EXHIBIT 2.2
========================
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
MITOKOR,
a California corporation;
MITO ACQUISITION CORP.,
a Delaware corporation;
and
APOLLO BIOPHARMACEUTICS, INC.,
a Delaware corporation.
---------------------------
Dated as of May 8, 2001
---------------------------
========================
TABLE OF CONTENTS
Page
----
SECTION 1. THE MERGER.......................................................2
1.1 Merger of Merger Sub with and into the Company...................2
1.2 Effect of the Merger.............................................2
1.3 Closing; Effective Time..........................................2
1.4 Certificate of Incorporation and Bylaws; Directors and Officers..2
1.5 Conversion of Shares.............................................3
1.6 Company Options and Warrants.....................................6
1.7 Closing of the Company's Transfer Books..........................7
1.8 Exchange of Certificates; Legends; Escrow........................7
1.9 Dissenting Shares................................................9
1.10 Additional Parent Payments at the Closing.......................10
1.11 Tax Consequences................................................10
1.12 Accounting Treatment............................................10
1.13 Further Action..................................................10
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................11
2.1 Due Organization; No Subsidiaries...............................11
2.2 Certificate of Incorporation and Bylaws; Records................11
2.3 Capitalization..................................................12
2.4 Financial Statements............................................13
2.5 Absence of Changes..............................................14
2.6 Ownership of/Title to Assets....................................15
2.7 Bank Accounts; Receivables......................................16
2.8 Equipment; Leasehold............................................16
2.9 Proprietary Assets..............................................16
2.10 Contracts.......................................................18
2.11 Liabilities; Fees, Costs and Expenses...........................20
2.12 Compliance with Legal Requirements..............................20
2.13 Governmental Authorizations.....................................20
2.14 Tax Matters.....................................................21
2.15 Employee and Labor Matters; Benefit Plans.......................22
2.16 Environmental Matters...........................................24
2.17 Insurance.......................................................25
2.18 Related Party Transactions......................................25
2.19 Legal Proceedings; Orders.......................................26
2.20 Authority; Binding Nature of Agreement..........................26
2.21 Non-Contravention; Consents.....................................27
2.22 Finder's Fee....................................................28
2.23 Regulatory Approvals............................................28
2.24 Full Disclosure.................................................28
i
TABLE OF CONTENTS
(continued)
Page
----
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.........28
3.1 Corporate Existence and Power...................................28
3.2 Authority; Binding Nature of Agreement..........................29
3.3 Capitalization..................................................29
3.4 Parent Financial Statements.....................................30
3.5 No Conflict.....................................................31
3.6 Valid Issuance..................................................32
3.7 No Material Adverse Effect......................................32
3.8 Legal Proceedings...............................................32
3.9 Compliance with Legal Requirements..............................32
3.10 Governmental Authorizations.....................................32
3.11 Consents........................................................33
3.12 Full Disclosure.................................................33
SECTION 4. CERTAIN COVENANTS...............................................33
4.1 Access and Investigation........................................33
4.2 Operation of the Company's Business.............................33
4.3 Notification by Company.........................................36
4.4 Notification by Parent..........................................36
4.5 Acquisition Proposals...........................................37
4.6 Fairness Opinion................................................38
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES.............................38
5.1 Filings and Consents............................................38
5.2 Information Statement...........................................38
5.3 Public Announcements............................................40
5.4 Commercially Reasonable Efforts.................................40
5.5 Tax Matters.....................................................40
5.6 Termination of Agreements.......................................40
5.7 Termination of Employee Plans...................................41
5.8 Termination of SAR / SEP / ▇▇▇ Participation....................41
5.9 FIRPTA Matters..................................................41
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB....41
6.1 Accuracy of Representations.....................................41
6.2 Performance of Covenants........................................42
6.3 Stockholder Approval............................................42
6.4 Consents........................................................42
6.5 Agreements and Documents........................................42
6.6 Conversion of Preferred Stock...................................43
6.7 No Material Adverse Change......................................43
6.8 No Restraints...................................................43
ii
TABLE OF CONTENTS
(continued)
Page
----
6.9 No Governmental Litigation......................................43
6.10 No Other Litigation.............................................44
6.11 Termination of Employee Plans...................................44
6.12 FIRPTA Compliance...............................................44
6.13 Dissenting Shares...............................................44
6.14 Parent Stockholder Approval.....................................44
6.15 Consents and Additional Company Approvals.......................44
6.16 Consents and Additional Parent and Merger Sub Approvals.........44
6.17 Company Closing Balance Sheet...................................44
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY..............45
7.1 Accuracy of Representations.....................................45
7.2 Performance of Covenants........................................45
7.3 Documents.......................................................45
7.4 Company Stockholder Approval....................................46
7.5 Company Option and Warrant Holder Approval......................46
7.6 Consents and Additional Company Approvals.......................46
7.7 Parent Approvals................................................46
7.8 Consents and Additional Parent and Merger Sub Approvals.........46
7.9 No Material Adverse Change......................................46
7.10 No Restraints...................................................46
7.11 No Governmental Litigation......................................46
7.12 No Other Litigation.............................................46
SECTION 8. TERMINATION.....................................................47
8.1 Termination Events..............................................47
8.2 Termination Procedures..........................................48
8.3 Effect of Termination...........................................48
SECTION 9. ESCROW AND INDEMNIFICATION; LIMITATION OF LIABILITY.............48
9.1 Escrow Fund.....................................................48
9.2 Indemnification and Limitation of Liability.....................50
9.3 Escrow Period; Release From Escrow..............................51
9.4 Third-Party Claims..............................................52
9.5 Claims Upon Escrow Fund.........................................52
9.6 Objections to Claims............................................53
9.7 Resolution of Conflicts and Arbitration.........................53
9.8 Stockholders' Agent.............................................54
9.9 Actions of the Stockholders' Agent..............................55
9.10 Notice and Defense of Claims made by Company Indemnified Person.55
SECTION 10. MISCELLANEOUS PROVISIONS........................................56
iii
TABLE OF CONTENTS
(continued)
Page
----
10.1 Further Assurances..............................................56
10.2 Fees and Expenses...............................................56
10.3 Attorneys' Fees.................................................57
10.4 Notices.........................................................57
10.5 Time of the Essence.............................................58
10.6 Headings........................................................58
10.7 Counterparts....................................................58
10.8 Governing Law...................................................58
10.9 Successors and Assigns..........................................58
10.10 Remedies Cumulative; Specific Performance.......................58
10.11 Waiver..........................................................58
10.12 Amendments......................................................59
10.13 Severability....................................................59
10.14 Parties in Interest.............................................59
10.15 Entire Agreement................................................59
10.16 Reserved........................................................59
10.17 Construction....................................................59
10.18 Arbitration.....................................................60
iv
EXHIBITS
Exhibit A - Certain definitions
Exhibit B - Voting Signatories
Exhibit C - Voting Agreement
Exhibit D - Form of Employment Agreement
Exhibit E - Certificate of Merger
Exhibit F - Form of Amended and Restated Articles of Incorporation of
Surviving Corporation
Exhibit G - Form of Restated Bylaws of the Surviving Corporation
Exhibit H - Directors and officers of Surviving Corporation
Exhibit I - Form of Series G Warrant
Exhibit J - Forms of tax representation letters
Exhibit K - Form of FIRPTA Statement
Exhibit L - Form of Status Letter from Company Equityholders
Exhibit M - Form of legal opinion of ▇▇▇▇▇▇ & Dodge LLP
Exhibit N - Investors' Rights Agreement
Exhibit O - Research, Collaboration and License Agreement
Exhibit P Subscription Form
Exhibit Q - Form of legal opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP
Exhibit R - Amended and Restated Articles of Incorporation of Parent
Exhibit S - Escrow Agreement
1
AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("AGREEMENT") is
made and entered into as of May 8, 2001 ("AGREEMENT DATE"), by and among:
MITOKOR, a
California corporation ("PARENT"); MITO ACQUISITION CORP., a Delaware
corporation and a wholly owned subsidiary of Parent ("MERGER SUB") and APOLLO
BIOPHARMACEUTICS, INC., a Delaware corporation (the "COMPANY"). Certain
capitalized terms used in this Agreement are defined in EXHIBIT A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub with and into the Company (the "MERGER") in accordance with and
subject to the terms and conditions of this Agreement and the Delaware General
Corporation Law (the "DGCL"). Upon consummation of the Merger, Merger Sub will
cease to exist, and the Company will become a wholly-owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"). For accounting purposes, it is intended that the Merger be
treated as a purchase.
C. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company and has been adopted by Parent,
as the sole stockholder of Merger Sub.
D. In connection with the execution and delivery of this Agreement,
those certain stockholders of the Company listed hereto on EXHIBIT B (the
"VOTING SIGNATORIES") are entering into voting agreements in the form attached
hereto as EXHIBIT C (the "VOTING AGREEMENTS") pursuant to which, among other
things, such Voting Signatories agree to vote all shares of capital stock of the
Company owned by them in favor of the Merger.
E. In connection with the execution and delivery of this Agreement,
certain employees of the Company have previously entered into an employment
agreement in the form attached hereto as EXHIBIT D (the "EXECUTIVE EMPLOYMENT
AGREEMENT") whose effectiveness is subject to, among other things, the
occurrence of the Merger.
1
AGREEMENT
In consideration of the foregoing premises and the mutual
representations, warranties and covenants of the parties set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Agreement agree
as follows:
SECTION 1. THE MERGER
1.1 MERGER OF MERGER SUB WITH AND INTO THE COMPANY. Upon the terms and
subject to the conditions set forth in this Agreement and to the applicable
provisions of the DGCL, at the Effective Time (as defined in Section 1.3),
Merger Sub shall be merged with and into the Company, at which time the separate
existence of Merger Sub shall cease and the Company will continue as the
surviving corporation in the Merger (the "SURVIVING CORPORATION").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth
in this Agreement and in the applicable provisions of the DGCL.
1.3 CLOSING; EFFECTIVE TIME. The closing of the Merger (the "CLOSING")
will take place at a time and on a date to be specified by the parties (the
"CLOSING DATE"), which shall be no later than the third business day after
satisfaction or waiver of the conditions set forth in Section 6 and Section 7
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions), at the
offices of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, or at such other time, date or place as agreed to in
writing by the parties hereto. Subject to the provisions of this Agreement,
simultaneously with or as soon as practicable following the Closing, a properly
executed certificate of merger satisfying the applicable requirements of the
DGCL and attached hereto as EXHIBIT E (the "CERTIFICATE OF MERGER") shall be
filed with the Secretary of State of the State of Delaware. The Merger shall
become effective upon the latest of: (a) the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, or
(b) such later date and time as may be specified in the Certificate of Merger
with the consent of Parent and the Company (such latest date being referred to
as the "EFFECTIVE TIME").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
(a) The Certificate of Incorporation of the Surviving
Corporation shall be amended and restated as of the Effective Time as
part of the Merger to conform to EXHIBIT F;
(b) The Bylaws of the Surviving Corporation shall be amended
and restated as of the Effective Time as part of the Merger to conform
to EXHIBIT G; and
(c) Parent and Surviving Corporation agree to appoint, upon
the effectiveness of the Merger, the individuals identified on EXHIBIT
H as the directors and officers of the Surviving Corporation.
2
1.5 CONVERSION OF SHARES. The allocation of the Merger Consideration
(as defined in Section 1.5(b)(vii)) and the treatment of the Company Options and
Company Warrants set forth in this Agreement reflects a 1:55-for-1 reverse stock
split of the Company Common Stock previously effected by the Company, which
reverse stock split the Company Stockholders, by approving this
Merger
Agreement, will be deemed to have approved, adopted and ratified.
(a) Subject to Sections 1.8(a) and 1.9, at the Effective Time,
by virtue of the Merger and without any further action on the part of
Parent, Merger Sub, the Company or any stockholder of the Company:
(i) except as provided in Section 1.5(a)(ii), each
share of the common stock, par value $.02 per share of the
Company (the "COMPANY COMMON STOCK"), including each share of
Company Common Stock issuable upon conversion of each share of
the Series A Convertible Preferred Stock, par value $.01 per
share of the Company (the "COMPANY PREFERRED STOCK") which has
automatically converted by its terms into Company Common Stock
immediately prior to consummation of the Merger, outstanding
immediately prior to the Effective Time shall be converted
into the right to receive,
(A) that fraction of a share of the Series G
Preferred Stock, no par value per share of Parent
("SERIES G STOCK") equal to the Exchange Ratio (as
defined in Section 1.5(b)(v));
(B) that portion of the Cash Consideration
(as defined in Section 1.5(b)(i)) equal to the
quotient (rounded to the nearest ten thousandth)
obtained by dividing (1) the Cash Consideration, by
(2) the Fully Diluted Company Shares Amount (as
defined in Section 1.5(b)(vi))(the "CASH EXCHANGE
RATIO"); and
(C) a right to that portion of the
Contingent Consideration, if any, equal to the
Contingent Exchange Ratio (as defined in Section
1.5(b)(iv)).
(ii) any shares of Company Common Stock then held by
Parent or any direct or indirect wholly-owned subsidiary of
Parent, or by the Company in the Company's treasury shall be
canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor; and
(iii) each share of the common stock of Merger Sub
outstanding immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and
non-assessable share of common stock of the Surviving
Corporation.
(b) For purposes of this Agreement:
(i) Subject to Sections 1.6 and 10.2, the "CASH
CONSIDERATION" due to the Company Equityholders as a result of
the Merger shall consist of an amount equal to $1,000,000 (as
adjusted pursuant to the terms of Sections 1.10 and 10.2 of
this Agreement).
(ii) The "COMPANY EQUITYHOLDERS" shall mean those
individuals and entities who (A) prior to the Merger hold (1)
Company Common Stock, (2) Company Preferred Stock, and/or (3)
warrants, options or other conversion rights which are
convertible into (y) Company Common Stock or (z) securities
convertible into Company Common Stock; and (B) as
3
a result of the Merger, will hold Series G Stock and/or Series
G Warrants (as defined in Section 1.6 of this Agreement).
(iii) The "CONTINGENT CONSIDERATION" shall mean the
aggregate number of shares of Series G Stock or Parent Common
Stock (as defined below) released, if any, to the Company
Equityholders determined in accordance with this subsection
(b)(iii), together with any and all cash dividends or
dividends payable in securities or other distributions of any
kind made in respect of such shares. For purposes of the
calculation of the Contingent Consideration:
(A) the "CONTINGENT SHARES" shall mean that
number of shares of Series G Stock equal to 400,000,
or the number of shares of Parent Common Stock
received upon the conversion of such shares of Series
G Stock into Parent Common Stock together with any
and all cash dividends or dividends payable in
securities or other distributions of any kind made in
respect of such shares (such dividends and
distributions being allocated pro-rata across the
Contingent Shares and treated in the same manner as
the Contingent Shares with which they are associated
for purposes of this Agreement), with each applicable
security as adjusted for any Recapitalization Event
(as defined below); and
(B) the "SHARE PRICE" shall mean the average
closing per share sale price of the Common Stock, no
par value per share, of Parent ("PARENT COMMON
STOCK") for the sixty trading day period beginning
the trading day following the first day of public
trading in Parent Common Stock subsequent to Parent's
firmly underwritten initial public offering (the
"IPO"). The Share Price shall be subject to
adjustment in the event of a Recapitalization Event.
The Contingent Shares attributable to the Company Stockholders will be
held by (and registered in the name of) the Escrow Agent (as such term is
defined in Section 9) in the Escrow Fund (as defined in Section 9) as nominee
for the Company Stockholders who have a right to such Contingent Shares. As
Series G Warrants are exercised the portion of the Contingent Shares
attributable to the holders of such exercised warrants (as set forth on SCHEDULE
1.5) will be issued in the name of the Escrow Agent to be held in the Escrow
Fund.
In the event that the Share Price is less than $20 (as adjusted for any
Recapitalization Event), then within ten (10) business days of the end of such
sixty trading day period, all or a portion of the Contingent Shares as
calculated in accordance with the following formula shall be, subject to Section
1.6, released and distributed (or in the case of the portion attributable to
Series G Warrants, set aside for issuance upon exercise of such warrants) to the
Company Equityholders on a PRO RATA basis as set forth in SCHEDULE 1.5.
4
Contingent = Contingent Shares x $20* - SHARE PRICE
Consideration ------------------
10*
-------------------
*(as adjusted for any Recapitalization Event)
In no event shall the aggregate number of shares which comprise the Contingent
Consideration so released or set aside exceed the total number of Contingent
Shares. Subject to Section 1.6, all of the Contingent Shares shall be released
to the Company Equityholders in the event that the Share Price is $10 (as
adjusted for any Recapitalization Event) or less. No Contingent Shares shall be
released to Company Equityholders if the Share Price is $20 (as adjusted for any
Recapitalization Event) or above. Such released Contingent Shares shall be
subject to the same transfer restrictions applicable to the Merger Shares. In
the event that Parent has not effected its IPO within fifteen (15) months
following Closing, then, subject to Section 1.6, 200,000 (as adjusted for any
Recapitalization Event) of the Contingent Shares shall be released and
distributed to the Company Equityholders on a PRO RATA basis in proportion to
their rights to Contingent Consideration as set forth on SCHEDULE 1.5 (or in the
case of the portion attributable to Series G Warrants, reserved for issuance
upon exercise of such warrants). Any Contingent Shares remaining following any
such partial release to the Company Equityholders, other than those shares
pending disposition under Section 1.6 of this Agreement, shall be released back
to Parent. Notwithstanding the foregoing, in the event of the release of
Contingent Shares allocable to the Company Stockholders prior to the Termination
Date (defined at Section 9.2(a)) ten percent (10%) of such Contingent Shares
that would otherwise be released to each Company Stockholder shall, on behalf of
each Company Stockholder, in proportion to each Company Stockholder's right to
the Contingent Consideration, remain in the Escrow Fund to serve as Indemnity
Shares (as defined at Section 9.1(b) hereof). In the event of the release of
Contingent Shares allocable to Series G Warrants, which occurs prior to the
Termination Date, ten percent (10%) of such Contingent Shares shall be reserved
for issuance into the Escrow Fund to serve as Indemnity Shares upon exercise of
such warrants prior to the Termination Date.
(iv) The "CONTINGENT EXCHANGE RATIO" shall be the
fraction (rounded to the nearest ten-thousandth) determined by
dividing (A) the Contingent Consideration, by (B) the Fully
Diluted Company Share Amount.
(v) The "EXCHANGE RATIO" shall be the fraction
(rounded to the nearest ten-thousandth) determined by dividing
(A) 1,800,000 (as adjusted for any Recapitalization Event), by
(B) the Fully Diluted Company Share Amount (as defined below).
(vi) The "FULLY DILUTED COMPANY SHARE AMOUNT" is
3,894,960 shares, which the Company represents is the sum of
(A) the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (including
any such shares that are subject to a repurchase option or
risk of forfeiture under any restricted stock purchase
agreement or other agreement), (B) the aggregate number of
shares of Company Common Stock issuable upon conversion of all
shares of Company Preferred Stock outstanding immediately
prior to the Effective Time in accordance with the Company's
certificate of incorporation as then
5
in effect, (C) the aggregate number of shares of Company
Common Stock issuable pursuant to all options to purchase
shares of Company Common Stock outstanding immediately prior
to the Effective Time ("COMPANY OPTIONS"), (D) the aggregate
number of shares of Company Common Stock issuable pursuant to
all warrants to purchase shares of Company Common Stock
outstanding immediately prior to the Effective Time ("COMPANY
WARRANTS"), and (E) the aggregate number of shares of Company
Common Stock issuable pursuant to any other rights to acquire
shares of Company Common Stock outstanding immediately prior
to the Effective Time.
(vii) The "MERGER CONSIDERATION" receivable by a
holder of capital stock of the Company shall consist of (A)
that portion of the Merger Shares issuable to such holder in
accordance with Section 1.5(a)(i)(A) upon the surrender of the
certificate or certificates representing capital stock of the
Company held by such holder, (B) the right of such holder to
receive cash in lieu of fractional shares of Series G Stock in
accordance with Section 1.8(a), (C) the right of such holder
to receive the applicable portion of the Contingent
Consideration, if any, in accordance with Section 1.5(a)(i)(C)
and (D) the portion of the Cash Consideration payable to such
holder in accordance with Section 1.5(a)(i)(B). Each Company
Stockholder's PRO RATA portion of the Merger Consideration is
set forth on SCHEDULE 1.5 of this Agreement.
(viii) The "MERGER SHARES" shall mean the 1,800,000
shares of Series G Stock (as adjusted for any Recapitalization
Event) to be issued pursuant to Section 1.5(a)(i).
(ix) A "RECAPITALIZATION EVENT" shall mean any stock
split, reverse split, stock dividend, reorganization,
recapitalization or other like change with respect to the
applicable classes of Parent's capital stock occurring after
the date hereof.
1.6 COMPANY OPTIONS AND WARRANTS. At the Effective Time, each then
outstanding Company Option and Company Warrant listed on SCHEDULE 1.6 of this
Agreement shall be terminated and converted into the right to receive a warrant
to purchase that number of shares of Series G Stock (with the associated rights
to a portion of the Cash Consideration and Contingent Consideration,
collectively referred to in the Series G Warrants as a Unit) specified on
SCHEDULES 1.5 AND 1.6. Each of the warrants to purchase shares of Series G Stock
(the "SERIES G WARRANTS") shall be fully vested and in the form attached to this
Agreement as EXHIBIT I. The number of shares of Series G Stock subject to each
Series G Warrant shall be equal to the number of shares of Company Common Stock
that were subject to each exchanged Company Option or Company Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Series G Stock. The per
share exercise price for the Series G Stock issuable upon exercise of each
Series G Warrant issued in exchange for such Company Option or Company Warrant
shall be determined by dividing the exercise price per share of Company Common
Stock subject to such Company Option or Company Warrant, as in effect
immediately prior to the Effective Time, by the Exchange Ratio, and rounding the
resulting exercise price to the nearest whole cent as is specified on SCHEDULE
1.6 hereto. Holders of the Series G Warrants shall be entitled to receive, upon
exercise: (a) shares of Series G Stock (or (i) Parent Common Stock if the Series
G Stock has converted into Parent Common Stock, or (ii) any property or
consideration issued in exchange for such shares of Series G Stock or Parent
Common Stock), (b) that portion of the Cash Consideration to which such holder
would have otherwise been entitled to had he exercised his Company Option or
Company Warrant immediately prior to Closing; and (c) that portion, or
6
the right to receive such portion, of the Contingent Consideration, if any, to
which such holder would have otherwise been entitled had he exercised such
Company Option or Company Warrant immediately prior to Closing. Parent shall
hold the Cash Consideration allocated for each holder of Series G Warrants in
trust until such time as the holder actually exercises such Series G Warrant.
The portion of Contingent Consideration related to the Series G Warrants shall
remain authorized and reserved by Parent until the later of such time as the
holder actually exercises such Series G Warrant or at the time of expiration or
termination or such warrant. Any Cash Consideration or Contingent Consideration
so allocated to Series G Warrants which expire or are terminated shall revert
back to Parent at the time of such expiration or termination. Each Company
Option and Company Warrant holder's PRO RATA portion of the Cash Consideration
and Contingent Consideration, if any, is set forth on SCHEDULE 1.5.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of capital stock of the Company that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company, except the right to receive the Merger
Consideration, and the stock transfer books of the Company shall be closed with
respect to all shares of such capital stock of the Company outstanding
immediately prior to the Effective Time. No further transfer of any such shares
of capital stock of the Company shall be made on such stock transfer books after
the Effective Time. If, after the Effective Time, a valid certificate previously
representing any shares of capital stock of the Company (a "COMPANY STOCK
CERTIFICATE") is presented to the Surviving Corporation or Parent, such Company
Stock Certificate shall be canceled and shall be exchanged as provided in
Section 1.8.
1.8 EXCHANGE OF CERTIFICATES; LEGENDS; ESCROW.
(a) As soon as practicable after the Effective Time, Parent
will send to each of the registered holders of Company Stock
Certificates (i) a letter of transmittal in customary form and
containing such provisions as Parent may reasonably specify, (ii) such
other customary documents as may be required including, without
limitation, a Form W-9, and (iii) instructions for use in effecting the
surrender of Company Stock Certificates in exchange for the Merger
Consideration. Upon surrender of a Company Stock Certificate(s) with
the face value(s) specified on Part 2.3(a)(ii) of the Company
Disclosure Schedule to Parent for exchange, together with a duly
executed letter of transmittal and such other documents as are
customarily required in this type of merger transaction, Parent shall
deliver to the holder of such Company Stock Certificate(s) (i) a
certificate representing the number of shares of Series G Stock that
such holder has the right to receive pursuant to Section 1.5, less the
number of shares of Series G Stock to be deposited into an escrow fund
(the "ESCROW FUND") as Indemnity Shares pursuant to the requirements of
Sections 1.8(f) and Section 9 (such amount being reflected on SCHEDULE
1.5), and (ii) a check equal to the applicable portion of Cash
Consideration to which such holder is entitled, provided that the
certificates representing Series G Stock to be delivered to the holder
of a Company Stock Certificate(s) represent only whole shares of Series
G Stock and in lieu of any fractional share to which such holder would
otherwise be entitled (including fractional shares resulting from the
issuance of shares of Series G Stock from the Indemnity Portion of the
Escrow Fund (as defined at Section 9.1 of this Agreement)), the holder
of such Company Stock Certificate shall be paid in cash an amount equal
to the sum of the dollar amount (rounded to the nearest whole cent)
determined by multiplying $7.50 by the fraction of a share of Series G
Stock
7
that would otherwise be deliverable to such holder. In addition to the
payments set forth above, Parent shall also pay to holders of Company
Stock Certificates at the time of the exchange contemplated by this
Section 1.8(a), any fractional share amounts due such holders in
connection with the conversion of the Company Preferred Stock into
Company Common Stock. The Company shall prior to Closing have either
(i) paid to the Company Stockholders any unpaid fractional share
amounts due such holders in connection with prior stock splits effected
by the Company, as such amounts are specified on SCHEDULE 2.3(A)(II);
or (ii) allocated and set aside such funds required to pay such amounts
with respect to those Company Stockholders who have not yet returned
required stock certificates to be exchanged pursuant to such prior
stock splits. In the event two or more Company Stock Certificates
represent shares of Company Common Stock by any single holder, all
calculations respecting the number of shares and amount of cash to be
delivered to such holder shall be made based on the aggregate number of
shares represented by such Company Stock Certificates. All Company
Stock Certificates so surrendered shall be canceled. Until surrendered
as contemplated by this Section 1.8, each Company Stock Certificate
shall be deemed, from and after the Effective Time, to represent only
the right to receive the Merger Consideration in accordance with this
Agreement. If any Company Stock Certificate shall have been lost,
stolen or destroyed, Parent may, in its reasonable discretion and as a
condition precedent to the issuance of any certificate representing
Series G Stock or the payment of cash, or cash in lieu of fractional
shares, require the owner of such lost, stolen or destroyed Company
Stock Certificate to provide an appropriate affidavit and release (in
such form as Parent may reasonably request) as indemnity against any
claim that may be made against Parent or the Surviving Corporation with
respect to such Company Stock Certificate.
(b) No dividends or other distributions declared or made with
respect to Series G Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Company Stock
Certificate with respect to the shares of Series G Stock represented
thereby, and no cash payment in lieu of any fractional share shall be
paid to any such holder, until such holder surrenders such Company
Stock Certificate in accordance with this Section 1.8 (at which time
such holder shall be entitled to receive all such dividends and
distributions and such cash payments). In the interim, such dividends
and distributions will be held by Parent in trust for such holders, and
to the extent such dividends and distributions consist of cash, in an
interest-bearing account.
(c) Parent and the Surviving Corporation shall be entitled to
deduct and withhold from any consideration payable or otherwise
deliverable to any holder or former holder of capital stock of the
Company pursuant to this Agreement such amounts as Parent or the
Surviving Corporation may be required to deduct or withhold therefrom
under the Code or under any provision of state, local or foreign tax
law. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise
have been paid.
(d) Neither Parent nor the Surviving Corporation shall be
liable to any holder or former holder of capital stock of the Company
for any shares of Series G Stock (or dividends or distributions with
respect thereto), or for any cash amounts, delivered to any public
official pursuant to any applicable abandoned property, escheat or
similar law.
8
(e) The shares of Series G Stock to be issued pursuant to this
Section 1.8 shall not have been registered and shall be characterized
as "restricted securities" under the federal securities laws, and under
such laws such shares may be resold without registration under the
Securities Act, only in certain limited circumstances. Each certificate
evidencing shares of Series G Stock to be issued pursuant to this
Section 1.8 shall bear the following legends:
(i) THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED
IN RULE 144 PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT
BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT
(i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE
144, OR (iii) PURSUANT TO AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION OR
COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION.
(ii) Any other legends required by federal law or
other applicable state blue sky laws.
(f) As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Section 9 hereof,
Parent shall cause to be deposited with the Escrow Agent (as defined in
Section 9 hereof) a certificate or certificates totaling 151,766 shares
of Series G Stock (as adjusted for any Recapitalization Event)
representing the initial number of aggregate Indemnity Shares being
allocated for each Company Stockholder at Closing as specified on
SCHEDULE 1.5. The shares deposited into the Escrow Fund pursuant to
this Section 1.8(f) shall be registered in the name of the Escrow Agent
as nominee for the holders of Series G Stock that have been allocated
such shares pursuant to this Section 1.8(f). Such shares shall be
beneficially owned by such holders and such shares shall be held in
escrow and shall be available to compensate Parent for certain damages
as provided in Section 9. To the extent not used for such purposes,
such shares shall be released, all as provided in Section 9 hereof.
1.9 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of the Company that, as of the
Effective Time, are or may become shares seeking rights of appraisal
pursuant to Section 262 of the DGCL shall not be converted into or
represent the right to receive Series G Stock or a portion of the Cash
Consideration or Contingent Consideration in accordance with Section
1.5 (or cash in lieu of fractional shares in accordance with Section
1.8(a)), and the holder or holders of such shares shall be entitled
only to such rights as may be granted to such holder or holders in
Section 262 of the DGCL; PROVIDED, HOWEVER, that if (i) the status of
any such shares as "dissenting shares" shall not be perfected, (ii) the
rights of appraisal relating to such shares shall not be perfected, or
(iii) any such shares shall lose their status as "dissenting shares,"
then, as of the later of the Effective Time or the time of the failure
to perfect such status or the loss of such status, such shares shall
automatically be converted into and shall represent only the right to
receive (upon the surrender of the certificate or certificates
9
representing such shares) the Merger Consideration in accordance with
the terms of this Agreement.
(b) The Company shall give Parent (i) prompt notice of any
written demand received by the Company prior to the Effective Time to
require the Company to purchase shares of capital stock of the Company
pursuant to Section 262 of the DGCL and of any other demand, notice or
instrument delivered to the Company prior to the Effective Time
pursuant to the DGCL, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to any such demand, notice or
instrument. The Company shall not make any payment or settlement offer
prior to the Effective Time with respect to any such demand unless
Parent shall have consented in writing to such payment or settlement
offer which consent will not be unreasonably withheld.
1.10 ADDITIONAL PARENT PAYMENTS AT THE CLOSING. In addition to the
other payments and actions specified in this Agreement, at the Closing Parent
shall pay the following amounts by delivery at Closing of checks to the
applicable parties:
(a) Parent shall pay ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇, Inc. ("AH&H")
the sum of $275,000, in satisfaction of certain obligations of the
Company to AH&H.
(b) Parent shall pay ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ the sum of $50,000, in
satisfaction of certain obligations of the Company to ▇▇. ▇▇▇▇▇▇.
(c) Parent shall pay ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇") the sum of
$35,000, in satisfaction of certain obligations of the Company to
▇▇▇▇▇▇▇, which such sum of $35,000 shall be reduced by the amount of
principal and interest then outstanding under that certain promissory
note made by ▇▇▇▇▇▇▇ in the favor of the Company in the original
principal amount of $24,885.97 (the "▇▇▇▇▇▇▇ NOTE") in order to allow
the payoff by Parent of such ▇▇▇▇▇▇▇ Note in full at the Closing.
The amounts set forth in subsections (a), (b) and (c) of this Section
1.10 shall reduce the Cash Consideration set forth in Section 1.5(b)(i) of this
Agreement, resulting in a pro-rata reduction of the amount of such consideration
allocated to each of the Company Equityholders.
1.11 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.12 ACCOUNTING TREATMENT. For accounting purposes, the Merger is
intended to be treated as a purchase.
1.13 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation or Parent
with full right, title and possession of and to all rights and property of
Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
10
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, as
follows subject to such exceptions as are disclosed in the Company Disclosure
Schedule:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware
and has all corporate power and authority required: (i) to conduct its
business in the manner in which its business is currently being
conducted; (ii) to own and use its assets in the manner in which its
assets are currently owned and used; and (iii) to perform its
obligations under all Company Contracts.
(b) Except as set forth in Part 2.1(b) of the Company
Disclosure Schedule, the Company has not conducted any business under
or otherwise used, for any purpose or in any jurisdiction, any
fictitious name, assumed name, trade name or other name.
(c) The Company is not and has not been required to be
qualified, authorized, registered or licensed to do business as a
foreign corporation in any jurisdiction other than the jurisdictions
identified in Part 2.1(c)(i) of the Company Disclosure Schedule, except
where the failure to be so qualified, authorized, registered or
licensed would not (individually or in the aggregate) have a Material
Adverse Effect on the Company or on the consummation of the Merger and
the other transactions contemplated herein. The Company is in good
standing as a foreign corporation in each of the jurisdictions
identified in Part 2.1(c)(ii) of the Company Disclosure Schedule.
(d) Part 2.1(d) of the Company Disclosure Schedule accurately
sets forth (i) the names of the current members of the Company's board
of directors, (ii) the names of the current members of each committee
of the Company's board of directors, and (iii) the names and titles of
the Company's current officers.
(e) The Company does not own any controlling interest in any
Entity and, except for the equity interests identified in Part 2.1(e)
of the Company Disclosure Schedule, the Company has never owned,
beneficially or otherwise, any shares or other securities of, or any
direct or indirect equity interest in, any Entity. The Company has not
agreed and is not obligated to make any future investment in or capital
contribution to any Entity. The Company has not guaranteed and is not
responsible or liable for any obligation of any of the Entities in
which it owns or has owned any equity interest.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of: (1) the Company's
certificate of incorporation and bylaws, including all amendments thereto; (2)
the stock records of the Company; and (3) the minutes and other records of the
meetings and other proceedings (including any actions taken by written consent
or otherwise without a meeting) of the stockholders of the Company, the board of
directors of the Company and all committees of the board of directors of the
Company since the inception of the Company. There have been no formal meetings
or other proceedings of the stockholders of the Company, the board of directors
11
of the Company or any committee of the board of directors of the Company that
are not fully reflected in such minutes or other records. There has not been any
violation of any of the provisions of the Company's certificate of incorporation
or bylaws, and the Company has not taken any action that is inconsistent in any
material respect with any resolution adopted by the Company's stockholders, the
Company's board of directors or any committee of the Company's board of
directors. The books of account, stock records, minute books and other records
of the Company are accurate, up-to-date and complete in all material respects.
2.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of:
(i) 20,000,000 shares of Common Stock, par value $.02 per share, of
which 2,962,058 shares have been issued and are outstanding as of the
date of this Agreement; and (ii) 1,000,000 shares of Preferred Stock,
par value $.01 per share, of which 100,000 shares are designated Series
A Convertible Preferred Stock, 70,000 of which are issued and
outstanding. As of the date hereof and as of the Effective Time, each
outstanding share of Company Preferred Stock is and shall be
convertible into 1.0282 shares of Company Common Stock. All of the
outstanding shares of Company Common Stock and Company Preferred Stock
have been duly authorized and validly issued, and are fully paid and
nonassessable. All outstanding shares of Company Common Stock and
Company Preferred Stock, and all outstanding Company Options and
Company Warrants, have been issued and granted in compliance with (i)
all applicable federal and state securities laws and the DGCL, and (ii)
all requirements binding the Company set forth in applicable Contracts
to which the Company is a party. Part 2.3(a)(i) of the Company
Disclosure Schedule provides an accurate and complete description of
the terms of each repurchase option, if any, which is held by the
Company and to which any shares of capital stock of the Company is
subject. Part 2.3(a)(ii) of the Company Disclosure Schedule provides an
accurate and complete itemization of the share amounts represented on
the Company's issued stock certificates representing the Company Common
Stock and Company Preferred Stock, both as the share amounts are
currently represented on the outstanding certificates and how the share
amounts would otherwise be represented had the existing certificates
been replaced with new certificates to reflect any and all stock
splits, reverse stock splits, recapitalization, combinations,
reorganizations and any like transactions effected by the Company.
(b) The Company has reserved 805,160 shares of Company Common
Stock for issuance under the Company Stock Option Plans, of which
options to purchase 479,157 shares are outstanding as of the date of
this Agreement. Part 2.3(b) of the Company Disclosure Schedule
accurately sets forth, with respect to each Company Option outstanding
as of the date hereof (whether vested or unvested): (i) the name of the
holder of such Company Option; (ii) the total number of shares of
Company Common Stock that is subject to such Company Option and the
number of shares of Company Common Stock with respect to which such
Company Option is immediately exercisable; (iii) the date on which such
Company Option was granted and the term of such Company Option; (iv)
the vesting schedule for such Company Option (including any
circumstances under which such vesting may be accelerated as a result
of the Merger or otherwise); (v) the exercise price per share of
Company Common Stock purchasable under such Company Option; and (vi)
whether such Company Option has been designated an "incentive stock
option" as defined in Section 422 of the Code. Except as set forth in
Part 2.3(b) or Part 2.3(c) of the Company Disclosure Schedule, there is
no: (i) outstanding subscription, option,
12
call, warrant or right (including any preemptive rights), whether or
not currently exercisable, to acquire any shares of capital stock or
other securities of the Company; (ii) outstanding security, instrument
or obligation that is or may become convertible into or exchangeable
for any shares of capital stock or other securities of the Company; or
(iii) Contract obligating the Company to sell or otherwise issue any
shares of its capital stock or any other securities of the Company.
(c) The Company has reserved 131,774 shares of Company Common
Stock for issuance pursuant to the Company Warrants, all of which such
Company Warrants are outstanding as of the date of this Agreement. Part
2.3(c) of the Company Disclosure Schedule accurately sets forth, with
respect to each Company Warrant outstanding as of the date hereof: (i)
the name of the holder of such Company Warrant; (ii) the total number
of shares of Company Common Stock that is subject to such Company
Warrant; (iii) the date on which such Company Warrant was granted and
the term of such Company Warrant; and (iv) the exercise price per share
of Company Common Stock purchasable under such Company Warrant.
(d) Except as set forth in Part 2.3(d) of the Company
Disclosure Schedule, the Company has never repurchased, redeemed or
otherwise reacquired any shares of capital stock or other securities of
the Company. All securities so reacquired by the Company were
reacquired in compliance with (i) the applicable provisions of the DGCL
and all other applicable Legal Requirements, and (ii) all requirements
set forth in applicable restricted stock purchase agreements and other
applicable Contracts.
(e) To the Knowledge of the Company, no more than 35
stockholders of the Company do not qualify as an "accredited investor"
(as such term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act).
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the following
financial statements and notes (collectively, the "COMPANY FINANCIAL
STATEMENTS"):
(i) the audited balance sheet of the Company as of
December 31, 1996, December 31, 1997, December 31, 1998,
December 31, 1999 and December 31, 2000, and the related
audited statement of operations, statement of stockholders'
equity and statement of cash flows of the Company for the
years then ended, together with the notes thereto and the
unqualified report and opinion of BDO ▇▇▇▇▇▇▇ relating
thereto; and
(ii) the unaudited balance sheet of the Company as of
March 31, 2001 (the "UNAUDITED INTERIM BALANCE SHEET"), and
the related unaudited statement of operations of the Company
for the three-month period then ended.
(b) The Company Financial Statements are accurate and complete
in all material respects and present fairly the financial position of
the Company as of the respective dates thereof and the results of
operations and in the case of the financial statements referred to in
Section 2.4(a)(i), cash flows of the Company for the periods covered
thereby. The Company Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the
periods covered (except that the financial statements referred to in
Section
13
2.4(a)(ii) do not contain footnotes and are subject to normal and
recurring year-end audit adjustments, which will not, individually or
in the aggregate, be material in magnitude).
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since December 31, 2000:
(a) there has not been any adverse change in the Company's
business, condition, capitalization, assets, liabilities, operations,
financial performance or prospects that have had, or could be
reasonably expected to have, and, to the Knowledge of the Company, no
event has occurred that has had, or could reasonably be expected to
have (individually or in the aggregate), a Material Adverse Effect on
the Company;
(b) there has not been any material loss, damage or
destruction to, or any material interruption in the use of, any of the
Company's assets (whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid
any dividend or made any other distribution in respect of any shares of
capital stock of the Company, and has not repurchased, redeemed or
otherwise reacquired any shares of capital stock or other securities of
the Company;
(d) the Company has not sold, issued or authorized the
issuance of (i) any capital stock or other securities of the Company
(except for Company Common Stock issued upon the (A) exercise of
outstanding Company Options and Company Warrants or (B) exercise by
Neuroscience Partners Limited ("NPLP") of its conversion right
contained in that certain Royalty Purchase Agreement, dated December
18, 1996 by and between NPLP and Apollo Genetics, Inc.), (ii) any
option or right to acquire any capital stock or any other securities of
the Company (except for Company Options and Company Warrants described
in Part 2.3 of the Company Disclosure Schedule), or (iii) any
instrument convertible into or exchangeable for any capital stock or
other securities of the Company;
(e) the Company has not amended or waived any of its rights
under, or changed or modified any provisions permitting the
acceleration of vesting under, (i) any provision of any Company Stock
Option Plan, (ii) any provision of any agreement evidencing any
outstanding Company Option, or (iii) any restricted stock purchase
agreement;
(f) there has been no amendment to the Company's certificate
of incorporation or bylaws, and the Company has not effected or been a
party to any Acquisition Transaction, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(g) the Company has not made any capital expenditure which,
when added to all other capital expenditures made on behalf of the
Company since December 31, 2000, exceeds $100,000;
(h) the Company has not (i) entered into or permitted any of
the assets owned or otherwise required to be used by it to accomplish
its ordinary course of business to become bound by any Material
Contract involving the Company (as defined in Section 2.10(a)), or (ii)
14
materially amended or prematurely terminated, or waived any material
right or remedy under, any Material Contract to which the Company is a
party;
(i) the Company has not, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the
ordinary course of business and consistent with the Company's past
practices, (i) acquired, leased or licensed any right or other asset
from any other Person, (ii) sold or otherwise disposed of, or leased or
licensed, any right or other asset to any other Person, or (iii) waived
or relinquished any right;
(j) the Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account
receivable or other indebtedness;
(k) the Company has not made any pledge of any of its assets
or otherwise permitted any of its assets to become subject to any
Encumbrance, except for pledges of immaterial assets made in the
ordinary course of business and consistent with the Company's past
practices;
(l) the Company has not (i) lent money to any Person (other
than pursuant to routine travel or similar advances made to employees
in the ordinary course of business), or (ii) incurred or guaranteed any
indebtedness for borrowed money;
(m) the Company has not (i) established or adopted any
Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing
or similar payment to, or increased the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees, or (iii) hired
any new employee;
(n) the Company has not changed any of its methods of
accounting or accounting practices in any respect, except to the
extent, if any, required by GAAP;
(o) the Company has not made any Tax election;
(p) the Company has not commenced or settled any Legal
Proceeding;
(q) the Company has not entered into any material transaction
or taken any other material action outside the ordinary course of
business or inconsistent with its past practices; and
() the Company has not agreed or committed to take any of the
actions referred to in clauses (c) through (q) above.
2.6 OWNERSHIP OF/TITLE TO ASSETS.
(a) The Company owns, and has good and valid title to all
assets purported to be owned by it, including: (i) all assets reflected
on the Unaudited Interim Balance Sheet as owned by the Company or
purchased by the Company after March 31, 2001, except for assets which
have been disposed of in the ordinary course of business, and (ii) all
assets referred to as owned by the Company in Part 2.8 of the Company
Disclosure Schedule. Except as set forth in
15
Part 2.6(a) of the Company Disclosure Schedule, all of said assets are
owned by the Company free and clear of any liens or other Encumbrances,
except for (x) any lien for current taxes not yet due and payable, and
(y) minor liens that have arisen in the ordinary course of business and
that do not (individually or in the aggregate) have a Material Adverse
Effect on the Company.
(b) Part 2.6(b) of the Company Disclosure Schedule identifies
all assets that are material to the business of the Company and that
are being leased or licensed to or by the Company. To the Knowledge of
the Company all such leases and licenses are valid and enforceable
against the parties thereto.
2.7 BANK ACCOUNTS; RECEIVABLES.
(a) Part 2.7(a) of the Company Disclosure Schedule provides
accurate information with respect to each account maintained by or for
the benefit of the Company at any bank or other financial institution.
Such information consists of the name of the bank or financial
institution, the account number and the balance as of March 31, 2001.
(b) Part 2.7(b) of the Company Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable,
notes receivable and other receivables of the Company as of March 31,
2001. Except as set forth in Part 2.7(b) of the Company Disclosure
Schedule, all existing accounts receivable of the Company (including
those accounts receivable reflected on the Unaudited Interim Balance
Sheet that have not yet been collected and those accounts receivable
that have arisen since March 31, 2001 and have not yet been collected)
(i) represent valid obligations of customers of the Company arising
from bona fide transactions entered into in the ordinary course of
business, and (ii) are current. The Company has no Knowledge that such
accounts receivable would not be collected in full when due, without
any counterclaim or set off (net of an allowance for doubtful accounts
not to exceed $5,000 in the aggregate).
2.8 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets
owned by or leased to the Company are adequate for the uses to which
they are being put, are in good condition and repair (ordinary wear and
tear excepted) and are adequate for the conduct of the Company's
business in the manner in which such business is currently being
conducted.
(b) The Company does not own any real property or any interest
in real property, except for the leasehold created under the real
property lease identified and whose terms are summarized in Part 2.8(b)
of the Company Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets
forth, with respect to each Proprietary Asset owned by the Company and
registered with any Governmental Body or for which an application has
been filed and is currently active or pending with any Governmental
Body, (i) a brief description of such Proprietary Asset, and (ii) the
names of the jurisdictions covered by the applicable registration or
application. Part 2.9(a)(ii) of the Company Disclosure Schedule
identifies and provides a brief description of all other Proprietary
Assets owned by the
16
Company that are material to the business of the Company. Part
2.9(a)(iii) of the Company Disclosure Schedule identifies and provides
a brief description of, and identifies any ongoing royalty or payment
obligations in excess of $10,000 with respect to each Proprietary Asset
that is licensed or otherwise made available to the Company by any
Person and is material to the business of the Company and identifies
the Contract, including all amendments thereto, under which such
Proprietary Asset is being licensed or otherwise made available to the
Company. The Company has good and valid title to all of the Company
Proprietary Assets identified in Part 2.9(a)(i) and, to its Knowledge,
to the Company Proprietary Assets identified in Part 2.9(a)(ii) of the
Company Disclosure Schedule, free and clear of all Encumbrances, except
for any lien for current taxes not yet due and payable. Each Contract
identified in Parts 2.9(a)(ii) and 2.9(a)(iii) of the Company
Disclosure Schedule is, to the Company's Knowledge, valid and in full
force and effect and the Company has not materially violated or
breached, or committed any default under, any such Contract. Subject to
the terms of the applicable Contracts, the Company has a valid right to
use and otherwise exploit, to the extent provided within the applicable
Contract, all Proprietary Assets identified in Part 2.9(a)(iii) of the
Company Disclosure Schedule. Except as set forth in Part 2.9(a)(iv) of
the Company Disclosure Schedule, the Company has not developed jointly
with any other Person any Company Proprietary Asset that is material to
the business of the Company with respect to which such other Person has
any rights. Except as set forth in Part 2.9(a)(v) of the Company
Disclosure Schedule, there is no Company Contract pursuant to which any
Person has any right (whether or not currently exercisable) to use,
license or otherwise exploit any Company Proprietary Asset.
(b) The Company has taken reasonable measures and precautions
to protect and maintain the confidentiality, secrecy and value of all
material Company Proprietary Assets. Without limiting the generality of
the foregoing, (i) all current and former employees of the Company who
are or were involved in, or who have contributed to, the creation or
development of any material Company Proprietary Asset have executed and
delivered to the Company confidentiality agreements previously
delivered by the Company to Parent, and (ii) all current and former
consultants and independent contractors to the Company who are or were
involved in, or who have contributed to, the creation or development of
any material Company Proprietary Asset have each executed and delivered
to the Company consultant agreements (containing no exceptions to or
exclusions from the scope of its coverage) copies of which the Company
has subsequently delivered to Parent. Except as set forth in Part
2.9(b) of the Company Disclosure Schedule, no current or former
employee, officer, director, stockholder, consultant or independent
contractor of or to the Company has any right, claim or interest in or
with respect to any Company Proprietary Asset.
(c) To the Knowledge of the Company: (i) there are no patents,
trademarks, service marks and copyrights owned or in-licensed by the
Company that are material to its business that are not valid or
enforceable; (ii) none of the Company Proprietary Assets and no
Proprietary Asset that is currently being developed by the Company
(either by itself or with any other Person) infringes or
misappropriates any Proprietary Asset owned or used by any other
Person; (iii) none of the products that are or have been designed,
created, developed, assembled, manufactured or sold by the Company is
infringing, misappropriating or making any unlawful or unauthorized use
of any Proprietary Asset owned or used by any other Person, and none of
such products has at any time infringed, misappropriated or made any
unlawful or unauthorized use of any Proprietary Asset owned or used by
any other Person; and (iv) no other Person is infringing,
17
misappropriating or making any unlawful or unauthorized use of, and no
Proprietary Asset owned or used by any other Person infringes or
misappropriates any material Company Proprietary Asset.
(d) To the Company's Knowledge, the Company has not received
any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation
or unlawful or unauthorized use of, any Proprietary Asset owned or used
by any other Person.
(e) To the Company's Knowledge, the Company Proprietary Assets
constitute all the Proprietary Assets necessary to enable the Company
to conduct its business in the manner in which such business has been
and is being conducted. Except as set forth in Part 2.9(e) of the
Company Disclosure Schedule, the Company has not (i) licensed, granted
rights in or hypothecated any of the material Company Proprietary
Assets to any Person, or (ii) entered into any covenant not to compete,
or Contract limiting its ability to exploit any Company Proprietary
Assets or to transact business, in any market or geographical area or
with any Person.
2.10 CONTRACTS.
(a) Part 2.10(a) of the Company Disclosure Schedule
identifies:
(i) each Company Contract relating to the employment
of, or the performance of services by, any current employee,
consultant or independent contractor;
(ii) each Company Contract relating to the
acquisition, transfer, use, development, sharing or license of
any technology or any Proprietary Asset;
(iii) each Company Contract imposing any restriction
on the Company's right or ability to (A) compete with any
other Person, (B) to acquire any product or other asset or any
services from any other Person, sell any product or other
asset to or perform any services for any other Person or
transact business or deal in any other manner with any other
Person, or (C) develop or distribute any technology;
(iv) each Company Contract creating or involving any
agency relationship or distribution arrangement;
(v) each Company Contract relating to the
acquisition, issuance or transfer of any securities;
(vi) each Company Contract relating to the creation
of any Encumbrance with respect to any material asset of the
Company;
(vii) each Company Contract involving or
incorporating any guaranty, any pledge, any performance or
completion bond, any indemnity or any surety arrangement;
(viii) each Company Contract creating any partnership
or joint venture or any sharing of revenues, profits, losses,
costs or liabilities;
18
(ix) each Company Contract relating to the purchase
or sale of any product or other asset by or to, or the
performance of any services by or for, any Related Party (as
defined in Section 2.18);
(x) each Company Contract constituting or relating to
a Government Contract or Government Bid;
(xi) any other Company Contract that was entered into
outside the ordinary course of business or was inconsistent
with the Company's past practices;
(xii) any other Company Contract that has a term of
more than 60 days and that may not be terminated by the
Company (without penalty) within 60 days after the delivery of
a termination notice by the Company; and
(xiii) any other Company Contract that contemplates
or involves (A) the payment or delivery of cash or other
consideration by the Company in an amount or having a value in
excess of $10,000 in the aggregate, or (B) the performance of
services having a value in excess of $10,000 in the aggregate.
Company Contracts in the respective categories described in clauses (i) through
(xiii) above are referred to in this Agreement as "MATERIAL CONTRACTS."
(b) The Company has delivered to Parent accurate and complete
copies of all written Material Contracts, including all amendments
thereto. Part 2.10(b) of the Company Disclosure Schedule provides an
accurate description of the terms of each Material Contract that is not
in written form. Each Contract identified in Part 2.10(a) and Part
2.10(b) of the Company Disclosure Schedule is, to the Knowledge of the
Company, valid, in full force and effect, and is enforceable by the
Company in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10(c) of the Company
Disclosure Schedule:
(i) the Company has not violated or breached, or
committed any default under, any Material Contract, and, to
the Knowledge of the Company, no other Person has violated or
breached, or committed any default under, any Material
Contract;
(ii) to the Knowledge of the Company, no event has
occurred, and no circumstance or condition exists, that (with
or without notice or lapse of time) will, or could reasonably
be expected to, (A) result in a material violation or breach
of any of the provisions of any Material Contract, (B) give
any Person the right to declare a default or exercise any
remedy under any Material Contract, (C) give any Person the
right to accelerate the maturity or performance of any
Material Contract, or (D) give any Person the right to cancel,
terminate or materially modify any Material Contract;
(iii) since the Company's inception, the Company has
not received any notice or other communication regarding any
actual or possible violation or breach of, or default under,
any Material Contract; and
19
(iv) the Company has not waived any of its material
rights under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the
terms of any Material Contract to renegotiate, any amount paid or
payable to the Company under any Material Contract or any other
material term or provision of any Material Contract.
(e) Except as set forth on Part 2.10(e) of the Company
Disclosure Schedule, the Material Contracts collectively constitute all
of the Contracts necessary to enable the Company to conduct its
business in the manner in which its business is currently being
conducted.
(f) Part 2.10(f) of the Company Disclosure Schedule identifies
and provides a brief description of each proposed Contract as to which
any written bid, offer, award, proposal, term sheet or similar document
has been submitted or received by the Company since December 31, 2000
and which, when duly executed and delivered, would constitute a
Material Contract.
2.11 LIABILITIES; FEES, COSTS AND EXPENSES. The Company has no accrued,
contingent or other liabilities of any nature, either matured or unmatured
(whether or not required to be reflected in financial statements in accordance
with GAAP, and whether due or to become due), except for: (i) liabilities
identified in the Unaudited Interim Balance Sheet; (ii) accounts payable or
accrued salaries and other expenses that have been incurred by the Company since
December 31, 2000 in the ordinary course of business and consistent with the
Company's past practices; (iii) liabilities under the Material Contracts,
arising or incurred in accordance with the express terms of such Material
Contracts; (iv) liabilities for expenses, including the fees and expenses of
counsel and accountants, incurred in connection with this Agreement and the
other transactions contemplated hereby; and (v) the liabilities identified in
Part 2.11 of the Company Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since its inception been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not (individually or in the aggregate) have a Material
Adverse Effect on the Company. Except as set forth in Part 2.12 of the Company
Disclosure Schedule, since December 31, 1997 the Company has not received any
notice or other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any material Legal
Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Company Disclosure
Schedule identifies each material Governmental Authorization held by the
Company, and the Company has delivered to Parent accurate and complete copies of
all Governmental Authorizations identified in Part 2.13 of the Company
Disclosure Schedule. To the Company's Knowledge, the Governmental Authorizations
identified in Part 2.13 of the Company Disclosure Schedule are valid and in full
force and effect, and collectively constitute all material Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted. The Company is, and
at all times since its inception has been, in compliance with the terms and
requirements of the respective Governmental Authorizations identified in Part
2.13 of the Company Disclosure Schedule, except where such
20
failure to be in such compliance would not (individually or in the aggregate)
have a Material Adverse Effect on the Company. Since December 31, 1997, the
Company has not received any notice or other communication from any Governmental
Body regarding (a) any actual or possible violation of or failure to comply with
any term or requirement of any Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of
the Company with any Governmental Body with respect to any taxable
period ending on or before the Closing Date (the "COMPANY RETURNS") (i)
have been or will be filed on or before the applicable due date
(including any extensions of such due date), and (ii) have been, or
will be when filed, accurately and completely prepared in all material
respects in compliance with all applicable Legal Requirements. All
amounts shown on the Company Returns to be due on or before the Closing
Date have been or will be paid on or before the Closing Date. The
Company has delivered to Parent accurate and complete copies of all
Company Returns filed since the Company's inception which have been
requested by Parent.
(b) The Company Financial Statements fully accrue all actual
and contingent liabilities for Taxes with respect to all periods
through the dates thereof in accordance with GAAP. The Company will
establish, in the ordinary course of business and consistent with its
past practices, reserves adequate for the payment of all Taxes for the
period from the inception of the Company through the Closing Date in
accordance with GAAP, and the Company will disclose the dollar amount
of such reserves to Parent on or prior to the Closing Date.
(c) Except as set forth in Part 2.14(c) of the Company
Disclosure Schedule, there have been no examinations or audits of any
Company Return by any Governmental Body. The Company has delivered to
Parent accurate and complete copies of all audit reports and similar
documents (to which the Company has access) relating to the Company
Returns. Except as set forth in Part 2.14(c) of the Company Disclosure
Schedule, no extension or waiver of the limitation period applicable to
any of the Company Returns has been granted (by the Company or any
other Person), and no such extension or waiver has been requested from
the Company.
(d) Except as set forth in Part 2.14(d) of the Company
Disclosure Schedule, no claim or Legal Proceeding is pending or has
been threatened against or with respect to the Company in respect of
any Tax. There are no unsatisfied liabilities for Taxes (including
liabilities for interest, additions to tax and penalties thereon and
related expenses) with respect to any notice of deficiency or similar
document received by the Company with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or
similar document which are being contested in good faith by the Company
and with respect to which adequate reserves for payment have been
established). There are no liens for Taxes upon any of the assets of
the Company except liens for current Taxes not yet due and payable. The
Company has not entered into or become bound by any agreement or
consent pursuant to Section 341(f) of the Code. The Company has not
been, and the Company will not be, required to include any adjustment
in taxable income for any tax period (or portion thereof) pursuant to
Section 481 or
21
263A of the Code or any comparable provision under state or foreign Tax
laws as a result of transactions or events occurring, or accounting
methods employed, prior to the Closing.
(e) Except as set forth in Part 2.14(e) of the Company
Disclosure Schedule, there is no agreement, plan, arrangement or other
Contract covering any employee or independent contractor or former
employee or independent contractor of the Company that, considered
individually or considered collectively with any other such Contracts,
will, or could reasonably be expected to, give rise directly or
indirectly to the payment of any amount that would not be deductible
pursuant to Section(s) 280G, 162(m) or 404 of the Code. The Company has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party. The Company is
not, and has never been, a member of an affiliated group of
corporations filing a consolidated federal income tax return or a party
to or bound by any tax sharing agreement, tax allocation agreement or
similar Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a)(i) of the Company Disclosure Schedule
identifies each salary, bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance pay, termination
pay, hospitalization, medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension or retirement plan,
program or agreement (collectively, the "PLANS") sponsored, maintained,
contributed to or required to be contributed to by the Company for the
benefit of any employee of the Company ("EMPLOYEE"), except for Plans
which would not require the Company to make payments or provide
benefits having a value in excess of $25,000 in the aggregate per Plan
per year. Part 2.15(a)(ii) of the Company Disclosure Schedule sets
forth the citizenship status of every employee of the Company (whether
such employee is a United States citizen or otherwise) and, with
respect to non-United States citizens, identifies the visa or other
similar permit under which such employee is working for the Company and
the dates of issuance and expiration of such visa or other similar
permit.
(b) Except as set forth in Part 2.15(b) of the Company
Disclosure Schedule, the Company does not maintain, sponsor or
contribute to, and, to the Knowledge of the Company, has not at any
time in the past maintained, sponsored or contributed to, any employee
pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), whether
or not excluded from coverage under specific Titles or Subtitles of
ERISA) for the benefit of Employees or former Employees (a "PENSION
PLAN").
(c) The Company maintains, sponsors or contributes only to
those employee welfare benefit plans (as defined in Section 3(1) of
ERISA, whether or not excluded from coverage under specific Titles or
Subtitles of ERISA) for the benefit of Employees or former Employees
which are described in Part 2.15(c) of the Company Disclosure Schedule
(the "WELFARE PLANS"), none of which is a multiemployer plan (within
the meaning of Section 3(37) of ERISA).
22
(d) With respect to each Plan, the Company has delivered to
Parent:
(i) an accurate and complete copy of such Plan
(including all amendments thereto);
(ii) an accurate and complete copy of the annual
report, if required under ERISA, with respect to such Plan for
the last two years;
(iii) an accurate and complete copy of the most
recent summary plan description, together with each Summary of
Material Modifications, if required under ERISA, with respect
to such Plan, and all material employee communications
relating to such Plan;
(iv) if such Plan is funded through a trust or any
third party funding vehicle, an accurate and complete copy of
the trust or other funding agreement (including all amendments
thereto) and accurate and complete copies of the most recent
financial statements thereof;
(v) accurate and complete copies of all Contracts
relating to such Plan, including service provider agreements,
insurance contracts, minimum premium contracts, stop-loss
agreements, investment management agreements, subscription and
participation agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue
Service with respect to such Plan (if such Plan is intended to
be qualified under Section 401(a) of the Code).
(e) The Company is not required to be, and, to the Knowledge
of the Company, has never been required to be, treated as a single
employer with any other Person under Section 4001(b)(1) of ERISA or
Section 414(b), (c), (m) or (o) of the Code. The Company has never been
a member of an "AFFILIATED SERVICE GROUP" within the meaning of Section
414(m) of the Code. To the Knowledge of the Company, the Company has
never made a complete or partial withdrawal from a multiemployer plan,
as such term is defined in Section 3(37) of ERISA, resulting in
"WITHDRAWAL LIABILITY," as such term is defined in Section 4201 of
ERISA (without regard to subsequent reduction or waiver of such
liability under either Section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create
any additional Welfare Plan or any Pension Plan, or to modify or change
any existing Welfare Plan or Pension Plan (other than to comply with
applicable law) in a manner that would affect any Employee.
(g) Except as set forth in Part 2.15(g) of the Company
Disclosure Schedule, no Welfare Plan provides death, medical or health
benefits (whether or not insured) with respect to any current or former
Employee after any such Employee's termination of service (other than
(i) benefit coverage mandated by applicable law, including coverage
provided pursuant to Section 4980B of the Code, (ii) deferred
compensation benefits accrued as liabilities on the Unaudited Interim
Balance Sheet, and (iii) benefits the full cost of which are borne by
current or former Employees (or the Employees' beneficiaries)).
23
(h) With respect to each of the Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the
Code, the provisions of Section 4980B of the Code ("COBRA") have been
complied with in all material respects.
(i) Each of the Plans has been operated and administered in
all material respects in accordance with applicable Legal Requirements,
including but not limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the
Internal Revenue Service, and the Company is not aware of any reason
why any such determination letter should be revoked.
(k) Except as set forth in Part 2.15(k) of the Company
Disclosure Schedule, neither the execution, delivery or performance of
this Agreement, nor the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will result in any payment
(including any bonus, golden parachute or severance payment) to any
current or former Employee or director of the Company (whether or not
under any Plan), or materially increase the benefits payable under any
Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(l) Part 2.15(l) of the Company Disclosure Schedule contains a
list of all salaried employees of the Company as of the date of this
Agreement, and correctly reflects, in all material respects, their
salaries, any other compensation payable to them (including
compensation payable pursuant to bonus, deferred compensation or
commission arrangements), their dates of employment and their
positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its
Employees. All of the Company's employees are "at will" employees.
(m) Part 2.15(m) of the Company Disclosure Schedule identifies
each Employee who is not fully available to perform work because of
disability or other leave and sets forth the basis of such leave and
the anticipated date of return to full service.
(n) The Company is in compliance in all material respects with
all applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of
employment, including employee compensation matters.
(o) Except as set forth in Part 2.15(o) of the Company
Disclosure Schedule, the Company has good labor relations, and has no
reason to believe that (i) the consummation of the Merger or any of the
other transactions contemplated by this Agreement will have
(individually or in the aggregate) a Material Adverse Effect on the
Company's labor relations, or (ii) any of the Company's employees
intends to terminate his or her employment with the Company.
2.16 ENVIRONMENTAL MATTERS. Except for such failures to comply which do
not (individually or in the aggregate) have a Material Adverse Effect on the
Company. the Company is in compliance in all material respects with all
applicable Environmental Laws (as defined below), which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance
24
with the terms and conditions thereof. The Company has not received any notice
or other communication (in writing or otherwise), whether from a Governmental
Body, citizens group, employee or otherwise, that alleges that the Company is
not in compliance with any Environmental Law, and, to the Knowledge of the
Company, there are no circumstances that may prevent or interfere with the
Company's compliance in all material respects with any applicable Environmental
Law in the future. To the Knowledge of the Company, no current or prior owner of
any property leased or controlled by the Company has received any notice or
other communication (in writing or otherwise), whether from a Government Body,
citizens group, employee or otherwise, that alleges that such current or prior
owner or the Company is not in compliance with any Environmental Law. All
Governmental Authorizations currently held by the Company pursuant to
Environmental Laws are identified in Part 2.16 of the Company Disclosure
Schedule. For purposes of this Agreement: (i) "ENVIRONMENTAL LAW" means any
federal, state, local or foreign Legal Requirement relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern; and (ii) "MATERIALS OF
ENVIRONMENTAL CONCERN" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.
2.17 INSURANCE. Part 2.17 of the Company Disclosure Schedule identifies
all insurance policies maintained by, at the expense of or for the benefit of
the Company and identifies any material claims made thereunder, and, to the
extent requested by Parent, the Company has delivered to Parent accurate and
complete copies of the insurance policies identified on Part 2.17 of the Company
Disclosure Schedule. Each of the insurance policies identified in Part 2.17 of
the Company Disclosure Schedule is in full force and effect. Except as specified
in Part 2.17(ii) of the Company Disclosure Schedule, since December 31, 1997,
the Company has not received any notice or other communication regarding any
actual or possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any claim under any insurance policy, or
(c) material adjustment in the amount of the premiums payable with respect to
any insurance policy.
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of
the Company Disclosure Schedule: (a) no Related Party (as defined below) has,
and no Related Party has at any time since December 31, 1997 had, any direct or
indirect interest in any material asset used in or otherwise relating to the
business of the Company; (b) no Related Party is, or has at any time since
December 31, 1997 been, indebted to the Company; (c) since December 31, 1997, no
Related Party has entered into, or has had any direct or indirect financial
interest in, any material Contract, transaction or business dealing involving
the Company; (d) to the Company's Knowledge, no Related Party is competing, or
has at any time since December 31, 1997 competed, directly or indirectly, with
the Company; and (e) to the Company's Knowledge, no Related Party has any claim
or right against the Company (other than rights under Company Options and rights
to receive compensation for services performed as an employee of the Company).
For purposes of this Agreement each of the following shall be deemed to be a
"RELATED PARTY": (i) each individual who is, or who has at any time since
December 31, 1997
25
been, an officer or director of the Company; and (ii) each member of the
immediate family of each of the individuals referred to in clause (i) above.
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding to which the Company
is a party, and to the Knowledge of the Company, no Person has
threatened to make the Company party to any Legal Proceeding: (i) that
involves the Company or any of the assets owned or used by the Company
or any Person whose liability the Company has or may have retained or
assumed, either contractually or by operation of law; (ii) that
challenges, or that may have the effect of preventing, delaying, making
illegal or otherwise interfering with, the Merger or any of the other
transactions contemplated by this Agreement, or (iii) which would have
(individually or in the aggregate) a Material Adverse Effect on the
Company. To the Knowledge of the Company, no event has occurred, and no
claim, dispute or other condition or circumstance exists, that will, or
that could reasonably be expected to, give rise to or serve as a basis
for the commencement of any such Legal Proceeding to which the Company
is a party.
(b) Except as disclosed on Part 2.19(b) of the Company
Disclosure Schedule, no Legal Proceeding has ever been commenced by or
has ever been pending against the Company.
(c) There is no order, writ, injunction, judgment or decree to
which the Company, or, to the Company's Knowledge, any of the assets
owned or used by the Company, is subject. To the Knowledge of the
Company, no officer or other employee of the Company is subject to any
order, writ, injunction, judgment or decree that prohibits such officer
or other employee from engaging in or continuing any conduct, activity
or practice relating to the Company's business.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the right,
power and authority to enter into and to perform its obligations under this
Agreement (subject to the approvals referred to in the immediately following
sentence); and the execution, delivery and performance by the Company of this
Agreement have been duly authorized by the Company's board of directors. The
affirmative vote of a majority of the shares of Company Common Stock and Company
Preferred Stock, voting together as a single class (on an as-converted-basis)
are the only votes of the stockholders of the Company needed to approve the
principal terms of this Agreement and approve the Merger and the transactions
contemplated hereby (the "REQUIRED COMPANY STOCKHOLDER VOTE"). The Voting
Signatories who have delivered a Voting Agreement in connection with the
execution of this Agreement hold a number of affirmative votes of Company Common
Stock and Company Preferred Stock (together on an as-converted to Company Common
Stock basis) equal to 1,586,421 which such number relates to 52.29% of the
aggregate number of outstanding shares of Company Common Stock and Company
Preferred Stock (on an as-converted to Company Common Stock basis). This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (a) the
Company's obtaining of the Required Company Stockholder Vote, (b) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (c) rules of law governing specific performance, injunctive relief
and other equitable remedies.
26
2.21 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.21 of
the Company Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of the Company's certificate of incorporation or
bylaws, or (ii) any resolution adopted by the Company's stockholders,
the Company's board of directors or any committee of the Company's
board of directors;
(b) to the Company's Knowledge, contravene, conflict with or
result in a violation of, or give any Governmental Body or other Person
the right to challenge any of the transactions contemplated by this
Agreement or to exercise any remedy or obtain any relief under, any
Legal Requirement or any order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or otherwise required to
be used by the Company to accomplish its ordinary course of business,
is subject;
(c) except for such events as would not have (individually or
in the aggregate) a Material Adverse Effect on the Company, contravene,
conflict with or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any material
Governmental Authorization that is held by the Company or that
otherwise relates to the Company's business or to any of the assets
owned or otherwise required to be used by the Company to accomplish its
ordinary course of business;
(d) except for such events as would not have (individually or
in the aggregate) a Material Adverse Effect on the Company, result in a
violation or breach of, or result in a default under, any provision of
any Material Contract, or give any Person the right to (i) declare a
default or exercise any remedy under any such Material Contract, (ii)
accelerate the maturity or performance of any such Material Contract,
or (iii) cancel, terminate or modify any such Material Contract;
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or otherwise
required to be used by the Company to accomplish its ordinary course of
business (except for minor liens that will not, in any case or in the
aggregate, materially detract from the value of the assets subject
thereto or materially impair the operations of the Company); or
(f) to the Company's Knowledge, result in the Company being
solicited to pay additional consideration in order to secure any
required consent or approval hereunder.
Except for the Required Company Stockholder Vote or as disclosed on the Company
Disclosure Schedule, the Company is not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person in
connection with (x) the execution, delivery or performance of this Agreement or
any of the other agreements referred to in this Agreement, or
27
(y) the consummation of the Merger or any of the other transactions contemplated
by this Agreement.
2.22 FINDER'S FEE. Except for the Acquisition Services Fee (as defined
in Section 10.2 of this Agreement), no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or any of the other transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
2.23 REGULATORY APPROVALS.
(a) The Company has granted Parent access to complete and
correct copies of all regulatory applications filed by the Company with
the Federal Food and Drug Administration or foreign equivalent (each a
"REGULATORY APPLICATION").
(b) All data and information included in each Regulatory
Application is true, complete and correct in all respects.
(c) Each Regulatory Application has been prepared and filed in
accordance with all applicable laws and regulations, except for such
failures to prepare and file which do not (individually or in the
aggregate) have a Material Adverse Effect on the Company.
2.24 FULL DISCLOSURE.
(a) This Agreement (including the Company Disclosure Schedule)
does not, (i) contain any representation, warranty or information that
is false or misleading with respect to any material fact, or (ii) omit
to state any material fact necessary in order to make the
representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under
which such representations, warranties and information were or will be
made or provided) not false or misleading.
(b) The information supplied by the Company in writing for
inclusion in the Information Statement (as defined in Section 5.2), as
amended by the Company from time to time, will not, as of the date of
mailing and the date of the Required Company Stockholder Vote is
obtained, (i) contain any statement that is inaccurate or misleading
with respect to any material fact, or (ii) omit to state any material
fact necessary in order to make such information (in the light of the
circumstances under which it is provided) not false or misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows
(subject to such exceptions as are disclosed in the Parent Disclosure Schedule):
3.1 CORPORATE EXISTENCE AND POWER. Each of Parent and Merger Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of
California and Delaware, respectively, has all corporate
power and authority required to conduct its business in the manner in which its
business is currently being conducted, and is duly qualified to do business and
is in good standing in each jurisdiction in which the conduct of its
28
business or the ownership or leasing of its properties requires such
qualification, except where the failure to be so qualified would not have
(individually or in the aggregate) a Material Adverse Effect on Parent or on the
consummation of the Merger and the other transactions contemplated herein.
Merger Sub has been formed for the purpose of consummating the Merger and has
had no significant operations.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the right, power and authority to enter into and perform their obligations under
this Agreement (subject to the approvals referred to in the immediately
following sentence); and the execution, delivery and performance by Parent and
Merger Sub of this Agreement (including the contemplated issuance of (a) Series
G Stock and Series G Warrants in the Merger in accordance with this Agreement,
(b) the shares of Series G Stock (or other shares of capital stock) to be issued
in connection with the exercise of the Series G Warrants, and (c) the shares of
Parent Common Stock to be issued in connection with the conversion of such
shares of Series G Stock) have been duly authorized by all necessary action on
the part of Parent and Merger Sub and their respective boards of directors and
by Parent as the sole stockholder of Merger Sub (subject to the approvals
referred to in the immediately following sentence). The affirmative vote of (a)
a majority of the shares of Parent Common Stock, voting together as a single
class, (b) a majority of the Series F voting as a separate class, and (c)
sixty-six and two-thirds percent (662/3%) of the following three groups, each
voting together as a single class (on an as-converted-basis): (i) the Series
A-1, the Series B, the Series B-1, the Series B-2, the Series B-3 and the Series
B-4; (ii) the Series C; and (iii) the Series D, Series D-1, Series E and Series
F (each defined in Section 3.3), are the only votes of the stockholders of
Parent needed to approve the principal terms of this Agreement and approve the
Merger and the transactions contemplated hereby (the "REQUIRED PARENT
STOCKHOLDER VOTE"). This Agreement constitutes the legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them in accordance with
its terms, subject to (a) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (b) rules of law governing specific
performance, injunctive relief and other equitable remedies.
3.3 CAPITALIZATION. The authorized capital stock of Parent consists of:
18,000,000 shares of Parent Common Stock, of which 201,991 shares are issued and
outstanding and 18,000,000 shares of Parent Preferred Stock issuable in series,
of which (i) 52,000 shares are designated Series A-1 Preferred Stock (the
"SERIES A-1"), 52,000 shares of which are issued and outstanding; (ii) 7,200
shares are designated Series B Preferred Stock (the "SERIES B"), 7,200 shares of
which are issued and outstanding; (iii) 90,000 shares are designated Series B-1
Preferred Stock (the "SERIES B-1"), 90,000 of which are issued and outstanding;
(iv) 30,000 shares are designated Series B-2 Preferred Stock (the "SERIES B-2"),
30,000 of which are issued and outstanding; (v) 30,000 shares are designated
Series B-3 Preferred Stock (the "SERIES B-3"), 30,000 of which are issued and
outstanding; (vi) 3,600 shares are designated Series B-4 Preferred Stock (the
"SERIES B-4"), 3,600 of which are issued and outstanding; (vii) 3,308,431 shares
are designated Series C Preferred Stock (the "SERIES C"), 3,292,431 of which are
issued and outstanding; (viii) 3,358,042 shares are designated Series D
Preferred Stock (the "SERIES D"), 3,351,042 of which are issued and outstanding;
(ix) 3,358,042 shares are designated Series D-1 Preferred Stock (the "SERIES
D-1"), none of which are issued and outstanding; (x) 853,167 shares are
designated Series E Preferred Stock (the "SERIES E"), 833,334 of which are
issued and outstanding; and (xi) 4,000,000 shares are designated Series F
Preferred Stock (the "SERIES F"), 2,511,681 of which are issued and outstanding.
All such issued and outstanding shares have
29
been duly authorized and validly issued, are fully paid and nonassessable, and
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities. Parent has reserved 113,043 shares of Parent Common
Stock for issuance upon the conversion of Series A-1, 574,285 shares of Parent
Common Stock for issuance upon the conversion of Series B, Series B-1, Series
B-2, Series B-3 and Series B-4, 3,308,431 shares of Parent Common Stock for
issuance upon the conversion of Series C, 3,358,042 shares of Parent Common
Stock for issuance upon the conversion of Series D, 3,358,042 shares of Parent
Common Stock for issuance upon the conversion of Series D-1, 853,167 shares of
Parent Common Stock for issuance upon the conversion of Series E, 2,511,681
shares of Parent Common Stock for issuance upon the conversion of Series F,
67,042 shares of Parent Common Stock for issuance pursuant to the exercise of
outstanding Parent Common Stock purchase warrants, 16,000 shares of Series C for
issuance pursuant to the exercise of Series C purchase warrants, 7,000 shares of
Series D for issuance pursuant to the exercise of Series D purchase warrants,
19,833 shares of Series E for issuance pursuant to the exercise of Series E
purchase warrants, 1,987,318 shares of Parent Common Stock for issuance to
employees, directors, and consultants pursuant to its Amended and Restated 1993
Stock Option Plan and 2,480 shares of Parent Common Stock for issuance upon
exercise of nonstatutory options granted by Parent in 1991 and 1992. Except as
set forth above, or on Part 3.3 of the Parent Disclosure Schedule there is no:
(i) outstanding subscription, option, call, warrant or right (including any
pre-emptive rights), whether or not currently exercisable, to acquire any shares
of the capital stock or other securities of Parent; (ii) outstanding security,
instrument or obligation that is or may become convertible into or exchangeable
for any shares of the capital stock or other securities of Parent; or (iii)
Contract obligating Parent to sell or otherwise issue any shares of capital
stock or any other securities of Parent. To Parent's Knowledge, except as
disclosed on Part 3.3 of the Parent Disclosure Schedule or as contemplated by
this Agreement or the exhibits or schedules hereto, there is no voting trust or
voting agreement governing the voting of Parent's capital stock. Except as set
forth on the Parent Disclosure Schedule or as contemplated by this Agreement or
the exhibits or schedules hereto, Parent is not a party to or bound by any
investor rights agreement, registration rights agreement or other agreement
providing rights to the holders of Parent's capital stock or other securities of
Parent. Prior to the Effective Time, Parent shall have duly reserved out of its
authorized and unissued capital stock that number of shares of (i) Series G
Stock sufficient to satisfy Parent's obligations to issue Series G Stock upon
the exercise of the Series G Warrants issued by Parent pursuant to Section 1.6;
and (ii) Parent Common Stock sufficient to satisfy Parent's obligations upon the
conversion of the Series G Stock. The authorized capital stock of Merger Sub
consists of 1000 shares of Common Stock, all of which is owned by Parent. All
outstanding shares of Parent and Merger Sub have been duly authorized, validly
issued, fully paid and are non assessable and free of any liens or encumbrances
other than liens or encumbrances created or imposed upon the holders thereof.
3.4 PARENT FINANCIAL STATEMENTS.
(a) Parent has made available to the Company accurate and
complete copies (including exhibits thereto) of its audited balance
sheet as of December 31, 1999 and December 31, 2000, and the related
audited statement of operations, statement of stockholders' equity and
statement of cash flows of the Company for the years then ended,
together with the notes thereto and the unaudited balance sheet as of
March 31, 2001 and the related unaudited statement of operations of
Parent for the three-month period then ended (the "PARENT FINANCIAL
STATEMENTS").
30
The Parent Financial Statements are complete and correct in all
material respects and have been prepared in accordance with GAAP
applied on a consistent basis throughout the relevant periods. The
Parent Financial Statements accurately set out and describe the
financial condition and operating results of Parent as of the dates,
and during the periods, indicated therein. Except as set forth in the
Parent Financial Statements, as of the Closing Date Parent has no
material liabilities of any nature (matured or unmatured, fixed or
contingent). Parent maintains and will continue to maintain a standard
system of accounting established and administered in accordance with
generally accepted accounting principles.
3.5 NO CONFLICT. Neither the execution, delivery or performance of this
Agreement or any of the other agreements contemplated by this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, will directly or indirectly, (with or without notice or lapse of
time, or both):
(a) contravene, conflict with or result in a violation of (i)
any provisions of Parent's or Merger Sub's respective certificate of
incorporation or bylaws, or (ii) any resolution adopted by Parent's or
Merger Sub's stockholders or board of directors or any committee of
Parent's or Merger Sub's respective boards of directors;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any
of the transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order,
writ, injunction, judgment or decree to which Parent or Merger Sub, or
any of the assets owned or used by Parent or Merger Sub, is subject; or
(c) except for such events as would not have (individually or
in the aggregate) a Material Adverse Effect on Parent or Merger Sub,
result in a violation or breach of, or result in a default under, any
provision of any contract or agreement material to Parent's business,
or give any Person the right to (i) declare a default or exercise any
remedy under any such contract material to Parent's business, (ii)
accelerate the maturity or performance of any such contract material to
Parent's business, or (iii) cancel, terminate or modify any such
contract material to Parent's business; or
(d) except for such events as would not have (individually or
in the aggregate) a Material Adverse Effect on Parent or the Merger
Sub, contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any material
Governmental Authorization that is held by Parent or the Merger Sub or
that otherwise relates to Parent's or Merger Sub's business or to any
of the assets owned or otherwise required to be used by Parent or
Merger Sub to accomplish its ordinary course of business;
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or otherwise
required to be used by Parent to accomplish its ordinary course of
business (except for minor liens that will not, in any case or in the
aggregate, materially detract from the value of the assets subject
thereto or materially impair the operations of Parent).
31
3.6 VALID ISSUANCE. Subject to the Company's compliance with its
obligations under Section 5.2, the shares of Series G Stock to be issued
pursuant to Section 1.5(a)(i) and the Series G Warrants will, when issued in
accordance with the provisions of this Agreement, be duly authorized, validly
issued, fully paid, nonassessable and free of any liens or encumbrances other
than liens or encumbrances created or imposed by the holders thereof and will
not be subject to any statutory preemptive rights, or to Parent's Knowledge,
rights of first refusal. Upon their issuance in accordance with the terms of the
Series G Warrants, the shares of Series G Stock (or other shares of Parent
capital stock) issuable upon the exercise of such Series G Warrants, will be
duly authorized, validly issued, fully paid, nonassessable and free of any liens
or encumbrances other than liens or encumbrances created or imposed by the
holders thereof and will not be subject to any statutory preemptive rights, or
to Parent's Knowledge, rights of first refusal. Upon their issuance in
accordance with the terms of the Series G Stock, the shares of Parent Common
Stock issuable upon conversion of such Series G Stock, will be duly authorized,
validly issued, fully paid, nonassessable and free of any liens or encumbrances
other than liens or encumbrances created or imposed by the holders thereof and
will not be subject to any statutory preemptive rights, or to Parent's
Knowledge, rights of first refusal. Subject to the Company's compliance with its
obligations under Section 5.2, the shares of Series G Stock will, when issued in
accordance with the provisions of this Agreement, be issued in compliance with
Regulation D promulgated under the Securities Act.
3.7 NO MATERIAL ADVERSE EFFECT. Between December 31, 2000 and the date
of this Agreement, there has been no change in the business, condition,
capitalization, assets, liabilities, operations or financial performance of
Parent that has had or would reasonably be expected to have a Material Adverse
Effect on Parent.
3.8 LEGAL PROCEEDINGS. There is no pending Legal Proceeding to which
Parent is a party, and to the Knowledge of Parent, no Person has threatened to
commence any Legal Proceeding against Parent: (a) that challenges, or that may
have the effect of preventing, delaying, making illegal or otherwise interfering
with, the Merger or any of the other transactions contemplated by this
Agreement, or (b) which would have a Material Adverse Effect on Parent.
3.9 COMPLIANCE WITH LEGAL REQUIREMENTS. Parent is, and has at all times
since December 31, 1997 been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a and that do not (individually or in the
aggregate) have a Material Adverse Effect on Parent. Except as set forth in Part
3.9 of the Parent Disclosure Schedule, since December 31, 1997 Parent has not
received any notice or other communication from any Governmental Body regarding
any actual or possible violation of, or failure to comply with, any material
Legal Requirement.
3.10 GOVERNMENTAL AUTHORIZATIONS. To Parent's Knowledge, all material
Governmental Authorizations necessary to enable Parent to conduct its business
in the manner in which its business is currently being conducted are valid and
in full force and effect. Parent is, and at all times since December 31, 1997
has been, in compliance with the terms and requirements of the respective
Governmental Authorizations, except where such failure to be in such compliance
would not (individually or in the aggregate) have a Material Adverse Effect on
Parent. Since December 31, 1997, Parent has not received any notice or other
communication from any Governmental Body regarding (a) any actual or possible
violation of or failure to
32
comply with any term or requirement of any Governmental Authorization, or (b)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization
3.11 CONSENTS. Except for the Required Parent Vote or as disclosed on
the Parent Disclosure Schedule, Parent is not and will not be required to make
any filing with or give any notice to, or to obtain any Consent from, any Person
in connection with (x) the execution, delivery or performance of this Agreement
or any of the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement.
3.12 FULL DISCLOSURE.
(a) This Agreement (including the Parent Disclosure Schedule)
does not, (i) contain any representation, warranty or information that
is false or misleading with respect to any material fact, or (ii) omit
to state any material fact necessary in order to make the
representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under
which such representations, warranties and information were or will be
made or provided) not false or misleading.
(b) The information supplied by Parent for inclusion in the
Information Statement will not, as of the date of mailing and as of the
date of the Required Company Stockholder Vote is obtained, (i) contain
any statement that is inaccurate or misleading with respect to any
material fact, or (ii) omit to state any material fact necessary in
order to make such information (in the light of the circumstances under
which it is provided) not false or misleading.
SECTION 4. CERTAIN COVENANTS
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "PRE-CLOSING PERIOD"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access upon reasonable notice and during normal
business hours to the Company's personnel and assets and to all existing
financial and accounting records, Contracts, Tax Returns and other documents and
information relating to the Company; and (b) provide Parent and Parent's
Representatives with copies of such existing financial and accounting records,
Contracts, Tax Returns and other records and documents relating to the Company,
and with such additional financial, operating and other data and information
regarding the Company, as Parent may reasonably request. Notwithstanding the
foregoing, in no event shall the Company's Representatives be required to
disclose any attorney work product or any other privileged materials related to
the Company.
4.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period:
(a) the Company shall conduct its business and operations in
the ordinary course and in substantially the same manner as such
business and operations have been conducted prior to the date of this
Agreement;
(b) the Company shall use its commercially reasonable efforts
to preserve intact its current business organization, keep available
the services of its current officers and
33
employees and maintain its relations and good will with all suppliers,
customers, landlords, creditors, employees and other Persons having
business relationships with the Company;
(c) the Company shall use its commercially reasonable efforts
to keep in full force and effect all insurance policies identified in
Part 2.17 of the Company Disclosure Schedule;
(d) the Company shall cause its officers to report regularly
to Parent, upon the reasonable request of Parent, concerning the status
of the Company's business;
(e) except as set forth in Part 4.2(e) of the Company
Disclosure Schedule, the Company shall not declare, accrue, set aside
or pay any dividend or make any other distribution in respect of any
shares of capital stock of the Company, and shall not repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities of the Company (except that the Company may repurchase
Company Common Stock from former employees pursuant to the terms of
existing restricted stock purchase agreements);
(f) the Company shall not sell, issue or authorize the
issuance of (i) any capital stock or other securities of the Company,
(ii) any option, warrant or right to acquire any capital stock or other
securities of the Company (except for the amendment to certain warrants
to purchase Company Common Stock described at Part 2.3(c) of the
Company Disclosure Schedule), or (iii) any instrument convertible into
or exchangeable for any capital stock or other securities of the
Company (except that the Company shall be permitted to issue shares of
Company Common Stock (x) to employees and directors upon the exercise
of Company Options outstanding as of the date of this Agreement, (y)
upon the conversion of shares of Company Preferred Stock outstanding as
of the date of this Agreement, and (z) the Company shall be allowed to
issue 250,000 shares of Company Common Stock upon exercise of the
conversion right referred to at Section 6.5(m);
(g) except as set forth in Part 4.2(g) of the Company
Disclosure Schedule, the Company shall not amend or waive any of its
rights under, or change or modify any provision permitting the
acceleration of vesting under, (i) any provision of any Company Stock
Option Plan, (ii) any provision of any agreement evidencing any
outstanding Company Option, or (iii) any provision of any restricted
stock purchase agreement (unless acceleration of vesting is required
under any Company Stock Option Plan, Company Option or other agreement
in effect or outstanding as of the date of this Agreement);
(h) except as expressly permitted by this Agreement, the
Company shall not amend or permit the adoption of any amendment to the
Company's certificate of incorporation or bylaws, or, except as is
otherwise set forth in Section 4.5 of this Agreement, effect or permit
the Company to become a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction (except that the Company shall be
permitted to issue shares of Company Common Stock (x) to employees and
directors upon the exercise of Company Options outstanding as of the
date of this Agreement, (y) upon the conversion of shares of Company
Preferred Stock outstanding as of the date of this Agreement, and (z)
the Company shall be allowed to issue 250,000 shares of Company Common
Stock upon exercise of the conversion right referred to at Section
6.5(m);
34
(i) the Company shall not form any subsidiary or acquire any
equity interest or other interest in any other Entity;
(j) the Company shall not make any capital expenditure, except
for capital expenditures that, when added to all other capital
expenditures made on behalf of the Company during the Pre-Closing
Period, do not exceed $10,000 in the aggregate;
(k) the Company shall not (i) enter into, or permit any of the
assets owned or used by it to become bound by, any Contract that is or
would constitute a Material Contract, or (ii) except as set forth in
Part 4.2(k) of the Company Disclosure Schedule, amend or prematurely
terminate, or waive any material right or remedy under, any Material
Contract;
(l) the Company shall not (i) except in the ordinary course of
business, acquire, lease or license any right or other asset from any
other Person, (ii) except in the ordinary course of business, sell or
otherwise dispose of, or lease or license, any right or other asset to
any other Person, or (iii) waive or relinquish any right, except for
rights or assets acquired, leased, licensed, disposed of or
relinquished by the Company pursuant to Contracts that are not Material
Contracts;
(m) the Company shall not (i) lend money to any Person (except
that the Company may make routine travel advances to employees in the
ordinary course of business), or (ii) incur or guarantee any
indebtedness for borrowed money;
(n) the Company shall not (i) establish, adopt or amend any
Employee Benefit Plan, (ii) pay any bonus or make any profit-sharing
payment, cash incentive payment or similar payment to, or increase the
amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers
or employees except under pre-existing agreements, or (iii) hire any
new employee;
(o) the Company shall not change any of its methods of
accounting or accounting practices in any material respect;
(p) the Company shall not make any Tax election;
(q) the Company shall not commence or settle any material
Legal Proceeding;
(r) the Company shall not agree or commit to take any of the
actions described in clauses (e) through (q) above.
Notwithstanding the foregoing, the Company may take any action described in
clauses (a) through (r) above if Parent gives its prior written consent to the
taking of such action by the Company, which consent will not be unreasonably
withheld.
35
4.3 NOTIFICATION BY COMPANY.
(a) During the Pre-Closing Period, the Company shall promptly
notify Parent in writing of:
(i) the discovery by the Company of any event,
condition, fact or circumstance that occurred or existed on or
prior to the date of this Agreement and that caused or
constitutes an inaccuracy in or breach of any representation
or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and
that would cause or constitute an inaccuracy in or breach of
any representation or warranty made by the Company in this
Agreement if (A) such representation or warranty had been made
as of the time of the occurrence, existence or discovery of
such event, condition, fact or circumstance, or (B) such
event, condition, fact or circumstance had occurred, arisen or
existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of the
Company; and
(iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any condition set forth
in Section 6 or Section 7 impossible or unlikely.
(b) The delivery of any notice pursuant to this Section 4.3
shall not cure such breach or non-compliance or limit or otherwise
affect the rights, obligations or remedies available hereunder to the
party receiving such notice.
4.4 NOTIFICATION BY PARENT.
(a) During the Pre-Closing Period, Parent shall promptly
notify the Company in writing of:
(i) the discovery by Parent of any event, condition,
fact or circumstance that occurred or existed on or prior to
the date of this Agreement and that caused or constitutes an
inaccuracy in or breach of any representation or warranty made
by Parent in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and
that would cause or constitute an inaccuracy in or breach of
any representation or warranty made by Parent in this
Agreement if (A) such representation or warranty had been made
as of the time of the occurrence, existence or discovery of
such event, condition, fact or circumstance, or (B) such
event, condition, fact or circumstance had occurred, arisen or
existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of
Parent; and
(iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any condition set forth
in Section 6 or Section 7 impossible or unlikely.
36
(b) The delivery of any notice pursuant to this Section 4.4
shall not cure such breach or non-compliance or limit or otherwise
affect the rights, obligations or remedies available hereunder to the
party receiving such notice.
4.5 ACQUISITION PROPOSALS.
(a) During the Pre-Closing Period, the Company will not, nor
will the Company authorize or permit any officer, director, employee,
consultant or contractor of or any investment banker, attorney,
accountant or other advisor or representative of, the Company to,
directly or indirectly, (i) solicit, initiate or encourage the
submission of any proposal for an Acquisition Transaction or (ii)
participate in any discussions or negotiations regarding, or furnish to
any person any information in respect of, or take any other action to
facilitate, any Acquisition Transaction or any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Transaction. Notwithstanding the foregoing, in the
event that the Company receives an unsolicited proposal for an
Acquisition Transaction, prior to the adoption and approval of this
Agreement by the Required Company Stockholder Vote, this Section 4.5
shall not prohibit the Company from furnishing information regarding
the Company to, or entering into discussions with, any Person in
response to a bona fide proposal for an Acquisition Transaction that
could reasonably be expected to lead to a Superior Proposal that is
submitted to the Company by such Person (and not withdrawn) if (A)
neither the Company nor any representative of the Company shall have
violated any of the restrictions set forth in this Section 4.5, in
connection with such proposal, (B) the board of directors of the
Company concludes in good faith, after having taken into account the
advice of its outside legal counsel, that failure to take such action
would be inconsistent with fiduciary duties of the board of directors
of the Company to the Company Stockholders, (C) at least five business
days prior to furnishing any such nonpublic information to, or entering
into discussions with, such Person, the Company gives Parent written
notice of the identity of such Person and of the Company's intention to
furnish nonpublic information to, or enter into discussions with, such
Person, and the Company receives from such Person an executed
confidentiality agreement containing customary limitations on the use
and disclosure of all nonpublic written and oral information furnished
to such Person by or on behalf of the Company, and (D) at least five
business days prior to furnishing any such nonpublic information to
such Person, the Company furnishes such nonpublic information to Parent
(to the extent such nonpublic information has not been previously
furnished by the Company to Parent). Immediately after the execution
and delivery of this Agreement, the Company will, and will use its
commercially reasonable efforts to cause its affiliates, and its
respective officers, directors, employees, consultants, contractors,
investment bankers, attorneys, accountants and other agents and
representatives to, cease and terminate any existing activities,
discussions or negotiations with any parties conducted heretofore in
respect of any possible Acquisition Transaction and shall immediately
inform Parent of the receipt by the Company of any subsequent proposal
for an Acquisition Transaction. The Company shall take all necessary
steps to promptly inform the individuals or entities referred to in the
first sentence of this Section 4.5 of the obligations undertaken in
this Section 4.5. "SUPERIOR PROPOSAL" shall mean an unsolicited, bona
fide written offer made by a third party to purchase all of the
outstanding Company capital stock or all or substantially all of the
Company's assets on terms that the board of directors of the Company
determines, in its reasonable judgment, to be more favorable to the
Company and its stockholders (taking into account, among other things,
all legal, financial, regulatory and other aspects of the proposal and
37
identity of the offeror) as compared to the transactions contemplated
hereby and which is reasonably capable of being consummated; PROVIDED,
HOWEVER, that any such offer shall not be deemed to be a Superior
Proposal if any financing required to consummate the transaction
contemplated by such offer is not committed and is not reasonably
capable of being obtained by such third party.
(b) The Company's board of directors will not withdraw or
modify, or propose to withdraw or modify, in a manner adverse to
Parent's intention to consummate the Merger, its approval or
recommendation of this Agreement or the Merger to the Company
Stockholders unless the Company's board of directors, after
consultation with independent legal counsel, determines in good faith
that such action is necessary to avoid a breach by the Company board of
directors of its fiduciary duties to the Company Stockholders. Nothing
contained in this Section 4.5 shall prohibit the Company from making
any disclosure to the Company Stockholders which, in the good faith
reasonable judgment of the Company's board of directors, after
consultation with independent legal counsel, is required pursuant to
any Legal Requirement; PROVIDED, that except as otherwise permitted in
this Section 4.5, the Company may not withdraw or modify, or propose to
withdraw or modify, its position with respect to the Merger or approve
or recommend, or propose to approve or recommend, an alternate
Acquisition Transaction. Nothing in this Section 4.5 shall (i) permit
the Company to terminate this Agreement (other than in accordance with
the terms of this Agreement) or (ii) affect any other obligations of
the Company under this Agreement.
4.6 FAIRNESS OPINION. The Company shall use reasonable commercial
efforts to cause to be delivered to the Company Stockholders with the
Information Statement (as defined in Section 5.2) to be delivered to the Company
Stockholders and the notice of the Company Stockholders' meeting called to
approve the Merger, a written opinion by ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇, that in such
advisor's opinion, as of the date of such notice, the consideration to be
received by the Company Stockholders under the terms of the Merger is fair, from
a financial point of view, to such stockholders. It is expressly understood that
in attempting to obtain the opinion discussed above, the Company shall have no
obligation to pay any amount of consideration beyond the payments currently
called for by the Engagement Letter.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement shall use all
commercially reasonable efforts to (a) make all filings (if any) and give all
notices (if any) required to be made and given by such party in connection with
the Merger and the other transactions contemplated by this Agreement, and (b)
obtain all Consents (if any) required to be obtained (pursuant to any applicable
Legal Requirement or Contract, or otherwise) by such party in connection with
the Merger and the other transactions contemplated by this Agreement. The
Company shall (upon request) promptly deliver to Parent a copy of each such
filing made, each such notice given and each such Consent obtained by the
Company during the Pre-Closing Period. Parent shall (upon request) promptly
deliver to the Company a copy of each such filing made, each such notice given
and each such Consent obtained by Parent during the Pre-Closing Period.
38
5.2 INFORMATION STATEMENT.
(a) As promptly as practicable, but in any event within seven
days, after the date of this Agreement, Parent shall prepare an
information statement describing the Merger and the transactions
contemplated thereby (the "INFORMATION STATEMENT") and deliver the same
to the Company. The Company, in accordance with Section 5.2(c) hereof,
shall mail or otherwise deliver to the Company Equityholders, among
other things, the Information Statement along with, in the case of the
Company Stockholders, a notice of meeting and proxy card requesting
that the Company Stockholders adopt this Agreement and approve the
Merger either (i) at such meeting or (ii) by such proxy card. Both
Parent and the Company shall use commercially reasonable efforts to
cause the Information Statement to comply with the information
requirements of Rule 502 of Regulation D promulgated under the
Securities Act ("RULE 502"). The Company shall use commercially
reasonable efforts to promptly furnish Parent information concerning
the Company that may be required to satisfy the information
requirements of Rule 502 in connection with any action contemplated by
this Section 5.2. If any event relating to the Company or Parent
occurs, or if the Company or Parent becomes aware of any information,
in either case that should be disclosed in an amendment or supplement
to the Information Statement, then Parent shall promptly prepare such
amendment or supplement, following prompt notice by the Company of such
required disclosure if relating to the Company, and the Company shall
promptly distribute the same to the stockholders of the Company. The
Company shall use commercially reasonable efforts to assist Parent in
obtaining such information as Parent reasonably requires to allow
Parent to determine the number and nature of the Company Stockholders
in their capacity as purchasers (as such term is used under Rule 506 of
Regulation D promulgated under the Securities Act). In connection with
the distribution of the Information Statement to the Company
Equityholders, the Company shall include, and shall use its
commercially reasonable efforts to cause each Company Equityholder to
complete and return, an investor status questionnaire in substantially
the form attached hereto as EXHIBIT L (the "STATUS LETTER"). To the
extent that Parent reasonably determines that a Company Equityholder is
not an "ACCREDITED INVESTOR" (as such term is defined in Rule 501(a) of
Regulation D promulgated under the Securities Act), each of Parent and
the Company agrees that it shall use its commercially reasonable
efforts to cause all such Company Equityholders to use a "PURCHASER
REPRESENTATIVE" (as defined in Rule 501(h)) to assist such Company
Equityholders in evaluating the Information Statement and the
investment decisions represented by this Agreement, the Merger and the
transactions contemplated hereby.
(b) Prior to the Effective Time, Parent and the Company shall
use commercially reasonable efforts to obtain all required regulatory
approvals and other information (including obtaining properly completed
Status Letters from each Company Stockholder) needed to ensure that the
Series G Stock and Series G Warrants to be issued in the Merger will be
registered or qualified under the securities law of every jurisdiction
of the United States in which any registered holder of capital stock of
the Company has an address of record on the record date for determining
the stockholders entitled to notice of and to vote on the principal
terms of this Agreement and the Merger; PROVIDED HOWEVER, that neither
of Parent or the Company shall be required (i) to qualify to do
business as a foreign corporation in any jurisdiction in which it is
not now qualified, or (ii) to file a general consent to service of
process in any jurisdiction.
39
(c) Contingent upon Parent's compliance with the terms of this
Agreement and the Company's approval of the Information Statement in
accordance with the terms of this Agreement, the Company shall take all
action reasonably necessary under the DGCL to solicit the approval of
the stockholders of the Company entitled to vote upon the principal
terms of this Agreement and the Merger and will, in any event within
five (5) business days after the receipt of the Information Statement
from Parent, either (i) provide Parent with written notice of, and
specifying in reasonable detail, the Company's failure to approve the
Information Statement (which approval shall not be unreasonably
withheld); or (ii) mail, by overnight delivery, to each Company
Equityholder a copy of the Information Statement, a Status Letter and
in the case of Company Stockholders, a form of notice of meeting and
proxy card, and such other documents as Parent deems are reasonably
necessary to comply with applicable law or are otherwise reasonably
appropriate, the form of which the Company approves (which approval
shall not be unreasonably withheld). The Company shall use its
commercially reasonable efforts to obtain the Required Company
Stockholder Vote as promptly as practicable. The Company will use
commercially reasonable efforts to hold a stockholders' meeting to
approve the Merger and this Agreement within twenty days after the
Information Statement is first sent to the Company Stockholders. The
Company shall use its commercially reasonable efforts to ensure that
the Required Company Stockholder Vote is obtained in compliance with
the DGCL.
5.3 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, neither Parent
nor the Company shall (nor shall either permit any of its Representatives to)
issue any press release or make any public statement regarding this Agreement or
the Merger, or regarding any of the other transactions contemplated by this
Agreement, without the other party's prior written consent, provided that
nothing herein shall be deemed to prohibit either party from making any public
disclosure such party deems necessary or appropriate under applicable Legal
Requirements including in connection with soliciting the Required Company
Stockholder Vote.
5.4 COMMERCIALLY REASONABLE EFFORTS. During the Pre-Closing Period, (a)
the Company shall use its commercially reasonable efforts to cause the
conditions set forth in Section 6 to be satisfied on a timely basis, and (b)
Parent and Merger Sub shall use their commercially reasonable efforts to cause
the conditions set forth in Section 7 to be satisfied on a timely basis. In no
event shall the exercise of commercially reasonable effects require the payment
of additional consideration in order to secure a consent or approval.
5.5 TAX MATTERS. Prior to the Closing, Parent and the Company shall
execute and deliver to ▇▇▇▇▇▇ & Dodge LLP and to ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich
LLP tax representation letters in substantially the form of EXHIBIT J (which
will be used in connection with the legal opinions contemplated by Sections
6.5(e) and 7.3(b)). Neither Parent, Merger Sub, nor the Company will take any
action, or will fail to take any action, either before or after the Closing of
the Merger, which could reasonably be expected to cause the Merger to fail to
qualify as a reorganization under Section 368(a) of the Code.
5.6 TERMINATION OF AGREEMENTS. Prior to the Closing, the Company shall
use its commercially reasonable efforts to enter into agreement(s), reasonably
satisfactory in form and content to Parent (and conditioned and effective upon
the Closing), terminating all existing agreements relating to Company
stockholders' rights (including but not limited to (i) the Amended and Restated
Registration Rights Agreement dated September 1, 1998, by and among
40
the Company and certain of its Series A Preferred Stockholders; (ii) the
Registration Rights Agreement dated December 18, 1996, by and between the
Company and NeuroScience Partners Limited Partnership; (iii) that certain
Registration Rights Agreement, dated June 30, 1998, by and between the Company
and ▇▇▇▇ ▇▇▇▇▇▇▇; and (iv) that certain Registration Rights Agreement, dated
July 2, 1998, by and between the Company and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, unless otherwise
agreed to by Parent.
5.7 TERMINATION OF EMPLOYEE PLANS. At the Closing, the Company shall
terminate the Company Stock Option Plans. Except as otherwise provided in this
Agreement, all the employee benefit plans disclosed at Part 2.15(a)(i) of the
Company Disclosure Schedule shall remain in place and be assumed by Parent. For
each such plan that is terminated, the Company shall take reasonable steps to
ensure that no employee or former employee of the Company has any rights under
any of such plans and that any liabilities of the Company under such plans
(including any such liabilities relating to services performed prior to the
Closing) are fully extinguished.
5.8 TERMINATION OF SAR / SEP / ▇▇▇ PARTICIPATION. The Company and its
ERISA Affiliates, as applicable, agrees to terminate its participation in the
SAR / SEP / ▇▇▇ sponsored and maintained by the Company immediately prior to
Closing. Parent shall receive from Company evidence that (i) the Company's and
each ERISA Affiliate's (as applicable) participation in the SAR / SEP / ▇▇▇ has
been terminated pursuant to resolutions of each such entity's Board of Directors
(the form and substance of which resolutions shall be subject to review and
approval of Parent, which approval will not be unreasonably withheld), effective
as of the day immediately preceding the Closing and (ii) the Company's and each
ERISA Affiliate's (as applicable) obligation to contribute (if any) to such SAR
/ SEP / ▇▇▇ has been satisfied prior to the termination of the Company's and its
ERISA Affiliate's participation in such SAR / SEP / ▇▇▇.
5.9 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as is attached hereto to as EXHIBIT K)
conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the United
States Treasury Regulations, and (b) the Company shall deliver to the Internal
Revenue Service the notification required under ▇▇▇▇▇▇▇ ▇.▇▇▇ - ▇(▇)(▇) ▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ Treasury Regulations.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction or waiver, at or prior to the Closing, of each of the
following conditions:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company in this Agreement (as modified by the Company
Disclosure Schedule as delivered to Parent as of the date of this Agreement) and
in each of the other agreements and instruments delivered by the Company to
Parent in connection with the transactions contemplated by this Agreement (a)
shall be true and correct in all respects in accordance with its terms (in the
case of any representation or warranty containing any "MATERIAL ADVERSE EFFECT"
qualification or other materiality qualification) or in all material respects
(in the case of any
41
representation or warranty without any "Material Adverse Effect" qualification
or other materiality qualification) at and as of the date of this Agreement and
(b) shall be repeated and shall be true and correct in all respects in
accordance with its terms (in the case of any representations and warranties
containing any "Material Adverse Effect" qualification or other materiality
qualification) or in all material respects (in the case of any representation or
warranty without any "Material Adverse Effect" qualification or other
materiality qualification) on and as of the Closing Date with the same effect as
though made at and as of such time.
6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects.
6.3 STOCKHOLDER APPROVAL. This Agreement shall have been duly adopted
by the Required Company Stockholder Vote.
6.4 CONSENTS. All Consents set forth on Part 2.21 of the Company
Disclosure Schedule shall have been obtained and shall be in full force and
effect.
6.5 AGREEMENTS AND DOCUMENTS. Parent shall have received the following
agreements and documents, executed as appropriate, each of which shall be in
full force and effect:
(a) a properly completed and executed Status Letter from each
of the Company Equityholders in substantially the form attached hereto
as EXHIBIT L;
(b) a legal opinion of ▇▇▇▇▇▇ & Dodge LLP, dated as of the
Closing Date, in substantially the form attached hereto as EXHIBIT M;
(c) Executive Employment Agreements in substantially the form
attached hereto as EXHIBIT D, executed by each of Dr. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇;
(d) a legal opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP, dated
as of the Closing Date, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code (it being
understood that, (i) in rendering such opinion, such counsel may rely
upon the tax representation letters referred to in Section 5.5, and
(ii) this condition shall nonetheless be deemed to be satisfied if
▇▇▇▇▇▇ & Dodge LLP renders such an opinion to Parent);
(e) written resignations of all directors of the Company (with
the exception of Dr. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇), effective as of the Effective
Time;
(f) a certificate signed on behalf of the Company by the Chief
Executive Officer of the Company representing that the conditions set
forth in Sections 6.1 and 6.2 have been duly satisfied (the "COMPANY
COMPLIANCE CERTIFICATE");
(g) an amended and restated investors' rights agreement, in
substantially the form attached hereto as EXHIBIT N (the "INVESTORS'
RIGHTS AGREEMENT") by and among Parent, Parent's existing preferred
stockholders and the Company Equityholders;
42
(h) a list setting forth the name and address of each Company
Stockholder entitled to receive the Merger Consideration pursuant to
Section 1.5(a)(i);
(i) a list setting forth the name and address of each holder
of Company Options and/or Company Warrants entitled to receive Series G
Warrants pursuant to Section 1.6;
(j) all consents and waivers of notice from each holder of
Company Options and/or Company Warrants entitled to receive Series G
Warrants required in connection with the exchange of such Company
Options and Company Warrants for the Series G Warrants;
(k) a properly completed and executed subscription form
substantially in the form attached hereto as EXHIBIT P, representing
the exercise by NeuroScience Partners Limited Partnership ("NPLP") of
its conversion right contained in that certain Royalty Purchase
Agreement, dated December 18, 1996 between NPLP and Apollo Genetics,
Inc.;
(l) satisfactory documentation, in Parent's reasonable
discretion, of the termination of (i) that certain Amended and Restated
Registration Rights Agreement, dated September 1, 1998, by and among
the Company and certain of its Series A stockholders, (ii) that certain
Registration Rights Agreement, dated December 18, 1996, by and between
the Company and NeuroScience Partners Limited Partnership; (iii) that
certain Registration Rights Agreement, dated June 30, 1998, by and
between the Company and ▇▇▇▇ ▇▇▇▇▇▇▇; and (iv) that certain
Registration Rights Agreement, dated July 2, 1998, by and between the
Company and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇; and
(m) entry by the Company into that certain Research,
Collaboration and License Agreement with the University of Texas at
Fort Worth in substantially the form attached hereto as EXHIBIT O.
6.6 CONVERSION OF PREFERRED STOCK. Each outstanding share of the
Company Preferred Stock shall have been converted to Company Common Stock prior
to or in connection with the Closing.
6.7 NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall not have been any change in the business, condition, capitalization,
assets, liabilities, prospects, operations or financial performance of the
Company that has had or would reasonably be expected to have (individually or in
the aggregate) a Material Adverse Effect on the Company.
6.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.9 NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Legal Proceeding in which a Governmental Body is or is threatened
to become a party, and neither Parent nor the Company shall have received any
communication from any Governmental Body, in which such Governmental Body
indicates the possibility of commencing any Legal Proceeding or taking any other
action: (a) challenging or seeking to restrain or prohibit the
43
consummation of the Merger or any of the other transactions contemplated by this
Agreement; (b) relating to the Merger and seeking to obtain from Parent or any
of its Subsidiaries or the Company any damages or other relief that may be
material to Parent; (c) seeking to prohibit or limit in any material respect
Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Company; (d) which
would materially and adversely affect the right of Parent or the Company or any
of its Subsidiaries to own the assets or operate the business of the Company;
(e) which would materially limit Company Equityholders' ownership and enjoyment
of the Series G Stock and Series G Warrants, as applicable; or (f) challenging
or seeking to constrain or prohibit the use of any federal or state securities
law exemptions anticipated to be utilized in connection with the Merger.
6.10 NO OTHER LITIGATION. There shall not be pending any Legal
Proceeding in which, in the reasonable judgment of Parent, there is a reasonable
probability of an outcome that could have a Material Adverse Effect on the
Company or any of its Subsidiaries or a Material Adverse Effect on Parent: (a)
challenging or seeking to restrain or prohibit the consummation of the Merger or
any of the other transactions contemplated by this Agreement; (b) relating to
the Merger and seeking to obtain from Parent or any of its Subsidiaries, or any
of the Company or any of its Subsidiaries, any damages or other relief that may
be material to Parent; (c) seeking to prohibit or limit in any material respect
Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Company or any of its
Subsidiaries; or (d) which would affect adversely the right of Parent or the
Company or any of its Subsidiaries to own the assets or operate the business of
the Company or any of its Subsidiaries.
6.11 TERMINATION OF EMPLOYEE PLANS. The Company shall have provided
Parent with evidence, reasonably satisfactory to Parent, as to the termination
of the benefit plans, if any, referred to in 5.7.
6.12 FIRPTA COMPLIANCE. Parent shall have received the statement
referred to in Section 5.9(a) and the Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.9(b) prior to or in
connection with the Closing.
6.13 DISSENTING SHARES. The holders of no more than 5% of the total
shares of Company Common Stock and Company Preferred Stock (considered together
on an as-converted to Company Common Stock basis) shall have perfected or be
entitled to rights of appraisal under Section 262 of the DGCL.
6.14 PARENT STOCKHOLDER APPROVAL. The principal terms of this Agreement
and the Merger shall have been duly approved by the Required Parent Stockholder
Vote.
6.15 CONSENTS AND ADDITIONAL COMPANY APPROVALS. The Company shall have
received all consents and approvals, both governmental and otherwise, required
in connection with the transactions contemplated hereby.
6.16 CONSENTS AND ADDITIONAL PARENT AND MERGER SUB APPROVALS. Parent
and Merger Sub shall have received all consents and approvals, both governmental
and otherwise, required in connection with the transactions contemplated hereby.
44
6.17 COMPANY CLOSING BALANCE SHEET. The Company shall have delivered to
Parent an updated unaudited balance sheet of the Company dated as of a date
within three days of the Closing, in such form as the Company has previously
delivered the Unaudited Interim Balance Sheet, and prepared in accordance with
U.S. GAAP (the "Closing Balance Sheet").
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction or waiver, at or prior to the Closing, of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement (as modified by the
Parent Disclosure Schedule as delivered to the Company as of the date of this
Agreement) and in each of the other agreements and instruments delivered to the
Company in connection with the transactions contemplated by this Agreement (a)
shall be true and correct in all respects in accordance with its terms (in the
case of any representation or warranty containing any "Material Adverse Effect"
qualification or other materiality qualification) or in all material respects
(in the case of any representation or warranty without any "Material Adverse
Effect" qualification or other materiality qualification) at and as of the date
of this Agreement and (b) shall be repeated and shall be true and correct in all
respects in accordance with its terms (in the case of any representations and
warranties containing any "Material Adverse Effect" qualification or other
materiality qualification) or in all material respects (in the case of any
representation or warranty without any "Material Adverse Effect" qualification
or other materiality qualification) on and as of the Closing Date with the same
effect as though made at and as of such time.
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
7.3 DOCUMENTS. The Company shall have received the following agreements
and documents, executed as appropriate, each of which shall be in full force and
effect:
(a) a legal opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP, dated
as of the Closing Date, in substantially the form attached hereto as
EXHIBIT Q;
(b) a legal opinion of ▇▇▇▇▇▇ & Dodge LLP dated as of the
Closing Date, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code (it being
understood that, (i) in rendering such opinion, such counsel may rely
upon the tax representation letters referred to in Section 5.5, and
(ii) this condition shall nonetheless be deemed to be satisfied if ▇▇▇▇
▇▇▇▇ ▇▇▇▇ & Freidenrich LLP renders such an opinion to the Company);
(c) a certificate signed on behalf of Parent by the Chief
Executive Officer and the Secretary of Parent representing and
warranting that the conditions set forth in Sections 7.1 and 7.2 have
been duly satisfied;
45
(d) the Investors' Rights Agreement by and among Parent,
Parent's existing preferred stockholders and the Company Equityholders;
(e) evidence of the successful filing with the Secretary of
State of the State of
California by Parent of those certain Amended and
Restated Articles of Incorporation of Parent in the form attached
hereto as EXHIBIT R.
7.4 COMPANY STOCKHOLDER APPROVAL. The principal terms of this Agreement
and the Merger shall have been duly approved by the Required Company Stockholder
Vote.
7.5 COMPANY OPTION AND WARRANT HOLDER APPROVAL. The Company shall have
received all consents from holders of Company Options, Company Warrants and any
other instruments convertible into equity of the Company required in connection
with the transactions contemplated hereby.
7.6 CONSENTS AND ADDITIONAL COMPANY APPROVALS. The Company shall have
received all consents and approvals, both governmental and otherwise, required
in connection with the transactions contemplated hereby.
7.7 PARENT APPROVALS. The principal terms of this Agreement and the
Merger shall have been duly approved by the Required Parent Stockholder Vote.
7.8 CONSENTS AND ADDITIONAL PARENT AND MERGER SUB APPROVALS. Parent and
Merger Sub shall have received all consents and approvals, both governmental and
otherwise, required in connection with the transactions contemplated hereby.
7.9 NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall not have been any change in the business, condition, capitalization,
assets, liabilities, operations or financial performance of Parent that has had
or would reasonably be expected to have (individually or in the aggregate) a
Material Adverse Effect on Parent.
7.10 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.11 NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Legal Proceeding in which a Governmental Body is or is threatened
to become a party, and neither Parent nor the Company shall have received any
communication from any Governmental Body, in which such Governmental Body
indicates the possibility of commencing any Legal Proceeding or taking any other
action: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement; (b)
relating to the Merger and seeking to obtain from Parent or any of its
Subsidiaries or the Company any damages or other relief that may be material to
Parent; (c) seeking to prohibit or limit in any material respect Parent's
ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to the stock of the Company; (d) which would
materially and adversely affect the right of Parent or the Company or any of its
Subsidiaries
46
to own the assets or operate the business of the Company; (e) which would
materially limit Company Equityholders' ownership and enjoyment of the Series G
Stock and Series G Warrants, as applicable; or (f) challenging or seeking to
constrain or prohibit the use of any federal or state securities law exemptions
anticipated to be utilized in connection with the Merger.
7.12 NO OTHER LITIGATION. There shall not be pending any Legal
Proceeding in which, in the reasonable judgment of the Company, there is a
reasonable probability of an outcome that could have a Material Adverse Effect
on Parent or any of its Subsidiaries or a Material Adverse Effect on the
Company: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement; (b)
relating to the Merger and seeking to obtain from Parent or any of its
Subsidiaries, or any of the Company or any of its Subsidiaries, any damages or
other relief that may be material to the Company; (c) seeking to prohibit or
limit in any material respect the Company's ability to vote, receive dividends
with respect to or otherwise exercise ownership rights with respect to the stock
of the Company or any of its Subsidiaries; (d) which would affect adversely the
right of Parent or the Company or any of its Subsidiaries to own the assets or
operate the business of the Company or any of its Subsidiaries; (e) which would
materially limit Company Equityholders' ownership and enjoyment of the Series G
Stock and Series G Warrants, as applicable; or (f) challenging or seeking to
constrain or prohibit the use of any federal or state securities law exemptions
anticipated to be utilized in connection with the Merger.
SECTION 8. TERMINATION
8.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:
(a) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 6 has become
impossible (other than as a result of any failure on the part of Parent
or Merger Sub to comply with or perform any covenant or obligation of
Parent or Merger Sub set forth in this Agreement);
(b) by the Company if the Company reasonably determines that
the timely satisfaction of any condition set forth in Section 7 has
become impossible (other than as a result of any failure on the part of
the Company to comply with or perform any covenant or obligation set
forth in this Agreement or in any other agreement or instrument
delivered to Parent);
(c) by Parent if any of the Company's representations and
warranties contained in this Agreement shall have been materially
inaccurate as of the date of this Agreement or shall have become
materially inaccurate as of any subsequent date (as if made on such
subsequent date), or if any of the Company's covenants contained in
this Agreement shall have been breached in any material respect;
PROVIDED, HOWEVER, that Parent may not terminate this Agreement under
this Section 8.1(c) on account of an inaccuracy in the Company's
representations and warranties that is curable by the Company or on
account of a breach of a covenant by the Company that is curable by the
Company unless the Company fails to cure such inaccuracy or breach
within 30 days after receiving written notice from Parent of such
inaccuracy or breach;
47
(d) by the Company if any of Parent's representations and
warranties contained in this Agreement shall have been materially
inaccurate as of the date of this Agreement or shall have become
materially inaccurate as of any subsequent date (as if made on such
subsequent date), or if any of Parent's covenants contained in this
Agreement shall have been breached in any material respect; PROVIDED,
HOWEVER, that the Company may not terminate this Agreement under this
Section 8.1(d) on account of an inaccuracy in Parent's representations
and warranties that is curable by Parent or on account of a breach of a
covenant by Parent that is curable by Parent unless Parent fails to
cure such inaccuracy or breach within 30 days after receiving written
notice from the Company of such inaccuracy or breach;
(e) by Parent if the Closing has not taken place on or before
July 13, 2001 (other than as a result of any failure on the part of
Parent to comply with or perform any covenant or obligation of Parent
set forth in this Agreement) unless such Closing has been extended by
the mutual agreement of the Company and Parent;
(f) by the Company if the Closing has not taken place on or
before July 13, 2001 (other than as a result of the failure on the part
of the Company to comply with or perform any covenant or obligation of
the Company set forth in this Agreement) unless such Closing has been
extended by the mutual agreement of the Company and Parent; or
(g) by the mutual consent of Parent and the Company.
8.2 TERMINATION PROCEDURES. If Parent wishes to terminate this
Agreement pursuant to Section 8.1(a), Section 8.1(c), Section 8.1(e) or Section
8.1(h), Parent shall deliver to the Company a written notice stating that Parent
is terminating this Agreement and setting forth a brief description of the basis
on which Parent is terminating this Agreement. If the Company wishes to
terminate this Agreement pursuant to Section 8.1(b), Section 8.1(d) or Section
8.1(f), the Company shall deliver to Parent a written notice stating that the
Company is terminating this Agreement and setting forth a brief description of
the basis on which the Company is terminating this Agreement.
8.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; PROVIDED, HOWEVER, that: (a) such termination shall not relieve a
party of liability for a breach by such party of any of its representations,
warranties or covenants set forth in this Agreement, which breach results in
such termination, (b) such termination shall not preclude a party from seeking
and obtaining a court decree or order of specific performance or mandamus to
enforce the observance and performance of this Agreement; (c) the parties shall,
in all events, remain bound by and continue to be subject to the provisions set
forth in Section 10; and (d) the Company and Parent shall, in all events, remain
bound by and continue to be subject to Section 5.3. Notwithstanding the
foregoing, the failure of a party to achieve one or more condition precedents
pursuant to Sections 6 or 7 of this Agreement, shall not, in itself be
considered a violation of the terms of this Agreement.
48
SECTION 9. ESCROW AND INDEMNIFICATION; LIMITATION OF LIABILITY.
9.1 ESCROW FUND.
(a) The escrow fund (the "ESCROW FUND") referred to in this
Agreement shall consist of two components. The first component of the
Escrow Fund consists of the portion of the Contingent Shares referred
to as being held in the Escrow Fund in Section 1.5 of this Agreement.
The second component of the Escrow Fund consists of the Indemnity
Shares referred to below (this portion being referred to as the
"INDEMNITY PORTION OF THE ESCROW Fund"). Both components of the Escrow
Fund will be held by the Escrow Agent (as defined below) in accordance
with the terms of this Agreement.
(b) At the Closing, 151,766 shares of Series G Stock (the
"INDEMNITY SHARES") shall be registered in the name of, and be
deposited with, U.S. Bank Trust National Association (or other
institution selected by Parent with the consent of the Company, which
shall not be unreasonably withheld) as escrow agent (the "ESCROW
AGENT"), such deposit to constitute the initial funding of the
Indemnity Portion of the Escrow Fund and to be governed by the terms
set forth herein and in the Escrow Agreement attached hereto as EXHIBIT
S. Additional shares of Series G stock, if added to the Indemnity
Portion of the Escrow Fund pursuant to Section 1.5(b)(iii)(B) of this
Agreement or pursuant to the terms contained in the Series G Warrants,
shall also be deemed to be Indemnity Shares. The Indemnity Shares
contained in the Indemnity Portion of the Escrow Fund shall be
available to compensate Parent pursuant to the indemnification
obligations of the Company Equityholders. In the event Parent issues
any Additional Indemnity Shares (as defined below), such shares will be
issued in the name of the Escrow Agent and delivered to the Escrow
Agent in the same manner as the Indemnity Shares delivered at the
Closing.
(c) Except for dividends paid in stock, declared with respect
to the Indemnity Shares, including any dividends issued upon such
dividends ("ADDITIONAL INDEMNITY SHARES", which will be considered
Indemnity Shares thereafter), which shall be treated as part of the
Indemnity Portion of the Escrow Fund pursuant to Section 9.1(b) hereof,
any cash dividends, dividends payable in securities or other
distributions of any kind made in respect of the Indemnity Shares or
the Additional Indemnity Shares will be delivered to the former Company
Equityholder in accordance with the Equityholder's Proportionate
Interest. Each former Company Equityholder will have voting rights with
respect to the Indemnity Shares and Contingent Shares deposited in the
Escrow Fund with respect to such former Company Equityholder so long as
such Indemnity Shares and Contingent Shares are held in escrow, and
Parent will take all reasonable steps necessary to allow the exercise
of such rights. While the Contingent Shares and Indemnity Shares remain
in the Escrow Agent's possession pursuant to this Agreement, the former
stockholders of the Company for whom such shares are held will retain
and will be able to exercise all other incidents of ownership of said
Contingent Shares and Indemnity Shares which are not inconsistent with
the terms and conditions of this Agreement.
(d) In the event the shares of Series G Stock held as
Indemnity Shares or Additional Indemnity Shares should convert by their
terms into Parent Common Stock (or any other class of Parent capital
stock), then such shares of Parent Common Stock (or other class of
stock) shall receive the same treatment as the shares of Series G Stock
under this Section 9 in
49
accordance with the calculation of the Equityholder's Proportionate
Interest existing immediately prior to the conversion.
(e) The right of each Company Equityholder to receive a
portion of the Contingent Shares and Indemnity Shares, if applicable,
is personal to each such Company Equityholder and shall remain with
each such Company Equityholder in the event of any transfer of shares
of Series G Stock (or other securities of Parent held by such Company
Equityholder as a result of the Merger, except for the right to the
portion of the Cash Consideration and the Contingent Shares represented
by a Series G Warrant, which will remain and be transferred with such
Series G Warrant), unless explicit provision to the contrary has been
effected by such Company Equityholder.
9.2 INDEMNIFICATION AND LIMITATION OF LIABILITY.
(a) SURVIVAL OF WARRANTIES. All representations and warranties
made by the Company, Parent and Merger Sub herein, or in any
certificate, schedule or exhibit delivered pursuant hereto, shall
survive the Closing and continue in full force and effect until the
first anniversary of the Closing Date (sometimes referred to herein as
the "TERMINATION DATE").
(b) The right to indemnification, payment of Damages (as
defined below) or other remedy based on such representations,
warranties, covenants, and obligations will not be affected by any
investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with
respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or
on the performance of or compliance with any covenant or obligation,
will not affect the right to indemnification, payment of Damages, or
other remedy based on such representations, warranties, covenants, and
obligations.
(c) Subject to the limitations set forth in this Section 9,
the Company Equityholders will indemnify and hold harmless Parent and
the Surviving Corporation and its respective officers, directors,
agents, attorneys and employees, and each person, if any, who controls
or may control Parent or the Surviving Corporation within the meaning
of the Securities Act (hereinafter referred to individually as a
"PARENT INDEMNIFIED PERSON" and collectively as "PARENT INDEMNIFIED
PERSONS") from and against any and all losses, costs, damages,
liabilities and expenses arising from claims, demands, actions, causes
of action, including, without limitation, reasonable legal fees,
(collectively, "DAMAGES") arising out of any misrepresentation or
breach of or default in connection with any of the representations,
warranties, covenants and agreements (but in the case of covenants and
agreements, only to the extent such covenants and agreements were to be
effected on or before Closing) given or made by the Company in this
Agreement, the Company Disclosure Schedules or any exhibit or schedule
to this Agreement. Parent Indemnified Parties shall act in good faith
and in a commercially reasonable manner to mitigate any Damages they
may suffer.
(d) The sole recourse and remedy of the Parent Indemnified
Persons for any claims arising out of or relating to this Agreement or
the transactions contemplated hereby, including, without limitation,
for claims arising out of or relating to any breaches of the
50
Company's representations or warranties contained in this Agreement,
shall be recovery against the Indemnity Shares contained in the
Indemnity Portion of the Escrow Fund; and except as otherwise set forth
in Section 9.2(f) below, the aggregate liability of the Company
Equityholders for all such claims shall be the amount of the Indemnity
Shares held in the Indemnity Portion of the Escrow Fund.
(e) Subject to the limitations set forth in this Section 9,
Parent will indemnify and hold harmless the Company Stockholders and
the holders of the Series G Warrants who subsequently exercise such
warrants, and each of their respective officers, directors, agents,
attorneys and employees (hereinafter referred to individually as a
"COMPANY INDEMNIFIED PERSON" and collectively as "COMPANY INDEMNIFIED
PERSONS") from and against any and all Damages arising out of any
misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by
Parent or Merger Sub in this Agreement, the Parent Disclosure Schedules
or any exhibit or schedule to this Agreement. The Company Stockholders
and the persons who hold the Series G Warrants, acting through the
Stockholders' Agent (as defined at Section 9.8(a)), shall act in good
faith and in a commercially reasonable manner to mitigate any Damages
they may suffer.
(f) Nothing in this Agreement shall limit the liability in
amount or otherwise (i) of any of the individual Company Equityholders
in connection with any breach by such person of any representation or
covenant in the Status Letter delivered by such Company Equityholder
pursuant hereto or (ii) of the Company with respect to fraud, criminal
activity or intentional breach of any covenant contained in this
Agreement.
9.3 ESCROW PERIOD; RELEASE FROM ESCROW.
(a) The Indemnity Portion of the Escrow Fund shall terminate
upon the expiration of twelve months after the Effective Time;
provided, however, that a portion of the Indemnity Portion of the
Escrow Fund, which, in the reasonable judgment of Parent, subject to
the objection of the Stockholders' Agent and the subsequent arbitration
of the matter in the manner provided in Section 9.7 hereof, is
necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate theretofore delivered to the Escrow Agent prior to the
Release Date with respect to facts and circumstances existing prior to
the Release Date, shall remain in the Indemnity Portion of the Escrow
Fund until such claims have been resolved. The portion of the Escrow
Fund containing the Contingent Shares shall terminate upon the release
of all of such shares which by the terms of this Agreement may ever be
released.
(b) Within three (3) business days after the Termination Date
(the "RELEASE DATE"), the Escrow Agent shall release from the Indemnity
Portion of the Escrow Fund to each Company Stockholder (and each holder
of Series G Warrants who has exercised his warrants prior to the
Release Date) such person's Equityholder's Proportionate Interest of
the Indemnity Shares and Additional Indemnity Shares, less with respect
to each such Equityholder the number of Indemnity Shares and Additional
Indemnity Shares with a value (as determined pursuant to Section 9.5)
equal to (A) such person's Equityholder's Proportionate Interest of any
liability for which indemnity is claimed by Parent in accordance with
Section 9.5 in satisfaction of indemnification claims by a Parent
Indemnified Person and (B) such person's Equityholder's Proportionate
Interest of any liability subject to claims by a Parent Indemnified
Person in
51
accordance with Section 9.3(a) with respect to any pending but
unresolved indemnification claims of a Parent Indemnified Person. Any
Indemnity Shares and Additional Indemnity Shares held as a result of
clause (B) shall be released to the stockholders, or former warrant
holders, as appropriate, of the Company or released to Parent (as
appropriate) promptly upon resolution of each specific indemnification
claim involved. Indemnity Shares and Additional Indemnity Shares issued
into the Indemnity Portion of the Escrow Fund on behalf of Company
Equityholders shall be released to each respective Company
Equityholder, in accordance with the applicable Equityholder's
Proportionate Interest. Parent will take such action as may be
necessary to cause such certificates to be issued in the names of the
appropriate persons. Certificates representing Indemnity Shares and
Additional Indemnity Shares so issued that are subject to resale
restrictions under applicable securities laws will bear a legend to
that effect. No fractional shares shall be released and delivered from
the Escrow Fund to the Company Equityholders. In lieu of any fraction
of a Contingent Share or Indemnity Share to which a Company
Equityholder would otherwise be entitled, such holder will receive from
Parent an amount of cash (rounded to the nearest whole cent) equal to
the product of such fraction multiplied by $7.50 (as adjusted for any
Recapitalization Event).
(c) No Indemnity Shares and Additional Indemnity Shares or any
beneficial interest therein may be pledged, sold, assigned or
transferred, including by operation of law, by any Company Equityholder
or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of any such Company
Equityholder, prior to the delivery to such Company Equityholder of his
PRO RATA portion of such Indemnity Shares and Additional Indemnity
Shares in the Escrow Fund by the Escrow Agent as provided herein.
(d) The Escrow Agent is hereby granted the power to effect any
transfer of Indemnity Shares and Contingent Shares contemplated by this
Agreement. Parent will cooperate with the Escrow Agent in promptly
issuing stock certificates to effect such transfers.
9.4 THIRD-PARTY CLAIMS. In the event a Parent Indemnified Person
becomes aware of a third-party claim which such party believes may result in a
demand against the Indemnity Portion of the Escrow Fund, Parent shall promptly
notify the Stockholders' Agent of such claim in writing (such notification
including a description of the nature and the basis of such claim), and the
Stockholders' Agent, on behalf of the Company Equityholders for whom shares of
Series G Stock (or other such shares of Parent capital stock or other property)
otherwise issuable to them are deposited in the Indemnity Portion of the Escrow
Fund, shall be entitled to assume the defense of such claim. Failure by the
Stockholders' Agent to notify Parent of its election to defend any such claim
within a reasonable time, but in no event more than ten days after notice
thereof shall have been given to the Stockholders' Agent, shall be deemed a
waiver by the Stockholders' Agent of its right to defend such claim. If
Stockholders' Agent elects to defend such claim, Parent may participate, at its
expense, in the defense of such claim provided that the Stockholders' Agent
shall direct and control the defense of such claim. The Stockholders' Agent
shall not, in the defense of such claim, consent to the entry of any judgment or
award, or enter into any settlement, except in either event with the prior
written consent of Parent (which consent will not be unreasonably withheld).
Reasonable attorneys fees and other reasonable expenses incurred by
Stockholder's Agent shall be recoverable against the Indemnity Portion of the
Escrow Fund prior to any distribution to the Company Equityholders. For any
claims against which the Stockholders' Agent has not assumed the defense, Parent
shall have the right, subject
52
to consent by the Stockholders' Agent (which consent shall not be unreasonably
withheld), to settle any such claim. In the event that the Stockholders' Agent
has consented to any such settlement, the Stockholders' Agent shall have no
power or authority to object under Section 9.6 or any other provision of this
Section 9 to the amount of any claim by the Parent Indemnified Person against
the Escrow Fund for indemnity with respect to such settlement.
9.5 CLAIMS UPON ESCROW FUND. Upon receipt by the Escrow Agent on or
before the Release Date of a certificate signed by any officer of Parent (an
"OFFICER'S CERTIFICATE") stating that with respect to the indemnification
obligations of the Company Equityholders of the Company set forth in Section
9.2(c), Damages exist and specifying in reasonable detail the individual items
of such Damages included in the amount so stated, the date each such item was
paid, or properly accrued or arose, and the nature of the misrepresentation,
breach of warranty or claim to which such item is related, the Escrow Agent
shall, subject to the provisions of this Section 9, deliver to Parent on behalf
of the Parent Indemnified Person out of the Indemnity Shares contained in the
Indemnity Portion of the Escrow Fund, as promptly as practicable, Series G Stock
or other assets held in the Indemnity Portion of the Escrow Fund having a value
equal to such Damages. For the purpose of compensating Parent Indemnified
Persons for their Damages pursuant to this Agreement, the Series G Stock (or
Parent Common Stock issued upon conversion thereof) in the Escrow Fund shall be
valued at $7.50 per share (as adjusted for any Recapitalization Event).
9.6 OBJECTIONS TO CLAIMS. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agent (defined in Section 9.8 below) and
for a period of thirty (30) days after such delivery, the Escrow Agent shall
make no delivery of Series G Stock or other property pursuant to Section 9.5
hereof unless the Escrow Agent shall have received written authorization from
the Stockholders' Agent to make such delivery. After the expiration of such
thirty (30) day period, the Escrow Agent shall make delivery of the Series G
Stock or other property in the Indemnity Portion of the Escrow Fund in
accordance with Section 9.5 hereof, provided that no such payment or delivery
may be made if the Stockholders' Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Parent prior to the expiration of such
thirty (30) day period.
9.7 RESOLUTION OF CONFLICTS AND ARBITRATION.
(a) In case the Stockholders' Agent shall so object in writing
to any claim or claims by Parent made in any Officer's Certificate,
Parent shall have thirty (30) days to respond in a written statement to
the objection of the Stockholders' Agent. If after such thirty (30) day
period there remains a dispute as to any claims, the Stockholders'
Agent and Parent shall attempt in good faith for sixty (60) days to
agree upon the rights of the respective parties with respect to each of
such claims. If the Stockholders' Agent and Parent should so agree, a
memorandum setting forth such agreement shall be prepared and signed by
both parties and shall be furnished to the Escrow Agent. The Escrow
Agent shall be entitled to rely on any such memorandum and shall
distribute the Series G Stock or other property from the Escrow Fund in
accordance with the terms thereof.
53
(b) If no such agreement can be reached after good faith
negotiation, either Parent or the Stockholders' Agent may, by written
notice to the other, demand arbitration of the matter unless the amount
of the damage or loss is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration by a panel
of three arbitrators with such arbitration to be held in San Diego,
California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction
thereof. All arbitrators must be knowledgeable in the subject matter at
issue in the dispute. The arbitrators shall make their decision in
accordance with the terms of this Agreement and applicable law. Each
party shall initially bear its own costs and legal fees associated with
such arbitration and the parties shall split the cost of the
arbitrators. The prevailing party in any such arbitration shall be
entitled to recover from the other party the reasonable attorneys'
fees, costs and expenses incurred by such prevailing party in
connection with such arbitration. The decision of the arbitrators shall
be final and may be sued on or enforced by the party in whose favor it
runs in any court of competent jurisdiction at the option of the
successful party. The rights and obligations of the parties to
arbitrate any dispute relating to the interpretation or performance of
this Agreement or the grounds for the termination thereof, shall
survive the expiration or termination of this Agreement for any reason.
The arbitrators shall be empowered to award specific performance,
injunctive relief and other equitable remedies as well as damages, but
shall not be empowered to award punitive or exemplary damages or award
any damages in excess of any limitations set forth in this Agreement.
The decision of the arbitrators shall be written, shall be in
accordance with applicable law and with this Agreement, and shall be
supported by written findings of fact and conclusion of law which shall
set forth the basis for the decision of the arbitrators with respect to
the claim being made. The decision of the arbitrators as to the
validity and amount of any such claim shall be binding and conclusive
upon the parties to this Agreement. Notwithstanding anything in Section
9.6 hereof, the Escrow Agent shall be entitled to act in accordance
with such decision and make or withhold payments out of the Escrow Fund
in accordance therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be
held in San Diego County,
California under the commercial rules then in
effect of the American Arbitration Association. For purposes of this
Section 9.7(c), in any arbitration hereunder in which any claim or the
amount thereof stated in the Officer's Certificate is at issue, Parent
shall be deemed to be the non-prevailing party unless the arbitrators
award Parent one-half (1/2) or more of the amount in dispute, plus any
amounts not in dispute; otherwise, the Company Stockholders (and the
then former Series G Warrant holders, as the case may be) for whom the
Indemnity Shares and Additional Indemnity Shares have been deposited in
the Indemnity Portion of the Escrow Fund shall be deemed to be the
non-prevailing party. The non-prevailing party to an arbitration shall
pay its own expenses, the fees of the arbitrators, and the expenses,
including attorneys' fees and costs, reasonably incurred by the other
party to the arbitration. Notwithstanding the foregoing, the Company
Equityholders shall have no liability to pay for such fees and costs in
excess of the value represented by and contained in the Indemnity
Shares, the Additional Indemnity Shares and any shares of capital stock
issued as dividends upon or in conversion thereof, and any such fees
will only come from those shares held in the Indemnity Portion of the
Escrow Fund.
54
9.8 STOCKHOLDERS' AGENT.
(a) Dr. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, or her designee, shall be, and
through the Required Company Stockholder Vote is, constituted and
appointed as agent ("STOCKHOLDERS' AGENT") for and on behalf of the
Company Equityholders to give and receive notices and communications,
to authorize delivery to Parent of the Series G Stock or other property
from the Indemnity Portion of the Escrow Fund in satisfaction of claims
by Parent Indemnified Persons, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators
with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Stockholders' Agent for the
accomplishment of the foregoing. Such agency may be changed by the
holders of a majority in interest of the Indemnity Portion of the
Escrow Fund from time to time upon not less than 10 days' prior written
notice to Parent. No bond shall be required of the Stockholders' Agent,
and the Stockholders' Agent shall receive no compensation for her
services. Notices or communications to or from the Stockholders' Agent
shall constitute notice to or from each of the Company Equityholders.
(b) The Stockholders' Agent shall not be liable for any act
done or omitted hereunder as Stockholder's Agent while acting in good
faith and in the exercise of reasonable judgment and any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence
of such good faith. The Company Stockholders shall severally indemnify
the Stockholders' Agent and hold her harmless against any loss,
liability or expense incurred without gross negligence or bad faith on
the part of the Stockholders' Agent and arising out of or in connection
with the acceptance or administration of her duties hereunder. The
Stockholders' Agent shall be able to resign upon (i) designation of a
substitute Stockholders' Agent; and (ii) upon giving a ten days prior
written notice to Parent.
(c) The Stockholders' Agent shall have reasonable access to
information about the Company and the reasonable assistance of the
Company's officers and employees for purposes of performing her duties
and exercising her rights hereunder, provided that the Stockholders'
Agent shall treat confidentially and not disclose any nonpublic
information from or about the Company to anyone (except on a need to
know basis to individuals who agree to treat such information
confidentially).
9.9 ACTIONS OF THE STOCKHOLDERS' AGENT. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all the
Company Equityholders for whom shares of Series G Stock (or Parent Common Stock
issuable upon the conversion of such shares of Series G Stock or other shares of
capital stock issued as dividends upon or in conversion thereof) otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each such Company Equityholder, and the Escrow Agent and
Parent may rely upon any decision, act, consent or instruction of the
Stockholders' Agent as being the decision, act, consent or instruction of each
and every such Company Equityholder. The Escrow Agent and Parent are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agent.
9.10 NOTICE AND DEFENSE OF CLAIMS MADE BY COMPANY INDEMNIFIED PERSON. A
Company Indemnified Person claiming indemnification under Section 9.2 must
promptly notify
55
Parent in writing of the nature and basis of such claim for indemnification. If
such claim relates to a claim, litigation or other action by a third party
against the Company Indemnified Person, or any fixed or contingent liablity to a
third party (a "Third Party Claim"), Parent may elect to assume the defense of
the Third Party Claim at its own expense with counsel selected by Parent.
Failure by Parent to notify the Company Indemnified Person of its election to
defend any such claim within a reasonable time, but in no event more than ten
days after notice thereof shall have been given to Parent, shall be deemed a
waiver by Parent of its right to defend such claim. If Parent elects to defend
such claim, the Company Indemnified Person may participate, at its expense, in
the defense of such claim provided that Parent shall direct and control the
defense of such claim. Parent shall not, in the defense of such claim, consent
to the entry of any judgment or award, or enter into any settlement, except in
either event with the prior written consent of the Company Indemnified Person
(which consent will not be unreasonably withheld). For any claims against which
Parent has not assumed the defense, the Company Indemnified Person shall have
the right, subject to consent by Parent (which consent shall not be unreasonably
withheld), to settle any such claim. In the event that Parent has consented to
any such settlement, Parent shall have no power or authority to object under
Section 9.6 or any other provision of this Section 9 to the amount of any claim
by the Company Indemnified Person with respect to such settlement.
Claims made by a Company Indemnified Person prior to the Termination
Date which the parties cannot resolve shall be treated in the manner detailed at
Section 9.7(b) and 9.7(c) hereof, excepting the final sentence of Section 9.7(b)
shall not apply and Section 9.7(c) shall be deemed reformed as appropriate.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
10.2 FEES AND EXPENSES. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the Company
Disclosure Schedule) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by this Agreement, and (d) the consummation of the
Merger (collectively, the "THIRD PARTY EXPENSES"). Notwithstanding the
foregoing, (a) the acquisition services fee (the "ACQUISITION SERVICES FEE")
specified in Section 2 of that certain engagement letter, dated June 9, 1999, as
amended (the "ENGAGEMENT LETTER"), by and between the Company and ▇▇▇▇▇,
▇▇▇▇▇▇▇▇ & ▇▇▇▇, Inc. ("AH&H") shall be dealt with in accordance with Section
1.10 of this
56
Agreement, and (b) to the extent the Third Party Expenses (excluding the
payments specified in Section 1.10 hereof and any fees or expenses due to AH&H)
of the Company to be paid at Closing exceed $400,000, such excess, if any, shall
be borne by the Company Stockholders through a reduction in the Cash
Consideration which would otherwise be payable to the Company Stockholders,
thereby resulting in a pro-rata reduction of such consideration actually
received by each Company Stockholder. At the Closing, Parent shall pay to ▇▇▇▇▇▇
& Dodge LLP, counsel to the Company, on behalf of the Company, all of the then
outstanding fees and expenses of ▇▇▇▇▇▇ & Dodge LLP, incurred by the Company in
connection with the negotiation, execution, delivery and performance of this
Agreement and the transactions contemplated hereby. The Company shall use its
best efforts to (i) keep such fees and expenses to be paid by Parent to ▇▇▇▇▇▇ &
Dodge LLP below $250,000, but in the event such target is exceeded, Parent will
nonetheless pay all of such outstanding fees and expenses at Closing; and (ii)
maintain at least $200,000 in cash as reflected on the Closing Balance Sheet,
net of (A) any of its then existing accounts payable, and (B) the Third Party
Expenses (excluding the payments specified in Section 1.10 hereof and any fees
or expenses due to AH&H).
10.3 ATTORNEYS' FEES. Except as otherwise provided in this Agreement,
any action or proceeding relating to this Agreement or the enforcement of any
provision of this Agreement is brought against any party hereto, the prevailing
party shall be entitled to recover reasonable attorneys' fees, costs and
disbursements (in addition to any other relief to which the prevailing party may
be entitled).
10.4 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier, overnight or express delivery service or by
facsimile) to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):
IF TO PARENT:
MitoKor
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Ph.D.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
57
WITH A COPY TO:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
IF TO THE COMPANY:
Apollo BioPharmaceutics
One Broadway; #600
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Ph.D.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇▇▇ & Dodge LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
10.5 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
10.6 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
10.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of
California without respect to or
application of the laws related to choice or conflicts of law. Each of the
parties hereto irrevocably consents to the exclusive jurisdiction of any court
located within San Diego County, State of
California, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
hereby and it agrees that process may be served upon it in any manner authorized
by the laws of the State of
California for such persons and waives and covenants
not to assert or plead any objection which it might otherwise have to such
jurisdiction and such process.
10.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns (if
any). Neither the Company nor Parent shall assign this Agreement or any rights
or obligations hereunder (by operation of law or otherwise) to any Person;
provided, however, that Parent may assign any or all of its rights under
58
this Agreement, in whole or in part, to any wholly-owned subsidiary of Parent
without obtaining the consent or approval of any other party hereto or of any
other Person, but may not delegate any of its obligations including, without
limitation, to issue Series G Stock.
10.10 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. Except as otherwise
provided in this Agreement, the rights and remedies of the parties hereto shall
be cumulative (and not alternative). The parties to this Agreement agree that,
in the event of any breach or threatened breach by any party to this Agreement
of any covenant, obligation or other provision set forth in this Agreement for
the benefit of any other party to this Agreement, such other party shall be
entitled (in addition to any other remedy that may be available to it) to (a) a
decree or order of specific performance or mandamus to enforce the observance
and performance of such covenant, obligation or other provision, and (b) an
injunction restraining such breach or threatened breach.
10.11 WAIVER. Except as otherwise provided in this Agreement, no
failure on the part of any Person to exercise any power, right, privilege or
remedy under this Agreement, and no delay on the part of any Person in
exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy. Except as otherwise provided in this Agreement, no Person shall be
deemed to have waived any claim arising out of this Agreement, or any power,
right, privilege or remedy under this Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of such Person; and any such
waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
10.12 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.13 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.14 PARTIES IN INTEREST. Except for the provisions of Sections 1.5,
1.6, 1.8, Section 9, and Section 10.2 (which sections are to the benefit of the
persons stated therein or covered thereby as well as the parties to this
Agreement), none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
10.15 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein or contemplated hereby set forth the entire understanding of
the parties hereto relating to the subject matter hereof and thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter hereof and thereof; PROVIDED, HOWEVER,
that (a) the Confidentiality Disclosure Agreement, dated as of January 3, 2000
and
59
amended as of April 19, 2000; and (b) the Non-Disclosure Agreement, dated as of
June 28, 2000, each executed by and between Parent and the Company shall not be
superseded by this Agreement and shall remain in effect in accordance with its
terms until the earlier of (a) the Effective Time, or (b) the date(s) on which
such agreements are terminated in accordance with their terms.
10.16 RESERVED.
10.17 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa;
the masculine gender shall include the feminine and neuter genders; the
feminine gender shall include the masculine and neuter genders; and the
neuter gender shall include the masculine and feminine genders.
(b) The parties hereto agree that, for any construction or
interpretation purposes, this Agreement shall be considered to have
been jointly drafted.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words
"without limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to
Sections of this Agreement and Exhibits to this Agreement.
10.18 ARBITRATION. If a dispute arises between the parties relating to
the interpretation or performance of this Agreement, excluding the resolutions
of claims provided for in Section 9.6 (which shall be resolved in accordance
with such section) and with the exception of any claim for a temporary
restraining order or preliminary or permanent injunctive relief to enjoin any
breach or threatened breach hereof, such dispute shall be settled by a panel of
three arbitrators with such arbitration to be held in San Diego,
California, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. All arbitrators must be
knowledgeable in the subject matter at issue in the dispute. The arbitrators
shall make their decision in accordance with the terms of this Agreement and
applicable law. Each party shall initially bear its own costs and legal fees
associated with such arbitration and the parties shall split the cost of the
arbitrators. The prevailing party in any such arbitration shall be entitled to
recover from the other party the reasonable attorneys' fees, costs and expenses
incurred by such prevailing party in connection with such arbitration. The
decision of the arbitrators shall be final and may be sued on or enforced by the
party in whose favor it runs in any court of competent jurisdiction at the
option of the successful party. The rights and obligations of the parties to
arbitrate any dispute relating to the interpretation or performance of this
Agreement or the grounds for the termination thereof, shall survive the
expiration or termination of this Agreement for any reason. The arbitrators
shall be empowered to award specific performance, injunctive relief and other
equitable remedies as well as damages, but shall
60
not be empowered to award punitive or exemplary damages or award any damages in
excess of any limitations set forth in this Agreement.
61
The parties hereto have caused this Agreement to be executed and
delivered as of the date first set forth above.
MITOKOR,
a California corporation.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Ph.D.
----------------------------------
Title: Chairman & CEO
---------------------------------
MITO ACQUISITION CORP.,
a Delaware corporation.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
Title: President & CFO
--------------------------------
APOLLO BIOPHARMACEUTICS, INC.,
a Delaware corporation.
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Title: President
--------------------------------
62
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(i) any sale, license, lease, exchange, transfer, disposition
or acquisition of any portion of the business or assets of the Company
or any direct or indirect subsidiary or division of the Company, except
for immaterial amounts of the business or assets in the ordinary course
of business;
(ii) the issuance, grant, disposition or acquisition of (A)
any capital stock or other equity security of the Company or any direct
or indirect subsidiary of the Company (other than issuances of Company
Common Stock (y) upon the conversion of the Company Preferred Stock or
(z) pursuant to options, warrants or conversion rights outstanding as
of the date hereof), (B) any option, call, warrant or right (whether or
not immediately exercisable) to acquire any capital stock or other
equity security of the Company or any direct or indirect subsidiary of
the Company, or (C) any security, instrument or obligation that is or
may become convertible into or exchangeable for any capital stock or
other equity security of the Company or any direct or indirect
subsidiary of the Company; or
(iii) any merger, consolidation, business combination, share
exchange, reorganization or similar transaction or series of related
transactions involving the Company or any direct or indirect subsidiary
of the Company.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Company
Disclosure Schedule), as it may be amended from time to time.
COMMERCIALLY REASONABLE EFFORTS. "Commercially reasonable efforts", in
the context of obtaining any consent or accomplishing any action or objective,
shall not include the payment of amounts which are not explicitly set forth in
this Agreement.
COMPANY CONTRACT. "Company Contract" shall mean any Contract which is
currently in effect: (a) to which the Company is a party; (b) by which the
Company or any of its assets is or will become bound or under which the Company
has, or will become subject to, any obligation; or (c) under which the Company
has or will acquire any right or interest.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean
the schedule (dated as of the date of the Agreement) delivered to Parent on
behalf of the Company.
A-1
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
COMPANY STOCK OPTION PLANS. "Company Stock Option Plans" shall mean the
Company's 1993 Incentive and Non-Qualified Stock Option Plan and the Amended and
Restated 1996 Director Stock Option Plan.
COMPANY STOCKHOLDERS. "Company Stockholders" shall mean the holders of
shares of Company Common Stock and/or Company Preferred Stock.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, option, right of first
refusal, preemptive right, community property interest or restriction of any
nature, in each case which is created by the Company (including any restriction
on the voting of any security, any restriction on the transfer of any security
or other asset, any restriction on the receipt of any income derived from any
asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
EQUITYHOLDER'S PROPORTIONATE INTEREST. "Equityholder's Proportionate
Interest"" shall be equal to the percentage that the value of the Indemnity
Shares as held for the account of such Company Equityholder in the Indemnity
Portion of the Escrow Fund bears to the value of the Indemnity Shares held for
the account of all Company Equityholders in the Indemnity Portion of the Escrow
Fund as of such date.
ERISA AFFILIATE. "ERISA Affiliate" shall mean the Company and any trade
or business (whether or not incorporated) which is treated as a single employer
with the Company within the meaning of Section 414(b), (c), (m) or (o) of the
Code.
A-2
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GAAP. "GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body or
any such prime contractor or subcontractor otherwise has or may acquire any
right or interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
HSR ACT. "HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended.
KNOWLEDGE. An individual shall be deemed to have "Knowledge" or be
aware of a particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual would be expected to discover or
otherwise become aware of such fact or other matter after such inquiry
as a prudent person would consider appropriate in the diligent
performance of such individual's job duties.
The Company shall be deemed to have "Knowledge" of a particular fact or
other matter if any of the following officers, management employees or other
Representatives of the Company has Knowledge of such fact or other matter: Dr.
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇.
A-3
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement or
in the Company Compliance Certificate but for the presence of "Material Adverse
Effect" or other materiality qualifications, or any similar qualifications, in
such representations and warranties) has had or would reasonably be expected to
have a material adverse effect on the Company's business, condition, prospects,
assets, liabilities, operations or financial performance taken as a whole. A
violation or other matter will be deemed to have a "Material Adverse Effect" on
Parent if such violation or other matter (considered together with all other
matters that would constitute exceptions to the representations and warranties
set forth in the Agreement or in the Parent Compliance Certificate but for the
presence of "Material Adverse Effect" or other materiality qualifications, or
any similar qualifications, in such representations and warranties) has had or
would reasonably be expected to have a material adverse effect on Parent's
business, condition, assets, liabilities, operations or financial performance
taken as a whole. Notwithstanding the foregoing, matters generally affecting the
biotechnology industry and general economic conditions that do not
disproportionately affect Parent or Company shall not constitute a Material
Adverse Effect on Parent or Company.
NASDAQ. "Nasdaq" shall mean the Nasdaq National Market.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall mean the
schedule created as of the date of this Agreement delivered to the Company on
behalf of Parent.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service ▇▇▇▇ (whether
registered or unregistered), service ▇▇▇▇ application, copyright (whether
registered or unregistered), copyright application, trade secret, know-how,
composition, cell line, sample of assay components, formulation, pre-clinical,
and the results of any clinical study, customer list, system, computer software
(excluding generally available software licensed to the Company as an end-user),
computer program (excluding generally available software licensed to the Company
as an end-user), invention, design, method,
A-4
technique, blueprint, proprietary product, technology, proprietary right or
other intellectual property right or intangible asset.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
SUBSIDIARY. Any Entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record,
(a) an amount of voting securities or other interests in such Entity that is
sufficient to enable such Person to elect at least a majority of the members of
such Entity's board of directors or other governing body, or (b) at least 50% of
the outstanding equity or financial interests of such Entity.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
A-5