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STOCK PURCHASE AGREEMENT
by and between
BIOVAIL LABORATORIES INCORPORATED
and
DEPOMED, INC.
Dated as of May 28, 2002
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions....................................................1
ARTICLE II
ISSUE OF SHARES AND GRANT OF OPTION
SECTION 2.01. Purchase and Sale of New Shares................................6
SECTION 2.02. Purchaser's Option.............................................6
SECTION 2.03. Delivery.......................................................9
ARTICLE III
RIGHTS OF PURCHASER
SECTION 3.01. Rights Granted at Closing.....................................10
SECTION 3.02. Rights Granted Upon the Exercise of the Purchaser's Option....13
SECTION 3.03. Board Approval................................................14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. Organization and Qualification; Subsidiaries..................15
SECTION 4.02. Authority Relative to this Agreement..........................16
SECTION 4.03. No Conflict; Required Filings and Consents....................17
SECTION 4.04. Brokers.......................................................18
SECTION 4.05. Capitalization................................................18
SECTION 4.06. SEC Reports and Financial Statements..........................19
SECTION 4.07. Litigation....................................................20
SECTION 4.08. Compliance with Applicable Laws; Permits......................21
SECTION 4.09. Employee Benefit Plans........................................24
SECTION 4.10. Intellectual Property.........................................27
SECTION 4.11. Environmental Matters.........................................28
SECTION 4.12. Material Adverse Change.......................................30
SECTION 4.13. Taxes.........................................................32
SECTION 4.14. Material Contracts............................................33
SECTION 4.15. Insurance.....................................................34
SECTION 4.16. Takeover Statutes.............................................34
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Page
SECTION 4.17. Private Offering..............................................35
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
SECTION 5.01. Organization and Qualification................................35
SECTION 5.02. Authority Relative to this Agreement..........................35
SECTION 5.04. Financing.....................................................36
SECTION 5.05. Brokers.......................................................36
SECTION 5.06. Restricted Securities.........................................36
ARTICLE VI
COVENANTS
SECTION 6.01. Access to Information.........................................37
SECTION 6.02. Reasonable Efforts............................................38
SECTION 6.03. Public Announcements..........................................39
SECTION 6.04. Notification of Certain Matters...............................39
SECTION 6.05. Confidentiality of Board Proceedings..........................40
SECTION 6.06. Reservation of Shares Issuable Upon Exercise of
Purchaser's Option..........................................40
SECTION 6.07. Rule 144 Reporting............................................40
SECTION 6.08. Conditional Option............................................41
SECTION 6.05. Use of Proceeds...............................................41
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
SECTION 7.01. Conditions to Each Party's Obligation to Effect the
Transactions................................................41
SECTION 7.02. Conditions to the Obligations of Purchaser....................42
SECTION 7.03. Conditions to the Obligations of the Company..................43
ARTICLE VIII
TERMINATION
SECTION 8.01. Termination...................................................44
SECTION 8.02. Termination by Purchaser......................................44
SECTION 8.03. Termination by the Company....................................45
SECTION 8.04. Procedure for Termination.....................................45
SECTION 8.05. Extension; Waiver.............................................45
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Page
ARTICLE IX
CLOSING
SECTION 9.01. Time and Place................................................46
ARTICLE X
INDEMNIFICATION
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Non-Survival of Representations and Warranties................48
SECTION 11.02. Entire Agreement; Assignment..................................48
SECTION 11.03. Validity......................................................49
SECTION 11.04. Notices.......................................................49
SECTION 11.05. Governing Law; Jurisdiction...................................50
SECTION 11.06. Descriptive Headings..........................................50
SECTION 11.07. Counterparts..................................................50
SECTION 11.08. Parties in Interest...........................................50
SECTION 11.09. Remedies......................................................50
SECTION 11.10. EIS Right of Participation....................................50
ANNEX I - Form of Registration Rights Agreement
ANNEX II Form of Nominee Voting Commitment
ANNEX III Committed Voters
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of May 28, 2002, by and between Biovail
Laboratories Incorporated, a corporation organized under the laws of Barbados
("Purchaser"), and Depomed, Inc., a California corporation (the "Company").
WHEREAS, Purchaser wishes to subscribe for and the Company wishes to issue,
sell and transfer to Purchaser 2,465,878 shares of Company Common Stock (the
"New Shares") to Purchaser at a subscription price of US$5.00 per share, in cash
(the "Initial Share Consideration"); and
WHEREAS, in connection with and conditioned upon the aforementioned sale,
transfer and issuance, the Company wishes to grant and Purchaser wishes to
accept the Purchaser's Option and, subject to the terms hereof, the Conditional
Option and the Company and Purchaser each wish to enter into the Registration
Rights Agreement; and
WHEREAS, Purchaser and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated herein and in the other Transaction Documents and also to prescribe
various conditions to each such transaction;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein,
Purchaser and the Company agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, the terms
defined in this Article have the meanings assigned to them in this Article:
"affiliate", as applied to any person, means any other person directly or
indirectly controlling, controlled by, or under common control with, that
person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that person,
whether through the ownership of voting securities, by contract or otherwise.
"Bankruptcy Exceptions" has the meaning set forth in Section 4.02(a).
"Business Day" means any day on which commercial banks are not required or
authorized to close in the City of New York or the City of Toronto.
"Closing" has the meaning set forth in Section 9.01.
"Closing Date" has the meaning set forth in Section 9.01.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the recitals hereto.
"Company Articles of Incorporation" has the meaning set forth in Section
4.03(b).
"Company Balance Sheet" has the meaning set forth in Section 4.06(c).
"Company Change of Control" means an event whereby (1) any person or group
(as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act has become the
direct or beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
more than 50% of the voting stock of the Company, (ii) the Company is merged
with or into or amalgamated or consolidated with another corporation and,
immediately after giving effect to the merger, amalgamation or consolidation,
less than 50% of the outstanding voting stock of the surviving or resulting
entity are then beneficially owned (within the meaning of Rule 13d-3 of the
Exchange Act) in the aggregate by (x) the stockholders of the Company
immediately prior to such merger, amalgamation or consolidation, or (y) if the
record date has been set to determine the stockholders of the Company entitled
to vote on such merger, amalgamation or consolidation, the stockholders of
Company as of such a record date, (iii) the sale, lease, transfer, conveyance or
other distribution (other than by way of merger, amalgamation or consolidation),
in one or a series of related transactions, of all or substantially all of the
assets of the Company and its Subsidiaries, taken as a whole, to any Person or
group of related persons for purposes of Section 13(d) of the Exchange Act, or
(iv) the adoption of
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a plan relating to the liquidation or dissolution of the Company (which for the
avoidance of doubt shall not include the adoption of any plan relating to an
internal restructuring of the Company or a change in the jurisdiction of
organization of the Company).
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Disclosure Statement" has the meaning set forth in the preamble to
Article IV.
"Conditional Option" shall have the meaning set forth in Section 6.08.
"Confidentiality Agreement" has the meaning set forth in Section 11.02(a).
"Consent" has the meaning set forth in Section 4.03(a).
"Convertible Note" has the meaning set forth in Section 4.05.
"Designee" shall mean a person designated by the Purchaser that is
reasonably acceptable to the Company.
"Environmental Laws" has the meaning set forth in Section 4.11.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FDA" means the U.S. Food and Drug Administration.
"GAAP" has the meaning set forth in Section 4.06(b).
"Governmental Entity" has the meaning set forth in Section 4.03(a).
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended.
"Initial Share Consideration" has the meaning set forth in the recitals
hereto.
"Intellectual Property" has the meaning set forth in Section 4.10(b).
"knowledge" shall mean the actual knowledge or such knowledge as would
exist after reasonable inquiry directed to employees who would reasonably be
expected to have knowledge of relevant matters, with respect to the Company, the
Company's
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executive officers and, with respect to Purchaser, Purchaser's executive
officers.
"Law" has the meaning set forth in Section 4.08(b).
"Lien" has the meaning set forth in Section 4.05.
"Material Adverse Effect on the Company" means any change in, or effect on,
the business, results of operations, assets, financial condition or prospects of
the Company or any of the Subsidiaries that is or would reasonably be expected
to be materially adverse to the Company and the Subsidiaries taken as a whole,
other than any change or effect (i) relating to the economy in general or (ii)
relating to the industry in which the Company operates in general and not
specifically relating to the Company.
"Material Contracts" means (i) agreements of the Company or any of the
Subsidiaries containing an unexpired covenant not to compete applying to the
Company or any of the Subsidiaries; (ii) employment or consulting agreements, or
arrangements; (iii) collective bargaining agreements; (iv) interest rate,
currency or commodity hedging, swap or similar derivative transactions to which
the Company or any of the Subsidiaries is a party; (v) material agreements
providing for payment based on revenues, sales or profits; (vi) agreements
between the Company or any of the Subsidiaries, on the one hand, and any
affiliate of the Company, on the other hand; (vii) other material agreement not
entered into in the ordinary course of business or; (viii) other contracts or
amendments thereto that would be required to be filed and have not been filed as
a exhibit to a Form 10-K filed by the Company with the SEC as of the date of
this Agreement.
"New Shares" has the meaning set forth in the recitals hereto.
"Option Delivery Date" has the meaning set forth in Section 2.03.
"Permitted Encumbrance" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) liens for taxes, assessments and governmental charges or
levies not yet due and payable which are not in excess of $50,000 in the
aggregate; (b) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's liens and other similar liens arising in
the ordinary course of business securing obligations that (i)are not overdue for
a period of more than 30 days and (ii) are not in excess of $5,000 in the case
of a single property or $50,000 in the aggregate at any time;
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(c) pledges or deposits to secure obligations under workers' compensation laws
or similar legislation or to secure public or statutory obligations; and (d)
minor survey exceptions, reciprocal easement agreements and other customary
Liens on title to real property that (i) were not incurred in connection with
any indebtedness, (ii) do not render title to the property encumbered thereby
unmarketable and (iii) do not, individually or in the aggregate, materially
adversely affect the value or use of such property for its current and
anticipated purposes.
"person" shall include individuals, corporations, partnerships, trusts,
other entities and groups (which term shall include a "group" as such term it
defined in Section 13(d)(3) of the Exchange Act).
"Purchaser" has the meaning set forth in the recitals hereto.
"Purchaser Nominees" has the meaning set forth in Section 3.02.
"Purchaser's Option" has the meaning set forth in Section 2.02.
"Registration Rights Agreement" means the Registration Rights Agreement, to
be dated the Closing Date, between Purchaser and the Company, a form of which is
attached hereto as Annex I.
"Regulatory Law" means the ▇▇▇▇▇▇▇ Act, as amended, the ▇▇▇▇▇▇▇ Act, as
amended, the HSR Act, the Federal Trade Commission Act, as amended, and all
other federal, state and non-U.S., if any, statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines and other laws that are designed
or intended to prohibit, restrict or regulate (i) non-U.S. investment or (ii)
actions having the purpose or effect of monopolization or restraint of trade or
lessening of competition.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" has the meaning set forth in Section 4.06(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" or "Subsidiaries" has the meaning set forth in Section 4.01.
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"subsidiary" or "subsidiaries" means, with respect to any party, any person
of which such party (either alone or through or together with any other
subsidiary), owns, directly or indirectly, stock or other equity interests the
holders of which are generally entitled to more than 50% of the votes for the
election of the board of directors or other governing body of such person.
"Tax" means (i) all federal, state, provincial, local or non-U.S. taxes,
charges, fees, imposts, levies or other assessments, including, without
limitation, all income, alternative minimum, gross receipts, capital, sales,
use, ad valorem, value added, transfer, franchise, profits, inventory, capital
stock, license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation, property and estimated taxes, customs
duties, fees, assessments and charges of any kind whatsoever, (ii) all interest,
penalties, fines, additions to tax or other additional amounts imposed by any
taxing authority in connection with any item described in clause (i), and (iii)
all transferee, successor, joint and several, contractual or other liability
(including, without limitation, liability pursuant to Treas. Reg. ss. 1.1502-6
(or any similar state, local or non-U.S. provision)) in respect of any items
described in clause (i) or (ii).
"Tax Return" means all returns, declarations, reports, estimates,
information returns and statements filed or required to be filed in respect of
any Taxes.
"Transaction Documents" has the meaning set forth in Section 4.02.
"Warrants" has the meaning set forth in Section 4.05.
ARTICLE II
ISSUE OF SHARES AND GRANT OF OPTION
SECTION 2.01. Purchase and Sale of New Shares. Subject to the terms and
conditions set forth herein, the Company agrees that it will sell to Purchaser,
and Purchaser agrees that it will, at the Closing Date, purchase from the
Company, the New Shares at the Initial Share Consideration per share of Company
Common Stock purchased.
SECTION 2.02. Purchaser's Option. (a) The Company hereby grants the
Purchaser or its Designee, subject to the Closing occurring on the Closing Date,
the right (the "Purchaser's Option") to purchase up to such number of additional
shares of
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Company Common Stock as shall cause the Purchaser (and its subsidiaries and its
Designee, if any, taken together) to (directly or indirectly) have purchased or
been granted pursuant to the provisions of this Agreement up to (but not
exceeding) 20.0% of the Company's issued and outstanding Common Stock
(calculated immediately after exercise of the Purchaser's Option). The option
exercise price shall be payable on the Option Delivery Date in accordance with
the provisions of Section 2.03. The Purchaser's rights to exercise the
Purchaser's Option shall expire on the date that is three years from the Closing
Date. Notwithstanding anything to the contrary herein, the Purchaser's Option
(i) shall expire immediately upon any sale or transfer to a party other than a
Designeee or affiliate or other disposition by the Purchaser, Designee or any
affiliate of the Purchaser of any of the shares of Company Common Stock
purchased hereunder and (ii) may only be exercised once during the duration of
the Purchaser's Option.
(b) Subject to the adjustments set forth in subsection (c) below, the
Option exercise price per share purchased pursuant to exercise of the
Purchaser's Option shall equal the Initial Share Consideration plus, beginning
one year from the date hereof, an additional 20.0% per annum, compounded
monthly.
(c)(I) If, prior to the expiration of the Purchaser's Option, the
Company shall issue any Company Common Stock as a share dividend or
subdivide the number of outstanding shares of Company Common Stock, the
Option exercise price per share purchasable pursuant to the Purchaser's
Option in effect at the time of such action shall be proportionately
reduced and the number of shares of Company Common Stock purchasable upon
exercise of the Purchaser's Option shall be proportionately increased. If
the Company shall, at any time during the life of the Purchaser's Option,
declare a dividend payable in cash on Company Common Stock and shall at
substantially the same time offer to its shareholders a right to purchase
new Company Common Stock from the proceeds of such dividend or for an
amount substantially equal to the dividend, all Company Common Stock so
issued shall, for the purpose of the Purchaser's Option, be deemed to have
been issued as a share dividend. Any dividend paid or distributed upon
Company Common Stock in shares of any other class of securities convertible
into Company Common Stock shall be treated as a dividend paid in Company
Common Stock to the extent that Company Common Stock is issuable upon the
conversion thereof.
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(II) If, prior to the expiration of the Purchaser's Option by exercise
or by its terms, the Company desires to recapitalize by reclassifying the
outstanding Company Common Stock, or the Company or a successor corporation
desires to consolidate or merge with or convey all or substantially all of
its or any successor corporation's property and assets to any other
corporation or corporations (any such corporation being included within the
meaning of the term "successor corporation" used above in the event of any
consolidation or merger of any such corporation with, or the sale of all or
substantially all of the property of any such corporation, to another
corporation or corporations), then the Company shall deliver to the holder
of the Purchaser's Option prior written notice from the Company stating
that the Company intends to engage in certain of the foregoing transactions
set out in this Section 2.02(C)(II), and the Purchaser shall have the right
to exercise the Purchaser's Option within 30 days of receipt of the
foregoing notice failing which the Purchaser's Option shall terminate.
(III) If: (i) the Company shall take a record of holders of Company
Common Stock for the purpose of entitling them to receive a dividend
payable otherwise than in cash, or any other distribution in respect of the
Company Common Stock (including cash), pursuant to, without limitation, any
spin-off, split-off, or distribution of the Company's assets; or (ii) the
Company shall take a record of the holders of Company Common Stock for the
purpose of entitling them to subscribe for or purchase any shares of any
class or to receive any other rights; or (iii) in the event of any
classification, reclassification or other reorganization of the securities
which the Company is authorized to issue, consolidation or merger by the
Company with or into another corporation, or conveyance of all or
substantially all of the assets of the Company; or (iv) in the event of any
voluntary or involuntary dissolution, liquidation or winding up of the
Company; then, and in any such case, the Company shall mail to the holder
of the Purchaser's Option, at least 15 days prior thereto, a notice stating
the date or expected date on which a record is to be taken for the purpose
of such dividend, distribution or rights, or the date on which such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up, as the case may be,
will be effected. Such notice shall also specify the date or expected date,
if any is to be fixed, as to which holders of Company Common Stock of
record shall be entitled to participate in such dividend, distribution or
rights, or shall be entitled to exchange their Company Common Stock or
securities or other property de-
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liverable upon such classification, reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up,
as the case may be.
(IV) If the Company, at any time while the Purchaser's Option shall
remain unexpired, shall sell all or substantially all of its property,
dissolve, liquidate or wind up its affairs, the holder of the Purchaser's
Option may thereafter receive upon exercise thereof, in lieu of each
Company Common Share which it would have been entitled to receive, the same
kind and amount of any securities or assets as may be issuable,
distributable or payable upon any such sale, dissolution, liquidation or
winding up with respect to each share of Company Common Stock purchased
upon exercise of the Purchaser's Option.
(V) The Company shall as promptly as practicable after the occurrence
of any of the events set forth in Section 2.02(c)(I)-(IV) notify the
Purchaser in writing of the occurrence of such event or events.
(d) No fractional shares or scrip representing fractional shares shall be
issued pursuant to any provision of this Agreement. With respect to any fraction
of a share of Company Common Stock called for upon exercise of the Purchaser's
Option or upon exercise of the rights granted in Section 3.01(d), the Company
shall issue to the party so exercising cash in lieu of such fractional share.
SECTION 2.03. Delivery. Delivery of the Company Common Stock constituting
the New Shares to be purchased by Purchaser pursuant to this Agreement shall be
made at the Closing, and delivery of the Company Common Stock to be issued upon
exercise of the Purchaser's Option shall be made within three Business Days of
the Purchaser's notice to the Company of any exercise of the Purchaser's Option
(such date, the "Option Delivery Date"), by the Company delivering certificates
representing such Company Common Stock to the Purchaser or the Designee, as
applicable, against payment therefor in immediately available same day funds to
an account designated by the Company. The Company will bear all expenses of
shipping such Company Common Stock (including, without limitation, insurance
expenses) to such places within the United States of America, Canada or Barbados
as Purchaser or the Designee, as applicable, shall specify.
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ARTICLE III
RIGHTS OF PURCHASER
SECTION 3.01. Rights Granted at Closing. At and from the Closing Date:
(a) So long as the Purchaser (together with its subsidiaries) holds,
directly or indirectly, not less than 10% of the of the issued and outstanding
shares of Company Common Stock, the Purchaser shall be entitled, but not
obligated, to have a non-voting observer (the "Purchaser Observer") in
attendance at each meeting of the Board of Directors of the Company and each
meeting of any committee thereof (each such meeting, a "Board Meeting"). The
Purchaser, and if the Purchaser has notified the Company that it has appointed a
Purchaser Observer, the Purchaser Observer, shall receive notice of each Board
Meeting at least five Business Days prior to such meeting. Such notice shall
specify the time, date, location and purpose of such meeting. The Purchaser, and
the Purchaser Observer, if any, shall also be provided with the same agenda and
other information provided to board or committee members, as the case may be, in
connection with such meeting and at the same time such materials are provided to
such board or committee members, as the case may be; the Purchaser shall be
entitled to appoint, dismiss or replace the Purchaser Observer at its sole
discretion; provided, however, that the Board of Directors of the Company may
exclude the Purchaser Observer from access to any meeting or portion thereof if
the Company reasonably believes, upon advice of counsel, that such exclusion is
advisable: (i) to preserve attorney-client privilege, (ii) to protect such
proprietary information relating to DepoMed Development, Ltd. or (iii) due to a
conflict of interest between the Company and the Purchaser.
(b) So long as the Purchaser (together with its subsidiaries) holds,
directly or indirectly, not less than 5% of the of the issued and outstanding
shares of Company Common Stock (calculated on a fully diluted basis), whether or
not the Company is subject to Section 13 or 15(d) of the Exchange Act, the
Company shall provide the Purchaser with audited annual financial information
prepared in accordance with GAAP and quarterly financial information prepared on
a basis substantially consistent with the audited annual financial information
and provide the Purchaser with access to executives of the Company responsible
for the preparation of such financial information; such information shall be
provided in a timely manner and shall be in such form as will allow the
Purchaser to include such
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relevant financial information regarding the Company as may be reasonably
necessary for the Purchaser to comply with any and all requirements related to
the Purchaser's regulatory filings or for the Purchaser to determine its pro
rata share of the Company's income or loss, including the amount, if any, of
adjustments to such income or loss for the Purchaser to apply SAB 101 and
reflect an in-process research and development write-off.
(c) So long as the Purchaser (together with its subsidiaries) holds,
directly or indirectly, not less than 10% of the of the issued and outstanding
shares of Company Common Stock, in the event that the Company receives a bona
fide offer from any person other than the Purchaser relating to the sale of
substantially all of the Company's assets or relating to any amalgamation,
merger or business combination with, or recapitalization or restructuring or
similar transaction involving, the Company and a person unaffiliated with the
Company (each, a "Proposed Transaction"), or where the Company elects to
initiate a Proposed Transaction, then, prior to the Company entering into any
agreements with respect to the Proposed Transaction, including without
limitation any exclusive negotiation agreement, letter of intent or definitive
agreement providing for a Proposed Transaction, the Company shall deliver to the
Purchaser written notice of such Proposed Transaction setting forth all of the
terms and conditions of the Proposed Transaction (an "Offer Notice"). Upon
receipt of the Offer Notice, representatives of the parties shall meet in person
as soon is reasonably practicable and discuss the terms set out in the Offer
Notice. If the parties, acting reasonably, are unable to conclude a binding
agreement within 15 Business Days of receipt of the Offer Notice with respect to
the Proposed Transaction more particularly described in the Offer Notice, or if
the Purchaser provides the Company with written notice that it does not wish to
pursue the Proposed Transaction within that 15 Business Day Period, then the
Company shall be free to pursue the Proposed Transaction without again providing
the Purchaser with further notice so long as the terms upon which the Company
closes such Proposed Transaction are not less favourable, taken as a whole, than
those, if any, offered to the Company by the Purchaser in the course of the
discussions between the Company and the Purchaser contemplated by this Section
3.01(c); and
(d) (1) until the date that is three (3) years from the Closing Date, at
any time that the Company offers for sale Company Common Stock or securities
convertible or exchangeable into, or exercisable for, Company Common Stock,
whether newly issued or not and whether registered pursuant the Securities Act
or not (such securities offered, the "Offered Securities"),
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the Purchaser or its Designee shall be given the opportunity to participate in
such offering, on terms identical to those offered to other offerees of the
Offered Securities, and purchase, at its discretion, up to such number of
Offered Securities that, upon the completion of such offering, shall cause the
Purchaser (taken together with its subsidiaries and the Designee) to own the
same percentage of issued and outstanding Company Common Stock (such percentage,
the "Pre-Offering Ownership Percentage") purchased pursuant to any provision of
this Agreement (calculated on an issued and outstanding basis) as the Purchaser
(and its subsidiaries, taken together) owned immediately prior to the completion
of such offering;
(2) the foregoing rights set out in Section 3.01(d)(1) shall not apply to
any: (i) offering or issuance of securities under an option plan or other stock
plan; (ii) asset or company acquisition paid for, in whole or in part, in shares
of stock; (iii) issuances of warrants to purchase shares of stock as part of an
equipment financing; (iv) underwritten or registered direct public offering of
securities of the Company; or (v) in connection with a strategic licensing
transaction (each, a "Qualified Offering");
(3) notwithstanding the issuance of stock or other securities pursuant to
Section 3.01(d)(2), in no event shall securities issued in any Qualified
Offering be included for the purposes of calculating the Pre-Offering Ownership
Percentage, provided that if the Company offers for sale or issuance further
securities in which the Purchaser is entitled to participate pursuant to Section
3.01(d)(1) (a "Post-Qualified Offering") subsequent to a Qualified Offering, the
Purchaser shall be entitled to purchase in such Post-Qualified Offering a
sufficient number of securities to cause the Purchaser (taken together with its
subsidiaries and the Designee) to own the Pre-Offering Ownership Percentage as
the Purchaser (and its subsidiaries, taken together) owned by the Purchaser
immediately prior to the completion of such Qualified Offering;
(4) if the Purchaser is unable to purchase a sufficient number of
securities in a Post-Qualified Offering due to the number of shares offered for
sale in such offering in no event shall such Qualified Offering be included for
the purposes of calculating the Pre-Offering Ownership Percentage until such
time as a Post-Qualified Offering provides the Purchaser with a sufficient
number of securities to cause the Purchaser (taken
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together with its subsidiaries and the Designee) to own the Pre-Offering
Ownership Percentage as the Purchaser (and its subsidiaries, taken together)
owned by the Purchaser immediately prior to the completion of such Qualified
Offering; and
(5) where the Purchaser declines to purchase in a Post-Qualified Offering,
or where in a Post-Qualified Offering there are sufficient securities available
to cause the Purchaser (taken together with its subsidiaries and the Designee)
to own the Pre-Offering Percentage as the Purchaser (and its subsidiaries, taken
together) owned immediately prior to the completion of such Qualified Offering
and the Purchaser declines to purchase such securities (a "Non-Purchase Event"),
then immediately subsequent to the Non-Purchase Event the shares issued in the
Qualified Offering shall be included in calculating the Pre-Offering Ownership
Percentage.
(6) The Company shall give written notice to the Purchaser indicating the
number of Offered Securities available to the Purchaser pursuant to this Section
3.01(d) specifying the per share price and other terms upon which it proposes to
offer the Offered Shares and shall provide to the Purchaser the information
proposed to be supplied to any third party offeree. Within 15 days of the
receipt of such notice, the Purchaser shall deliver a response notice to the
Company. If the Purchaser shall state in such notice that it intends to
participate in such offering, the parties shall take all actions necessary to
consummate the offering of the Offered Securities.
SECTION 3.02. Rights Granted Upon the Exercise of the Purchaser's Option.
(a) Provided that the Purchaser has purchased at least 2,400,000 New Shares
under this Agreement, and further provided that upon the exercise of the
Purchaser's Option the Purchaser (and its subsidiaries, taken together)owns not
less than 20% of the of the issued and outstanding shares of Company Common
Stock (calculated on an issued and outstanding basis), and as soon as is
reasonably practicable but in no event later than 15 Business Days following the
time of the exercise of the Purchaser's Option, the Company shall take all
action necessary to cause to be appointed to the Board of Directors of the
Company such number of Designees identified by the Purchaser (the "Purchaser
Nominees") as is set forth in the table below. At each annual meeting of
shareholders of the Company following the exercise of the Purchaser's Option: if
at the time of such nomination the Purchaser (and its subsidiaries, taken
together) holds, directly or indirectly, not less than 20% of the of the issued
and outstanding shares of Company Common Stock (calculated on an issued and
outstanding basis) the Company shall nominate the Purchaser Nominees for
election to the Board of Directors of the Company set forth in the following
table under "Number of Purchaser Nominees at 20.0% or
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more"; and (ii) pursuant to following table: if at the time of such nomination
the Purchaser (and its subsidiaries, taken together) holds, directly or
indirectly, not less than 10.0%, and less than 20.0%, of the of the issued and
outstanding shares of Company Common Stock (calculated on an issued and
outstanding basis), the Company shall nominate the Purchaser Nominees for
election to the Board of Directors of the Company set forth in the following
table under "Number of Purchaser Nominees at 10% - 20%":
--------------------------------------------------------------------------------
Number of Directors Number of Pur- Number of Purchaser
chaser Nominees at Nominees at 10%-
20% or more 20%
--------------------------------------------------------------------------------
1 - 4 1 1
--------------------------------------------------------------------------------
5 - 9 2 1
--------------------------------------------------------------------------------
10 - 15 3 2
--------------------------------------------------------------------------------
For each additional 5 1 additional Director 1 additional Director
Directors beyond 15
--------------------------------------------------------------------------------
(b) Provided that the Company fulfills its obligations under Section
3.02(a), the Purchaser shall not, and shall cause its affiliates not to: (i)
nominate for election, or solicit proxies in favor of the election, to the Board
of Directors of the Company any person other than nominees designated by the
Board of Directors of the Company; or (ii) cumulate its votes in the election of
directors of the Company as permitted by the Company's by-laws except in favor
of Purchaser Nominees.
(c) The Board of Directors of the Company may exclude the Purchaser
Nominees from access to any meeting or portion thereof if the Company reasonably
believes, upon advice of counsel, that such exclusion is advisable: (i) to
protect proprietary information relating to DepoMed Development, Ltd. or (ii)
due to a conflict of interest between the Company and the Purchaser.
SECTION 3.03. Board Approval. The parties hereto agree, that so long as at
least one Purchaser Nominee is a member of the Board of Directors of the
Company, the Board of Directors of the Company shall duly approve, either at a
meeting or by unanimous written consent, each of the following corporate
actions:
(a) approval of capital expenditures by the Company or any of its
Subsidiaries in excess of $20 million;
-14-
(b) approval of any incurrence of any material indebtedness or
material change in the capital structure of the Company;
(c) approval of any sale, lease, exchange, other disposition of, or
the creation of any pledge, hypothecation, encumbrance or lien on, any
material asset of the Company or the Subsidiaries;
(d) the execution or of any material licensing agreement with respect
to Intellectual Property of the Company or a Subsidiary;
(e) the approval of a material acquisition of the of stock or assets
or the making of a material investment in another person;
(f) the provision of financial assistance to a third party in an
amount in excess of $250,000;
(g) the placement of loans or other incurrence of indebtedness in an
amount in excess of $250,000 not negotiated in an arms-length transaction,
including loans to directors and officers of the Company and its
Subsidiaries;
(h) the adoption of a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of the Subsidiaries; or
(i) a Company Change of Control (structured in a form that would
permit board approval).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that except as set forth
in the section or subsection of the Company Disclosure Statement corresponding
to the section or subsection of this Article IV delivered to Purchaser prior to
the execution hereof (the "Company Disclosure Statement"):
SECTION 4.01. Organization and Qualification; Subsidiaries. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California. Each subsidiary of the Company (together, the
"Subsidiaries") is a corporation duly organized, validly exist-
-15-
ing and in good standing under the laws of the jurisdiction of its
incorporation. The Company and each of the Subsidiaries has the requisite
corporate power and authority to own, operate or lease its properties and to
carry on its business as it is now being conducted, and is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction in which
the nature of its business or the properties owned, operated or leased by it
makes such qualification, licensing or good standing necessary, other than such
jurisdictions where the failure to be so qualified or licensed and to be so in
good standing would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. The Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation (other than a Subsidiary), partnership, joint venture or other
business association or entity.
SECTION 4.02. Authority Relative to this Agreement. (a) The Company has the
requisite corporate power and authority to execute and deliver each of this
Agreement and the Registration Rights Agreement (collectively, the "Transaction
Documents") and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of each of this Agreement and the other Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly and validly authorized and
approved by the Board of Directors of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize or approve
this Agreement or the any other Transaction Document or to consummate the
transactions contemplated hereby or thereby. This Agreement has been, and each
other Transaction Document will be upon execution, duly and validly executed and
delivered by the Company and, assuming the due and valid authorization,
execution and delivery by the other parties thereto, if any, constitutes a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally (the "Bankruptcy Exceptions")
and (ii) is subject to general principles of equity.
(b) The Board of Directors of the Company, by resolutions duly adopted by
unanimous vote of those voting at a meeting duly called and held and not
subsequently rescinded or modified in any way (the "Company Board Approval"),
has duly approved each of this Agreement and the transactions contemplated
hereby.
-16-
(c) Other than as set forth on Section 4.02 of the Company Disclosure
Statement, the Company Board Approval is the only vote, approval or consent of
any Person or entity necessary to approve this Agreement or any Transaction
Document and the transactions contemplated hereby or thereby.
SECTION 4.03. No Conflict; Required Filings and Consents. (a) None of the
execution and delivery of this Agreement or the other Transaction Documents, the
consummation by the Company of the transactions contemplated hereby or thereby
or compliance by the Company with any of the provisions hereof or thereof will
require any consent, waiver, approval, authorization or permit of, or
registration or filing with or notification to (any of the foregoing being a
"Consent"), any government, subdivision thereof, or any administrative,
governmental, regulatory or self-regulatory authority, agency, commission,
tribunal or body, domestic, non-U.S. or supranational (a "Governmental Entity")
or person who is not a Governmental Entity, except for (i) compliance with any
applicable requirements of the Exchange Act, the American Stock Exchange, the
Securities Act or applicable state securities "Blue Sky" laws in connection with
the registration rights granted pursuant to the Registration Rights Agreement
and (ii) compliance with the HSR Act, if required.
(b) Except as set forth in clause (a) of this Section 4.03, none of the
execution and delivery of this Agreement or the other Transaction Documents by
the Company, the consummation by the Company of the transactions contemplated
hereby and thereby or compliance by the Company with any of the provisions
hereof or thereof will (i) conflict with or violate the Articles of
Incorporation of the Company as in effect on the date hereof (the "Company
Articles of Incorporation") or by-laws of the Company as in effect on the date
hereof or the comparable organizational documents of any of the Subsidiaries,
(ii) conflict with or violate any statute, ordinance, rule, regulation, order,
judgment or decree applicable to the Company or the Subsidiaries, or by which
any of them or any of their respective properties or assets may be bound or
affected, or (iii) result in a violation or breach of, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in any loss of any material benefit or the creation
of any Lien on any of the property or assets of the Company or any of the
Subsidiaries (any of the foregoing referred to in clause (ii) or this clause
(iii) being a "Violation") pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of the Subsidiaries is a party or by
which the Company or any of the Subsidiaries or any of their
-17-
respective properties may be bound or affected, except, in the case of clause
(ii) and (iii), for any such Violation which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
SECTION 4.04. Brokers. None of the Company, any of the Subsidiaries or any
of their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any brokerage fees, commissions or finder's
fees in connection with the transactions contemplated by this Agreement.
SECTION 4.05. Capitalization. The Company has heretofore made available to
Purchaser complete and correct copies of the Company Articles of Incorporation
and the by-laws, in effect on the date hereof, of the Company. The authorized
capital stock of the Company as of the date of this Agreement consists of
13,973,309 shares of Company Common Stock and 12,015 shares of Series A
Preferred Stock, no par value ("Preferred Stock"). As of the close of business
on May 21, 2002 there were (i) 13,973,309 shares of Company Common Stock issued
and outstanding, of which no shares were owned by the Company or a wholly-owned
Subsidiary and (ii) 12,015 shares of Preferred Stock issued and outstanding, of
which no shares were owned by the Company or a wholly-owned Subsidiary. As of
the close of business on May 21, 2002, there were issued and outstanding Common
Stock Purchase Warrants, no par value ("Warrants") to purchase 3,215,270 shares
of Company Common Stock with a weighted average exercise price of $5.89. The
Company has no capital stock reserved for issuance, except that, as of the day
prior to execution of this Agreement, there were (i) 2,562,540 shares of Company
Common Stock reserved for issuance pursuant to options outstanding on the date
hereof pursuant to the Company's option plan, (ii) 3,215,270 shares of Company
Common Stock reserved for issuance upon exercise of Warrants, (iii) 1,323,396
shares of Company Common Stock reserved for issuance upon conversion of the
Preferred Stock and (iv) 641,741 shares of Company Common Stock reserved for
issuance upon conversion of the Convertible Promissory Note of the Company dated
January 21, 2000 (the "Convertible Note"). Since the day prior to execution of
this Agreement, the Company has not issued any options, Warrants or capital
stock except pursuant to the exercise of Options or Warrants or the conversion
of the outstanding Preferred Stock or the outstanding Convertible Note
outstanding as of such date and in accordance with their terms. The New Shares
and the Company Common Stock to be issued upon exercise of the Purchaser's
Option have been duly authorized and, when issued, will be validly issued, fully
paid and non-assessable and, with respect to (iii), upon exercise, will be
validly issued, fully paid and non-assessable. All the outstanding Company
Common Stock and Preferred Stock are, and
-18-
all Company Common Stock which may be issued pursuant to the exercise of
outstanding options or Warrants or the conversion of the outstanding Preferred
Stock or the outstanding Convertible Note will be, when issued in accordance
with the respective terms thereof, duly authorized, validly issued, fully paid
and nonassessable. Except for the Convertible Note, there are no bonds,
debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights) ("Voting Debt") of the Company
or any of the Subsidiaries issued and outstanding. Except as stated above, there
are no existing options, warrants, calls, subscriptions or other rights,
agreements, arrangements or commitments of any character, relating to the issued
or unissued capital stock of the Company or any of the Subsidiaries, obligating
the Company or any of the Subsidiaries to issue, transfer or sell or cause to be
issued, transferred or sold any capital stock or Voting Debt of, or other equity
interest in, the Company or any of the Subsidiaries or securities convertible
into or exchangeable for such shares or equity interests or obligations of the
Company or any of the Subsidiaries to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement, arrangement or
commitment. There are no outstanding contractual obligations of the Company or
any of the Subsidiaries to repurchase, redeem or otherwise acquire any capital
stock of the Company or any of the Subsidiaries and the issuance of Company
Common Stock pursuant to any provision of this Agreement will not give rise to
any preemptive rights or rights of first refusal on behalf of any person, other
than as set forth in Section 4.05 of the Company Disclosure Statement. Each of
the outstanding capital stock of each of the Company's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable, and such shares of the
Subsidiaries as are owned by the Company or by a wholly owned Subsidiary are
free and clear of any lien, claim, option, charge, security interest,
limitation, encumbrance and restriction of any kind (any of the foregoing being
a "Lien"), except for Permitted Encumbrances.
SECTION 4.06. SEC Reports and Financial Statements. (a) The Company has
filed with the SEC all forms, reports, schedules, registration statements and
definitive proxy statements required to be filed by the Company with the SEC
through the date hereof (the "SEC Reports"). As of their respective dates and
except as subsequently amended prior to the date hereof, the SEC Reports
complied in all material respects with the requirements of the Exchange Act or
the Securities Act and the rules and regulations of the SEC promulgated
thereunder applicable, as the case may be, to such SEC Reports, and none of the
SEC Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in
-19-
light of the circumstances under which they were made, not misleading.
(b) (i) The balance sheets as of December 31, 2000 and 2001 and the related
statements of operations, shareholders' equity and cash flows (including the
notes thereto) for each of the three years in the period ended December 31, 2001
and for the period from inception (August 7, 1995) to December 31, 2001
(including the related notes and schedules thereto) of the Company contained in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001 (the "Form 10-K") included in the SEC Reports present fairly the financial
position and the results of operations and cash flows of the Company as of the
dates or for the periods presented therein in conformity with United States
generally accepted accounting principles applied on a consistent basis as of and
during the periods involved ("GAAP").
(ii) The balance sheet as of December 31, 2001 and the related statements
of operations, shareholders' deficit and cash flows (including the notes
thereto) for the period from formation (November 30, 1999) to December 31, 2001
of Depomed Development, Ltd. contained in the Form 10-K included in the SEC
Reports present fairly the financial position and the results of operations and
cash flows of Depomed Development, Ltd. as of the dates or for the periods
presented therein in conformity with GAAP.
(c) The Company and the Subsidiaries have no liabilities or obligations of
any nature (whether absolute, accrued, contingent, unliquidated, conditional or
otherwise) except for liabilities or obligations (i) reflected or reserved
against on the balance sheet as at December 31, 2001 included in the Form 10-K
(the "Company Balance Sheet") or (ii) which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
SECTION 4.07. Litigation. There is no suit, action, proceeding or
governmental investigation before any commission or other administrative
authority pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of the Subsidiaries, with respect to or affecting
the Company's or any of the Subsidiaries' operations, business, products, sales
practices or financial condition, except for suits, actions and proceedings
that, individually or in the aggregate, would not have a Material Adverse Effect
on the Company, nor is there any judgment, decree, injunction or order of any
Governmental Entity or arbitrator outstanding against the Company or any of the
Subsidiaries, except for judgments, decrees, injunctions and orders that would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. There are
-20-
no facts known to the Company which, if known by a potential claimant or any
Governmental Entity, would reasonably give rise to a claim or proceeding which,
if asserted or conducted would be reasonably likely to have a Material Adverse
Effect on the Company.
SECTION 4.08. Compliance with Applicable Laws; Permits. (a) The Company and
the Subsidiaries are and have been in compliance with all Laws, regulations and
orders of any Governmental Entity applicable to the Company or the Subsidiaries,
except for such failures so to comply which, individually or in the aggregate,
would not have a Material Adverse Effect on the Company. The business operations
of the Company and the Subsidiaries have not been conducted in violation of any
Law, ordinance or regulation of any Governmental Entity, except for possible
violations which, individually or in the aggregate, would not have a Material
Adverse Effect on the Company.
(b) Each of the Company and the Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, establishment registrations,
product listings, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Entity, including,
without limitation, the FDA, the United States Drug Enforcement Administration
(the "DEA"), and similar authorities in any U.S. and non-U.S. jurisdictions,
necessary for the Company or any Subsidiary to own, lease and operate its
properties or to produce, store, distribute and market its products or otherwise
to carry on its business as it is now being conducted (the "Company Permits"),
and, as of the date of this Agreement, no suspension or cancellation of any of
the Company Permits is pending or, to the knowledge of the Company, threatened,
except, with regard to any Company Permits about which a representation and
warranty is given by the Company in any other section in this Article IV and
such other representation and warranty expressly includes a qualification as to
Material Adverse Effect on the Company, where the failure to have, or the
suspension or cancellation of, such Company Permits would not individually or in
the aggregate have a Material Adverse Effect on the Company. Neither the Company
nor any Subsidiary is in conflict with, or in default or violation of, (i) any
Law applicable to the Company or any Subsidiary or by which any property or
asset of the Company or any Subsidiary is bound or affected except for such
conflict, default or violation as would not individually or in the aggregate
have a Material Adverse Effect on the Company or (ii) any Company Permits. As
used in this Agreement, "Law" means any federal, state or local statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law of
the United States or any other U.S. or non-U.S. jurisdiction, including, without
limitation, the Federal Food, Drug, and Cos-
-21-
metic Act (the "FDCA"), the Controlled Substances Act, and any other similar act
or law.
(c) Except as would not, individually or in the aggregate, have a Material
Adverse Effect on the Company:
(i) all manufacturing operations of the Company and the Subsidiaries
are being conducted in substantial compliance with applicable good
manufacturing practices;
(ii) all necessary clearances or approvals from governmental agencies
for all drug and device products which are manufactured or sold by the
Company and the Subsidiaries have been obtained, and the Company and the
Subsidiaries are in substantial compliance with the most current form of
each applicable clearance or approval with respect to the manufacture,
storage, distribution, promotion and sale by the Company and the
Subsidiaries of such products;
(iii) to the Company's knowledge, all of the clinical studies which
have been, or are being, conducted by or for the Company and the
Subsidiaries are being conducted in substantial compliance with generally
accepted good clinical practices and all applicable government regulatory
requirements;
(iv) as of the date of this Agreement, neither the Company nor any of
the Subsidiaries has received written notice of any petition or other
attempt by a brand name drug company to have the therapeutic equivalence
rating of a product of the Company or a Subsidiary withheld or altered;
(v) none of the Company, the Subsidiaries or, to the knowledge of the
Company, any of their respective officers, employees or agents (during the
term of such person's employment by the Company or a Subsidiary or while
acting as an agent of the Company or a Subsidiary) has made any untrue
statement of a material fact or fraudulent statement to the FDA or any
similar governmental agency (including,
-22-
without limitation, non-U.S. regulatory agencies), failed to disclose a
material fact required to be disclosed to the FDA or any similar
governmental agency (including, without limitation, non-U.S. regulatory
agencies), or committed an act, made a statement or failed to make a
statement that could reasonably be expected to provide a basis for the FDA
or any similar governmental agency (including, without limitation, non-U.S.
regulatory agencies) to invoke its policy respecting "Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities" set forth in
56 Fed. Reg. 46191 (September 10, 1991) or similar governmental policy or
regulation (including, without limitation, non-U.S. policies or
regulations), rule, regulation or law;
(vi) neither the Company nor any of the Subsidiaries has received any
written notice that the FDA or any similar governmental agency (including,
without limitation, non-U.S. regulatory agencies) has commenced, or
threatened to initiate, any action to withdraw its approval or request the
recall of any product of the Company or any of the Subsidiaries, or
commenced, or overtly threatened to initiate, any action to enjoin
production at any facility of the Company or any of the Subsidiaries;
(vii) as to each article of drug, device, cosmetic or vitamin
manufactured and/or distributed by the Company or any of the Subsidiaries,
such article is not adulterated or misbranded within the meaning of the
FDCA or any similar governmental act or Law of any jurisdiction (including,
without limitation, non-U.S. jurisdictions); and
(viii) none of the Company, the Subsidiaries or, to the knowledge of
the Company, any of their respective officers, employees or agents (during
the term of such person's employment by the Company or a Subsidiary or
while acting as an agent of the Company or a Subsidiary, subsidiaries or
affiliates has been convicted of any crime or engaged in any conduct for
which debarment or similar punishment is mandated or permitted by any
applicable Law.
(d) As to each product subject to FDA's jurisdiction under the FDCA and the
jurisdiction of the Drug Enforcement Agency under the Comprehensive Drug Abuse
Prevention and Control Act of 1970 ("CSA") which is manufactured, tested,
distributed, held, and/or marketed by the Company, such product is being
manufactured, held and distributed in compliance with all applicable
requirements under the FDCA and the CSA, if applicable, including, but not
limited to, those relating to investigational use, premarket clearance, good
manufacturing practices, labeling, advertising, record keeping, filing of
reports, and security.
(e) None of the Company, any of the Subsidiaries or any product
manufactured, tested, distributed, held, developed and/or marketed by the
Company or any of the Subsidiaries is subject to the jurisdiction of the Health
Protection Branch of the Ministry of Health Canada.
(f) The Company will promptly provide Purchaser with copies of any document
that is issued, prepared, or otherwise becomes available from the date of this
Agreement until the
-23-
Closing Date which bears on the regulatory status under the FDCA or the CSA of
the Company, any Subsidiary or any product of the Company or any Subsidiary,
including, but not limited to, any deficiency letter, warning letter,
non-approvable letter/order, and withdrawal letter/order, except for documents
reflecting such matters which, individually or in the aggregate, would not have
a Material Adverse Effect on the Company.
(g) Section 4.08(g) of the Company Disclosure Statement sets forth a
complete and accurate list of (A) each investigational new drug filing made by
the Company or any of the Subsidiaries with the FDA or similar U.S. or non-U.S.
governmental agency, (B) each clinical trial protocol submitted by the Company
or any of the Subsidiaries to the FDA or similar U.S. or non-U.S. governmental
agency, (C) each new drug application and abbreviated or supplemental new drug
application filed by the Company or any of the Subsidiaries pursuant to the
FDCA, or any non-U.S. equivalents, (D) each product license application filed by
the Company or any of the Subsidiaries pursuant to the Public Health Service
Act, as amended, or any non-U.S. equivalents and (E) each establishment license
application filed with respect to any product of the Company or any of the
Subsidiaries under the Public Health Service Act, as amended, or any non-U.S.
equivalents.
SECTION 4.09. Employee Benefit Plans. (a) Except as set forth in Section
4.09(a) of the Company Disclosure Statement there are no "employee pension
benefit plans" as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Pension Plans"), "welfare benefit
plans" as defined in Section 3(1) of ERISA ("Welfare Plans") or stock bonus,
stock option, restricted stock, stock appreciation right, stock purchase, bonus,
incentive, deferred compensation, severance, or vacation plans, employment or
consulting agreement, or any other employee benefit plan, program, policy or
arrangement, covering employees (or former employees) employed in the United
States, maintained or contributed to by the Company or any of the Subsidiaries
or any ERISA Affiliates (as hereinafter defined), or to which the Company or any
of the Subsidiaries or any of their ERISA Affiliates contributes or is obligated
to make payments thereunder or otherwise may have any liability (collectively,
the "Employee Benefit Plans"). For purposes of this Agreement, "ERISA Affiliate"
shall mean any person (as defined in Section 3(9) of ERISA) that is or has been
a member of any group of persons described in Section 414(b), (c), (m) or (o) of
the Code including the Company or a Subsidiary.
(b) The Company and each of the Subsidiaries, and any Pension Plans and
Welfare Plans, are in compliance in all
-24-
material respects with the applicable provisions of ERISA, the Code and other
applicable Laws.
(c) All contributions to, and payments from, any Pension Plans that are
required to have been made in accordance with the Pension Plans have been timely
made.
(d) Any Pension Plans intended to qualify under Section 401 of the Code
have been determined by the Internal Revenue Service ("IRS") to be so qualified
and no event has occurred and no condition exists with respect to the form or
operation of such Pension Plans that would cause the loss of such qualification
or exemption therefrom or the imposition of any material liability, penalty or
Tax under ERISA or the Code.
(e) Each Pension Plan that is not qualified under Code section 401(a) or
403(a) is exempt from Part 2, 3 and 4 of Title I of ERISA as an unfunded plan
that is maintained primarily for the purpose of providing deferred compensation
for a select group of management or highly compensated employees, pursuant to
Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. No assets of the Company are
allocated to or held in a "rabbi trust" or similar funding vehicle.
(f) There are (i) no investigations pending by any governmental entity
(including the Pension Benefit Guaranty Corporation ("PBGC")) involving the
Pension Plans or Welfare Plans, and (ii) no pending or threatened claims (other
than routine claims for benefits), suits or proceedings against any Pension Plan
or Welfare Plan, against the assets of any of the trusts under any Pension Plan
or Welfare Plan or against any fiduciary of any Pension Plan or Welfare Plan
with respect to the operation of such plan or asserting any rights or claims to
benefits under any Pension Plan or against the assets of any trust under such
plan, nor, to the knowledge of the Company, are there any facts that would give
rise to any material liability.
(g) None of the Company, any of the Subsidiaries or any employee of the
foregoing, nor any trustee, administrator, other fiduciary or any other "party
in interest" or "disqualified person" with respect to the Pension Plans or
Welfare Plans, has engaged in a "prohibited transaction" (as such term is
defined in Section 4975 of the Code or Section 406 of ERISA) that could result
in a material tax or penalty on the Company or any of the Subsidiaries under
Section 4975 of the Code or Section 502(i) of ERISA.
(h) None of the Company, any of the Subsidiaries, or any of their ERISA
Affiliates maintain or contribute to, nor have they ever maintained or
contributed to, any pension plan
-25-
subject to Title IV of ERISA or Sections 412 of the Code or 302 of ERISA.
(i) Neither the Company, any Subsidiary of the Company nor any ERISA
Affiliate has incurred, or is reasonably likely to incur liability under Title
IV of ERISA.
(j) Neither the Company nor any ERISA Affiliates has liability (including
any contingent liability under Section 4204 of ERISA) with respect to any
multiemployer plan, within the meaning of Section 3(37) of ERISA, covering
employees (or former employees) employed in the United States.
(k) With respect to each of the Employee Benefit Plans, true, correct and
complete copies of the following documents have been made available to
Purchaser: (i) the plan document and any related trust agreement, including
amendments thereto, (ii) any current summary plan descriptions and other
material communications to participants relating to the Employee Benefit Plans,
(iii) the most recent Forms 5500, if applicable, (iv) the most recent IRS
determination letter, if applicable and (v) the most recent actuarial report or
valuation with respect to each Pension Plan subject to Title IV of ERISA.
(l) None of the Welfare Plans maintained by the Company or any of the
Subsidiaries provide for continuing benefits or coverage for any participant or
any beneficiary of a participant following termination of employment, except as
may be required under Section 4980B of the Code and Part 6 of Subtitle B of
Title I of ERISA ("COBRA"), or except at the expense of the participant or the
participant's beneficiary. The Company, the Subsidiaries, and any ERISA
Affiliates which maintain a "group health plan" within the meaning of Section
5000(b)(1) of the Code have complied in all material respects with the "COBRA"
notice and continuation requirements.
(m) As of the Closing, the Company, the Subsidiaries and any entity with
which the Company or the Subsidiaries could be considered a single employer
under 29 U.S.C. Section 2101(a)(1) or under any relevant case-law, has not
incurred any liability or obligation under the Worker Adjustment and Retraining
Notification Act, as it may be amended from time to time, and within the 90-day
period immediately following the Closing, will not incur any such liability or
obligation if, during such 90-day period, only terminations of employment in the
normal course of operations occur.
(n) The consummation of the transactions contemplated by this Agreement
will not result in an increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any benefits or compensation
payable to or
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in respect of any employee of the Company or any of the Subsidiaries.
(o) The consummation of the transactions contemplated by this Agreement
will not result in or satisfy a condition to the payment of compensation that
would, in combination with any other payment, result in an "excess parachute
payment" within the meaning of Section 280G(b) of the Code.
(p) The Company and the Subsidiaries do not maintain or contribute to any
plan, program, policy, arrangement or agreement with respect to employees (or
former employees) employed outside the United States.
SECTION 4.10. Intellectual Property. (a) Except as would not, individually
or in the aggregate, have a Material Adverse Effect on the Company, (i) the
Company and each of the Subsidiaries owns, has the right to acquire or is
licensed or otherwise has the right to use and has maintained in good standing
(in each case, clear of any Liens of any kind other than Permitted
Encumbrances), all Intellectual Property used in or necessary for the conduct of
its business as currently conducted; (ii) no claims are pending or, to the
knowledge of the Company, threatened that the Company or any of the Subsidiaries
is infringing on or otherwise violating the rights of any person with regard to
any Intellectual Property; (iii) to the knowledge of the Company, no person is
infringing on or otherwise violating any right of the Company or any of the
Subsidiaries with respect to any Intellectual Property owned by and/or licensed
to the Company or the Subsidiaries; (iv) to the knowledge of the Company, no
other firm, corporation, association or person claims the right to use in
connection with similar or closely related goods and in the same geographic
area, any ▇▇▇▇ which is identical or confusingly similar to any of the
Intellectual Property; (v) the Company has no knowledge of any claim that any
third party asserts ownership rights in any of the Intellectual Property; (vi)
the Company has no knowledge of any claim or knowledge of any facts that would
give the Company any reason to reasonably believe that the Company's or the
Subsidiaries' use of any Intellectual Property infringes any right of any third
party or would result in the breach of any contract or other obligation to which
the Company or any Subsidiary is a party; (vii) the Company has no knowledge and
there are no facts known to the Company that would give the Company any
reasonable basis to believe that any third party is infringing on any of the
Company's or the Subsidiaries' rights in any of the Intellectual Property;
(viii) the Company has no knowledge and there are no facts known to the Company
that would give the Company any reasonable basis to believe that any of its
actions or the actions of the Subsidiaries has infringed or is infringing on any
third party's Intellectual Property rights; (ix) to
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the knowledge of the Company, there are no undisclosed government restrictions,
domestic or non-U.S., which specifically limit the manner in which any of the
Intellectual Property may be used or licensed; (x) to the knowledge of the
Company, none of the Company, the Subsidiaries or any of their respective
officers or directors has disclosed any confidential information of the Company
or any of the Subsidiaries which would constitute trade secrets, except in the
ordinary course of business of the Company and the Subsidiaries or with the
authority of the Company or the Subsidiaries; and (xi) to the knowledge of the
Company, none of the Company, the Subsidiaries or any of their respective
officers or directors has used any confidential information or trade secrets of
any Third Party in any manner or any purpose not permitted by that Third Party.
(b) For purposes of this Agreement, "Intellectual Property" shall mean all
inventions, whether patentable or not and whether patented or unpatented,
patents, copyrights, trademarks (registered or unregistered), service marks,
brand names, trade dress, trade names, computer software programs and
applications (including imbedded software), and registrations in any
jurisdiction of, and applications in any jurisdiction to register, the
foregoing; trade secrets and rights in any jurisdiction to limit the use or
disclosure thereof by any person; all technical advances and other improvements
made by or used in the operation or business of the Company; and, with respect
to products under development and all intermediates useful in the manufacture of
those products, all unpatented know-how, formulae, formulations, test procedures
and protocols, processes, test results and data, and clinical data.
SECTION 4.11. Environmental Matters. Except as would not, individually or
in the aggregate, have a Material Adverse Effect on the Company, (i) no
Hazardous Materials are present at, on or under any real property or facility
currently, or to the knowledge of the Company, formerly owned, leased or
operated by the Company or any Subsidiary which now require investigation,
response, or other corrective action by the Company or any Subsidiary or for
which the Company or any Subsidiary is financially responsible, or that would
reasonably be expected to result in liability of, or costs to, the Company or
any of the Subsidiaries, in each case under any Environmental Law; (ii) there is
currently no civil, criminal or administrative action, suit, demand, hearing,
proceeding, notice of violation, investigation, notice or demand letter, or
request for information pending or to the knowledge of the Company, threatened,
under any Environmental Law against the Company or any of the Subsidiaries;
(iii) the Company and the Subsidiaries have not received any written claims or
notices alleging liability under any Environmental Law currently pending, and
the Company has no knowledge of any circumstances that
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would reasonably be expected to result in such claims or notices; (iv) to the
knowledge of the Company, the Company and each of the Subsidiaries are currently
in compliance, and within the period of applicable statutes of limitation have
complied, with all, and have no liability under any, applicable Environmental
Laws; (v) to the knowledge of the Company, no property or facility currently or
formerly owned, leased or operated by the Company or any of the Subsidiaries or
any of their respective predecessors-in-interest, or at which Hazardous
Materials have been manufactured, handled, tested, formulated, prepared,
encapsulated, packaged, bottled or stored for the Company or any of the
Subsidiaries, or at which Hazardous Materials of the Company or any of the
Subsidiaries have been stored, treated or disposed of, is listed or proposed for
listing on the National Priorities List or the Comprehensive Environmental
Response, Compensation and Liability Information System, both promulgated under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, or on any comparable list established under any Environmental
Law; (vi) the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not affect the
validity of any Environmental Permits held by the Company or any of the
Subsidiaries, and will not require any filing, notice, or remediation under any
Environmental Law; (vii) to the knowledge of the Company, no friable asbestos is
present in, on, or at any property, facility or equipment of the Company or any
of the Subsidiaries; (viii) to the knowledge of the Company, there are no past
or present events, conditions, activities, or practices, including, without
limitation, the disposal, emission or release of any Hazardous Materials, which
would reasonably be expected to prevent the Company's and the Subsidiaries'
compliance with any Environmental Law, or which would reasonably be expected to
give rise to any liability of the Company or any of the Subsidiaries under any
Environmental Law; (ix) no Lien has been asserted or recorded, or to the
knowledge of the Company threatened, under any Environmental Law with respect to
any assets, facility, inventory, or property currently owned, leased or operated
by the Company or any of the Subsidiaries; (x) neither the Company nor any of
the Subsidiaries has assumed by contract, agreement or otherwise any liabilities
or obligations arising under any Environmental Law, or is currently performing
any investigation, response or other corrective action under any Environmental
Law; (xi) neither the Company nor any of the Subsidiaries has entered into or
agreed to any judgment, decree or order by any judicial or administrative
tribunal or agency and neither the Company nor any of the Subsidiaries is
subject to any judgment, decree order or agreement, in each case relating to
compliance with any Environmental Law or requiring the Company or any of the
Subsidiaries to conduct any investigation, response, corrective or other action
under any Environmental Law; and
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(xii) to the knowledge of the Company, there are no underground storage tanks or
related piping, or impoundments, at any real property owned, operated or leased
by the Company or any of the Subsidiaries, and any former such tanks, piping, or
impoundments, on any such property which have been removed or closed, have been
removed or closed in accordance with applicable Environmental Laws.
For purposes of this Agreement, the term "Environmental Laws" means the
common law and all applicable federal, state, local and non-U.S. Laws, decrees,
judgments or injunctions issued, promulgated, approved or entered thereunder
relating to pollution or protection of human health safety or the environment
(including, without limitation, ambient air, indoor air, surface water, ground
water, land surface, subsurface strata, and natural resources such as wetlands,
flora, fauna), including without limitation, laws relating to experimental use
of animals or disposal of animal carcasses, emissions, discharges, releases or
threatened releases of Hazardous Materials into the environment, or otherwise
relating to the manufacture, processing, generation, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials. For
purposes of this Agreement, the term "Hazardous Materials" means any pollutant,
contaminant, substance, constituent or waste, including without limitation,
medical, biohazardous, or infectious waste, animal carcass, any toxin, virus,
infectious disease or disease-causing agent, or any other chemical, compound or
material, including without limitation, petroleum or any petroleum product,
including crude oil or any fraction thereof, subject to regulation or that can
give rise to liability under any Environmental Law. For purposes of this
Agreement, the term "Environmental Permit" means any permit, license, approval,
consent or other authorization provided or issued by any Governmental Entity
pursuant to an Environmental Law.
The Company has made available to Purchaser all records and files,
including, but not limited to, all assessments, reports, studies, audits,
analyses, and data in the possession, custody or control of the Company or any
Subsidiary relating to the existence of Hazardous Materials at facilities or
properties currently or formerly owned, operated, leased or used by the Company
or any of the Subsidiaries or concerning compliance by the Company and any
Subsidiaries with, or liability of any of them under, any Environmental Law.
SECTION 4.12. Material Adverse Change. (a) Since March 31, 2002, there has
not been any change, or any development that is reasonably likely to result in a
change, that would have a Material Adverse Effect on the Company. Since March
31, 2002, the Company and the Subsidiaries have conducted
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their businesses only in the ordinary course of business consistent with past
practices and there has not been, directly or indirectly:
(i) any declaration, setting aside or payment of any dividend or other
distribution with respect to any capital stock of the Company;
(ii) any split, combination or reclassification of any of its capital
stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for the Company's
capital stock;
(iii) any payment or granting by the Company or any of the
Subsidiaries of any increase in compensation to any director, officer or,
other than in the ordinary course of business consistent with past
practice, employee of the Company or any of the Subsidiaries;
(iv) any granting by the Company or any of the Subsidiaries to any
director, officer or, other than in the ordinary course of business
consistent with past practice, employee of any increase in severance or
termination pay;
(v) any entry by the Company or any of the Subsidiaries into any
employment, consulting, severance or termination agreement with any such
director or officer, other than in the ordinary course of business
consistent with past practice;
(vi) any adoption or increase in payments to or benefits under any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan for or with any employees of the
Company or any of the Subsidiaries;
(vii) any change in accounting methods, principles or practices by the
Company or any of the Subsidiaries, except insofar as may have been
required by changes in GAAP;
(viii) any cancellation of any Material Contract by any person a party
thereto;
(ix) any resignation of one or more key employees of the Company;
(x) any material litigation instituted against the Company or the
Subsidiaries; or
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(xi) any agreement to do any of the things described in the preceding
clauses (i) through (x).
SECTION 4.13. Taxes. (a) Except as disclosed in Section 4.13 of the Company
Disclosure Statement, (i) the Company and each of the Subsidiaries have prepared
and timely filed with the appropriate governmental agencies all Tax Returns
required to be filed on or before the date hereof, taking into account any
extension of time to file granted to or obtained on behalf of the Company and/or
the Subsidiaries, and each such Tax Return is complete and accurate in all
material respects; (ii) the Company and each of the Subsidiaries have timely
paid all Taxes due and payable by them through the date hereof and have made
adequate accruals for any Taxes attributable to any taxable period or portion
thereof of the Company and/or the Subsidiaries ending on or prior to the date
hereof that are not yet due and payable; (iii) all asserted Tax deficiencies or
Tax assessments against the Company or any of the Subsidiaries have been paid or
finally settled and no issue previously raised by any taxing authority
reasonably could be expected to result in a proposed deficiency or assessment
for any prior, parallel or subsequent period (including periods subsequent to
the Closing Date); (iv) no Tax audit or Tax examination of the Company or any of
the Subsidiaries is in progress or pending or, to the knowledge of the Company,
threatened by any taxing authority; (v) no extension of the period for
assessment or collection of any Tax of the Company or any of the Subsidiaries is
currently in effect and no extension of time within which to file any Tax Return
has been requested, which Tax Return has not since been filed; (vi) no Liens
have been filed with respect to any Taxes of the Company or any of the
Subsidiaries other than in respect of property taxes that are not yet due and
payable; (vii) neither the Company nor any of the Subsidiaries has made, or is
or will be required to make, any change in its accounting methods for any period
(or portion thereof) ending on or before the Closing Date that would result in
an adjustment for any period (or portion thereof) ending on or after the Closing
Date under Section 481 of the Code (or any similar provision of state,
provincial, local or non-U.S. law); (viii) the Company and each of the
Subsidiaries have made timely payments of all Taxes required to be deducted and
withheld from the wages paid to their employees and from all other amounts paid
to third parties; (ix) neither the Company nor any of the Subsidiaries is a
party to any tax sharing, tax matters, tax indemnification or similar agreement;
(x) neither the Company nor any of the Subsidiaries owns any interest in any
"controlled foreign corporation" (within the meaning of Section 957 of the Code)
or "passive foreign investment company" (within the meaning of Section 1296 of
the Code); (xi) neither the Company nor any of the Subsidiaries has made an
election under Section 341(f) of the Code; (xii) neither the Company nor
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any of the Subsidiaries is a party to any agreement or arrangement that provides
for the payment of any amount, or the provision of any other benefit, that could
constitute a "parachute payment" within the meaning of Section 280G of the Code;
(xiii) no claim has ever been made in writing by a taxing authority in a
jurisdiction where the Company or any of the Subsidiaries does not file Tax
Returns that such entity is or may be subject to taxation by that jurisdiction;
(xiv) none of the assets of the Company or any of the Subsidiaries is
"tax-exempt use property" (as defined in Section 168(h)(1) of the Code),
"tax-exempt bond financed property" (as defined in Section 168(g)(5) of the
Code) or may be treated as owned by any other person pursuant to Section
168(f)(8) of the Internal Revenue Code of 1954 (as in effect immediately prior
to the enactment of the Tax Reform Act of 1986); (xv) the Company is not and
will not be at the Closing Date a "United States real property holding
corporation," within the meaning of Section 897 of the Code; (xvi) neither the
Company nor any of the Subsidiaries has made any elections under Sections 108,
168, 338, 441, 472, 1017, 1033 or 4977 of the Code; (xvii) neither the Company
nor any of the Subsidiaries has accounted or is accounting for any transaction
pursuant to Section 467 of Code; (xviii) there are no "excess loss accounts" (as
defined in Treas. Reg. ss. 1.1502-19) with respect to any stock of any
Subsidiary; and (xix) neither the Company nor any of the Subsidiaries has any
(a) deferred gain or loss (1) arising from any deferred intercompany
transactions (as described in Treas. Reg. ▇▇.▇▇. 1.1502-13 and 1.1502-13T prior
to amendment by Treasury Decision 8597 (issued July 12, 1995)) or (2) with
respect to the stock or obligations of any other member of any affiliated group
(as described in Treas. Reg. ▇▇.▇▇. 1.1502-14 and 1.1502-14T prior to amendment
by Treasury Decision 8597) or (b) any gain subject to Treas. Reg. ss. 1.1502-13,
as amended by Treasury Decision 8597.
(b) Depomed Development, Ltd. operates only in Bermuda and is not subject
to U.S. taxation.
SECTION 4.14. Material Contracts. Assuming each Material Contract
constitutes a valid and binding obligation of each other party thereto, each
Material Contract is a valid and binding obligation of the Company or the
applicable Subsidiary, as the case may be. To the knowledge of the Company, each
Material Contract is a valid and binding obligation of each other party thereto,
and each such Material Contract is in full force and effect and is enforceable
by the Company or the applicable Subsidiary in accordance with its terms, except
as such enforcement may be limited by the Bankruptcy Exceptions and subject to
general principles of equity. To the knowledge of the Company, there are no
existing defaults (or circumstances or events that, with the giving of notice or
lapse of time or both would become defaults) of the Company, any Subsidiary or
any
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third party under any of the Material Contracts. Neither the Company nor any of
the Subsidiaries is a party to, or bound by any unexpired, undischarged or
unsatisfied written or oral contract, agreement, indenture, mortgage, debenture,
note or other instrument under the terms of which performance by the Company or
the Subsidiaries according to the terms of this Agreement will be a default of a
material provision under or an event of acceleration, or grounds for
termination, or whereby timely performance by the Company of this Agreement may
be prohibited or delayed.
SECTION 4.15. Insurance. The Company and the Subsidiaries have obtained and
maintained in full force and effect insurance with responsible and reputable
insurance companies or associations in such amounts, on such terms and covering
such risks, as is in the Company's judgment adequate to insure against risks to
which the Company is normally exposed in its day-to-day operations, consistent
with industry practice for companies (i) engaged in similar businesses and (ii)
of at least similar size to that of the Company and the Subsidiaries, and have
maintained in full force and effect public liability insurance, insurance
against claims for personal injury or death or property damage occurring in
connection with any of the activities of the Company or the Subsidiaries or any
of the properties owned, occupied or controlled by the Company or any of the
Subsidiaries, in such amount as reasonably deemed necessary by the Company. To
the knowledge of the Company, each such policy is in full force and effect, no
notice of termination, cancellation or reservation of rights has been received
with respect to any such policy, there is no default with respect to any
provision contained in any such policy, and there has not been any failure to
give any notice or present any claim under any such policy in a timely fashion
or in the manner or detail required by any such policy, except for any such
failures to be in full force and effect, any such terminations, cancellations,
reservations or defaults, or any such failures to give notice or present claims
which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. The Company Balance Sheet reflects adequate reserves for
any insurance programs which require (or have required) the Company or any of
the Subsidiaries to retain a portion of each loss, including, but not limited
to, deductible and self-insurance programs.
SECTION 4.16. Takeover Statutes. No "fair price," "moratorium," "control
share acquisition" or any other anti-takeover or similar statute or regulation
enacted under the laws of any state or the federal laws of the United States is
applicable to any of the transactions contemplated by this Agreement or the
other Transaction Documents, except for such statutes or regulations as to which
all necessary action has
-34-
been taken by the Company and its board of directors to permit the consummation
of the transactions contemplated hereby in accordance with the terms hereof.
SECTION 4.17. Private Offering. Assuming the representations and warranties
of the Purchaser in this Agreement are true and accurate as of the date hereof,
the offer, sale and issuance of the Company Common Stock as contemplated by this
Agreement are exempt from the registration requirements of the Securities Act,
and the qualification or registration requirements of applicable blue sky laws.
Neither the Company nor any authorized agent acting on behalf of it has offered
or will offer or sell any securities, or has taken or will take any other action
(including any offering of any securities of the Company under circumstances
that would required under the Securities Act, the integration of such offering
with the offering and sale of the Company Common Stock being acquired
hereunder),that would cause the loss of such exemptions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser represents and warrants to the Company as follows:
SECTION 5.01. Organization and Qualification. Purchaser is a corporation
duly organized and validly existing under the laws of Barbados.
SECTION 5.02. Authority Relative to this Agreement. Purchaser has all
necessary corporate power and authority to execute and deliver this Agreement
and the other Transaction Documents and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the other Transaction Documents by Purchaser and the consummation by
Purchaser of the transactions contemplated hereby and thereby have been duly and
validly authorized and approved by the board of directors of Purchaser, and no
other corporate proceedings on the part of Purchaser are necessary to authorize
or approve this Agreement or the other Transaction Documents or to consummate
the transactions contemplated hereby and thereby. This Agreement has been, and
the other Transaction Documents Agreement will, upon execution be, duly executed
and delivered by Purchaser and, assuming the due and valid authorization,
execution and delivery by the Company, constitute valid and binding obligations
of Purchaser enforceable against each of them in accordance with their terms,
except
-35-
that such enforceability (i) may be limited by the Bankruptcy Exceptions and
(ii) is subject to general principles of equity.
SECTION 5.03. No Conflict; Required Filings and Consents. (a) Based on the
representations and warranties of the Company set out in Section 4.03, none of
the execution and delivery of this Agreement or the other Transaction Documents
by Purchaser, the consummation by Purchaser of the transactions contemplated
hereby or thereby or compliance by Purchaser with any of the provisions hereof
or thereof will require any Consent of any Governmental Entity or person who is
not a Governmental Entity, except for compliance with the HSR Act, if required.
SECTION 5.04. Financing. Purchaser will have available funds sufficient to
deliver the Initial Share Consideration and the Purchaser's Option at the
Closing.
SECTION 5.05. Brokers. Except for the engagement of Lazard Freres & Co.
LLC, none of Purchaser, any of the other its subsidiaries or any of their
respective officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees in
connection with he transactions contemplated by this Agreement.
SECTION 5.06. Restricted Securities.
(a) The Purchaser is an investor in securities and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Company
Common Stock.
(b) The Purchaser is an "accredited investor" within the meaning of SEC
Rule 501 of Regulation D, as presently in effect.
(c) The Purchaser understands that the shares of Company Common Stock it is
purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from an "affiliate" (as
defined in SEC Rule 144) of the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such Company Common
Stock may be resold without registration under the Act only pursuant to an
exemption from registration under the Act. In the absence of an effective
registration statement covering the Common Stock or an available exemption from
registration under the Act, the Common Stock must be held indefinitely. In this
connection, such Investor repre-
-36-
sents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act, including
without limitation the Rule 144 condition that current information about the
Company be available to the public.
(d) The Purchaser understands that the certificates evidencing the Company
Common Stock acquired pursuant to this Agreement may bear legends to the
following effect, which legends shall be removed, upon the request of the
Purchaser and to the extent permitted by applicable securities laws, upon the
effectiveness of a registration statement filed with the SEC pursuant to the
Registration Rights Agreement:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended or any state securities laws and neither
the securities nor any interest therein may be offered, sold, transferred,
pledged, hypothecated or otherwise disposed of except pursuant to an
effective registration under such act or an available exemption therefrom."
ARTICLE VI
COVENANTS
SECTION 6.01. Access to Information. (a) From and after the date hereof and
provided that the Purchaser (and its subsidiaries, taken together) holds,
directly or indirectly not less than 10% of the issued and outstanding Company
Common Stock (calculated on a fully diluted basis), the Company will, and will
cause the Subsidiaries, and each of its and their respective officers,
directors, employees, counsel, advisors and representatives (collectively, the
"Company Representatives") to, provide Purchaser and its officers, employees,
counsel, advisors and representatives (collectively, the "Purchaser
Representatives") reasonable access, during normal business hours and upon
reasonable notice, to the officers, employees, offices and other facilities and
to the books and records of the Company and the Subsidiaries, as will permit
Purchaser to make inspections of such as any of them may reasonably require and
will cause the Company Representatives and the Subsidiaries to furnish Purchaser
and the Purchaser Representatives to the extent available with such other
information with respect to the business, operations and prospects of the
Company and the Subsidiaries as Purchaser may from time to time reasonably
request; provided, however, that the Company shall not be re-
-37-
quired to provide the Purchaser or the Purchaser Representatives access to any
such information if the Company reasonably believes, upon advice of counsel,
that not providing such information to the Purchaser or the Purchaser
Representatives is advisable: (i) to preserve attorney-client privilege, (ii) to
protect proprietary information relating to DepoMed Development, Ltd. or (iii)
due to a conflict of interest between the Company and the Purchaser. In the
event of termination of this Agreement for any reason, Purchaser will, and will
cause the Purchaser Representatives to, return to the Company or destroy all
copies of written information furnished by the Company or any of the Company
Representatives to Purchaser or the Purchaser Representatives and destroy all
memoranda, notes and other writings prepared by Purchaser or the Purchaser
Representatives based upon or including the information furnished by the Company
or any of the Company Representatives to Purchaser or the Purchaser
Representatives (and Purchaser will certify to the Company that such destruction
has occurred). Subject to Section 3.01(b) hereof, Purchaser shall, and shall
cause the Purchaser Representatives to, hold the information provided by the
Company pursuant to this Section 6.01 in confidence in accordance with the terms
of the Confidentiality Agreement.
(b) From the date hereof until the Closing Date, Purchaser will, and will
cause its Subsidiaries, and each of the Purchaser Representatives to, provide
the Company and any Company Representatives access to Purchaser's publicly
available documents.
SECTION 6.02. Reasonable Efforts. (a) Subject to the terms and conditions
of this Agreement, each party will use commercially reasonable efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under this Agreement and the other Transaction
Documents and applicable laws and regulations to consummate the transactions
contemplated hereby and thereby as soon as practicable after the date hereof,
including (i) preparing and filing as promptly as practicable all documentation
to effect all necessary applications, notices, petitions, filings and other
documents and to obtain as promptly as practicable all consents, waivers,
licenses, orders, registrations, approvals, permits and authorizations necessary
or advisable to be obtained from any third party and/or any Governmental Entity
in order to consummate the transactions contemplated by this Agreement and the
other Transaction Documents and (ii) taking all reasonable steps as may be
necessary to obtain all such material consents, waivers, licenses,
registrations, permits, authorizations, orders and approvals. In fur-
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therance and not in limitation of the foregoing, (i) each party hereto agrees to
make appropriate filings as required pursuant to the HSR Act and any other
Regulatory Law with respect to the transactions contemplated hereby as promptly
as practicable after the date hereof and to supply as promptly as practicable
any additional information and documentary material that may be requested
pursuant to the HSR Act and any other Regulatory Law and to take all other
actions necessary to cause the expiration or termination of the applicable
waiting periods under the HSR Act as soon as practicable and (ii) subject to the
terms and conditions of this Agreement, the Company will use commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to obtain all
waivers with respect to each and every preemptive right and right of first
refusal to which the issuance of Company Common Stock pursuant to this Agreement
would, if not for such waivers, give rise.
SECTION 6.03. Public Announcements. (a) So long as this Agreement is in
effect, Purchaser and the Company agree to consult with each other before
issuing any press release or otherwise making any public statement with respect
to the transactions contemplated by this Agreement except as may be required in
securities regulatory filings or otherwise required by law.
(b) So long as this Agreement is in effect, the Company agrees to provide
Purchaser under an obligation of Confidentiality Agreement with notice and
copies of any press release or any public statement at least 24 hours prior to
issuance that involve directly or indirectly the Purchaser, unless, on the
advice of counsel, the Company has a legal obligation to issue such press
release or make such public statement prior to the expiration of such 24 hour
period, in which case the Company agrees to provide Purchaser with such notice
and copies at the earliest practicable time. The 24 hour period shall commence
at 8:00 a.m. New York time on the next Business Day following the day notice was
received if such day was not a Business Day. Subject to Section 3.01(b),
Purchaser shall, and shall cause the Purchaser Representatives to, hold the
information provided by the Company pursuant to this Section 6.03 in confidence
in accordance with the terms of the Confidentiality Agreement.
SECTION 6.04. Notification of Certain Matters. Purchaser on the one hand
and the Company on the other shall promptly notify each other of (a) the
occurrence or non-occurrence of any fact or event which would (i) cause any
representation or warranty contained in this Agreement to be un-
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true or inaccurate in any material respect at any time from the date hereof to
the Closing Date or (ii) cause any covenant, condition or agreement hereunder
not to be complied with or satisfied in all material respects and (b) any
failure of the Company or Purchaser, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder in any material respect; provided, however, that no such
notification shall affect the representations or warranties of any party or the
conditions to the obligations of any party hereunder.
SECTION 6.05. Confidentiality of Board Proceedings. The Company shall use
commercially reasonable efforts to ensure that any member of, or observer to,
the Company's Board of Directors is excluded from access to any meeting or
portion thereof if the Company reasonably believes, upon advice of counsel, that
exclusion of such member or observer is advisable: (x) with respect to any board
member or observer designated by the Purchaser, to protect proprietary
information relating to DepoMed Development, Ltd. and (y) with respect to any
board member or observer designated by EIS or any of its affiliates, to protect
proprietary information related to the Company's Metformin GR product or any
other project or business being pursued by the Company and the Purchaser,
Designee, or an affiliate of Purchaser.
SECTION 6.06. Reservation of Shares Issuable upon Exercise of Purchaser's
Option. At all times until the expiration of the Purchaser's Option, the Company
will reserve and keep available out of its authorized Company Common Stock,
solely for issuance upon exercise of the Purchaser's Option such number of
shares of Company Common Stock as may be issuable upon exercise of the
Purchaser's Option.
SECTION 6.07. Rule 144 Reporting. With a view to making available to the
Purchaser the benefits of Rule 144 promulgated by the SEC under the Securities
Act, the Company agrees and covenants to:
(a) make and keep adequate current public information with respect to
the Company available, as such terms are used within the meaning of Rule
144, at all times after the Closing;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act, if any; and
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(c) furnish to the Purchaser promptly upon request a written statement
by the Company as to its compliance with the reporting requirements of Rule
144 and the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company
as the Purchaser may reasonably request in order to permit the Purchaser to
avail itself of any rule or regulation of the SEC allowing the Purchaser to
sell its shares of Company Common Stock without an effective registration
statement.
SECTION 6.08. Conditional Option. The Company hereby grants the Purchaser a
Conditional Option (the "Conditional Option") to purchase additional Company
Common Stock in an amount equal to one third of the New Shares rounded up or
down, as the case may be, to the nearest whole share. The exercise price of the
Conditional Option shall be equal to the Initial Share Consideration plus
$0.125. All other terms of the Conditional Option with respect to, adjustments
in the exercise price and number of shares of Company Common Stock purchasable
pursuant to the Conditional Option shall be the same as set forth in the
Purchaser's Option. The Conditional Option shall be exercisable for 365 days
from the Closing Date provided, however, that if the Company Common Stock trades
above US$6.50 for 20 Trading Days out of any 30 Trading Day period (for the
purposes of this Section 6.08, Trading Day shall be defined as any Business Day
during which the Company Common Stock is available to trade on the American
Stock Exchange), the Conditional Option shall terminate 15 Business Days after
the 20th Trading Day during which the Company Common Stock traded above US$6.50.
Notwithstanding anything to the contrary in this Section 6.08, in no event shall
the Conditional Option terminate earlier than 120 days from the Closing Date.
SECTION 6.09. Use of Proceeds. The Company shall use the net proceeds from
the issuance of the New Shares in furtherance of its business as described in
the Form 10-K, including research and development of pharmaceutical products,
protection of intellectual property rights and compliance with obligations under
the Convertible Note.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
SECTION 7.01. Conditions to Each Party's Obligation to Effect the
Transactions. The respective obligations of each
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party to effect the transactions contemplated in this Agreement to be
consummated at the Closing shall be subject to the satisfaction or waiver at or
prior to the Closing of each of the following conditions:
(a) No Injunctions or Restraints; Illegality. No laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect having the effect of
making the transactions contemplated hereby illegal or other wise
prohibiting consummation of the transactions contemplated hereby.
(b) HSR Act. To the extent applicable, the waiting period (and any
extension thereof) applicable to the transactions contemplated hereby under
the HSR Act shall have been terminated or shall have expired.
(c) Approval in Authorized Share Increase. The Company's shareholders
shall have approved of an increase in the number of authorized shares of
Company Common Stock by 75,000,000 shares to 100,000,000 shares at the
Company's annual meeting of shareholders to be held on May 30, 2002, or at
any postponement or adjournment thereof.
SECTION 7.02. Conditions to the Obligations of Purchaser. The obligation of
Purchaser to perform its obligations pursuant to this Agreement to be performed
at or subsequent to the Closing shall be subject to the satisfaction at or prior
to the Closing of the following additional conditions, any one or more of which
may be waived by Purchaser:
(a) Performance. The Company shall have performed and complied in all
material respects with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date.
(b) Representations and Warranties. Each of the representations and
warranties of the Company set forth in this Agreement shall be true and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality,
such statement shall be true and correct in all respects giving effect to
such standard) at and as of the Closing Date as if made at and as of such
time or, if made as of a specified date other than the date hereof, as of
such date.
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(c) Consents, Waivers and Approval. The Company shall have received
all consents, approvals and waivers necessary for the consummation of the
transactions contemplated hereby, including, without limitation, all
waivers with respect to each and every preemptive right, with the exception
of the preemptive right granted to EIS as set out in that certain EIS
Securities Purchase Agreement as more particularly described in Section
11.10 of this Agreement, and right of first refusal to which the issuance
of Company Common Stock pursuant to this Agreement would, if not for such
waiver, give rise.
(d) Officer's Certificate. Purchaser shall have received a
certificate, dated the Closing Date, of the chief executive officer of the
Company to the effect that the conditions specified in paragraphs (a)
through (c) above have been satisfied.
(e) Purchaser Nominees Approval Commitment. The Purchaser shall have
received the written voting commitment (substantially in the form of Annex
II attached hereto) of each of the persons set forth in Annex III attached
hereto.
(f) Registration Rights Agreement. The Company shall have executed the
Registration Rights Agreement for the benefit of the Purchasers.
(g) Listing of Company Common Stock. The Company shall have received
approval from the American Stock Exchange for listing of all Company Common
Stock that may be purchased by the Purchaser hereunder.
SECTION 7.03. Conditions to the Obligations of the Company. The obligations
of the Company under this Agreement to effect the transactions contemplated
hereby shall be subject to the satisfaction on or before the Closing Date of
each of the following additional conditions, any one or more of which may be
waived by the Company:
(a) Performance. Purchaser shall have performed and complied in all
material respects with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by them on or prior to
the Closing Date except for those failures to so perform or comply that,
individually or in the aggregate, would not impair the ability of Purchaser
to consummate the transactions contemplated hereby.
(b) Representations and Warranties. Each of the representations and
warranties of Purchaser set forth in
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this Agreement shall be true and correct in all material respects (except
where any statements in a representation or warranty expressly includes a
standard of materiality, such statement shall be true in all respects
giving effect to such standard) at and as of the Closing Date as if made at
and as of such time or, if made as of a specified date other than the date
hereof, as of such date.
(c) Officer's Certificate. The Company shall have received a
certificate, dated the Closing Date, of an executive officer of Purchaser
to the effect that the conditions specified in paragraphs (a) and (b) above
are fulfilled.
ARTICLE VIII
TERMINATION
SECTION 8.01. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned any time prior to the Closing
Date:
(a) by the written agreement of Purchaser and the Company duly
authorized by their respective boards of directors;
(b) by either Purchaser or the Company if, without fault of such
terminating party, the Closing shall not have been consummated on or before
July 31, 2002, which date may be extended by mutual consent of the parties
hereto; or
(c) by either Purchaser or the Company, if any court of competent
jurisdiction or other governmental body shall have issued an order (other
than a temporary restraining order), decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby, and such order, decree, ruling or other action shall
have become final and nonappealable.
SECTION 8.02. Termination by Purchaser. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned by action of the board
of directors of Purchaser, at any time prior to the Closing Date, if:
(a) the Company shall have failed to perform in all material respects
its covenants or agreements contained in this Agreement which failure would
have a Material Adverse Effect on the Company or materially adversely
affect (or
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materially delay) the ability of Purchaser or the Company to consummate the
transactions contemplated hereby, and the Company has not cured such breach
within ten Business Days after notice by Purchaser thereof; or
(b) the representations and warranties of the Company contained in
this Agreement shall not be true and correct in any respect that is
reasonably likely to have a Material Adverse Effect on the Company (or if
such representations and warranties are qualified by reference to
materiality or a Material Adverse Effect on the Company) and the Company
has not cured such breach within 10 Business Days after notice by
Purchaser.
SECTION 8.03. Termination by the Company. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned at any time prior to
the Closing Date by action of the Board of Directors of the Company, if:
(a) Purchaser shall have failed to perform in all material respects
its covenants or agreements contained in this Agreement which would
materially adversely affect (or materially delay) the ability of Purchaser
or the Company to consummate the transactions contemplated hereby, and
Purchaser has not cured such breach within 10 Business Days after notice by
the Company thereof; or
(b) the representations and warranties of Purchaser contained in this
Agreement shall not be true and correct in any respect, the effect of which
is that the consummation of the transactions contemplated is reasonably
likely to have a Material Adverse Effect on the Company and Purchaser has
not cured such breach within 10 Business Days after notice by the Company.
SECTION 8.04. Procedure for Termination. In the event of termination and
abandonment of the transactions contemplated herein by Purchaser or the Company
pursuant to this Article VIII, written notice thereof shall forthwith be given
to the other.
SECTION 8.05. Extension; Waiver. At any time prior to the Closing Date, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (ii) waive any inaccuracies
in the representations and warranties contained herein by any other party or in
any document, certificate or writing delivered pursuant hereto by any other
party or (iii) waive compliance with any of the agreements of any other party or
with any conditions to its own obligations. Any agreement on the part of any
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party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE IX
CLOSING
SECTION 9.01. Time and Place. Subject to the provisions of Articles VII and
VIII, the closing of the transactions contemplated hereby (the "Closing") shall
take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ White & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ on June 3, 2002 or on such date and
time to be agreed upon by the parties, but in no event later than 9:00 A.M.,
local time, on the first Business Day after the date on which each of the
conditions set forth in Articles VII and VIII have been satisfied or waived by
the party or parties entitled to the benefit of such conditions; or at such
other place, at such other time, or on such other date as Purchaser and the
Company may mutually agree. The time and date on which the Closing actually
occurs is herein referred to as the "Closing Date."
ARTICLE X
INDEMNIFICATION
SECTION 10.01 Indemnification. In addition to all rights and remedies
available to the parties hereto at law or in equity, the Company shall indemnify
the Purchaser, its stockholders, officers, directors, employees, agents,
representatives, successors and assigns, its affiliates, and it's affiliates'
stockholders, officers, directors, employees, agents, representatives,
successors and assigns (collectively, the "Indemnified Persons"), and save and
hold each Indemnified Person harmless from and against and pay on behalf of or
reimburse each such Indemnified Person, as and when incurred, for any and all
loss, liability, demand, claim, action, cause of action, cost, damage,
deficiency, tax, penalty, fine or expense, whether or not arising out of any
claims by or on behalf of such Indemnified Person or any third party, including
interest, penalties, reasonable attorneys' fees and expenses and all amounts
paid in investigation, defense or settlement of any of the foregoing
(collectively, "Losses"), that any such Indemnified Person may suffer, sustain
incur or become subject to, as a result of, in connection with, relating or
incidental to or by virtue of: (i) any misrepresentation or breach of warranty
on the part of the Company under this Agreement; or (ii) any
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nonfulfillment, default or breach of any covenant or agreement on the part of
the Company under this Agreement or any of the other Transaction Documents.
10.02 Maximum Recovery. Notwithstanding anything in this Agreement to the
contrary, in no event shall the Company be liable for indemnification under this
Article X in an amount in excess of the purchase price of the New Shares and the
shares of Company Common Stock issued upon exercise of the Purchaser's Option
and the Conditional Option.
10.03 Exception. Notwithstanding the foregoing, upon judicial determination
that is final and no longer appealable, that the act or omission giving rise to
the indemnification set forth above resulted primarily out of or was based
primarily upon the Indemnified Person's negligence (unless such Indemnified
Person's negligence was based upon the Indemnified Person's reliance in good
faith upon any of the representations, warranties, covenants or promises made by
the Company herein or in any of the other Transaction Documents) the Company
shall not be responsible for any Losses sought to be indemnified in connection
therewith, and the Company shall be entitled to recover from the Indemnified
Person all amounts previously paid in full or partial satisfaction of such
indemnity, together with all costs and expenses (including reasonable attorneys
fees) of the Company reasonably incurred in connection with the Indemnified
Persons claim for indemnity, together with interest at the rate per annum
publicly announced by Citibank, N.A. as its prime rate from the time of payment
of such amounts to the Indemnified Person until repayment to the Company.
10.04 Investigation. All indemnification rights hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to the extent provided in Section 10.06 below,
irrespective of any investigation, inquiry or examination made for or on behalf
of, or any knowledge of the Indemnified Person or the acceptance of any
certificate or opinion.
10.05 Contribution. If the indemnity provided for in this Section 10.01
shall be, in whole or in part, unavailable to any Indemnified Person, due to
Section 10.01 being declared unenforceable by a court of competent jurisdiction
based upon reasons of public policy, so that Section 10.01 shall be insufficient
to hold each such Indemnified Person harmless from Losses which would otherwise
be indemnified hereunder, then the Company and the Indemnified Person shall each
contribute to the amount paid or payable for such Loss in such proportion as is
appropriate to reflect not only the relative benefits received by the Company on
the one hand and the Indemnified Person on the other, but also the relative
fault of the Company and be in
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addition to any liability that the Company may otherwise have. The indemnity,
contribution and expense reimbursement obligations that the Company has under
this Article X shall survive the expiration of the Transaction Documents. The
parties hereto further agree that the indemnification and reimbursement
commitments set forth in this Agreement shall apply whether or not the
Indemnified Person is a formal party to any such lawsuit, claims or other
proceedings.
10.06 Limitation. Except as set forth in Section 10.02 above with respect
to indemnification, this Article X is not intended to limit the rights or
remedies otherwise available to any party hereto with respect to this Agreement
or the other Transaction Documents.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Survival of Representations and Warranties. Other than the
representations and warranties set out in Sections 4.11 and 4.13, the
representations and warranties made in this Agreement shall survive for a period
of three years beyond the Closing Date. The representations and warranties set
out in Sections 4.11 and 4.13 shall until the expiration of the applicable
statutory period.
SECTION 11.02. Entire Agreement; Assignment. (a) This Agreement (including
the documents and the instruments referred to herein) and the confidentiality
agreement executed by Purchaser and the Company dated April 5, 2001 and the
confidentiality provision set forth in numbered paragraph 8 of the letter
between Purchaser and the Company dated August 24, 2001 (together, the
"Confidentiality Agreement") constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder will be assigned by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of the other parties;
provided, however, that Purchaser may assign this Agreement and any of its
rights, interests and obligations hereunder to an affiliate of such party
without such consent. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
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SECTION 11.03. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
SECTION 11.04. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile (with
receipt confirmed) to the respective parties as follows:
If to Purchaser:
Biovail Laboratories Incorporated
Chelston Park, Building 2, Ground Floor,
▇▇▇▇▇▇▇▇▇ Rock, St. ▇▇▇▇▇▇▇,
Barbados, West Indies
and copies to:
Biovail Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company:
Depomed, Inc.
▇▇▇▇ ▇'▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ White & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the
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manner set forth above (provided that notice of any change of address shall be
effective only upon receipt thereof).
SECTION 11.05. Governing Law; Jurisdiction. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof; provided, however, that issues involving the
corporate governance of any of the parties hereto shall be governed by their
respective jurisdictions.
(b) In addition, each of the parties hereto agrees that it will not bring
any action relating to this Agreement or any of the transactions contemplated
hereby in any court other than a federal or state court sitting in New York, New
York.
SECTION 11.06. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 11.07. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 11.08. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, except with respect
to Sections 2.02, 3.01(d), nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 11.09. Remedies. Except as set forth below, 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, and, accordingly, it is agreed that
the parties shall be entitled to an injunction or injunctions to prevent such
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 11.10 EIS Right of Participation.
(a) The Purchaser and the Company acknowledge that Elan International
Services, Ltd. ("EIS") may elect to purchase securities of the Company
on the same terms and subject to the same conditions as those set
forth
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herein in accordance with that certain Securities Purchase Agreement,
dated as of January 21, 2000, between the Company and EIS (the "EIS
Securities Purchase Agreement"). In the event that Elan elects to
exercise its preemptive right under the EIS Securities Purchase
Agreement, the Company shall enter into a Stock Purchase Agreement
with EIS on the same terms and conditions as those set forth herein;
provided that the number of shares of Company Common Stock to be
purchased by EIS shall be no greater than the number of shares of
Common Stock which EIS is entitled to purchase under the EIS
Securities Purchase Agreement and the number of shares of Company
Common Stock subject to the Purchaser's Option and Conditional Option
provided for in such agreement shall be proportionately adjusted as
more particularly described below. Any such agreement shall provide,
with respect to the restriction of access to proprietary information,
that proprietary information will include information relating to the
Company's Metformin GR product or any other project or business being
pursued by the Company and the Purchaser, Designee, or an affiliate of
Purchaser in lieu of proprietary information relating to DepoMed
Development, Ltd.
(b) If pursuant to the EIS Securities Purchase Agreement EIS chooses to
exercise its pre-emptive right in respect of any proposed issuances of
Company Common Stock issued to the Purchaser pursuant to the terms of
this Agreement (the "Issuance"), then the number of Company Common
Stock to be issued by the Company to the Purchaser on such Issuance
shall be increased to the number of Company Common Stock that results
in the Purchaser owning the same percentage of (i) the total number of
issued and outstanding Company Common Stock immediately subsequent to
the Issuance of Company Common Stock to the Purchaser and to EIS; as
(ii) the total number of issued and outstanding Company Common Stock
calculated as if EIS had not exercised its pre-emptive right in
respect of the Issuance of Company Common Stock to the Purchaser.
(c) If EIS chooses to exercise its pre-emptive right in respect of the
Issuance, the number of Company Common Stock to be issued by the
Company to the Purchaser will
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be calculated as the amount determined as Y by the formulae in Part
B-2 of Schedule 11.10, where:
(1) B is the number of Company Common Stock owned by the Purchaser
prior to the Issuance;
(2) B% is the percentage of the issued and outstanding Company Common
Stock that the Purchaser would own upon the Issuance (calculated
without reference to any Company Common Stock that may be issued
to EIS should it exercise its pre-emptive right);
(3) E is the number of Company Common Stock owned by EIS prior to the
Issuance;
(4) E% is the percentage of issued and outstanding Company Common
Stock that EIS is entitled to own upon the acquisition of Company
Common Stock on the exercise of its pre-emptive right and the
Issuance; and
(5) T is the total number of issued and outstanding Company Common
Stock prior to the Issuance and the issuance of any Company
Common Stock to EIS on the exercise of its pre-emptive right.
The number of shares to be issued to EIS on the exercise of its pre-emptive
right is the number determined as X by the formulae in Part B-2 of Schedule
11.10.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized, all
as of the day and year first above written.
BIOVAIL LABORATORIES INCORPORATED
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
DEPOMED, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇
Title: President
ANNEX I
Form of Registration Rights Agreement
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ANNEX II
Form of Nominee Voting Commitment Letter
[Form of Nominee Voting Commitment]
Reference is hereby made to the Stock Purchase Agreement, dated May 28,
2002 (the "Stock Purchase Agreement"), by and between Depomed, Inc., a
California corporation (the "Company"), and Biovail Laboratories Incorporated, a
corporation organized under the laws of Barbados ("Purchaser"). This letter
shall be effective as of the Closing (as defined in the Stock Purchase
Agreement).
In consideration of the Purchaser's agreement to enter into the Stock
Purchase Agreement and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the undersigned hereby commits
to vote or cause to be voted all shares of Company Voting Stock owned or
beneficially owned by the undersigned in favor of the election of the Purchaser
Nominees (as defined in the Stock Purchase Agreement), if any, designated by the
Purchaser in accordance with Section 3.02 of the Stock Purchase Agreement as in
effect on the date hereof, to the Board of Directors of the Company at each
election of the Board of Directors of the Company with respect to which the
Purchaser is entitled to designate Purchaser Nominees.
For purposes of this letter, "Company Voting Stock" means any and all
shares, interests, participations or other equivalents (however designated) of
corporate stock of the Company entitling the holders thereof to vote in an
election of the Board of Directors of the Company.
Signature:
-----------------------------------------------------------
Name of Shareholder:
----------------------------------------
Title of Signatory if Shareholder is an entity:
-----------------
Address:
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
Date:
-----------------------------
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ANNEX III
Committed Voters
1. Orbimed Advisors LLC
2. Easton ▇▇▇▇ Capital Partners
3. ▇▇▇▇ ▇. ▇▇▇▇▇, Ph.D.
4. ▇▇▇▇ ▇. Shell
COMPANY DISCLOSURE STATEMENT
4.02 Authority Relative to this Agreement.
1. The Company is required to file an Additional Listing Application with
the American Stock Exchange with respect to the New Shares and the shares of
Company Common Stock issuable pursuant to the Purchaser's Option and the
Conditional Option.
2. The number of shares of Company Common Stock not currently issued and
outstanding or reserved for issuance for another purpose is insufficient to
consummate the transactions contemplated by the Agreement. This insufficiency
will be cured if the Company's shareholders approve an increase in the number of
authorized shares of Company Common Stock by 75,000,000 shares to 100,000,000
shares at the annual meeting of the Company's shareholders to be held on May 30,
2002.
3. The transactions contemplated by the Agreement are subject to a filing
under the HSR Act.
4.03 No Conflict; Required Filings and Consents.
1. See Section 4.02
2. The consummation of the transactions contemplated by the Agreement will
be a "Change in Control" under the License Agreement, dated as of January 21,
2000, by and among Elan Corporation, plc ("Elan"), Elan Pharma International
Limited ("EPIL"), the Company and DepoMed Development, Ltd. (the "Elan License
Agreement"), which allows Elan to terminate the Elan License Agreement. A
termination of the Elan License Agreement: (i) allows the Company to terminate
the License Agreement, dated as of January 21, 2000, by and among Elan, the
Company and DepoMed Development, Ltd.; (ii) could lead to the termination of the
Subscription, Joint Development and Operating Agreement, dated as of January 21,
2000 by and among Elan, EPIL, EIS, the Company and DDL (the "JDOA"). Any
termination of the JDOA is an event of default under the Convertible Promissory
Note, which allows EIS to accelerate the Company's payment obligation under the
Convertible Promissory Note.
4.05 Capitalization.
1. EIS has a right of participation in offerings of the Company's
securities, as set forth in the EIS Purchase Agreement.
2. See Item 2 of Section 4.02.
3. The Company's agreements with Elan and its affiliates provide for the
exchange, at the election of Elan, of shares of Preferred Stock held by EIS for
securities of DepoMed Development, Ltd. owned by the Company. The Company has
deposited in escrow 3,612 preferred shares of DepoMed Development, Ltd., which
will be exchanged for the Preferred in the event that Elan exercises that
exchange right.
4.06 SEC Reports and Financial Statements.
1. In connection with the SEC's review of the Company's Registration
Statement on Form S-3 (File No. 333-86542) and the Company's Form 10-K for the
fiscal year ended December 31, 2001, the Company plans to file an amendment to
such Form S-3 and may be required to file an amendment to the Form 10-K. A copy
of the SEC comment letter, dated May 15, 2002, has been provided to the
Purchaser.
2. Subject to approval of the Company's shareholders at the annual meeting
of the Company's shareholders to be held on May 30, 2002, the Company has
amended its 1995 Stock Option Plan to increase the number of shares available
for issuance thereunder by 500,000 shares to 2,900,000 shares, and has granted
stock options under that option plan subject to shareholder approval of such
increase.
3. See Item 2 of Section 4.03.
4.07 Litigation.
In January 2002, the Company filed a complaint against ▇▇▇▇▇▇▇-▇▇▇▇▇ Squibb
Company ("BMS") claiming that BMS's once-daily metformin product, Glucophage XR,
infringes the Company's United States Patent No. 6,340,475 (the "BMS Lawsuit").
The BMS Lawsuit may result in successful counterclaims by BMS against the
Company based on an allegation that the Company has breached the terms of a
letter agreement dated the 11th of July, 1996, relating to a joint research
project for the production of a product consisting of formulations of metformin
hydrochloride incorporated in the Company's GR System, or alleging that United
States Patent No. 6,340,475 is invalid.
4.08 Compliance with Applicable Laws; Permits.
1. IND no. 60,747 related to Metformin GR.
2. IND no. 62,386 related to Ciprofloxacin GR.
3. Clinical trial protocol no. 81-0003 related to Metformin GR NDA Phase
III study.
4. Clinical trial protocol no. 81-0005 related to randomized, double-blind
parallel group pilot study to assess the comparative efficacy, safety and
tolerability of once-daily extended release Ciprofloxacin GR.
5. Clinical trial protocol no. 00-004 related to Phase II Metformin GR
safety and efficacy.
6. Clinical trial protocol no. 00-009 related to Food effect on
pharmokinetics of Metformin GR.
4.09 Employee Benefit Plans.
1. 1995 Stock Option Plan.
2. Section 125 Cafeteria Plan.
3. 401(k) Plan.
4. Vacation policy.
4.10 Intellectual Property.
See Section 4.07
4.12 Material Adverse Change.
See Section 4.07
See Item 2. of Section 4.03.
4.14 Material Contracts.
See Item 2. of Section 4.03.