Exhibit 10.10
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SECURITIES PURCHASE AGREEMENT
by and among
WARBURG, ▇▇▇▇▇▇ EQUITY PARTNERS, L.P.,
WARBURG, ▇▇▇▇▇▇ VENTURES INTERNATIONAL, ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ NETHERLANDS EQUITY PARTNERS I, C.V.,
WARBURG, ▇▇▇▇▇▇ NETHERLANDS EQUITY PARTNERS II, C.V.,
WARBURG, ▇▇▇▇▇▇ NETHERLANDS EQUITY PARTNERS III, C.V.
and
VISIBLE GENETICS INC.
July 15, 1999
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TABLE OF CONTENTS
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SECTION 1. AUTHORIZATION OF COMMON STOCK AND WARRANT.......................................1
SECTION 2. PURCHASE, SALE AND ISSUANCE OF SHARES AND WARRANTS..............................2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................2
3.1. Corporate Organization........................................................3
3.2. Subsidiaries..................................................................3
3.3. Capitalization................................................................4
3.4. Corporate Proceedings, etc....................................................5
3.5. Consents and Approvals........................................................5
3.6. Absence of Conflicts, etc.....................................................6
3.7. SEC Reports...................................................................6
3.8. Absence of Certain Developments...............................................8
3.9. Compliance with Law...........................................................8
3.10. Litigation...................................................................9
3.11. Material Contracts...........................................................9
3.12. Absence of Undisclosed Liabilities..........................................10
3.13. Labor Relations and Employment..............................................10
3.14. Employee Benefit Plans......................................................12
3.15. Real Property...............................................................12
3.16. Condition of Properties.....................................................13
3.17. Environmental Matters.......................................................13
3.18. Intellectual Property.......................................................15
3.19. Regulatory Matters..........................................................17
3.20. Year 2000...................................................................18
3.21. Tax Matters.................................................................18
3.22. Insurance...................................................................19
3.23. Transactions with Related Parties...........................................19
3.24. Interest in Competitors.....................................................19
3.25. Private Offering............................................................20
3.26. Brokerage...................................................................20
3.27. Material Facts..............................................................20
3.28. Fairness Opinion............................................................21
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...............................21
SECTION 5. COVENANTS OF THE PARTIES.......................................................22
5.1. Additional Agreements........................................................22
SECTION 6. ADDITIONAL COVENANTS OF THE COMPANY............................................23
6.1. Use of Proceeds..............................................................23
6.2. Financial and Business Information...........................................23
6.3. Inspection...................................................................24
6.4. Confidentiality..............................................................25
6.5. Board Nominees...............................................................26
6.6. Board Committees.............................................................26
6.7. Subscription Right...........................................................26
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6.8. Covenant not to Breach Representations and Warranties, Covenants.............28
6.9. Conduct of Business and Maintenance of Existence.............................28
6.10. Compliance with Laws........................................................28
6.11. Insurance...................................................................28
6.12. Keeping of Books............................................................29
6.13. Lost, etc. Certificates Evidencing Shares or Dividend
Shares (or Shares of Common Stock); Exchange..........................29
6.14. Competing Transaction Restriction............................................29
SECTION 7. ADDITIONAL COVENANTS OF THE PURCHASERS.........................................30
7.1. Resale of Securities.........................................................30
7.2. Standstill...................................................................31
SECTION 8. CLOSING CONDITIONS OF THE PURCHASERS AND THE COMPANY...........................31
8.1. Injunction...................................................................31
SECTION 9. PURCHASERS' CLOSING CONDITIONS.................................................31
9.1. Representations and Warranties...............................................32
9.2. Compliance with Transaction Documents........................................32
9.3. Officer's Certificate........................................................32
9.4. Consents.....................................................................32
9.5. Counsel's Opinion............................................................32
9.6. Registration Rights Agreement................................................32
9.7. Adverse Development..........................................................32
9.8. Election of Director.........................................................33
9.9. Approval of Proceedings......................................................33
9.10. Termination of Term Loan....................................................33
SECTION 10. COMPANY CLOSING CONDITIONS....................................................33
10.1. Representations and Warranties..............................................33
10.2. Compliance with Transaction Documents.......................................33
10.3. Purchaser's Certificates....................................................34
SECTION 11. TERMINATION, AMENDMENT AND WAIVER.............................................34
11.1. Termination.................................................................34
11.2. Effect of Termination.......................................................35
11.3. Amendment...................................................................35
11.4. Waiver......................................................................35
SECTION 12. INTERPRETATION OF THIS AGREEMENT..............................................35
12.1. Terms Defined...............................................................35
12.2. Schedules...................................................................36
12.3. Accounting Principles.......................................................37
12.4. Directly or Indirectly......................................................37
12.5. Governing Law...............................................................37
12.6. Paragraph and Section Headings..............................................37
SECTION 13. MISCELLANEOUS.................................................................37
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13.1. Survival of Representations, Warranties and Agreements......................37
13.2. Notices.....................................................................38
13.3. Expenses....................................................................39
13.4. Publicity...................................................................39
13.5. Specific Performance........................................................39
13.6. Submission to Jurisdiction..................................................39
13.7. Successors and Assigns......................................................40
13.8. Entire Agreement; Amendment and Waiver......................................40
13.9. Severability................................................................40
13.10. Limitation on Enforcement of Remedies......................................40
13.11. Counterparts...............................................................40
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EXHIBIT A Certificate of Designation
EXHIBIT B Form of Warrant
EXHIBIT C Restated Articles of Incorporation of the Company
EXHIBIT D By-law No. 3 of the Company
EXHIBIT E Form of Opinion of Counsel
EXHIBIT F Form of Registration Rights Agreement
EXHIBIT G Form of Amendment of Hilal Funds Registration Rights Agreement
Schedule 2 Shares, Warrants, Purchase Price
Schedule 3.2 Subsidiaries
Schedule 3.3(a) Employee Stock Option Plans
Schedule 3.3(c) Conversion and Preemptive Rights
Schedule 3.5 Consents and Approvals
Schedule 3.6 Conflicts, etc.
Schedule 3.8 Certain Developments
Schedule 3.9 Compliance with Law
Schedule 3.10 Litigation
Schedule 3.12 Undisclosed Liabilities
Schedule 3.13(a) Labor Relations
Schedule 3.13(b) Employment Not Terminable at Will
Schedule 3.13(c) Exceptions to Confidentiality Agreements
Schedule 3.13(e) Anticipated Employee Departures
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Leased Real Property
Schedule 3.18(a) Intellectual Property - Liens
Schedule 3.18(b) Intellectual Property - Claims
Schedule 3.18(c) Intellectual Property - Licenses
Schedule 3.18(d) Intellectual Property - Former Personnel
Schedule 3.19 Regulatory Proceedings
Schedule 3.20 Year 2000
Schedule 3.21 Tax Matters
Schedule 3.22 Insurance
Schedule 3.23 Transactions with Related Parties
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INDEX
1998 Financial Statements....................................................................7
Act..........................................................................................30
Affiliate....................................................................................34
Agreement.....................................................................................1
Board.........................................................................................1
Business Day.................................................................................35
CERCLA.......................................................................................14
Certificate of Designation....................................................................1
Closing.......................................................................................2
Closing Date..................................................................................2
Common Stock..................................................................................1
Company.......................................................................................1
Employee Benefit Plan........................................................................35
Environmental Laws...........................................................................14
Environmental Permits........................................................................14
Exchange Act.................................................................................35
Expiration Date..............................................................................34
FDA..........................................................................................17
FDCA.........................................................................................17
GAAP..........................................................................................7
Governmental Entity..........................................................................35
Hazardous Materials..........................................................................14
Hilal Funds...................................................................................9
IDE..........................................................................................17
Intellectual Property........................................................................16
Interim SEC Reports...........................................................................6
knowledge, to the best of the Company's knowledge............................................35
Leased Real Property.........................................................................12
Material Adverse Effect.......................................................................3
Organizational Documents......................................................................3
PCB..........................................................................................13
Person.......................................................................................35
Preferred Stock...............................................................................4
Proposed Securities..........................................................................26
Purchase Price................................................................................2
Purchaser.....................................................................................1
Purchasers....................................................................................1
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RCRA.........................................................................................14
Registration Rights Agreement................................................................32
Regulated Product............................................................................17
Remedial Action..............................................................................15
SEC..........................................................................................35
SEC Reports...................................................................................6
Securities Act...............................................................................35
Shares........................................................................................1
subsidiary...................................................................................35
Transaction Documents.........................................................................5
Warburg Purchaser............................................................................30
Warrants......................................................................................1
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of July 15, 1999 (this
"AGREEMENT"), by and among Visible Genetics Inc., an Ontario corporation (the
"COMPANY"), Warburg, ▇▇▇▇▇▇ Equity Partners, L.P., a Delaware limited
partnership, Warburg, ▇▇▇▇▇▇ Ventures International, L.P., a [Delaware] limited
partnership, Warburg, ▇▇▇▇▇▇ Netherlands Equity Partners I, C.V., a Dutch
limited partnership, Warburg, ▇▇▇▇▇▇ Netherlands Equity Partners II, C.V., a
Dutch limited partnership, and Warburg, ▇▇▇▇▇▇ Netherlands Equity Partners III,
C.V., a Dutch limited partnership (each, a "PURCHASER", and collectively, the
"PURCHASERS").
W I T N E S S E T H:
WHEREAS, the Purchasers desire to purchase 30,000 Series A preferred
shares, without par value, of the Company (the "SHARES"), which are convertible
into common shares of the Company, without par value (the "COMMON STOCK"), and
to purchase warrants initially exercisable with respect to 1,100,000 shares of
Common Stock (the "WARRANTS"), and the Company desires to issue and sell the
Shares and the Warrants to the Purchasers, in each case upon the terms and
subject to the conditions set forth in this Agreement.
WHEREAS, the Board of Directors of the Company (the "BOARD") has approved
the purchase and sale of the Shares and the Warrants, upon the terms and subject
to the conditions set forth herein, and the Board deems such sale to be
advisable and in the best interests of the stockholders of the Company.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and subject to the terms and conditions set forth herein,
the parties hereto hereby agree as follows:
SECTION 1. AUTHORIZATION OF COMMON STOCK AND WARRANT
(a) The Company has authorized and created a series of its preferred shares
consisting of 33,950 shares, without par value, designated as its "Series A
Convertible Preferred Shares" (the "SERIES A PREFERRED STOCK"). The terms,
limitations and relative rights and preferences of the Series A Preferred Stock
are set forth in the Certificate of Designations, Number, Voting Powers,
Preferences and Rights of Series A Convertible Preferred Shares of the Company,
a copy of which is attached hereto as EXHIBIT A (the "CERTIFICATE OF
DESIGNATION"). The Company has reserved for issuance the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock.
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(b) The Company has authorized the issuance of the Warrants to the
Purchasers and reserved for issuance the shares of Common Stock issuable upon
exercise of the Warrants. The terms of the Warrants are set forth in the form of
Warrant, a copy of which is attached as EXHIBIT B hereto.
SECTION 2. PURCHASE, SALE AND ISSUANCE OF SHARES AND WARRANTS
(a) Subject to the terms and conditions set forth in this Agreement and in
reliance upon the Company's and the Purchasers' respective representations and
warranties set forth below, on the Closing Date (as defined below) the Company
shall sell to each Purchaser, and each Purchaser shall purchase from the
Company, (i) the number of shares of Series A Preferred Stock set forth opposite
such Purchaser's name in column 1 on Schedule 2, and (ii) a Warrant exercisable
to acquire the number of shares of Common Stock set forth opposite such
Purchaser's name in column 2 on Schedule 2, for such consideration as is set
forth opposite such Purchaser's name in column 3 on Schedule 2 (the aggregate
consideration to be paid by the Purchasers for the shares of Series A Preferred
Stock and the Warrants, the "PURCHASE PRICE"). Such sale and purchase shall be
effected on the Closing Date by the Company executing and delivering to each
Purchaser, duly registered in such Purchaser's name, (i) a duly executed stock
certificate evidencing the number of shares of Series A Preferred Stock set
forth opposite such Purchaser's name in column 1 on Schedule 2 and (ii) a duly
executed Warrant evidencing the number of shares of Common Stock into which such
Warrant is exercisable set forth opposite such Purchaser's name in column 2 on
Schedule 2, against delivery by the Purchasers to the Company of the Purchase
Price by wire transfer of immediately available United States dollars to such
account as the Company shall designate prior to the Closing Date.
(b) The closing of such sale, purchase and issuance (the "CLOSING") shall
take place at 2:00 p.m., New York City time, on July 15, 1999, ior such other
date as the Purchasers and the Company shall agree in writing (the "CLOSING
DATE"), at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, 787 Seventh Avenue, New
York, New York, or such other location as the Purchasers and the Company shall
mutually select.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that:
3.1. CORPORATE ORGANIZATION
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the Province of Ontario. Attached hereto
as EXHIBIT C and EXHIBIT D, respectively, are true and complete copies of
the Restated
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Articles of Incorporation and By-law No. 3 of the Company, as amended
through the date hereof (collectively, the "ORGANIZATIONAL DOCUMENTS").
(b) The Company has all requisite power and authority and has all necessary
approvals, licenses, permits and authorization to own, operate or lease its
properties and to carry on its business as now conducted, except where the
failure to have any such approval, license, permit or authorization would not
reasonably be expected to have a material adverse effect on the business,
properties, or financial condition of the Company and its subsidiaries taken as
a whole (a "MATERIAL ADVERSE EFFECT"). The Company has all requisite power and
authority to execute and deliver the Transaction Documents and to perform its
obligations hereunder and thereunder.
(c) The Company has filed all necessary documents to qualify to do business
as a foreign corporation in, and the Company is in good standing under the laws
of, each jurisdiction in which the conduct of the Company's business or the
nature of the properties owned or leased by the Company requires such
qualification, except where the failure to so qualify would not reasonably be
expected to have a Material Adverse Effect.
3.2. SUBSIDIARIES
(a) SCHEDULE 3.2 sets forth (i) the name of each subsidiary of the Company,
other than subsidiaries that are dormant or that do not carry on business
activities; (ii) the name of each corporation, partnership, joint venture or
other entity (other than such subsidiaries) in which the Company or any of its
subsidiaries has, or pursuant to any agreement has the right or obligation to
acquire at any time by any means, directly or indirectly, an equity interest or
investment; (iii) in the case of each of such corporations described in clauses
(i) and (ii) above, (A) the jurisdiction of incorporation and (B) the
capitalization thereof and the percentage of each class of voting capital stock
owned by the Company or any of its subsidiaries.
(b) Each subsidiary of the Company listed on SCHEDULE 3.2 has been duly
organized, is validly existing and in good standing under the laws of the
jurisdiction of its organization, has the corporate power and authority to own
and lease its properties and to conduct its business and is duly registered,
qualified and authorized to transact business and is in good standing in each
jurisdiction in which the conduct of its business or the nature of its
properties requires such registration, qualification or authorization, except
where the failure to be so qualified would not reasonably be expected to have a
Material Adverse Effect. All of the issued and outstanding equity or other
participating interests of each subsidiary have been duly authorized and validly
issued, are fully paid and non-assessable, and, to the extent owned by the
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Company as indicated on SCHEDULE 3.2, are owned free and clear of any mortgage,
pledge, lien, encumbrance, security interest, claim or equity, except as set
forth on SCHEDULE 3.2.
3.3. CAPITALIZATION
(a) The authorized capital stock of the Company consists of an unlimited
number of shares of Common Stock and an unlimited number of preferred shares,
without par value ("PREFERRED STOCK"). As of the close of business on the date
one Business Day prior to the date hereof, (i) 9,569,988 shares of Common Stock
were issued and outstanding, (ii) no shares of Preferred Stock were issued and
outstanding, (iii) 2,850,901 shares of Common Stock were reserved for issuance
under the Company's employee stock option plans listed on SCHEDULE 3.3(a) in the
amounts stated in such schedule, (iv) 812,367 shares of Common Stock were
reserved for issuance under the Company's outstanding warrants and convertible
securities, and (v) there were no bonds, debentures, notes or other evidences of
indebtedness issued or outstanding having the right to vote on any matters on
which the Company's stockholders may vote.
(b) All of the outstanding shares of Common Stock of the Company have been
duly and validly issued and are fully paid and non-assessable, and were issued
in accordance with all applicable United States federal and state and Canadian
federal and provincial securities laws. Upon issuance, sale and delivery as
contemplated by this Agreement, the Shares will be duly authorized, validly
issued, fully paid and non-assessable shares of Series A Preferred Stock, free
of all preemptive or similar rights. Upon their issuance in accordance with the
terms of the Series A Preferred Stock, the shares of Common Stock issuable upon
conversion of the Shares will be duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock of the Company, free of all preemptive or
similar rights. Upon their issuance in accordance with the terms of the
Warrants, the shares of Common Stock issuable upon exercise of the Warrants will
be duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock, free of all preemptive or similar rights.
(c) Except for the rights which attach to the options which are listed on
SCHEDULE 3.3(a) and the warrants, options and convertible securities which are
listed on SCHEDULE 3.3(c) hereto and to the Shares and Warrants, on the Closing
Date, there will be no shares of Common Stock or any other equity security of
the Company issuable upon exercise, conversion or exchange of any security of
the Company nor will there be any rights, options or warrants outstanding or
other agreements to acquire shares of Common Stock or any other equity security
of the Company nor will the Company be contractually obligated to purchase,
redeem or otherwise acquire any outstanding shares of Common Stock. Except as
set forth on SCHEDULE 3.3(c), (i) no stockholder of the
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Company is entitled to any preemptive or similar rights to subscribe for shares
of capital stock of the Company, (ii) the Company has not agreed to register any
of its securities under the Securities Act (other than pursuant to the
Registration Rights Agreement) and (iii) there are no existing voting trusts or
similar agreements to which the Company or any of its subsidiaries is a party
with respect to the voting of the capital stock of the Company or any of its
subsidiaries.
3.4. CORPORATE PROCEEDINGS, ETC.
The Company has full corporate power to execute and deliver this Agreement,
the Warrants and the Registration Rights Agreement (collectively, the
"TRANSACTION DOCUMENTS"), to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of the Transaction Documents by the Company
and each of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company. No
other corporate action on the part of the Company is necessary to authorize the
execution, delivery and performance of the Transaction Documents by the Company
and each of the transactions contemplated hereby and thereby, and upon such
execution and delivery (assuming the Transaction Documents are executed and
delivered by the other parties thereto), each of the Transaction Documents shall
constitute a valid and binding obligation of the Company enforceable in
accordance with its terms, except that (i) the enforceability hereof and thereof
may be subject to applicable bankruptcy, insolvency or other similar laws, now
or hereinafter in effect, affecting creditors' rights generally, and (ii) the
availability of the remedy of specific performance or injunctive or other forms
of equitable relief may be subject to equitable defenses and would be subject to
the discretion of the court before which any proceeding therefor may be brought.
3.5. CONSENTS AND APPROVALS
Except as set forth in SCHEDULE 3.5, the execution and delivery by the
Company of the Transaction Documents, the performance by the Company of its
obligations hereunder and thereunder and the consummation by the Company of the
transactions contemplated hereby and thereby do not require the Company or any
of its subsidiaries to obtain any consent, approval or action of, or make any
filing with or give any notice to, any corporation, Person, firm, Governmental
Entity or public or judicial authority, including, but not limited to, pursuant
to the Competition Act (Canada) and the Investment Canada Act, as amended.
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3.6. ABSENCE OF CONFLICTS, ETC.
Except as set forth in SCHEDULE 3.6, the execution and delivery by the
Company of the Transaction Documents do not, and the fulfillment of the terms
hereof and thereof by the Company, and the issuance of the Shares, the Warrants
and the Common Stock issuable upon exercise of the Warrants will not, result in
a breach of any of the terms, conditions or provisions of, or constitute a
default under, or permit the acceleration of rights under or termination of, the
Organizational Documents, any material agreement to which the Company or its
subsidiaries is a party, or any order, judgment, rule or regulation of any
Governmental Entity having jurisdiction over the Company or any of its
subsidiaries or over their respective properties or businesses, except for such
defaults that would not reasonably be expected to have a Material Adverse
Effect.
3.7. SEC REPORTS
(a) The Company has furnished the Purchasers with true and complete copies
(including all amendments thereof) of its (i) Annual Reports on Form 20-F for
the fiscal years ended December 31, 1997 and 1998 as filed with the SEC, (ii)
all other documents filed with the SEC (pursuant to Section 13, 14(a) and 15(d)
of the Exchange Act) and the Canadian securities regulatory authorities since
January 1, 1996 and (iii) all registration statements filed with the SEC since
January 1, 1996, which are all the documents (other than preliminary material)
that the Company filed or was required to file with the SEC or the Canadian
securities regulatory authorities from that date through the date hereof
(clauses (i) through (iii) being referred to herein collectively as the "SEC
REPORTS"). Except to the extent they may have been subsequently amended or
otherwise modified prior to the date hereof by subsequent reporting or filings,
as of their respective dates, the SEC Reports (as the same may have been amended
or otherwise modified) complied in all material respects with the requirements
of the Securities Act or the Exchange Act and the rules and regulations of the
SEC thereunder applicable to such reports and registration statements. Except to
the extent they may have been subsequently amended or otherwise modified prior
to the date hereof by subsequent reporting or filings, as of their respective
dates, the SEC Reports did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) From the date hereof through the Closing Date, the Company will
promptly furnish to the Purchasers upon their being filed copies of any
documents filed by the Company with the SEC or the Canadian securities
regulatory authorities (the "INTERIM SEC REPORTS"). As of their respective
dates, the Interim SEC Reports will comply in all material respects with the
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requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such reports and
registration statements. As of their respective dates, the Interim SEC Reports
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) The audited consolidated financial statements as at and for the period
ended December 31, 1998 of the Company included in the SEC Reports (the "1998
FINANCIAL STATEMENTS") comply as to form in all material respects with
accounting requirements of the Securities Act or the Exchange Act, as
applicable, and with the published rules and regulations of the SEC with respect
thereto. The 1998 Financial Statements (i) have been prepared in accordance with
generally accepted accounting principles in the United States of America
("GAAP") applied on a consistent basis (except as may be indicated therein or in
the notes thereto), (ii) present fairly, in all material respects, the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of their operations and cash flows for the periods then ended and (iii)
are in all material respects in agreement with the books and records of the
Company and its subsidiaries.
(d) Except as otherwise disclosed in a Form 6-K filed by the Company on
July 7, 1999, the unaudited interim financial statements of the Company as at
and for all periods commencing on or after January 1, 1999 included in the SEC
Reports or the Interim SEC Reports comply, or in the case of the Interim SEC
Reports will comply, as to form in all material respects with accounting
requirements of the Securities Act or the Exchange Act, as applicable, and with
the published rules and regulations of the SEC with respect thereto. Except as
otherwise disclosed in a Form 6-K filed by the Company on July 7, 1999, the
condensed financial statements included in the SEC Reports or in the Interim SEC
Reports: (i) have been, or in the case of the Interim SEC Reports will be,
prepared in accordance with GAAP applied on a consistent basis (except as may be
indicated therein or in the notes thereto), (ii) present or will present fairly,
in all material respects, the financial position of the Company and its
subsidiaries as of the dates thereof and the results of their operations and
cash flows for the periods then ended subject to normal year-end audit
adjustments and any other adjustments described therein and the fact that
certain information and notes have been condensed or omitted in accordance with
the Exchange Act and the rules and regulations promulgated thereunder, and (iii)
are, and will be, in all material respects in agreement with the books and
records of the Company and its subsidiaries.
(e) The Company and its subsidiaries keep proper accounting records in
which all material assets and liabilities,
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and all material transactions, of the Company and its subsidiaries are recorded
in conformity with applicable accounting principles. No part of the Company's or
any of its subsidiaries' accounting system or records, or access thereto, is
under the control of a Person who is not an employee of the Company or such
subsidiary.
(f) The Company, along with its subsidiaries, had less than $25,000,000 of
aggregate sales in the United States in the most recently completed fiscal year,
and as of March 31, 1999 owned, either directly or indirectly, assets in the
United States with an aggregate book value of less than $15,000,000.
3.8. ABSENCE OF CERTAIN DEVELOPMENTS
Except as disclosed in the SEC Reports filed with the SEC on or prior to
the date hereof or in SCHEDULE 3.8, and except for the transactions contemplated
by this Agreement, since December 31, 1998, (i) the Company and each of its
subsidiaries has conducted its business only in the ordinary and usual course in
accordance with past practice, and (ii) there have not occurred any events or
changes (including the incurrence of any liabilities of any nature, whether or
not accrued, contingent or otherwise) that have had, or is reasonably likely in
the future to have, individually or in the aggregate, a Material Adverse Effect.
3.9. COMPLIANCE WITH LAW
(a) Neither the Company nor any of its subsidiaries is in violation of any
laws, ordinances, governmental rules or regulations to which it is subject,
except for violations which would not reasonably be expected to have a Material
Adverse Effect, including without limitation laws or regulations relating to
human therapeutic or diagnostic products or devices, the environment or to
occupational health and safety, and except as set forth in Schedule 3.9 no
material expenditures are or will be required in order to cause its current
operations or properties to comply with any such law, ordinances, governmental
rules or regulations. Neither the Company nor any of its subsidiaries has
received written notice of violation of any law, ordinance, governmental rule or
regulation, which if violated, would reasonably be expected to have a Material
Adverse Effect. No investigation or review by any Governmental Entity with
respect to the Company or any of its subsidiaries is pending or, to the best of
the Company's knowledge, threatened nor has any Governmental Entity indicated an
intention to conduct the same, except for an investigation or review conducted
as a result of an application or other filing made by the Company.
(b) Neither the Company or any of its subsidiaries nor, to the Company's
knowledge, any of the officers, directors, employees, agents or other
representatives of the Company or any
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of its subsidiaries or Affiliates, has, directly or indirectly, made or
authorized any payment, contribution or gift of money, property, or services,
whether or not in contravention of applicable law, (i) as a kickback or bribe to
any Person or (ii) to any political organization, or the holder of or any
aspirant to any elective or appointive public office except as permitted by
applicable law and for personal political contributions not involving the direct
or indirect use of funds of the Company or any of its subsidiaries.
(c) The Company and its subsidiaries have all licenses, permits, franchises
or other governmental authorizations necessary to the ownership of their
property or to the conduct of their respective businesses, except for those
which if violated or not obtained would reasonably be expected (and except for
any of the foregoing relating to Intellectual Property which are covered by the
provisions of Section 3.18) to have a Material Adverse Effect. Neither the
Company nor any subsidiary has finally been denied any application for any such
licenses, permits, franchises or other governmental authorizations necessary to
its business.
3.10. LITIGATION
There is no legal action, suit, arbitration or other legal, administrative
or other governmental investigation, inquiry or proceeding (whether federal,
state, local or foreign) pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any subsidiary or any of their
respective properties, assets or businesses which, either alone or in the
aggregate, would reasonably be expected to have a Material Adverse Effect or
prevent or delay the consummation of the transactions contemplated by the
Transaction Documents. The Company is not aware of any fact which might result
in or form the basis for any such action, suit, arbitration, investigation,
inquiry or other proceeding. Except as set forth in SCHEDULE 3.10, neither the
Company nor any subsidiary is subject to any order, writ, judgment, injunction,
decree, determination or award of any Governmental Entity against it.
3.11. MATERIAL CONTRACTS
Neither the Company nor any of its subsidiaries is in default (or would be
in default with notice or lapse of time, or both) under, is in violation (or
would be in violation with notice or lapse of time, or both) of, or has
otherwise breached, any material indenture, note, credit agreement, loan
document, lease, license or other agreement (unless such default has been
waived), which default, alone or in the aggregate with all other such defaults,
would reasonably be expected to have a Material Adverse Effect. The Company has
previously furnished to the Purchasers true and correct copies of all material
agreements to which the Company or any of its subsidiaries is a party,
-9-
reflecting all amendments thereto through the date of this Agreement. Except as
set forth in SCHEDULE 3.11, each material agreement to which the Company or any
of its subsidiaries is a party is in full force and effect and is binding upon
the Company and, to the best of the Company's knowledge, is binding upon such
other parties, in each case in accordance with its terms. There are no material
unresolved disputes involving the Company or any of its subsidiaries under any
material agreement.
3.12. ABSENCE OF UNDISCLOSED LIABILITIES
Except as disclosed on SCHEDULE 3.12 and except for indebtedness or
liabilities that are reflected or reserved against in the most recent financial
statements included in the SEC Reports, neither the Company nor any of its
subsidiaries has any debt, obligation or liability of a kind required by GAAP to
be reflected on a balance sheet (whether accrued, absolute, contingent,
liquidated or otherwise, whether due or to become due and whether or not known
to the Company) arising out of any transaction entered into at or prior to the
Closing, or any act or omission at or prior to the Closing, or any state of
facts existing at or prior to the Closing, except current liabilities incurred
and obligations under agreements entered into since December 31, 1998, each in
the usual and ordinary course of business none of which (individually or in the
aggregate) would reasonably be expected to have a Material Adverse Effect.
3.13. LABOR RELATIONS AND EMPLOYMENT
(a) Except as set forth in SCHEDULE 3.13(a), (i) to the best of the
Company's knowledge, there are no union claims to represent the employees of the
Company or any of its subsidiaries; (ii) neither the Company nor any of its
subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association applicable to employees of the
Company or any of its subsidiaries; (iii) none of the employees of the Company
or any of its subsidiaries is represented by any labor organization and the
Company does not have any knowledge of any current union organizing activities
among the employees of the Company or any of its subsidiaries, nor to the
Company's knowledge does any question concerning representation exist concerning
such employees; (iv) the Company and its subsidiaries are in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work, occupational safety and health,
equal opportunity, collective bargaining and payment of social security or
social insurance premiums, as applicable, except where the failure to be in
compliance would not reasonably be expected to have a Material Adverse Effect,
and are not engaged in any discriminatory employment practices or unfair labor
practices under applicable law, ordinance or regulation; (v) there is no unfair
labor
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practice charge or complaint against the Company or any of its subsidiaries
pending or, to the best of the Company's knowledge, threatened before any state
or foreign agency; (vi) neither the Company nor any of its subsidiaries has
received written notice of the intent of any federal, state, local or foreign
agency responsible for the enforcement of labor or employment laws to conduct an
investigation with respect to or relating to the Company or any of its
subsidiaries and no such investigation is in progress; and (vii) there are no
complaints, lawsuits or other proceedings pending or, to the best of the
Company's knowledge, threatened in any forum by or on behalf of any present or
former employee of the Company or any of its subsidiaries alleging breach of any
express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship, except for any
complaints, lawsuits or other proceedings which would not reasonably be expected
to have a Material Adverse Effect.
(b) Except as set forth in SCHEDULE 3.13(b), the employment of all Persons
and officers employed by the Company or any of its subsidiaries is terminable at
will without any penalty or severance obligation of any kind on the part of the
Company or such subsidiary. All sums due for employee compensation and benefits,
including, without limitation, retiree benefits, and all vacation time owing to
any employees of the Company or any of its subsidiaries have been duly and
adequately accrued in all material respects on the accounting records of the
Company and its subsidiaries in accordance with GAAP.
(c) Except as set forth on SCHEDULE 3.13(c) The Company and its
subsidiaries have in force written confidentiality and non-disclosure agreements
and patent/copyright/invention assignment agreements with, and requires as a
condition of employment the execution of such agreements by, all of its
technical research employees, all research consultants, all of its officers and
such other members of its staff as in the regular course of their duties are
reasonably likely to receive material confidential information regarding the
Company, its Intellectual Property and its current and prospective business
plans.
(d) The Company is not aware that any of its officers or key employees or
any officers or key employees of its subsidiaries is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any Governmental
Entity, that would interfere with the use of such employee's best efforts to
promote the interests of the Company or that would conflict with the Company's
business as currently proposed to be conducted.
-11-
(e) Except as set forth in SCHEDULE 3.13(e), the Company is not aware that
any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company or any of its subsidiaries, nor does
the Company have a present intention to terminate the employment of any of the
foregoing.
3.14. EMPLOYEE BENEFIT PLANS
With respect to the Employee Benefit Plans of the Company and its
subsidiaries: (i) the fair market value of the assets of each funded Employee
Benefit Plan, if any, the liability of each insurer for any Employee Benefit
Plan funded through insurance or any book reserve established for any other
Employee Benefit Plan, together with any accrued contributions, is sufficient to
procure or provide for the accrued benefit obligations, as of the date hereof,
with respect to all current and former participants in such Employee Benefit
Plan according to the actuarial assumptions and valuations, if any, most
recently used to determine employer contributions to and liabilities of such
Employee Benefit Plan, and no transaction contemplated by this Agreement shall
cause such assets or insurance obligations or any book reserve to be less than
such benefit obligations; (ii) each Employee Benefit Plan has been maintained
and administered, in all material respects, in accordance with its terms and
with all applicable provisions of law (including rules and regulations
thereunder); and (iii) each Employee Benefit Plan which is required to be
registered with any governmental or regulatory authority has been registered and
maintained in good standing with the appropriate governmental and regulatory
authorities, except where the failure to be so registered or to maintain good
standing would not reasonably be expected to have a Material Adverse Effect.
3.15. REAL PROPERTY
(a) The Company and its subsidiaries do not own any real property in whole
or in part.
(b) SCHEDULE 3.15 lists all real property leased by the Company or its
subsidiaries as well as the commencement and expiration dates of all leases
relating thereto (the "LEASED REAL PROPERTY"). True and complete copies of all
leases listed in SCHEDULE 3.15 have been delivered to Purchaser. The Company or
one of its subsidiaries has a valid and existing lease or sublease for each
property subsumed within the Leased Real Property. All leases covering any of
the Leased Real Property are valid and enforceable by the Company or one of its
subsidiaries, as the case may be, in accordance with their respective terms, are
in full force and effect, except that the enforceability thereof may be subject
to applicable bankruptcy, insolvency or other similar laws, now or hereinafter
in effect, affecting creditors' rights generally, and the availability of
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the remedy of specific performance or injunctive or other forms of equitable
relief may be subject to equitable defenses and would be subject to the
discretion of the court before which any proceeding therefor may be brought, and
have not been modified, supplemented or terminated in any material respect
except as set forth in SCHEDULE 3.15, and there is not under any such lease any
default by the Company or one of its subsidiaries or, to the best of the
Company's knowledge, by any landlord or lessor under any such lease except for
any such default which would not reasonably be expected to have a Material
Adverse Effect. The facilities and real properties covered by the Leased Real
Property constitute all of the facilities and real properties presently used by
the Company or its subsidiaries.
3.16. CONDITION OF PROPERTIES
All facilities, machinery, equipment, fixtures, vehicles and other
properties owned, leased or used by the Company and its subsidiaries are in good
operating condition and repair (normal wear and tear excepted), are reasonably
fit and usable for the purposes for which they are being used, are adequate and
sufficient for the Company's or such subsidiary's business and conform with all
applicable ordinances, regulations and laws except where the failure to conform
with the applicable ordinances, regulations or laws would not reasonably be
expected to have a Material Adverse Effect.
3.17. ENVIRONMENTAL MATTERS
(a) The Company and its subsidiaries (i) are in compliance with all
Environmental Laws; (ii) have obtained all necessary Environmental Permits, all
of which are in full force and effect; and (iii) are in compliance with all
terms and conditions of such Environmental Permits, except for any failure to
comply or the absence of any such permit which would not reasonably be expected
to have a Material Adverse Effect.
(b) Neither the Company nor any of its subsidiaries has violated or done
any act which could reasonably be expected to result in liability under, or have
otherwise failed to act in a manner which would reasonably be expected to expose
any of them to liability under, any Environmental Law except for any liability
that would not reasonably be expected to have a Material Adverse Effect. No
event has occurred which, upon the passage of time, the giving of notice, or
failure to act would reasonably be expected to give rise to liability to the
Company or any of its subsidiaries under any Environmental Law except for any
liability that would not reasonably be expected to have a Material Adverse
Effect.
(c) No Hazardous Material has been released, spilled, discharged, dumped,
or disposed of, by the Company, or otherwise come to be located in, at, beneath
or near any of the Leased Real
-13-
Property as a result of the Company's action including properties formerly
owned, operated or otherwise controlled by the Company or any of its
subsidiaries (i) in violation of any Environmental Law or (ii) in such manner as
would reasonably be expected to result in environmental liability to the Company
or any of its subsidiaries.
(d) To the Company's knowledge, there have been and are no: (i) aboveground
or underground storage tanks; (ii) surface impoundments for Hazardous Materials;
(iii) wetlands as defined under any Environmental Law; or (iv) asbestos or
asbestos containing materials or polychlorinated biphenyl ("PCB") or
PCB-containing equipment, located within any portion of the Owned Real Property
or Leased Real Property.
(e) No liens currently encumber any Leased Real Property in connection with
any actual or alleged liability of the Company under any Environmental Law.
(f) (i) Neither the Company nor any of its subsidiaries has received any
written notice, claim, demand, suit or request for information from any
Governmental Entity or private entity with respect to any liability or alleged
liability under any Environmental Law, nor to the knowledge of the Company has
any other entity whose liability, in whole or in part, may be attributed to the
Company or any of its subsidiaries, received any such notice, claim, demand,
suit or request for information; (ii) neither the Company nor any of its
subsidiaries has ongoing negotiations with or agreements with any Governmental
Entity or other Person or entity relating to any Remedial Action or other claim
arising under or related to any Environmental Law.
(g) Neither the Company nor any of its subsidiaries has disposed, or
arranged for the disposal, of any Hazardous Materials at any facility that is or
has ever been the subject of investigation or response action under the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 ET SEQ. ("CERCLA"), Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 ET SEQ. ("RCRA"), or any state or Canadian law of similar
effect.
(h) The Company has provided to Purchaser all environmental studies and
reports pertaining to the Leased Real Property and the improvements thereon that
the Company or its subsidiaries have in their possession. To the best of the
Company's knowledge, as of the respective dates thereof, such studies and
reports were current and accurate and complete in all material respects.
For purposes of this Agreement, the following terms shall have the
following meanings:
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"ENVIRONMENTAL LAWS" shall mean any statute, regulation, ordinance, order,
decree, treaty, agreement, compact, common law duty or other requirement of
United States, Canadian or international law relating to protection of human
health, safety or the environment (including, without limitation, ambient air,
surface water, groundwater, wetlands, soil, surface and subsurface strata).
"ENVIRONMENTAL PERMITS" shall mean all permits, licenses, approvals,
authorizations, consents or registrations required under any applicable
Environmental Law.
"HAZARDOUS MATERIALS" shall mean any chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, hazardous materials, hazardous
wastes, radioactive materials, petroleum or petroleum products.
"REMEDIAL ACTION" shall mean any action required to: (i) clean up, remove
or treat Hazardous Materials; (ii) prevent a release or threat of release of any
Hazardous Material; (iii) perform pre-remedial studies, investigations or
post-remedial monitoring and care; or (iv) cure a violation of Environmental Law
3.18. INTELLECTUAL PROPERTY
(a) The Company has previously provided the Purchasers a complete list of
registrations/patents or applications therefor pertaining to the Intellectual
Property, the dates of application/issuance and the relevant jurisdictions.
Except as described in SCHEDULE 3.18(a), the Company or one of its subsidiaries
owns or has the valid right to use, free and clear of all liens and other
encumbrances or claims of any nature, except for liens or other encumbrances
that are not material, all of the Intellectual Property necessary for the
conduct of the business of the Company or any of its subsidiaries, except where
the failure to own or have the right to use any item of Intellectual Property
would not reasonably be expected to have a Material Adverse Effect. Except as
noted on SCHEDULE 3.18(a), all listed Intellectual Property that is material to
the Company, is valid, subsisting, unexpired, in proper form and enforceable and
all renewal fees and other maintenance fees that have fallen due on or prior to
the effective date of this Agreement have been paid.
(b) Except as set forth on SCHEDULE 3.18(b), there is no claim, suit,
action or proceeding pending or, to the best of the Company's knowledge,
threatened against the Company or one of its subsidiaries: (i) alleging any
conflict or infringement with any third party's proprietary rights; or (ii)
challenging the Company or one of its subsidiaries' ownership or use, or the
validity or enforceability of any Intellectual Property; and to the Company's
knowledge no listed no listed application or
-15-
registration/patent of the Company is the subject of any patent interference
proceeding or similar proceeding. Except as set forth on SCHEDULE 3.18(b), there
is no claim, suit, action or proceeding pending or, to best of the Company's
knowledge, threatened by the Company or one of its subsidiaries, alleging any
third party's intellectual property rights conflict or infringe the Intellectual
Property of the Company or one of its subsidiaries.
(c) The Company has previously provided a complete and accurate list of
all: (i) material licenses, sublicenses and other agreements in which the
Company or one of its subsidiaries grants rights to any Person to use the
Intellectual Property; (ii) material licenses, sublicenses and other agreements
in which any Person grants rights to the Company or one of its subsidiaries to
use the Intellectual Property of such Person; and (iii) material consents,
indemnifications, forbearances to ▇▇▇, settlement agreements or cross-licensing
arrangements relating to the Intellectual Property or the intellectual property
of any third party to which the Company or one of its subsidiaries is a party.
Except as previously disclosed, neither the Company nor any of its subsidiaries
is under any obligation to pay royalties or similar payments in connection with
any license, nor will the Company or any of its subsidiaries be, as a result of
the execution and delivery of the Transaction Documents or the performance of
its obligations hereunder or thereunder, in breach of any license, sublicense or
other agreement relating to the Intellectual Property except for any such breach
which would not reasonably be expected to have a Material Adverse Effect. As to
each material license agreement to which the Company or one of its subsidiaries
is a party, the Company or such subsidiary is current in the payment of all
royalties due thereunder.
(d) Except as set forth in SCHEDULE 3.18(d), no former or present employee,
officer or director of the Company or any of its subsidiaries holds any right,
title or interest, directly or indirectly, in whole or in part, in or to any
Intellectual Property.
(e) The Company or one of its subsidiaries owns or has the right to use all
computer software, software systems and databases and all other information
systems currently used in the business of the Company or any of its
subsidiaries, including, without limitation, all computer software used in the
business of the Company on personal computers by employees of the Company or any
of its subsidiaries.
For purposes of this Agreement, "INTELLECTUAL PROPERTY" shall mean all of
the following, owned or used in the business of the Company or any of its
subsidiaries: (i) trademarks and service marks (registered or unregistered),
trade dress, trade names and other names and slogans embodying business or
product
-16-
goodwill or indications of origin, all applications or registrations in any
jurisdiction pertaining to the foregoing and all goodwill associated therewith;
(ii) patents, patentable inventions, discoveries, improvements, ideas, know-how,
formula methodology, processes, technology and computer programs, software and
databases (including source code, object code, development documentation,
programming tools, drawings, specifications and data) and all applications or
registrations in any jurisdiction pertaining to the foregoing, including all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof; (iii) trade secrets, including confidential and other
non-public information, and the right in any jurisdiction to limit the use or
disclosure thereof; (iv) copyrights in writings, designs, mask works or other
works, and applications or registrations in any jurisdiction for the foregoing;
(v) database rights; (vi) Internet Web sites, domain names and registrations or
applications for registration thereof; (vii) licenses, immunities, covenants not
to ▇▇▇ and the like relating to any of the foregoing; (viii) books and records
describing or used in connection with any of the foregoing; and (ix) claims or
causes of action arising out of or related to infringement or misappropriation
of any of the foregoing.
3.19. REGULATORY MATTERS
(a) As to each product subject to the jurisdiction of the U.S. Food and
Drug Administration ("FDA") under the Federal Food, Drug and Cosmetic Act and
the regulations thereunder ("FDCA") (each such product, a "REGULATED PRODUCT")
that is manufactured, tested, distributed and/or marketed by the Company or any
of its Subsidiaries, such Regulated Product is being manufactured, tested,
distributed and/or marketed in substantial compliance with all applicable
requirements under FDCA and similar state and foreign laws and regulations,
including but not limited to those relating to investigational use, premarket
clearance, good manufacturing practices, labeling, advertising, record keeping,
filing of reports and security.
(b) To the Company's knowledge, there are no rule making or similar
proceedings before the FDA or comparable federal, Canadian, state, provincial,
local or foreign government bodies which involve or, to the Company's actual
knowledge, affect the Company or any of its subsidiaries which, if the subject
of an action unfavorable to the Company or any of its subsidiaries, would have a
Material Adverse Effect.
(c) The description of the results of tests or evaluations contained in the
Company's Investigational Device Exemption submission, dated November 11, 1998
(the "IDE"), are accurate and complete in all material respects, and the Company
has no knowledge of any other tests or evaluations, the results of which
reasonably call into question the results described or referred to in the IDE.
Except as set forth on SCHEDULE 3.19,
-17-
neither the Company nor any of its subsidiaries has received any written notices
or correspondence from the FDA or any other governmental agency requiring the
termination, suspension or modification of any tests or evaluations conducted on
behalf of the Company or any of its subsidiaries.
3.20. YEAR 2000
Except as set forth in SCHEDULE 3.20, in the SEC Reports or as would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect, the Company's computer software, hardware, firmware and other
similar or related items of automated, computerized and/or software system(s)
that are relied on by, or sold or provided with equipment or materials sold or
provided by, the Company or its subsidiaries in the conduct of their respective
businesses, (A) will not malfunction prior to, on, or after January 1, 2000 as a
consequence of the change of century or millennium associated with that date,
and (B) are, as applicable, able to process dates and calculate spans of dates
within and between the twentieth and twenty-first centuries prior to, including
and following January 1, 2000, including by: (i) correctly recognizing all valid
dates, including September 9, 1999 and January 1, 2001, (ii) properly
recognizing leap years, including recognizing year 2000 as a leap year with 366
days and February 29, 2000 as a leap year day, and (iii) properly interfacing
with the same or other systems, where designed to have the capacity to
interface, so as to preserve proper processing of date information, including by
automatic conversion of date information into and from a four-digit and
two-digit date format as appropriate, provided, however, that (a) the
representations and warranties contained in this Section 3.20 shall only apply
if the software, firmware or hardware is used in accordance with the
documentation therefor, and all other products used in combination with such
software, firmware or hardware properly exchange date data with the software,
firmware or hardware and (b) to the extent that any of the representations and
warranties contained in this Section 3.20 are made by the Company with respect
to computer software, hardware, firmware and other similar or related items of
automated, computerized and/or software systems that are manufactured, assembled
or provided by parties other than the Company or its subsidiaries, the
representations and warranties provided by the Company are provided to the best
of the Company's knowledge.
3.21. TAX MATTERS
Except as set forth on SCHEDULE 3.21, there are no United States or
Canadian federal, state, provincial, county, municipal or local taxes or
comparable foreign taxes due and payable by the Company or any of its
subsidiaries which have not been paid. The provisions for taxes on the
consolidated balance sheet of the Company for the year ended December 31, 1998
are sufficient for the payment of all accrued and unpaid United
-18-
States and Canadian federal, state, provincial, county, municipal and local
taxes or comparable foreign taxes of the Company and its subsidiaries whether or
not assessed or disputed as of the date of such balance sheet. The Company and
each of its subsidiaries has duly filed all United States and Canadian federal,
state, provincial, county, municipal and local or comparable foreign tax returns
required to have been filed by it and there are in effect no waivers of
applicable statutes of limitations with respect to taxes for any year. Except as
set forth on SCHEDULE 3.21, neither the Company nor any of its subsidiaries has
been subject to a tax audit of any kind, whether in Canada, the United States or
other jurisdiction in which such entity conducts business.
3.22. INSURANCE
The Company and its subsidiaries and their respective properties are
insured in such amounts, against such losses and with such insurers as are
prudent when considered in light of the nature of the properties and businesses
of the Company and its subsidiaries. SCHEDULE 3.22 sets forth a complete and
accurate list of the insurance policies of the Company and its subsidiaries as
in effect on the date hereof, including in each case the applicable coverage
limits, deductibles and the policy expiration dates. No written notice of any
termination or threatened termination of any of such policies has been received
by the Company or any of its subsidiaries and such policies are in full force
and effect.
3.23. TRANSACTIONS WITH RELATED PARTIES
Except as set forth in the Company's Annual Report on Form 20-F for its
fiscal year ended December 31, 1998 or in SCHEDULE 3.23, neither the Company nor
any subsidiary is a party to any agreement with any of the Company's directors,
officers or shareholders or any Affiliate or family member of any of the
foregoing under which it: (i) leases any real or personal property other than
automobiles (either to or from such Person), (ii) licenses real or personal
property or Intellectual Property (either to or from such Person), (iii) is
obligated to purchase any tangible or intangible asset from or sell such asset
to such Person, (iv) purchases products or services from such Person, or (v) has
borrowed money from or lent money to such Person. Except as set forth in
SCHEDULE 3.23, to the best of the Company's knowledge, there exist no agreements
among shareholders of the Company, except as contemplated by the Transaction
Documents, to act in concert with respect to their voting or holding of Company
securities.
3.24. INTEREST IN COMPETITORS
Neither the Company, nor any or its subsidiaries, nor any of their
respective officers nor, to the best of the
-19-
Company's knowledge, directors, has any interest, either by way of contract or
by way of investment (other than as holder of not more than 2% of the
outstanding capital stock of a publicly traded Person) or otherwise, directly or
indirectly, in any Person other than the Company and its subsidiaries that (i)
provides any services or designs, produces or sells any product or product lines
or engages in any activity similar to or competitive with any activity currently
conducted by the Company or any of its subsidiaries or (ii) has any direct or
indirect interest in any asset or property, real or personal, tangible or
intangible, of the Company.
3.25. PRIVATE OFFERING
Neither the Company nor anyone acting on its behalf has sold or has offered
any of the Shares or the Warrants for sale to, or solicited offers to buy from,
or otherwise approached or negotiated with respect thereto with, any prospective
purchaser, other than the Purchaser and other than certain investment funds
affiliated with Hilal Capital Management LLC, a Delaware limited liability
company (the "HILAL FUNDS"). Neither the Company nor anyone acting on its behalf
shall offer the Shares or the Warrants for issue or sale to, or solicit any
offer to acquire any of the same from, anyone so as to bring the issuance and
sale of the Shares, the Warrants or the shares of Common Stock issuable upon the
exercise of the Warrants, or any part thereof, within the provisions of Section
5 of the Securities Act. Based upon the representations of the Purchasers set
forth in Section 4, the offer, issuance and sale of the Shares, the Warrants and
the shares of Common Stock issuable upon exercise of the Warrants are and will
be exempt from the registration and prospectus delivery requirements of the
Securities Act, and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws, and are qualified for
distribution or are exempt from such requirements for qualification under
applicable Canadian federal and provincial securities laws.
3.26. BROKERAGE
There are no claims for brokerage commissions or finder's fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement made by or on behalf of the Company and the Company
shall indemnify and hold the Purchasers harmless against any costs or damages
incurred as a result of any such claim.
3.27. MATERIAL FACTS
This Agreement and the other Transaction Documents do not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements contained
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therein or herein, in light of the circumstances in which they were made, not
misleading.
3.28. FAIRNESS OPINION
The Company has received an opinion from ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, LLC to the
effect that the transactions contemplated by this Agreement and by the other
Transaction Documents are fair to the Company from a financial point of view.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company as follows:
(a) Each Purchaser is a limited partnership duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, and each Purchaser has the requisite power and authority to
execute and deliver this Agreement and the other Transaction Documents to which
it is a party and to consummate the transactions contemplated hereby and
thereby, and has taken all necessary action to authorize the execution, delivery
and performance of this Agreement and the other Transaction Documents to which
it is a party. No other action on the part of such Purchaser or any of its
partners is necessary to authorize the execution, delivery and performance of
the Transaction Documents by the Purchaser.
(b) This Agreement and the other Transaction Documents to which it is a
party have been duly executed and delivered by each Purchaser and, assuming the
due execution and delivery of this Agreement by the Company and of such other
Transaction Documents by the other parties thereto, are valid and binding
obligations of each Purchaser, enforceable against each Purchaser in accordance
with their respective terms, except that (i) the enforceability hereof and
thereof may be subject to applicable bankruptcy, insolvency or other similar
laws, now or hereinafter in effect, affecting creditors' rights generally, and
(ii) the availability of the remedy of specific performance or injunctive or
other forms of equitable relief may be subject to equitable defenses and would
be subject to the discretion of the court before which any proceeding therefor
may be brought.
(c) Neither the execution and delivery of this Agreement nor of the other
Transaction Documents to which it is a party nor the performance by each
Purchaser of its obligations hereunder or thereunder will violate any instrument
to which it is a party or any law, decree, order, statute, rule or regulation
applicable to such Purchaser or require any order, consent, authorization or
approval of, filing or registration with, or declaration or notice to, any
Governmental Entity, other than the United States federal securities laws.
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(d) It is acquiring the Shares and the Warrant (and will acquire the Common
Stock issuable upon exercise of the Warrant) for its own account for investment
and not with a view towards the resale, transfer or distribution thereof, nor
with any present intention of distributing the Shares or the Warrant (or the
Common Stock acquired upon exercise of the Warrant), but subject, nevertheless,
to any requirement of law that the disposition of such Purchaser's property
shall, at all times, be within such Purchaser's control, and without prejudice
to such Purchaser's right at all times to sell or otherwise dispose of all or
any part of such securities under a registration under the Securities Act or
under an exemption from said registration available under the Securities Act.
(e) There are no claims for brokerage commissions or finder's fees or
similar compensation in connection with the transactions contemplated by this
Agreement or the other Transaction Documents to which it is a party based on any
arrangement made by or on behalf of such Purchaser and such Purchaser shall
indemnify and hold the Company harmless against any costs or damages incurred as
a result of any such claim.
(f) It has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of its investment in the
Company as contemplated by this Agreement and is able to bear the economic risk
of such investment for an indefinite period of time. It has been furnished
access to such information and documents as it has requested and has been
afforded an opportunity to ask questions of and receive answers from
representatives of the Company concerning the terms and conditions of this
Agreement and the purchase of the Shares and the Warrant contemplated hereby. It
is an "accredited investor" as defined in Rule 501(a) under the Securities Act.
SECTION 5. COVENANTS OF THE PARTIES
5.1. ADDITIONAL AGREEMENTS
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to cooperate with the other and use reasonable commercial
efforts to take, or cause to be taken, all actions 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 transactions contemplated by
the Transaction Documents, including using reasonable commercial efforts to
obtain all necessary waivers, consents and approvals, and to effect all
necessary registrations and filings (including, but not limited to, filings with
all applicable Governmental Entities as required by law).
(b) In case at any time after the Closing any further action is necessary
or desirable to carry out the purposes of any
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of the Transaction Documents, Purchaser and the Company shall take all such
action as promptly as practicable.
SECTION 6. ADDITIONAL COVENANTS OF THE COMPANY
6.1. USE OF PROCEEDS
The Company shall utilize the proceeds from the sale of the Shares and the
Warrants hereunder (i) to repay in full $4,100,000 principal amount plus accrued
interest of loans outstanding to the Hilal Funds and (ii) for general corporate
purposes.
6.2. FINANCIAL AND BUSINESS INFORMATION
From and after the date hereof, the Company shall deliver to each of the
Purchasers, so long the Purchasers collectively own beneficially (within the
meaning of Rule 13d-3 under the Exchange Act) at least five percent (5%) of the
issued and outstanding shares of Common Stock:
(a) QUARTERLY STATEMENTS - as soon as practicable, and in any event within
45 days after the close of each of the first three fiscal quarters of each
fiscal year of the Company, an unaudited consolidated balance sheet, statement
of income and statement of cash flows of the Company and its subsidiaries as at
the close of such quarter and covering operations for such quarter and the
portion of the Company's fiscal year ending on the last day of such quarter, all
in reasonable detail and prepared in accordance with GAAP, subject to audit and
year-end adjustments, setting forth in each case in comparative form the figures
for the comparable period of the previous fiscal year. The Company shall also
provide comparisons of each pertinent item to the budget referred to in
subsection (c) below.
(b) ANNUAL STATEMENTS - as soon as practicable after the end of each fiscal
year of the Company, and in any event within 120 days thereafter, duplicate
copies of:
(1) consolidated and consolidating balance sheets of the Company and its
subsidiaries at the end of such year;
(2) consolidated and consolidating statements of income, stockholders'
equity and cash flows of the Company and its subsidiaries for such year, setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and accompanied by an opinion thereon of independent
certified public accountants of recognized national standing selected by the
Company, which opinion shall state that such financial statements fairly present
the financial position of the Company and its subsidiaries on a consolidated
basis and have been prepared in accordance with GAAP applied on a consistent
basis (except for changes in application in which such
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accountants concur) and that the examination of such accountants in connection
with such financial statements has been made in accordance with generally
accepted auditing standards, and accordingly included such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances; and
(3) comparisons of such audited results to each pertinent item in the
budget referred to in subsection (c) below.
(c) BUSINESS PLAN; PROJECTIONS - no later than 30 days prior to the
commencement of each fiscal year of the Company, an annual business plan of the
Company and projections of operating results, prepared on a quarterly basis, and
a three year business plan of the Company and projections of operating results.
Within 45 days of the close of each semi-annual fiscal period of the Company,
the Company shall provide the Purchasers with an update of such quarterly
projections. Such business plans, projections and updates shall contain such
substance and detail and shall be in such form as will be reasonably acceptable
to the Purchasers.
(d) AUDIT REPORTS - promptly upon receipt thereof, one copy of each other
financial report and internal control letter submitted to the Company by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Company.
(e) OTHER REPORTS - promptly upon their becoming available, one copy of
each financial statement, report, notice or proxy statement (or management
information circular) sent by the Company to stockholders generally, of each
financial statement, report, notice or proxy statement (or management
information circular) sent by the Company or any of its subsidiaries to the SEC
or any successor agency, if applicable, of each regular or periodic report and
any registration statement, prospectus or written communication in respect
thereof filed by the Company or any subsidiary with, or received by such Person
in connection therewith from, any domestic or foreign securities exchange, the
SEC or any successor agency or any foreign regulatory authority performing
functions similar to the SEC, of any press release issued by the Company or any
subsidiary, and of any material of any nature whatsoever prepared by the SEC or
any successor agency thereto or any state blue sky or securities law commission
which relates to or affects in any way the Company or any subsidiary.
(f) REQUESTED INFORMATION - with reasonable promptness, the Company shall
furnish each of the Purchasers with such other data and information as from time
to time may be reasonably requested.
6.3. INSPECTION
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As long as the Purchasers collectively own beneficially (within the meaning
of Rule 13d-3 under the Exchange Act) at least five percent (5%) of the issued
and outstanding Common Stock, the Company shall permit the Purchasers, their
nominees, assignees, and their representatives to visit and inspect any of the
properties of the Company and its subsidiaries, to examine all its books of
account, records, reports and other papers not contractually required of the
Company to be confidential or secret, to make copies and extracts therefrom, and
to discuss its affairs, finances and accounts with its officers, directors, key
employees and independent public accountants or any of them (and by this
provision the Company authorizes said accountants to discuss with such
Purchasers, their nominees, assignees and representatives the finances and
affairs of the Company and any subsidiaries), all at such reasonable times and
as often as may be reasonably requested.
6.4. CONFIDENTIALITY
As to so much of the information and other material furnished under or in
connection with this Agreement (whether furnished before, on or after the date
hereof, including without limitation information furnished pursuant to Sections
6.2 and 6.3 hereof) as constitutes or contains confidential business, financial
or other information of the Company or any subsidiary, each of the Purchasers
covenants for itself and, its directors, officers and partners, if any, that it
will not disclose and it will use due care to prevent its officers, directors,
partners, employees, counsel, accountants and other representatives from
disclosing such information to Persons other than their respective authorized
employees, counsel, accountants, stockholders, partners, limited partners and
other authorized representatives who have agreed to be bound by the provisions
of this Section 6.4; PROVIDED, HOWEVER, that each Purchaser may disclose or
deliver any information or other material disclosed to or received by it should
such Purchaser be advised by its counsel (with a copy of such opinion being
furnished to the Company) that such disclosure or delivery is required by law,
regulation or judicial or administrative order; PROVIDED, FURTHER, that prior to
any such action Purchaser shall give the Company at least three Business Days
notice to enable the Company to obtain a protective order or take other
appropriate action. In the event of any termination of this Agreement
prior to the Closing Date, each Purchaser shall return to the Company all
confidential material previously furnished to such Purchaser or its officers,
directors, partners, employees, counsel, accountants and other representatives
in connection with this transaction. For purposes of this Section 6.4, "due
care" means at least the same level of care that such Purchaser would use to
protect the confidentiality of its own sensitive or proprietary information, but
in no event less than reasonable care, and this obligation shall survive
termination of this Agreement.
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6.5. BOARD NOMINEES
At the time of the conversion of the Shares, the Company shall take such
steps, including the creation (through resignation of a then serving director or
as otherwise permitted by the Ontario Business Corporations Act) and filling of
an appropriate vacancy on the Board, as shall permit the individual who formerly
held the position as director designated by the holders of Shares to continue to
serve as a director of the Company until the next annual meeting of the
shareholders of the Company. Thereafter, for so long as the Purchasers
collectively own beneficially (within the meaning of Rule 13d-3 under the
Exchange Act), in the aggregate, at least 5% of the issued and outstanding
shares of Common Stock, the Company will nominate and use commercially
reasonable efforts to elect and to cause to remain as a director on the Board
one individual as designated by the Purchasers. Any vacancy created by the
death, disability, retirement or removal of such individual may be filled by an
individual designated by the Purchasers.
6.6. BOARD COMMITTEES
For so long as the Purchasers have the right, either as holders of the
Shares or pursuant to Section 6.5 hereof, to designate at least one individual
to the Board, the Purchasers shall have the right to designate one individual to
each of the Executive Committee, Compensation Committee and Audit Committee of
the Board of Directors of the Company, when and if the same are established.
6.7. SUBSCRIPTION RIGHT
(a) If at any time after the Closing Date, the Company proposes to sell
equity securities of any kind (the term "equity securities" shall include for
these purposes any warrants, options or other rights to acquire equity
securities and debt securities convertible into equity securities) of the
Company (other than the issuance of securities (i) to the public in a firm
commitment underwriting pursuant to a registration statement filed under the
Securities Act, (ii) upon exercise of any options or warrants outstanding on the
Closing Date, (iii) pursuant to the acquisition of another entity by the Company
or one of its subsidiaries by merger, purchase of substantially all of the
assets or other form of reorganization, (iv) in connection with the acquisitions
or license of technology rights or other assets, (v) pursuant to a stock option
plan, stock bonus plan, stock purchase plan or other compensation equity
agreements or programs) or (vi) upon conversion or exercise of any "equity
securities" (within the meaning of this Section 6.7) which have been sold in
compliance with Section 6.7(c), the Company shall:
(1) give each Purchaser written notice setting forth in reasonable detail
(i) the designation and all of the
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material terms and provisions of the securities proposed to be issued (the
"PROPOSED SECURITIES"), including, where applicable, the voting powers,
preferences and relative participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof and interest rate and
maturity; (ii) the price and other terms of the proposed sale of such
securities; (iii) the amount of such securities proposed to be issued; and (iv)
such other information as the Purchasers may reasonably request in order to
evaluate the proposed issuance; and
(2) offer to issue to each Purchaser a portion of the Proposed Securities
equal to a percentage determined by dividing (x) the number of shares of Common
Stock held by such Purchaser and issuable to such Purchaser, assuming exercise
of the Warrants and conversion in full of the Shares and any other convertible
securities then held by such Purchaser, by (y) the total number of shares of
Common Stock then outstanding, including, for purposes of this calculation, all
shares of Common Stock issuable upon conversion in full of any then outstanding
convertible securities, including the Shares, and upon exercise of any then
outstanding options or warrants (including the Warrants).
(b) Each Purchaser shall have ten (10) Business Days after receipt of such
notice (the "Notice") and the furnishing of all reasonably requested information
within which to notify the Company as to whether and to what extent it has
elected to purchase the Proposed Securities. The failure by a Purchaser to so
notify the Company within ten Business Days after receipt of the Notice will be
deemed to constitute an election by such Purchaser not to purchase any such
Proposed Securities.
(c) If a Purchaser does not exercise the above subscription right with
respect to the Proposed Securities, or does not elect to purchase all of the
securities so offered to it, the Company may proceed to sell that proportion of
the Proposed Securities otherwise required to be sold to the Purchaser hereunder
within 90 days following the expiration of the 10 day period described above,
but only upon terms no more favorable to the purchasers of such securities as
those of the proposed sale as described in the notice referred to above. Any
Proposed Securities otherwise required to be offered to the Purchasers hereunder
which are offered or sold by the Company after such 90 day period must be
reoffered to the Purchaser pursuant to this Section 6.7.
(d) The election by a Purchaser not to exercise its subscription rights
under this Section 6.7 in any instance shall not affect its right (other than in
respect of a reduction in its percentage holdings) to any subsequent proposed
issuance. Any sale of such securities by the Company without first giving the
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Purchasers the right described in this Section 6.7 shall be void and of no force
and effect.
(e) The foregoing rights cease to exist at such time as the aggregate
holdings of Company securities by the Purchasers shall represent less than five
percent (5%) (calculated as described in subsection (a)(2) above) of the
Company's then outstanding Common Stock.
6.8. COVENANT NOT TO BREACH REPRESENTATIONS AND WARRANTIES, COVENANTS
Pending the Closing, the Company will not, without the Purchasers' prior
written consent, take any action which would result in any of the
representations or warranties contained in this Agreement not being true in all
material respects at and as of the time immediately after such action, or in any
of the covenants contained in this Agreement becoming incapable of performance.
The Company will promptly advise the Purchasers of any action or event of which
it becomes aware which has the effect of making incorrect in any material
respect any of such representations or warranties or which has the effect of
rendering any of such covenants incapable of performance.
6.9. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE
The Company will continue to engage in business of the same general type as
now conducted by it, and preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
privileges and franchises, except where the failure to maintain any of the
foregoing would not reasonably be expected to have a Material Adverse Effect.
The Company shall require all of its employees with access to proprietary
information, or its consultants, to enter into appropriate confidentiality
agreements and patent/invention agreements to protect confidential information
relating to the Company and its business, including trade secrets.
6.10. COMPLIANCE WITH LAWS
The Company will comply in all material respects with all applicable laws,
rules, regulations and orders, except where the failure to comply would not
reasonably be expected to have a Material Adverse Effect.
6.11. INSURANCE
The Company will maintain insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks as
is usually carried by companies of similar size and credit standing engaged in
similar business and owning similar properties, provided that such insurance is
and
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remains available to the Company at commercially reasonable rates.
6.12. KEEPING OF BOOKS
The Company will keep proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Company in accordance with GAAP.
6.13. LOST, ETC. CERTIFICATES EVIDENCING SHARES OR DIVIDEND SHARES (OR
SHARES OF COMMON STOCK); EXCHANGE
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any certificate evidencing any
shares of Common Stock, any shares of Series A Preferred Stock or any of the
Warrants owned by one of the Purchasers, and (in the case of loss, theft or
destruction) of an indemnity satisfactory to it, and upon reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of such certificate, if mutilated, the Company will make and
deliver in lieu of such certificate a new certificate of like tenor and for the
number of shares evidenced by such certificate which remain outstanding. Such
Purchaser's agreement of indemnity shall constitute indemnity satisfactory to
the Company for purposes of this Section 6.13. Upon surrender of any certificate
representing any shares of Common Stock, any shares of Series A Preferred Stock
or any of the Warrants for exchange at the office of the Company, the Company at
its expense will cause to be issued in exchange therefor new certificates in
such denomination or denominations as may be requested for the same aggregate
number of shares represented by the certificate so surrendered and registered,
as such holder may request. The Company will also pay the cost of all deliveries
of certificates for such shares to the office of such Purchaser (including the
cost of insurance against loss or theft in an amount satisfactory to the
holders) upon any exchange provided for in this Section 6.13.
6.14. COMPETING TRANSACTION RESTRICTION
For the period commencing on the date hereof and ending on the Closing Date
(the "Restricted Period"), neither the Company nor any of its officers, agents
or representatives (including without limitation, its investment banking firms
(collectively, "Representatives")) will, directly or indirectly, (i) solicit any
offers, bids or indications of interest, or initiate or participate in
negotiations with any person, with respect to any financing of the Company,
whether debt or equity, or, other than in the ordinary course of business, the
sale, license or other transfer by the Company of any material assets of the
Company (a "Competing Transaction"), (ii) enter into any
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agreement, agreement in principle, letter of intent or similar arrangement
(whether or not legally binding) relating to a Competing Transaction, (iii)
furnish, or authorize any Representatives to furnish, any confidential
information or draft agreement concerning a Competing Transaction to any party.
The Company's pending discussions with ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇. regarding the
proposed transaction between the Company and ▇▇. ▇▇▇▇▇▇▇ and his affiliates
described in its Annual Report on Form 20-F for the fiscal year ended December
31, 1998, and its discussions with Transamerica Business Credit Corporation or
another similar institutional lender regarding a $5 million credit facility,
shall not be deemed Competing Transactions for purposes of this Agreement.
SECTION 7. ADDITIONAL COVENANTS OF THE PURCHASERS
7.1. RESALE OF SECURITIES
(a) Each of the Purchasers severally covenants that it will not sell or
otherwise transfer the Shares or the Warrants (or any shares of Common Stock
acquired upon conversion of the Shares or exercise of the Warrants) to any
Person except pursuant to an effective registration under the Securities Act or
in a transaction which, in the opinion of counsel satisfactory to the Company,
qualifies as an exempt transaction under the Securities Act and the rules and
regulations promulgated thereunder.
(b) The certificates evidencing the Shares, the Warrants and the shares of
Common Stock issuable upon conversion of the Shares or exercise of the Warrants
will bear the following legend reflecting the foregoing restrictions on the
transfer of such securities:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN (A) REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN A
TRANSACTION WHICH, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY, QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE ACT AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER."
The Company shall remove this legend from the certificates evidencing such
securities as promptly as practicable following the registration of such
securities under the Securities Act or such earlier time as such securities are
no longer subject to restriction on transfer under the Securities Act.
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7.2. STANDSTILL
Each of the Purchasers which is an Affiliate of Warburg, ▇▇▇▇▇▇ & Co., a
New York general partnership (such Purchaser being herein called a "WARBURG
PURCHASER)", severally covenants that it will not acquire beneficial ownership
(within the meaning of Rule 13d-3 of the Exchange Act) of any Common Stock of
the Company if, after giving effect to such acquisition and any substantially
contemporaneous acquisitions by other Affiliates of such Warburg Purchaser, the
aggregate beneficial ownership of all of the Warburg Purchasers and their
Affiliates would exceed 37% of the then outstanding shares of Common Stock of
the Company (assuming full conversion and full exercise of any Shares or
Warrants then held by such Purchasers); PROVIDED, HOWEVER, that the foregoing
covenant shall not restrict any Warburg Purchaser from exercising at any time
its right to convert the Shares or to exercise the Warrants then held by such
Purchaser, nor shall such covenant apply to any acquisition of shares of Common
Stock that has been previously approved by the Board of Directors of the
Company.
SECTION 8. CLOSING CONDITIONS OF THE PURCHASERS AND THE COMPANY
The respective obligations of each of the Company and the Purchasers to
effect the transactions contemplated by this Agreement shall be subject to the
satisfaction on or prior to the Closing Date of the following conditions.
8.1. INJUNCTION
No preliminary or permanent injunction or other order by any federal or
state court in the United States or any federal or provincial court in Canada
which prevents the consummation of the transactions contemplated by this
Agreement shall have been issued and remain in effect.
SECTION 9. PURCHASERS' CLOSING CONDITIONS
The obligations of the Purchasers to effect the transactions contemplated
by this Agreement shall be subject to the satisfaction on or prior to the
Closing Date of the following conditions, any one or more of which may be waived
in writing by the Purchasers in accordance with Section 11.4 hereof:
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9.1. REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained in the
Transaction Documents shall be true in all material respects on and as of the
Closing Date as though such representations and warranties were made at and as
of such date, except that representations and warranties made as of a specific
date shall be true as of such date, and except as otherwise affected by the
transactions contemplated hereby.
9.2. COMPLIANCE WITH TRANSACTION DOCUMENTS
The Company shall have performed and complied in all material respects with
all agreements, covenants and conditions contained in the Transaction Documents
which are required to be performed or complied with by the Company prior to or
on the Closing Date.
9.3. OFFICER'S CERTIFICATE
The Purchasers shall have received a certificate, dated the Closing Date,
signed by each of the Chief Executive Officer and the Chief Financial Officer of
the Company, certifying that the conditions specified in the foregoing Sections
9.1 and 9.2 hereof have been fulfilled.
9.4. CONSENTS
All permits, consents, authorizations, approvals, waivers, registrations,
qualifications, designations and declarations material to the Company shall have
been obtained, and, to the extent required to be submitted prior to the Closing,
all filings and notices set forth in SCHEDULE 3.5 shall have been submitted.
9.5. COUNSEL'S OPINION
The Purchasers shall have received from the legal counsel to the Company,
▇▇▇▇▇▇▇, Spring, ▇▇▇▇▇▇▇▇ & Kichler, an opinion, dated the Closing Date,
substantially in the form of EXHIBIT E hereto.
9.6. REGISTRATION RIGHTS AGREEMENT
The Company and the Purchasers shall have executed the Registration Rights
Agreement, the form of which is attached as EXHIBIT F hereto (the "REGISTRATION
RIGHTS AGREEMENT").
9.7. ADVERSE DEVELOPMENT
There shall have been no developments in the business of the Company or any
of its subsidiaries which in the opinion of
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Purchaser would reasonably be expected to have a Material Adverse Effect.
9.8. ELECTION OF DIRECTOR
▇▇▇▇▇▇▇▇ ▇▇▇▇ shall have been elected to the Board of Directors of the
Company effective upon the Closing as the representative designated by the
holders of the Shares.
9.9. APPROVAL OF PROCEEDINGS
All proceedings to be taken in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to the Purchasers and their
counsel, ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇; and the Purchasers shall have received copies
of all documents or other evidence which it and ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ may
reasonably request in connection with such transactions and of all records of
corporate proceedings in connection therewith in form and substance reasonably
satisfactory to the Purchasers and ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇.
9.10. TERMINATION OF TERM LOAN
The term loan entered into between the Hilal Funds and a subsidiary of the
Company on April 30, 1998, as its terms have been amended, shall have been
terminated and the obligations thereunder satisfied in their entirety by (a) the
issuance of 3,948 shares of Series A Preferred Stock and 147,098 Warrants and
(b) the payment of $4,244,355 in cash from the proceeds of the investment by the
Purchasers pursuant to this Agreement, and the Registration Rights Agreement
dated April 30, 1998, by and among the Company and the Hilal Funds, shall have
been amended as contemplated by Exhibit G hereto.
SECTION 10. COMPANY CLOSING CONDITIONS
The obligations of the Company to effect the transactions contemplated by
this Agreement shall be subject to the satisfaction on or prior to the Closing
Date of the following conditions, any one or more of which may be waived in
writing by the Company in accordance with Section 11.4 hereof:
10.1. REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Purchasers contained in this
Agreement shall be true on and as of the Closing Date as though such
representations and warranties were made at and as of such date, except as
otherwise affected by the transactions contemplated hereby.
10.2. COMPLIANCE WITH TRANSACTION DOCUMENTS
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The Purchasers shall have performed and complied with all agreements,
covenants and conditions contained in the Transaction Documents which are
required to be performed or complied with by it prior to or on the Closing Date.
10.3. PURCHASER'S CERTIFICATES
The Company shall have received a certificate from the Purchasers, dated
the Closing Date, signed by a duly authorized representative of the Purchasers,
certifying that the conditions specified in the foregoing Sections 10.1 and 10.2
hereof have been fulfilled.
SECTION 11. TERMINATION, AMENDMENT AND WAIVER
11.1. TERMINATION
This Agreement may be terminated at any time prior to the Closing:
(a) By mutual written consent of the Company and the Purchasers; or
(b) (i) By the Purchasers if any of the conditions specified in
Sections 8 or 9 have not been met or waived by the Purchasers at such time as
such condition is no longer capable of satisfaction (PROVIDED the Purchasers are
not otherwise in material breach of their representations, warranties, covenants
or agreements under this Agreement); or (ii) by the Company if any of the
conditions specified in Sections 8 or 10 have not been met or waived by the
Company at such time as such condition is no longer capable of satisfaction
(PROVIDED the Company is not otherwise in material breach of its
representations, warranties, covenants or agreements under this Agreement); or
(c) By either the Purchasers or the Company if any Governmental Entity
of competent jurisdiction shall have issued a final permanent order
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement, and in any such case the time for appeal or
petition for reconsideration of such order shall have expired without such
appeal or petition being granted; or
(d) By the Purchasers if, without any material breach by the
Purchasers of their obligations under the Transaction Documents, the
transactions contemplated hereby and thereby shall not have been consummated on
or before September 30, 1999 (the "EXPIRATION DATE"); or
(e) By the Company if, without any material breach by the Company of
its obligations under the Transaction Documents, the transactions contemplated
hereby and thereby shall not have been consummated on or before the Expiration
Date; or
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11.2. EFFECT OF TERMINATION
In the event of termination of this Agreement as provided in Section 11.1
hereof, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall forthwith become null and void and there shall be no
liability on the part of the Purchasers or the Company or their respective
officers or directors or partners; PROVIDED that nothing herein shall relieve
either party from liability for any breach of this Agreement.
11.3. AMENDMENT
This Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.
11.4. WAIVER
At any time prior to the Closing, the parties hereto, by or pursuant to
action taken by the Purchasers and the Company, may (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any documents delivered pursuant hereto by the
other party and (iii) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
SECTION 12. INTERPRETATION OF THIS AGREEMENT
12.1. TERMS DEFINED
As used in this Agreement, the following terms have the respective meanings
set forth below:
AFFILIATE: shall mean any Person or entity, directly or indirectly,
controlling, controlled by or under common control with such Person or entity.
BUSINESS DAY: shall mean a day other than a Saturday, Sunday or other day
on which banks in the State of New York and the Province of Ontario are not
required or authorized to close.
EMPLOYEE BENEFIT PLAN: shall mean all material employee benefit or
executive compensation arrangements, perquisite programs or payroll practices,
including, without limitation, any such arrangements or payroll practices
providing severance pay, sick leave, vacation pay, salary continuation for
disability, retirement benefits, deferred compensation, bonus pay, incentive
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pay, stock options (including those held by Directors, employees, and
consultants), hospitalization insurance, medical insurance, life insurance,
scholarships or tuition reimbursements, that are maintained by the Company or
any of its subsidiaries or to which the Company or any subsidiary is obligated
to contribute thereunder for current or former employees of the Company or any
subsidiary.
EXCHANGE ACT: shall mean the Securities Exchange Act of 1934, as amended.
KNOWLEDGE , TO THE BEST OF THE COMPANY'S KNOWLEDGE: shall mean, along with
words of similar meaning applicable to the Company, the actual knowledge of ▇▇▇▇
▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
GOVERNMENTAL ENTITY: shall mean any United States, Canada or international
(a) federal, state, county, local or municipal government or administrative
agency or political subdivision thereof, (b) court or administrative tribunal,
(c) non-governmental agency, tribunal or entity that is vested by a governmental
agency with applicable jurisdiction, or (d) arbitration tribunal or other
non-Governmental Entity with applicable jurisdiction.
PERSON: shall mean an individual, partnership, joint-stock company,
corporation, limited liability company, trust or unincorporated organization,
and a Governmental Entity.
SEC: shall mean the Securities and Exchange Commission.
SECURITIES ACT: shall mean the Securities Act of 1933, as amended.
SUBSIDIARY: shall mean any (a) Person of which the Company (or other
specified Person) shall own directly or indirectly through a subsidiary, a
nominee arrangement or otherwise (i) at least a majority of the outstanding
voting capital stock (or other outstanding voting shares of beneficial interest)
or (ii) at least a majority of the partnership, membership, joint venture or
similar interests, or (b) in which the Company (or other specified Person) is a
general partner or joint venturer.
12.2. SCHEDULES
The disclosure contained in any one schedule of this Agreement, if by its
description is applicable to other sections of this Agreement, will also be
deemed to have been made with respect to such sections, even if such disclosure
is not repeated in any other schedules.
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12.3. ACCOUNTING PRINCIPLES
Where the character or amount of any asset or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, it shall be done in accordance with GAAP at the time
in effect, to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.
12.4. DIRECTLY OR INDIRECTLY
Where any provision in this Agreement refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
12.5. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.
12.6. PARAGRAPH AND SECTION HEADINGS
The headings of the sections and subsections of this Agreement are inserted
for convenience only and shall not be deemed to constitute a part thereof.
SECTION 13. MISCELLANEOUS
13.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
All statements contained in any certificate or other instrument executed
and delivered by the Company pursuant to this Agreement or in connection with
the transactions contemplated hereby shall be deemed representations and
warranties by the Company hereunder, except to the extent the same have been
subsequently amended prior to the date hereof. All representations and
warranties made by the parties hereto in this Agreement or pursuant hereto shall
survive the Closing hereunder and any investigation at any time made by or on
behalf of the Company; PROVIDED, HOWEVER, that neither party shall commence any
action against the other party in respect of any provision of this Agreement at
any time subsequent to the date eighteen (18) months after the Closing Date. All
covenants and agreements set forth in this Agreement shall survive in accordance
with their terms.
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13.2. NOTICES
(a) All communications under this Agreement shall be in writing and shall
be delivered by hand or facsimile or mailed by overnight courier or by
registered mail or certified mail, postage prepaid, in each case to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice, except that notices of changes of address shall be
effective upon receipt):
(1) if to Purchasers:
Warburg, ▇▇▇▇▇▇ Equity Partners, L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(2) if to the Company:
Visible Genetics Inc.
▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇, Spring, ▇▇▇▇▇▇▇▇ & Kichler
▇▇▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
▇▇▇▇ Marks & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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(b) Any notice so addressed shall be deemed to be given: if delivered by
hand or facsimile (with confirmation of transmission), on the date of such
delivery; if mailed by courier, when received; and if mailed by registered or
certified mail, when received.
13.3. EXPENSES
(a) All costs, fees and expenses incurred in connection with the
Transaction Documents and the transactions contemplated hereby and thereby shall
be paid by the party incurring such costs and expenses.
13.4. PUBLICITY
So long as this Agreement is in effect, the Purchasers and the Company
shall consult with each other in issuing any press release or otherwise making
any public statement with respect to the transactions contemplated by this
Agreement, and neither of them shall issue any press release or make any public
statement prior to such consultation, except as otherwise required by law. The
commencement of litigation relating to this Agreement or the transactions
contemplated hereby or any proceedings in connection therewith shall not be
deemed a violation of this Section 13.4.
13.5. SPECIFIC PERFORMANCE
The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any state or federal court sitting in the State of New York, this
being in addition to any other remedy to which they are entitled at law or in
equity.
13.6. SUBMISSION TO JURISDICTION
With respect to any suit, action or proceeding initiated by a party to this
Agreement arising out of, under or in connection with this Agreement or any of
the Transaction Documents, the Company and the Purchasers each hereby submit to
the exclusive jurisdiction of any state or federal court sitting in the State of
New York and irrevocably waive, to the fullest extent permitted by law, any
objection that they may now have or hereafter obtain to the laying of venue in
any such court in any such suit, action or proceeding. The Company agrees that,
within 14 days of the date of this Agreement, it will appoint and designate ▇▇▇▇
Marks & ▇▇▇▇▇ LLP, or such other Person as may be satisfactory to the Company,
as its agent to receive process in any such suit, action or proceeding and
agrees that service of
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process on such agent shall be deemed to be in every respect effective service
of process on it in any such suit, action or proceeding and waives all claim of
error by reason of such service.
13.7. SUCCESSORS AND ASSIGNS
Neither the Purchasers, on the one hand, or the Company, on the other, may
assign this Agreement or any rights hereunder without the prior consent of the
other party hereof, except that a Purchaser may assign this Agreement and its
rights hereunder and under the other Transaction Documents to an Affiliate upon
notice of such assignment to the Company. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto.
13.8. ENTIRE AGREEMENT; AMENDMENT AND WAIVER
This Agreement and the Transaction Documents constitute the entire
understanding of the parties hereto and supersede all prior agreements or
understandings with respect to the subject matter hereof among such parties.
This Agreement may be amended, and the observance of any term of this Agreement
may be waived, with (and only with) the written consent of the Company and the
Purchasers.
13.9. SEVERABILITY
In the event that any part or parts of this Agreement shall be held illegal
or unenforceable by any court or administrative body of competent jurisdiction,
such determination shall not affect the remaining provisions of this Agreement
which shall remain in full force and effect.
13.10. LIMITATION ON ENFORCEMENT OF REMEDIES
The Company hereby agrees that it will not assert against the limited
partners of the Purchasers any claim it may have under this Agreement or any
Company Transaction Document by reason of any failure or alleged failure by the
Purchaser to meet their obligations hereunder or thereunder.
13.11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which together shall be considered one
and the same agreement.
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IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
COMPANY: PURCHASERS:
VISIBLE GENETICS INC. WARBURG, ▇▇▇▇▇▇ EQUITY PARTNERS, L.P.
By: ________________________ By: Warburg, ▇▇▇▇▇▇ & Co.,
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ General Partner
Title: President and CEO
By: ___________________________
WARBURG, ▇▇▇▇▇▇ VENTURES
INTERNATIONAL, L.P.
By: Warburg, ▇▇▇▇▇▇ & Co.,
General Partner
By: ___________________________
WARBURG, ▇▇▇▇▇▇ NETHERLANDS
EQUITY PARTNERS I, C.V.
By: Warburg, ▇▇▇▇▇▇ & Co.,
General Partner
By: ___________________________
WARBURG, ▇▇▇▇▇▇ NETHERLANDS
EQUITY PARTNERS II, C.V.
By: Warburg, ▇▇▇▇▇▇ & Co.,
General Partner
By: ___________________________
WARBURG, ▇▇▇▇▇▇ NETHERLANDS
EQUITY PARTNERS III, C.V.
By: Warburg, ▇▇▇▇▇▇ & Co.,
General Partner
By: ___________________________
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