety (90)
---------- ------
days in any twelve (12) month period after delivery by the Company of the
certificate referred to above in this Section 6.06(b). During the Suspension
Period, none of the Registering Stockholders shall offer or sell any Registrable
Shares pursuant to or in reliance upon such Stockholder Registration Statement
(or the prospectus relating thereto). Parent agrees that, as promptly as
practicable after the consummation, abandonment or public disclosure of the
event or transaction that caused Parent to suspend the use of the Registration
Statement (and the prospectus relating thereto) pursuant to this Section
6.06(b), Parent will provide the Registering Stockholders with revised
prospectuses, if required, and will notify the Registering Stockholders of their
ability to effect offers or sales of Registrable Shares pursuant to or in
reliance upon such Stockholder Registration Statement.
Parent agrees that no other holder of Parent Common Stock seeking to resell
shares of Parent Common Stock pursuant to a shelf registration statement on Form
S-3 will be permitted to sell shares of Parent Common Stock pursuant to such
shelf registration statement during a Suspension Period. Parent shall not be
required to disclose to the Registering Stockholders the reasons for requiring a
suspension of sales hereunder, and the Registering Stockholders shall not
disclose to any third party the existence of any such suspension.
(c) Registration Procedures. In connection with the filing by Parent
------------ ----------
of the Stockholder Registration Statement, Parent shall furnish to each
Registering Stockholder a copy of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act. Subject
to Section 6.06(b), Parent shall prepare and file with the SEC such amendments
and supplements to the Stockholder Registration Statement and the prospectus
used in connection with such Stockholder Registration Statement as may be
reasonably necessary to keep such Stockholder Registration Statement effective
and to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Shares pursuant to such Stockholder Registration
Statement until the earlier of (i) such time as all such Registrable Shares have
been disposed of, and (ii) the second (2nd) anniversary of the Closing Date.
Parent shall furnish to each Registering Stockholder a copy of any amendment or
supplement to such Stockholder Registration Statement or prospectus prior to
filing the same with the SEC, and shall not file any such amendment or
supplement to which any such requesting Registering Stockholder shall reasonably
have objected to in writing prior to the filing thereof on the grounds that such
amendment or supplement contains a material inaccuracy with respect to the
description of such Registering Stockholder.
-28-
If Parent has delivered preliminary or final prospectuses to the
Registering Stockholders and after having done so the prospectus is amended or
supplemented to comply with the requirements of the Securities Act as described
in the immediately preceding paragraph, Parent shall promptly notify the
Registering Stockholders and, if requested by Parent, the Registering
Stockholders shall immediately cease making offers or sales of shares under the
Stockholder Registration Statement and return all prospectuses to Parent. Parent
shall promptly provide the Registering Stockholders with revised prospectuses
and, following receipt of the revised prospectuses, the Registering Stockholders
shall be free to resume making offers and sales under the Stockholder
Registration Statement.
Parent shall furnish to each requesting Registering Stockholder such number
of conformed copies of the Stockholder Registration Statement and of each such
amendment and supplement thereto (in each case including all exhibits thereto),
such number of copies of the prospectus included in such Stockholder
Registration Statement (including each preliminary prospectus) and such number
of documents, if any, incorporated by reference in such Stockholder Registration
Statement or prospectus, as such requesting Registering Stockholder may
reasonably request.
Parent shall use its reasonable best efforts to register or qualify the
Registrable Shares covered by the Stockholder Registration Statement under the
securities or "blue sky" laws of such states as the Registering Stockholders
shall reasonably request; provided, however, that Parent shall not be required
--------- --------
to qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
Parent shall pay the expenses incurred by it in complying with its
obligations under this Section 6.06, including all registration and filing fees,
exchange listing fees and fees and expenses of Parent's counsel and accountants,
but excluding (i) any brokerage fees, selling commissions or underwriting
discounts incurred by the Registering Stockholders in connection with sales
under the Stockholder Registration Statement, and (ii) the fees and expenses of
any counsel retained by Registering Stockholders.
(d) Requirements of Company Stockholders. Parent shall not be required
------------ -- ------- -------------
to include any Registrable Shares in the Stockholder Registration Statement
unless the Registering Stockholder owning such shares furnishes to Parent an
executed stockholder questionnaire, in the form attached hereto as Exhibit
-------
6.06(d) (a "Stockholder Questionnaire"), for purposes of, among other things,
------ ---------- -------------
(i) confirming the availability of an exemption from registration under the
Securities Act for the issuance by Parent of shares of Parent Common Stock in
the Merger and pursuant to the Payment Agreement, (ii) agreeing to the
indemnification provisions and registration rights provisions hereunder, and
(iii) providing certain "selling stockholder" information to Parent for use in
preparing the Stockholder Registration Statement.
(e) Indemnification. In the event that any Registrable Shares of the
----------------
Registering Stockholders are included in a registration statement pursuant to
this Agreement:
(i) To the fullest extent permitted by law, Parent will indemnify and
hold harmless each Registering Stockholder, any underwriter (as defined in the
Securities Act), and
-29-
each officer, director, fiduciary, employee, member, general partner and limited
partner (and affiliates thereof) of such Registering Stockholder or such
underwriter, each broker or other person acting on behalf of such Registering
Stockholder and each person, if any, who controls such Registering Stockholder
or such underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which they may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by Parent of the Securities
Act or state securities or blue sky laws applicable to Parent and leading to
action or inaction required of Parent in connection with such registration or
qualification under such Securities Act or state securities or blue sky laws;
and will reimburse on demand such Registering Stockholder, such underwriter,
such broker or other person acting on behalf of such Registering Stockholder or
such officer, director, fiduciary, employee, member, general partner, limited
partner, affiliate or controlling person for any legal or other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action, subject to the provisions of
this Section 6.06(e); provided, however, that (x) the indemnity agreement
-------- -------
contained in this Section 6.06(e) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of Parent (which consent shall not be unreasonably
withheld or delayed), nor shall Parent be liable in any such case for any such
loss, damage, liability or action to the extent that it arises out of or is
based upon an untrue statement or alleged untrue statement or omission made in
connection with such registration statement, preliminary prospectus, final
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Registering Stockholders, any underwriter for them
or controlling person with respect to them, and (y) the foregoing indemnity
shall not inure to the benefit of any Registering Stockholder, underwriter,
broker or other person acting on behalf of such Registering Stockholder or such
officer, director, fiduciary, employee, member, general partner, limited
partner, affiliate or controlling person from whom the Person asserting any
loss, claim, damage, liability or action purchased Registrable Shares during a
Suspension Period or if copies of a revised prospectus were timely delivered to
such Registering Stockholder pursuant to Section 6.06(b) and a copy of revised
prospectus was not sent or given by or on behalf of such Registering Stockholder
to such Person, if required by law to have been delivered, and such revised
prospectus would have cured the defect giving rise to such loss, claim, damage,
liability or expense.
(ii) To the fullest extent permitted by law, each Registering
Stockholder will indemnify and hold harmless Parent, each of its directors, each
of its officers who have signed such registration statement, each person, if
any, who controls Parent within the meaning of the Securities Act, any
underwriter for Parent (within the meaning of the Securities Act), and all other
Registering Stockholders against any losses, claims, damages or liabilities to
which Parent or any such director, officer, controlling person, underwriter or
other Registering Stockholders may become subject to, under the Securities Act
or otherwise, insofar as such
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losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any untrue or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such registration statement, preliminary prospectus, final prospectus,
or amendments or supplements thereto, in reliance upon and in conformity with
written information furnished by such Registering Stockholder expressly for use
in connection with such registration; and such Registering Stockholder will
reimburse any legal or other expenses reasonably incurred by Parent or any such
director, officer, controlling person, underwriter or other Registering
Stockholder in connection with investigating or defending any such loss, claim,
damage, liability or action, subject to the provisions of Section 6.06(e);
provided, however, that the maximum amount of liability of each Registering
-------- -------
Stockholder hereunder shall be limited to the proceeds (net of underwriting
discounts and commissions, if any) actually received by such Registering
Stockholder from the sale of Registrable Shares covered by such registration
statement, and provided further that the indemnity agreement contained in this
Section 6.06(e) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of those Registering Stockholder(s) against which the request for
indemnity is being made (which consent shall not be unreasonably withheld or
delayed).
Promptly after receipt by an indemnified party under this Section 6.06(e)
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 6.06(e), notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to participate in and,
to the extent the indemnifying party desires, jointly with any other
indemnifying party similarly noticed, to assume at its expense the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
-------- -------
that, if any indemnified party shall have reasonably concluded that there may be
one or more legal defenses available to such indemnified party that are
different from or additional to those available to the indemnifying party, or
that such claim or litigation involves or could have an effect upon matters
beyond the scope of the indemnity agreement provided in this Section 6.06(e),
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, and such indemnifying party shall
reimburse such indemnified party and any person controlling such indemnified
party for the fees and expenses of counsel retained by the indemnified party
that are reasonably related to the matters covered by the indemnity agreement
provided in this Section 6.06(e). Subject to the foregoing, an indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party. The failure to notify an
indemnifying party promptly of the commencement of any such action, if
materially prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
6.06(e), but the omission so to notify the indemnifying party will not relieve
him of any liability that the indemnifying party may have to any indemnified
party otherwise other than under this Section 6.06.
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In order to provide for just and equitable contribution to joint liability
under the Securities Act in any case in which either (i) any Registering
Stockholder exercising rights under this Agreement, or any controlling person of
any such holder, makes a claim for indemnification pursuant to this Section 6.06
but it is judicially determined that such indemnification may not be enforced in
such case notwithstanding the fact that this Section 6.06 provides for
indemnification in such case or (ii) contribution under the Securities Act may
be required on the part of any such Registering Stockholder or any such
controlling person in circumstances for which indemnification is provided under
this Section 6.06, then, in each such case, the Company and such Registering
Stockholder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportions so that such holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Shares
offered by the Stockholder Registration Statement bears to the public offering
price of all securities offered by such Stockholder Registration Statement, and
the Company is responsible for the remaining portion; provided, however, that,
-------- -------
in any such case, (i) no such holder will be required to contribute any amount
in excess of the net proceeds to it of all Registrable Shares sold by it
pursuant to such Stockholder Registration Statement, and (ii) no person or
entity guilty of fraudulent misrepresentation, within the meaning of Section
11(f) of the Securities Act, shall be entitled to contribution from any person
or entity who is not guilty of such fraudulent misrepresentation.
Notwithstanding anything in this Section 6.06 to the contrary, if, in
connection with an underwritten public offering, Parent, the Registering
Stockholders and the underwriters enter into an underwriting or purchase
agreement relating to such offering that contains provisions covering
indemnification among the parties, then the indemnification provision of this
Section 6.06(e) shall be deemed inoperative for purposes of such offering.
(f) Rule 144. Parent shall use its reasonable best efforts to comply
--------
with the requirements of Rule 144(c) under the Securities Act, as such Rule may
be amended from time to time (or any similar rule or regulation hereafter
adopted by the SEC), regarding the availability of current public information to
the extent required to enable each Registering Stockholder to sell Registrable
Shares without registration under the Securities Act pursuant to the resale
provisions of Rule 144 (or any similar rule or regulation). Upon the written
request of a Registering Stockholder, Parent will deliver to such Registering
Stockholder a written statement as to whether it has complied with such
requirements and, upon a Registering Stockholder's compliance with the
applicable provisions of Rule 144, will take such action as may reasonably be
required (including, without limitation, causing legal counsel to issue an
appropriate opinion) to cause its transfer agent to effectuate any transfer of
Registrable Shares properly requested by such Registering Stockholder, in
accordance with the terms and conditions of Rule 144.
(g) Transferees. The Stockholder Registration Statement and the
-----------
prospectus that is a part thereof shall provide appropriate disclosure
indicating that the term "selling stockholders" as used therein shall include
donees, transferees, pledgees and other successors in interest of the
Registering Stockholders. Parent hereby covenants to file any amendment to the
Stockholder Registration Statement, or supplement the prospectus that is a part
thereof, to
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enable any Registering Stockholder's donees, transferees, pledgees or other
successors in interest to sell any Registrable Shares pursuant to the
Stockholder Registration Statement. All rights of any Registering Stockholder
under this Section 6.06(g) shall run to the benefit of any donees, transferees,
pledgees or other successors in interest of such Registering Stockholder.
(h) Lock-Up. Each Registering Stockholder agrees that, during the
-------
period beginning on the Closing Date and continuing to and including the first
(1st) anniversary of the Closing Date, such Registering Stockholder will not
offer, sell, contract to sell, pledge, grant any option to purchase, make any
short sale or otherwise dispose of any shares of Parent Common Stock acquired
pursuant to the provisions of Section 2.01 of this Agreement or pursuant to the
provisions of the Payment Agreement, owned directly by such Registering
Stockholder (including holding as a custodian) or with respect to which such
Registering Stockholder has beneficial ownership within the rules and
regulations of the SEC (collectively, the "Locked-Up Shares"). The foregoing
----------------
restrictions (the "Transfer Restrictions") are expressly agreed to preclude each
---------------------
Registering Stockholder from engaging in any hedging or other transaction that
is designed to or reasonably could be expected to lead to or result in, a sale
or disposition of any of the Locked-Up Shares even if the Locked-Up Shares would
be disposed of by someone other than such Registering Stockholder. Such
prohibited hedging or other transactions would include without limitation any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including without limitation any put or call option) with respect to
any of the Locked-Up Shares or with respect to any security that includes,
relates to, or derives any significant part of its value from any of the
Locked-Up Shares.
Notwithstanding the foregoing, a Registering Stockholder may transfer the
Locked-Up Shares (i) as a bona fide gift or gifts, provided that the donee or
donees thereof agree to be bound by the restrictions set forth herein, (ii) to
any trust or other estate planning vehicle for the direct or indirect benefit of
such Registering Stockholder or the immediate family of such Registering
Stockholder, provided that the trustee, managing partner, managing member or
--------
other individual or entity with investment discretion over the Parent Common
Stock held by such estate planning vehicle agrees to be bound by the
restrictions set forth herein, and provided further that any such transfer shall
-------- -------
not involve a disposition for value, (iii) if such Registering Stockholder is a
partnership, to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, provided that the partner or retired partner, or any
--------
estate, agrees to be bound by the restrictions set forth herein, and provided
further that any such transfer shall not involve a disposition for value, (iv)
to any affiliate of such Registering Stockholder, provided that the affiliate
--------
agrees to be bound by the restrictions set forth herein, and provided further
-------- -------
that any such transfer shall not involve a disposition for value, and (v) with
the prior written consent of Parent. For purposes of this Section 6.06(h),
"immediate family" shall mean any relationship by blood, marriage or adoption,
not more remote than first cousin. Each Registering Stockholder now has, and,
except as contemplated by clauses (i) through (v) above and the immediately
preceding paragraph, for the duration of this Lock-Up Agreement will have, good
and marketable title to his, her or its shares, free and clear of all liens,
encumbrances, and claims whatsoever, other than liens or other encumbrances in
favor of Parent. Each Registering Stockholder also agrees and consents to the
entry of stop transfer instructions with Parent's transfer agent and registrar
against the transfer of such Registering Stockholder's Registrable
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Shares except in compliance with the foregoing restrictions. Each Registering
Stockholder understands that the lock-up provisions of this Section 6.06(h) are
irrevocable and shall be binding upon such Registering Stockholder's heirs,
legal representatives, successors, and assigns.
SECTION 6.07. Further Assurances.
------- ----------
Following the date of this Agreement, each of Parent and the Company will:
(a) use its commercially reasonable best efforts to take, or cause to
be taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the transactions contemplated
hereby, including, without limitation, using its commercially reasonable best
efforts to obtain all permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities as are necessary for the
consummation of the Merger and the other transactions contemplated hereby and to
fulfill the conditions set forth in Article VII; provided that neither Parent
--------
nor the Company will be required by this Section 6.07(a) to take any action that
would have an effect that, when taken individually or together with all other
adverse changes and effects, is or is reasonably likely to be materially adverse
to the business, results of operations or financial condition of Parent and its
subsidiaries, taken as a whole, or the Company, or otherwise affect the ability
of Parent, the Company and Subcorp to consummate the transactions contemplated
hereby, including entering into any consent decree, hold separate orders or
other arrangements that would have such an effect or, in any event, any consent
decree, hold separate order or other arrangements that would require Parent or
the Company to dispose of any existing assets of such party. In case, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement, the Stockholder Representative, and
the proper officers and directors of each party to this Agreement shall use
their commercially reasonable best efforts to take all such action; and
(b) cooperate and use its commercially reasonable best efforts to
vigorously contest and resist any action, including administrative or judicial
action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) that is in effect and that restricts, prevents or prohibits
consummation of the Merger and the other transactions contemplated hereby,
including, without limitation, by vigorously pursuing all available avenues of
administrative and judicial appeal.
SECTION 6.08. Meeting of Company Stockholders. As soon as practicable after
------- -- ------- ------------
the date hereof, but in no event earlier than five (5) Business Days after
delivery of the Information Statement to the Stockholders, the Company shall
hold a special meeting of the Stockholders, or solicit a request for written
consent, to consider and vote upon the approval of this Agreement and the Merger
and the other transactions contemplated hereby. The Company shall recommend to
its stockholders the approval of this Agreement and the Merger and the other
transactions contemplated hereby and shall use its best efforts to solicit and
obtain the requisite vote of approval. Nothing in this Section 6.08 shall be
deemed to amend or modify the
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obligations of any party under any separate agreement to which the Company
and/or Parent is a party, including but not limited to the Voting Agreement.
Parent and the Company shall use their respective commercially reasonable
best efforts to prepare, and the Company shall furnish to its stockholders, the
Information Statement soliciting a vote, whether at a meeting of the
Stockholders, or by written consent, to ratify, approve and adopt the Merger
Agreement and the Merger and the other transactions contemplated by this
Agreement. In addition, the Information Statement shall constitute a disclosure
document for the offer and issuance of the shares of Parent Common Stock that
may be received by the Stockholders in the Merger. Parent and the Company shall
each use reasonable best efforts to cause the Information Statement to comply
with applicable federal and state securities laws requirements.
Each of Parent and the Company hereby (i) consents to the use of its name
and, on behalf of its subsidiaries and affiliates, the names of such
subsidiaries and affiliates and to the inclusion of financial statements and
business information relating to such party and its subsidiaries and affiliates
(in each case, to the extent required by applicable securities laws) in the
Information Statement, (ii) agrees to provide promptly to the other such
information concerning it and its respective affiliates, directors, officers and
securityholders as, in the reasonable judgment of the other party or its
counsel, may be required or appropriate for inclusion in the Information
Statement, or in any amendments or supplements thereto, and (iii) agrees to
cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Information Statement. The Company will
promptly advise Parent, and Parent will promptly advise Company, in writing if
at any time prior to the Effective Time either Company or Parent shall obtain
knowledge of any facts that might make it necessary or appropriate to amend or
supplement the Information Statement in order to make the statements contained
or incorporated by reference therein not misleading or to comply with applicable
law. The Information Statement shall contain the recommendation of the Board of
Directors of Company that the Company Stockholders approve and adopt this
Agreement, the Merger and the other transactions contemplated by this Agreement,
and the conclusion of the Board of Directors of the Company that the terms and
conditions of this Agreement and the Merger are fair and reasonable and in the
best interests of Company and the Stockholders. The Information Statement shall
include as an attachment a Stockholder Questionnaire.
None of the information supplied or to be supplied by the Company
specifically for inclusion or incorporation by reference in the Information
Statement relating to the Merger and the transactions contemplated by this
Agreement will, at the date it is first mailed to the Company's stockholders and
at the time of the meeting of the Company's stockholders held to vote on
approval and adoption of this Agreement, 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. No representation is
made by the Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent or Subcorp specifically for
inclusion or incorporation by reference in the Information Statement.
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SECTION 6.09. Directors' and Officers' Insurance. Parent shall cause to be
--------- --- -------- ---------
maintained in effect the current policies of directors' and officers' liability
insurance (the "D&O Policy") maintained by the Company, provided that all
-------- ----
premiums owing under the D&O Policy have been paid in full on or prior to the
date hereof by the Company, it being understood and agreed that, the provisions
of this Section 6.09 shall not obligate Parent to make any payments, whether for
premiums or otherwise, in respect of the D&O Policy.
SECTION 6.10. Waiver of Appraisal Rights. The Company shall use
------ -- --------- ------
commercially reasonable best efforts to obtain from each Stockholder that holds
Preferred Stock or is a Management Payee and that does not vote, at a meeting or
by written consent in lieu of a meeting, in favor of the approval of this
Agreement and the Merger, a written waiver in which such Stockholder expressly
waives any dissenters' rights of appraisal or similar remedy available under the
DGCL or other applicable law, to the extent not already waived by such
Stockholder's execution of the Voting Agreement or Payment Agreement, as
applicable.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party. The obligations
---------- -- --- ----------- -- ---- -----
of the Company, Parent and Subcorp to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) no order, stay, decree, judgment or injunction shall have been
entered, issued or enforced by any court of competent jurisdiction that
prohibits consummation of the Merger, and there shall not be any action taken,
or any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, that makes the consummation of the Merger illegal or
substantially deprives Parent of any of the anticipated benefits of the Merger
or the related transactions;
(b) all actions by or in respect of or filings with any Governmental
Authority required to permit the consummation of the Merger shall have been
obtained (other than those actions or filings that, if not obtained or made
prior to the consummation of the Merger, would not have a Parent Material
Adverse Effect after the Effective Time or be reasonably likely to subject the
Company, Parent, Subcorp or any of their respective subsidiaries or any of their
respective officers or directors to substantial penalties or criminal
liability); and
(c) all proceedings in connection with the transactions contemplated
by this Agreement and all certificates and other documents reasonably requested
by a party to be delivered to such party pursuant to this Agreement or in
connection with the Closing will be reasonably satisfactory to such party and
its counsel.
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SECTION 7.02. Conditions to the Obligations of Parent and Subcorp. The
---------- -- --- ----------- -- ------ --- -------
obligations of Parent and Subcorp to consummate the Merger are subject to the
satisfaction of the following further conditions (any one of which may be waived
in whole or part by Parent):
(a) (i) the Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to the
Effective Time; (ii) each of the representations and warranties of the Company
contained in this Agreement and any certificate or other writing delivered by
the Company pursuant hereto that is qualified as to materiality shall be true
and correct and each such representation and warranty that is not so qualified
shall be true and correct in all material respects, in each case as of the date
hereof and at and as of the Effective Time as if made at and as of such time,
except (A) for changes permitted by this Agreement, and (B) that the
representations and warranties made by the Company that address matters only as
of a particular date, shall remain true and correct as of such date; and (iii)
Parent shall have received a certificate signed by an executive officer of the
Company to the foregoing effect;
(b) the Company shall have delivered a certificate, dated as of the
Closing Date, and duly executed by the Company's chief executive officer,
certifying that (i) all holders of shares of Preferred Stock outstanding at the
Effective Time shall have waived all dissenters' appraisal rights or similar
rights or remedies to which he, she or it may be entitled, available under
Section 262 of the Delaware Law, or any other applicable law, in connection with
the Merger and the transactions contemplated hereby, (ii) no shares of Preferred
Stock outstanding at the Effective Time are Dissenting Shares, and (iii) no more
than 6% of the shares of Company Stock outstanding at the Effective Time are
Dissenting Shares;
(c) Parent shall have received from ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇,
counsel to the Company, a legal opinion, substantially in the form of Exhibit
-------
7.02(c);
-------
(d) the Company shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the Merger
under all notes, bonds, mortgages, indentures, contracts, agreements, leases,
licenses, permits, franchises and other instruments or obligations to which it
or any of its subsidiaries is a party, including those listed on Schedule 3.26
-------------
to the Company Disclosure Schedule;
(e) all Company Warrants shall have been exercised or terminated and
all Convertible Securities shall have been cancelled, terminated or converted
into shares of Company Stock;
(f) prior to the Closing Date and at the earliest practicable date
following the date hereof, each Stockholder of the Company entitled to receive
any Merger Consideration at the Closing, each Management Payee and each Note
Payee shall have executed and delivered to Parent a Stockholder Questionnaire
and Parent shall be satisfied in its reasonable discretion that the issuance of
Parent Common Stock in the Merger and of the Management Payment Shares and the
Note Payment Shares pursuant to the Payment Agreement will not violate any
federal or state securities laws;
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(g) the Company shall have obtained a signed copy of the letter
agreement attached hereto as Exhibit 7.02(g) from the University of Southern
---------------
California ("USC"), which letter agreement's effectiveness may be conditioned
---
upon receipt by USC of $97,342.57 from Parent;
(h) the shares of Parent Common Stock into which the Company will be
converted in the Merger will have been authorized for listing, subject to
official notice of issuance, by Nasdaq;
(i) ▇▇▇▇ ▇▇ ▇▇▇▇▇▇ shall be serving as a consultant of the Company and
the consulting arrangement with ▇▇. ▇▇ ▇▇▇▇▇▇ shall be in full force and effect
at the Closing;
(j) the Stockholders shall have approved this Agreement, the Merger
and the related transactions, and shall have taken all further actions related
to the due authorization of the Merger as may be required under Delaware Law;
(k) each of the Stockholder Representative and the Escrow Agent shall
have executed and delivered the Escrow Agreement;
(l) since the date of this Agreement, there shall not have arisen any
change or effect that, when taken individually or together with all other
adverse changes and effects, is or is reasonably likely to be materially adverse
to the business, results of operations or financial condition of the Company, or
otherwise affect the ability of the Company to consummate the transactions
contemplated hereby, excluding, however, any events, changes or effects arising
--------- -------
out of changes in national economic conditions or changes affecting the
Company's industry generally;
(m) (i) the Company and each person listed on Schedule 1 and Schedule
2 to the Payment Agreement shall have executed and delivered the Payment
Agreement and (ii) the Payment Agreement shall be in full force and effect and
the closing of the transactions contemplated thereunder shall have occurred
immediately prior to the Closing;
(n) on the Closing Date, the Deal Value shall not exceed the Total
---
Liquidation Preference, provided that in the event that the Deal Value does
-------- ----
exceed the Total Liquidation Preference on the Closing Date, the parties agree
to negotiate in good faith to renegotiate the Merger Agreement, the Payment
Agreement, and related agreements, such that the aggregate 2,000,000 shares of
Parent Common Stock to be issued in connection with the transactions
contemplated by such agreements shall be allocated and distributed among the
Note Payees, the Management Payees and the holders of Company Stock to reflect a
distribution of such shares in accordance with the terms of the Company's
Certificate of Incorporation, as amended and in effect on the Closing Date; and
(o) Parent shall have received a signed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.445-2(c)(3).
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SECTION 7.03. Conditions to the Obligations of the Company. The obligations
---------- -- --- ----------- -- --- -------
of the Company to consummate the Merger are subject to the satisfaction of the
following further conditions (any one of which may be waived in whole or part by
the Company or the Stockholders Representative):
(a) (i) Parent and Subcorp shall have performed in all material
respects all of their respective obligations hereunder required to be performed
by them at or prior to the Effective Time; (ii) each of the representations and
warranties of Parent contained in this Agreement and any certificate or other
writing delivered by Parent pursuant hereto that is qualified as to materiality
shall be true and correct and each such representation and warranty that is not
so qualified shall be true and correct in all material respects, in each case as
of the date hereof and at and as of the Effective Time as if made at and as of
such time, except (A) for changes permitted by this Agreement, and (B) that the
representations and warranties made by Parent, and that address matters only as
of a particular date, shall remain true and correct as of such date; and (iii)
the Company shall have received a certificate signed by an executive officer of
Parent to the foregoing effect;
(b) Parent shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the Merger under
all notes, bonds, mortgages, indentures, contracts, agreements, leases,
licenses, permits, franchises and other instruments or obligations to which it
or any of its subsidiaries is a party, except those for which failure to obtain
such consents and approvals would not have a Parent Material Adverse Effect
after the Effective Time;
(c) the Company and the Stockholder Representative shall have received
from ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, counsel to Parent, a legal opinion, substantially in the
form of Exhibit 7.03(c);
--------------
(d) each of Parent and the Escrow Agent shall have executed and
delivered the Escrow Agreement; and
(e) since the date of this Agreement, there shall not have arisen any
change or effect that, when taken individually or together with all other
adverse changes and effects, is or is reasonably likely to be materially adverse
to the business, results of operations or financial condition of Parent, or
otherwise affect the ability of Parent to consummate the transactions
contemplated hereby, excluding, however, any events, changes or effects arising
--------- -------
out of (i) changes in national economic conditions or changes affecting the
Company's industry generally, and (ii) the announcement or consummation of the
Merger and the transactions contemplated thereby; provided that a decrease in
--------
the trading price of Parent Common Stock as reported on the Nasdaq National
Market or such other exchange or automated quotation system on which the Parent
Common Stock is then listed or quoted, shall not, in and of itself be deemed to
constitute, a material adverse change.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the Merger
-----------
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval and adoption of this Agreement and the transactions
contemplated hereby by the stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of each of Parent, Subcorp and the Company;
(b) by either Parent, Subcorp or the Company if either (i) the
Effective Time shall not have occurred on or before June 30, 2002 other than as
a result of (ii) below, provided, however, that the right to terminate this
-------- -------
Agreement under this Section 8.01(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date,
or (ii) there shall be any Law that makes consummation of the Merger illegal or
otherwise prohibited or if any court of competent jurisdiction or Governmental
Authority shall have issued an order, decree, ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable,
provided that the party seeking to terminate this Agreement pursuant to this
-------- ----
subsection (b)(ii) shall have used all reasonable efforts to remove such
judgment, injunction, order or decree;
(c) by the Company, in the event of a material breach by Parent of any
representation, warranty or agreement contained herein or in the Payment
Agreement (which representation, warranty or agreement for purposes of this
subsection shall be read without qualification as to knowledge or materiality,
if any) that has not been cured or is not curable by the Closing Date (or such
later date as provided in subparagraph (b) above); or
(d) by Parent, in the event of a material breach by the Company, the
Stockholder Representative, any Management Payee or any Note Payee of any
representation, warranty or agreement contained herein or in the Payment
Agreement (which representation, warranty or agreement for purposes of this
subsection shall be read without qualification as to knowledge or materiality,
if any) that has not been cured or is not curable by the Closing Date (or such
later date as provided in subparagraph (b) above).
SECTION 8.02. Effect of Termination. In the event of the termination of
------ -- -----------
this Agreement pursuant to Section 8.01, this Agreement shall forthwith become
void, there shall be no liability under this Agreement on the part of Parent,
Subcorp or the Company or any of their respective officers or directors and all
rights and obligations of any party hereto shall cease, except for liabilities
arising from a breach of this Agreement prior to such termination.
SECTION 8.03. Fees and Expenses. Except as set forth in this Section 8.03,
---- --- --------
all costs and expenses incurred in connection with this Agreement and the Merger
shall be paid by the party or parties incurring such expenses. If, and only if,
the Merger is consummated, the expenses of
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the Company disclosed on Schedule 3.11(b) of the Company Disclosure Schedule
-------- -------
shall be borne by the Surviving Corporation after the Effective Time.
SECTION 8.04. Amendment. Prior to the Effective Time, this Agreement may
---------
not be amended except by an instrument in writing signed by Parent, Subcorp, the
Company and the Stockholder Representative. After the Effective Time, this
Agreement may not be amended except by an instrument in writing signed by
Parent, the Surviving Corporation and the Stockholder Representative.
SECTION 8.05. Waiver. At any time prior to the Effective Time, any party
------
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto,
and (c) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Effectiveness. The provisions of this Article IX shall apply
-------------
and become effective only if the Merger is consummated.
SECTION 9.02. Acquiror Scope of Claims. Subject to the terms contained in
-------- ----- -- ------
this Article IX, Parent and the Surviving Corporation and each of their
post-Closing officers, directors, employees and affiliates (each a "Acquiror
--------
Covered Party") shall be entitled to indemnification out of the Escrowed Shares
------- -----
with respect to any and all liabilities, losses, damages, claims (whether actual
or threatened), charges, suits (whether actual or threatened), penalties, costs
and expenses (including, without limitation, court costs and attorneys' fees and
expenses incurred in investigating and preparing for any litigation or
proceeding, whether actual or threatened) (collectively, "Losses"), sustained or
------
incurred by any Acquiror Covered Party, arising out of or as a result of:
(a) any failure or any breach by the Company of any representation or
warranty, covenant, obligation or undertaking made by the Company in this
Agreement or the Company Disclosure Schedule or any Exhibit hereto, or in any
other statement, certificate, schedule or other instrument delivered pursuant
hereto;
(b) any payments made by Parent or the Surviving Corporation after the
Effective Time with respect to Dissenting Shares pursuant to Delaware Law;
(c) any claims made by any Stockholder whether based upon any alleged
breach of fiduciary or other duty by any officer, director or stockholder of the
Company or otherwise in connection with this Agreement or the transactions
contemplated hereby, or any claims by any officer, director or Stockholder of
the Company to indemnification by the Company or the Surviving Corporation with
respect to any such claims;
-41-
(d) any expenses incurred by the Company in connection with the
negotiation and consummation of the transactions contemplated hereby other than
those disclosed on Schedule 3.11 of the Company Disclosure Schedule;
-------- ----
(e) 50% of any payments made by Parent to the Escrow Agent in respect
of Parent's indemnity obligations under Section 6.1 of the Escrow Agreement; or
(f) any failure or breach of any representation, warranty, covenant or
agreement made by the Company, any Management Payee or any Note Payee in the
Payment Agreement;
(each of the matters referred to in clauses (a) through (f) above being referred
to herein as an "Acquiror Covered Matter").
-------- ------- ------
9.02A Company Scope of Claims. Subject to the terms contained in this
------- ----- -- ------
Article IX, each Stockholder (a "Target Covered Party" and, collectively with
------ ------- -----
all other Stockholders, the "Target Covered Parties") shall be entitled to
------ ------- -------
indemnification with respect to any Losses sustained or incurred by such Target
Covered Party, arising out of or as a result of any failure or any breach by the
Parent or Subcorp of any representation or warranty, covenant, obligation or
undertaking made by Parent or Subcorp in this Agreement or any schedule or
exhibit hereto, or in any other statement, certificate, schedule or other
instrument delivered pursuant hereto (each of the matters covered by this
Section 9.02A being referred to in this Agreement as a "Target Covered Matter").
------ ------- ------
Any claim, cause of action or right that any Note Payee or Management Payee may
have against Parent or the Surviving Corporation under the Payment Agreement
shall not be deemed to be or treated as a Target Covered Matter for purposes of
this Agreement. Notwithstanding anything in this Section 9.02A or elsewhere in
this Agreement to the contrary, only the Stockholder Representative shall have
the right, power and authority to make or bring indemnification claims (or
commence any action, suit or proceeding, including any arbitration proceeding,
on account of or with respect to any indemnification claims) by and on behalf of
any or all Stockholders against Parent or the Surviving Corporation, and in no
event shall any Stockholder himself, herself or itself have the right to make or
bring indemnification claims (or commence any action, suit or proceeding,
including any arbitration proceeding, on account of or with respect to any
indemnification claims) against Parent or the Surviving Corporation.
For purposes of this Article IX, (i) the term "Covered Parties" shall mean
------- -------
any or all of the Acquiror Covered Parties and the Target Covered Parties, as
the context may require, (ii) the term "Covered Matter" shall mean any Acquiror
------- ------
Covered Matter or any Target Covered Matter, as the context may require, and
(iii) the term "Indemnification Claim" shall mean (A) in the case of any
--------------- -----
Acquiror Covered Party, any claim made by such Acquiror Covered Party, pursuant
to the provisions of this Article IX and the Escrow Agreement, for
indemnification of any Loss or Losses incurred by such Acquiror Covered Party,
and (B) in the case of any Target Covered Party, any claim made by Stockholder
Representative, for and on behalf of such Target Covered Party, pursuant to the
provisions of this Article IX, for indemnification of any Loss or Losses
incurred by such Target Covered Party. Notwithstanding anything in this
Agreement to the contrary, no Covered Party shall have to actually pay any Loss
or otherwise be out-of-pocket before making any Indemnification Claim.
-42-
SECTION 9.03. Escrow Claim Procedures. Promptly after an Acquiror Covered
------ ----- ---------
Party has received notice of or has knowledge of any claim (a "Third Party
----- -----
Claim") by any Person other than such Acquiror Covered Party (a "Third Person")
----- ----- ------
or the commencement of any action or proceeding by a Third Person (a "Third
-----
Party Proceeding"), in either case with respect to any matter for which such
----- ----------
Acquiror Covered Party is entitled or may become entitled to make an
Indemnification Claim, such Acquiror Covered Party shall give the Stockholder
Representative written notice of such Third Party Claim or the commencement of
such Third Party Proceeding. Any failure to so notify the Stockholder
Representative shall not limit the right to indemnification hereunder unless
(and then only to the extent) the failure to give such notice materially and
adversely prejudices the Stockholder Representative. If the Stockholder
Representative notifies the Acquiror Covered Party within thirty (30) days from
the receipt of the foregoing notice that he wishes to defend against the Third
Party Claim and/or Third Party Proceeding, then the Stockholder Representative
shall have the right to assume and control the defense of such Third Party Claim
and/or Third Party Proceeding by appropriate proceedings with counsel reasonably
acceptable to the Acquiror Covered Party for such defense; provided that the
-------- ----
Stockholder Representative shall have confirmed in writing that the Stockholders
are obligated hereunder to indemnify the Acquiror Covered Party with respect to
such Third Party Claim and/or Third Party Proceeding; and provided, further,
-------- -------
that Acquiror Covered Party shall be entitled to control the defense of any
Third Party Claim and/or Third Party Proceeding relating to the Company's
Intellectual Property, the Third Party IP Licenses and the Patents. The Acquiror
Covered Party may participate in the defense, at its sole expense of any such
Third Party Claim and/or Third Party Proceeding for which the Stockholder
Representative shall have assumed the defense pursuant to the preceding
sentence, provided that counsel for the Stockholder Representative shall act as
-------- ----
lead counsel in all matters pertaining to the defense or settlement of such
Third Party Claim and/or Third Party Proceeding. The Stockholder Representative
shall not make any settlement or compromise with respect to any Third Party
Claim and/or Third Party Proceeding, without prior consent of the Acquiror
Covered Party, which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, the Stockholder Representative shall not be
entitled to settle any Third Party Claim and/or Third Party Proceeding unless in
connection with such settlement, the Acquiror Covered Party receives a complete
release with respect to the subject matter of such Third Party Claim and/or
Third Party Proceeding. Notwithstanding anything above in this Section 9.03 to
the contrary, Parent and/or the Surviving Corporation (or other applicable
Acquiror Covered Party) shall be entitled to have sole control over the defense,
settlement or compromise of any Third Party Proceeding to the extent the Third
Party Proceeding seeks an order, injunction, or other equitable relief against
any Acquiror Covered Party that, if successful, would materially adversely
affect the business, operations, assets, or financial condition of such Acquiror
Covered Party.
SECTION 9.04. Survival of Representations, Warranties and Agreements; Time
-------- -- --------------- ---------- --- ---------- ----
Limitations. Notwithstanding any investigation conducted at any time with regard
-----------
thereto by or on behalf of Company or Parent, the representations, warranties,
covenants and agreements of the Company and Parent in this Agreement and in any
other documents executed or delivered by the Company or Parent or in connection
with the transactions contemplated by this Agreement (the "Additional
----------
Documents") shall survive the execution, delivery and performance of this
---------
Agreement and the Additional Documents. All representations and
-43-
warranties of Company and Parent set forth in this Agreement and the Additional
Documents shall be deemed to have been made again at and as of the Effective
Time (except for representations and warranties made as of a specified date,
which need to be true and correct only as of a specified date). This Section
9.04 shall not limit any covenant or agreement of the parties hereto, which by
its terms contemplated performance after the Effective Time or after the
termination of this Agreement.
No Indemnification Claim may be first asserted after the first
(1st)anniversary of the Closing Date (the "Cutoff Date"); provided, however,
------ ---- -------- -------
that any Indemnification Claim made prior to the Cutoff Date shall survive until
such Indemnification Claim is finally determined, settled or resolved.
SECTION 9.05. Dollar Thresholds.
------ ----------
(a) Target Covered Party. Notwithstanding anything expressed or
------ ------- -----
implied in this Article IX to the contrary, the Stockholder Representative,
acting on behalf of any or all of the Target Covered Parties, shall not be
entitled to make an Indemnification Claim unless and until the cumulative amount
of Losses incurred by all of the Target Covered Parties with respect to any and
all Target Covered Matters exceeds $100,000 (the "Target Threshold"), whereupon
------ ---------
the Target Covered Parties on behalf of which the Stockholder Representative is
acting shall, subject to the provisions of Section 9.06(b), be entitled to
indemnification for the full amount of all such Losses without regard to the
Target Threshold. The limitations set forth in this Section 9.05(a) shall not
apply to any intentional breaches by Parent prior to the Effective Time of any
covenant or agreement contained in this Agreement.
(b) Acquiror Covered Party. Notwithstanding anything expressed or
-------- ------- -----
implied in this Article IX to the contrary, no Acquiror Covered Party shall be
entitled to make an Indemnification Claim unless and until the cumulative amount
of Losses incurred by all of the Acquiror Covered Parties with respect to any
and all Acquiror Covered Matters exceeds $100,000 (the "Acquiror Threshold"),
-------- ---------
whereupon the Acquiror Covered Parties shall, subject to the provisions of
Section 9.06(a), be entitled to indemnification for the full amount of all such
Losses without regard to the Acquiror Threshold. The limitations set forth in
this Section 9.05(b) shall not apply to any intentional breaches by the Company
prior to the Effective Time of any covenant or agreement contained in this
Agreement.
SECTION 9.06. Limited Recourse; Maximum Liability.
------- --------- ------- ---------
(a) Target Maximum Liability. Notwithstanding anything expressed or
------ ------- ---------
implied in this Agreement to the contrary, other than Losses incurred by Parent
or the Surviving Corporation in connection with or arising out of any fraud or
willful misconduct by the Company or any of its officers, directors, employees
and agents, if the Merger has been consummated, any and all Losses incurred by
Parent or the Surviving Corporation in connection with, or arising out of, any
Acquiror Covered Matter shall be satisfied solely out of the Escrowed Shares. No
Stockholder shall have any personal liability to Parent or the Surviving
Corporation in such Stockholder's capacity as a stockholder of the Company with
respect to or in connection with any such Losses or any such Acquiror Covered
Matter.
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(b) Acquiror Maximum Liability. Notwithstanding anything expressed or
-------- ------- ---------
implied in this Agreement to the contrary, other than Losses incurred by any
Stockholder in connection with or arising out of any fraud or willful misconduct
by Parent or any of its officers, directors, employees and agents, if the Merger
has been consummated, the maximum aggregate liability of Parent and the
Surviving Corporation for any and all Losses incurred by such Stockholder in
connection with, or arising out of, any Target Covered Matter shall not exceed
the Maximum Acquiror Indemnification Amount applicable to such Stockholder. The
limitations in this Section 9.06(b) shall not apply to claims made for any
breach by Parent of its agreements under Section 6.06.
SECTION 9.07. Exclusive Remedies. Subject to the provisions of Section 9.09
--------- --------
below, the parties hereto acknowledge and agree that, if the Merger has been
consummated, the sole and exclusive remedy of Parent, the Surviving Corporation,
the Stockholder Representative and the Stockholders in respect of any and all
claims (other than actions for fraud or willful misconduct or causes of action
seeking specific performance) relating to any Covered Matter, the Merger or any
of the other transactions contemplated hereby will be to make an Indemnification
Claim pursuant to this Article IX and, if applicable, the Escrow Agreement. If
the Merger has been consummated, no Covered Matter will give rise to any right
of any party hereto to rescind this Agreement or any of the transactions
contemplated hereby.
SECTION 9.08. Materiality Standards. Once it has been determined that there
----------- ---------
has been a breach of a representation, warranty or covenant of this Agreement,
for purposes of the measure of harm under this Article IX, the existence and
extent of any inaccuracy in or breach of such representation or warranty or
covenant contained in this Agreement or in any certificate or instrument
delivered pursuant to the express terms hereof shall be determined by reading
such representation or warranty or covenant as if all materiality standards
contained in such representation or warranty (i.e., without reference to the
qualifiers "material," "materiality," "material to the Company taken as a
whole," and "in all material respects" or similar qualifiers), had been deleted
from such representation or warranty or covenant in their entirety.
SECTION 9.09. Applicability. The provisions of this Article IX shall not
-------------
apply to claims made for indemnification or contribution made pursuant to
Section 6.06(e) hereof. In addition, and notwithstanding any provision of this
Agreement to the contrary, the provisions of this Article IX (including the
limitations set forth in Sections 9.05, 9.06 and 9.07 hereof) shall not apply to
the extent that such provisions would operate to diminish or limit any claim,
cause of action, right or remedy that Parent would have under the Payment
Agreement against any Note Payee or Management Payee.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing, and shall be deemed to have been
duly given if (a) delivered personally (effective upon delivery), (b) mailed by
registered or certified mail, return receipt requested, postage prepaid
(effective five days after dispatch), (c) sent via a
-45-
reputable, established courier service that guarantees next Business Day
delivery (effective the next Business Day after delivery to such courier) or (d)
sent via telecopier (effective upon the transmission of the telecopy in
complete, readable form) addressed as set forth below (or at such other address
for a party as shall be specified in a notice given in accordance with this
Section 10.01):
if to Parent or Subcorp:
Essential Therapeutics, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile: 617-951-8736
if to the Company:
Maret Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
if to the Stockholder Representative:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
c/o Valley Ventures
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, #▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
-46-
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
copy to:
Berenbaum, Weinshienk & ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: 303-629-7610
SECTION 10.02. Certain Definitions. For purposes of this Agreement, the
------- -----------
term:
"affiliate" of a specified person means a person who directly or indirectly
---------
through one or more intermediaries controls, is controlled by, or is under
common control with, such specified person.
"beneficial owner" with respect to any person shall have the meaning
---------- -----
ascribed thereto under Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder.
"Business Day" means any day on which the principal offices of the SEC in
-------- ---
Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are not required or
authorized to close in the City of Boston, Massachusetts.
"control" (including the terms "controlled by" and "under common control
-------
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise.
"Deal Value" means the aggregate total "value" of the consideration in the
---- -----
Merger, and the related transactions contemplated hereby, calculated as if the
Merger, and the related transactions contemplated hereby, were treated as a
liquidation, dissolution or winding-up "liquidation event" under the terms of
the Company's Certificate of Incorporation, as amended and in effect on the
Closing Date.
"Governmental Authority" means any United States (federal, state or local)
------------ ---------
or foreign government, or governmental, regulatory or administrative authority,
agency or commission.
"Indebtedness" means as applied to any Person, (i) all indebtedness for
------------
borrowed money, whether current or funded, or secured or unsecured, (ii) all
indebtedness for the deferred purchase price of property or services represented
by a note or other security, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (iv) all indebtedness secured by a purchase money mortgage or other
lien to secure all or part of the purchase price of property subject to such
mortgage or lien, (v) all obligations
-47-
under leases that shall have been or must be, in accordance with generally
accepted accounting principles, recorded as capital leases in respect of which
such Person is liable as lessee, (vi) any liability in respect of banker's
acceptances or letters of credit, and (vii) all indebtedness referred to in
clause (i), (ii), (iii), (iv), (v) or (vi) above that is directly or indirectly
guaranteed by or that such Person has agreed (continently or otherwise) to
purchase or otherwise acquire or in respect of which it has otherwise assured a
creditor against loss.
"Intellectual Property" means patents, patent applications, inventions
------------ --------
(whether patentable or nonpatentable), trade secrets, know-how, trademarks and
associated goodwill, service marks, trade dress, logos, trade names, copyrights,
mask works and registrations and applications for each of the foregoing, and
computer software programs, computer data bases and related documentation and
materials.
"knowledge" means actual knowledge and what one should have known after
---------
reasonable investigation, except when modified by the term "actual," in which
case it shall only mean actual knowledge. With respect to any Person other than
a natural person, "knowledge" will be deemed to include the knowledge of its
current officers and directors or partners or persons with similar positions.
"Laws" means any federal, state, local or foreign statute, law or
----
regulation.
"Maximum Acquiror Indemnification Amount" means, with respect to any
------- -------- --------------- ------
Indemnification Claim made for or on behalf of any Stockholder, an amount equal
to the product of (i) $3.54 (such price being subject to automatic proportionate
adjustment in the event of any stock dividend, stock split, stock combination,
recapitalization, or other similar event affecting the Parent Common Stock)
multiplied by (ii) the number of shares of Parent Common Stock that such
Stockholder is entitled to receive pursuant to Section 2.01(a)(ii).
"person" means an individual, corporation, partnership, limited
------
partnership, syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust, association or entity
or government, political subdivision, agency or instrumentality of a government.
"Reference Market Value" means $3.54 (such price being subject to automatic
--------- ------ -----
proportionate adjustment in the event of any stock dividend, stock split, stock
combination, recapitalization, or other similar event affecting the Parent
Common Stock).
"subsidiary" or "subsidiaries" of any person means any corporation,
---------- ------------
partnership, joint venture or other legal entity of which such person (either
above or through or together with any other subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
"Total Liquidation Value" means the aggregate total liquidation preference
----- ----------- -----
due the holder of Preferred Stock calculated as if the Merger, and the related
transactions contemplated hereby, were treated as a liquidation, dissolution or
winding-up "liquidation event" under the
-48-
terms of the Company's Certificate of Incorporation, as amended and in effect on
the Closing Date.
SECTION 10.03. 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 so long as the economic or legal
substance of the Merger is not affected in any manner materially adverse to any
party. 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 in a mutually acceptable manner in order that the
Merger be consummated as originally contemplated to the fullest extent possible.
SECTION 10.04. Entire Agreement; Assignment; Survival. This Agreement,
------ --------- ---------- --------
including all exhibits, schedules and recitals hereto, together with the Voting
Agreement, the Escrow Agreement, the Payment Agreement and the Confidentiality
Agreement, constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof. This Agreement shall not be assigned by operation of law
or otherwise, except that Parent and Subcorp may assign all or any of their
rights and obligations hereunder to any affiliate of Parent provided that no
such assignment shall relieve the assigning party of its obligations hereunder
if such assignee does not perform such obligations. Those covenants that
contemplate or may involve actions to be taken or obligations in effect after
the Effective Time shall survive in accordance with their terms including, but
not limited to, Section 6.06. The terms of the Confidentiality Agreement shall
survive termination of this Agreement, for any reason.
SECTION 10.05. Parties in Interest. This Agreement shall be binding upon
------- -- --------
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement; provided, however, that the Registering Stockholders shall be
deemed to be third party beneficiaries solely with respect to Section 6.06.
SECTION 10.06. Specific Performance. The parties hereto agree that
-------- -----------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 10.07. Governing Law. Except to the extent that Delaware Law is
--------- ---
mandatorily applicable to the Merger and the rights of the stockholders of the
Company and Parent, this Agreement shall be governed by, and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts executed in and to be performed in that Commonwealth.
SECTION 10.08. Consent to Jurisdiction.
------- -- ------------
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(a) Subject to the provisions of Section 10.12 below, each of Parent,
the Company and Subcorp hereby irrevocably submits to the exclusive jurisdiction
of the state courts of the Commonwealth of Massachusetts and to the jurisdiction
of the United States District Court for the District of Massachusetts, for the
purpose of any action or proceeding arising out of, or relating to, this
agreement and each of Parent, the Company and Subcorp hereby irrevocably agrees
that all claims in respect to such action or proceeding may be heard and
determined exclusively in any Massachusetts state or federal court sitting in
the City of Boston. Each of Parent, the Company and Subcorp agrees that a final
judgment in any action or, proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law.
(b) Each of Parent, the Company and Subcorp irrevocably consents to
the service of the summons and complaint and any other process in any other
action or proceeding relating to the transactions contemplated by this
agreement, on behalf of itself or its property, by the personal delivery of
copies of such process to such party. Nothing in this Section 10.08 shall affect
the right of any party to serve legal process in any other manner permitted by
law.
SECTION 10.09. Headings. The descriptive headings contained in this
--------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 10.10. Counterparts. This Agreement may be executed and delivered
------------
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 10.11. Waiver of Jury Trial. Each of Parent, the Company, the
------ -- ---- -----
Stockholder Representative and Subcorp hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement or the
actions of Parent, the Company or Subcorp in the negotiation, administration,
performance and enforcement thereof.
Section 10.12. Dispute Resolution. Except to the extent otherwise
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specifically provided below in this Section 10.12, all claims, controversies,
differences or disputes between or among any of the parties hereto arising from
or relating to this Agreement and the transactions contemplated hereby shall be
determined solely and exclusively by arbitration in accordance with the rules of
commercial arbitration then in effect of the American Arbitration Association,
or any successors thereto ("AAA"), in Boston, Massachusetts, unless the parties
otherwise agree in writing. Each of the parties consents to venue for such
arbitrations in Boston, Massachusetts and to service of process by certified or
registered mail. Upon commencement of any arbitration pursuant hereto, the
parties shall jointly select an arbitrator. In the event the parties fail to
agree upon an arbitrator within twenty (20) days, then each party shall select
an arbitrator and such arbitrators shall then select a third arbitrator to serve
as the sole arbitrator; provided that if either party, in such event, fails to
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select an arbitrator within seven (7) days, such arbitrator shall be selected by
the AAA upon application of either party. Judgment upon the award of the agreed
upon arbitrator or the so chosen third arbitrator, as the case may be,
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shall be binding and shall be entered by a court of competent jurisdiction. The
parties agree to abide by any decision rendered in any such arbitration as final
and binding and waive the right to submit the dispute to a public tribunal for a
jury or non-jury trial. The fees and expenses of the AAA in any such arbitration
shall be shared equally by the parties, unless otherwise ordered by the
arbitrator(s). Each party shall be responsible for all costs incurred by it in
preparing for and participating in the arbitration, unless the arbitrator(s)
order that a party shall be entitled to recover its actual out-of-pocket costs
and expenses, including without limitation reasonable attorneys' fees incurred
in connection with such arbitration. Notwithstanding anything to the contrary in
this Section 10.12, in no event, however, shall this Section 10.12 be deemed to
preclude a party hereto from instituting legal action seeking relief in the
nature of a restraining order, an injunction, a specific performance order or
the like in order to protect his or its rights pending the outcome of an
arbitration hereunder.
[The remainder of this page is intentionally left blank.
Signature page follows.]
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IN WITNESS WHEREOF, Parent, Subcorp and the Company have caused this
Agreement to be executed as an instrument under deal as of the date first
written above by their respective officers thereunto duly authorized and the
Stockholder Representative has executed this Agreement as an instrument under
deal as of the date first written above.
ESSENTIAL THERAPEUTICS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title:President and Chief Executive Officer
MC MERGER CORP.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title:President
MARET CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title:President and Chief Executive Officer
STOCKHOLDER REPRESENTATIVE:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇