CONFIDENTIAL
EXHIBIT 10.20
______________________________________________________
ASSET PURCHASE AGREEMENT
Between
IntraEAR, Inc.
Seller
and
DURECT CORPORATION,
Purchaser
_____________________________________________________
October 1, 1999
______________________________________________________
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
TABLE OF CONTENTS
Page
----
1. Sale and Purchase of Purchased Assets............................. 1
a. Purchase and Sale......................................... 1
b. Excluded Assets........................................... 3
c. Liabilities............................................... 3
d. Closing and Closing Date.................................. 4
e. Actions at the Closing.................................... 4
f. Assumption................................................ 4
2. Purchase Price; Terms of Payment.................................. 5
a. Purchase Price............................................ 5
b. Allocation of Purchase Price.............................. 5
c. Taxes Arising from Transfer............................... 5
d. Income Tax Treatment...................................... 5
3. Representations and Warranties of the Seller...................... 5
a. Organization.............................................. 5
b. Title to Purchased Assets................................. 6
c. Contracts with Respect to the Purchased Assets............ 6
d. Other Contracts........................................... 6
e. Due Authority; Valid and Binding Agreements............... 7
f. No Conflicts or Violations................................ 7
g. Inventory and Equipment................................... 7
h. Financial Information..................................... 8
i. Absence of Certain Changes................................ 8
j. No Violation of Law....................................... 8
k. Litigation, etc........................................... 8
l. No Brokers................................................ 9
m. Assignability of Contracts; No Default.................... 9
n. Taxes..................................................... 9
o. Health, Safety, Employment and Environmental Matters...... 10
p. Review of Purchaser Financial Information................. 11
q. Intellectual Property Assets.............................. 11
r. Food and Drug............................................. 12
s. Fair Consideration; No Fraudulent Conveyance.............. 13
t. Investment Intent......................................... 13
u. Disclosure of Information................................. 13
v. Investment Experience..................................... 13
w. Restricted Securities..................................... 13
x. Legends................................................... 14
y. Corporate Securities Law.................................. 14
z. Full Disclosure........................................... 14
aa. Creditor Filings.......................................... 15
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-i-
TABLE OF CONTENTS
(continued)
Page
----
bb. No Knowledge of Breach.................................... 15
4. Representations and Warranties of the Purchaser................... 15
a. Organization, Good Standing and Qualification............. 15
b. Capitalization............................................ 16
c. Subsidiaries.............................................. 16
d. Authorization............................................. 16
e. Valid Issuance of Preferred and Common Stock.............. 16
f. Governmental Consents..................................... 17
g. Litigation................................................ 17
h. Compliance with Other Instruments......................... 17
i. Disclosure................................................ 17
j. Offering.................................................. 17
k. Permits................................................... 18
l. Financial Statements...................................... 18
m. No Material Adverse Change................................ 18
n. Taxes..................................................... 18
o. Property and Assets....................................... 18
p. Insurance................................................. 18
q. Material Contracts and Obligations........................ 19
r. Employees................................................. 19
s. Key Employees............................................. 19
t. No Brokers................................................ 19
u. Intellectual Property..................................... 19
v. No Knowledge of Breach.................................... 20
5. Interim Agreements................................................ 20
a. Access; Confidentiality................................... 20
b. Public Announcements...................................... 20
c. Interim Operations........................................ 20
d. Ordinary Course Covenant.................................. 20
e. Occurrence of Conditions.................................. 20
f. Certain Assignments....................................... 20
g. No Other Bids............................................. 21
6. Conditions to Obligations of the Purchaser........................ 21
a. Representations, Warranties and Performance............... 21
b. Litigation................................................ 21
c. Certain Assignments....................................... 21
d. Absence of Adverse Changes................................ 21
e. Related Agreements........................................ 21
f. Approvals................................................. 22
g. Affidavit................................................. 22
h. Escrow Agreement and Trust Agreement...................... 22
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-ii-
TABLE OF CONTENTS
(continued)
Page
----
i. Opinion of Counsel........................................ 22
j. Employment Agreements..................................... 22
k Intellectual Property Assignments......................... 22
l. Due Diligence............................................. 22
7. Conditions to Obligations of the Seller........................... 22
a. Representations, Warranties and Performance............... 22
b. Litigation................................................ 22
c. Related Agreements........................................ 22
d. Approvals................................................. 23
e. Absence of Adverse Changes................................ 23
f. Escrow Agreement and Trust Agreement...................... 23
g. Certificate of Designation................................ 23
h. Opinion of Counsel........................................ 23
i. Employment Agreements..................................... 23
8. Termination; Survival and Effect of Termination................... 23
a. Termination............................................... 23
b. Survival.................................................. 24
9. Covenants Following Closing............................... 24
a. Indemnification........................................... 24
b. Certain Tax Certificates.................................. 25
c. Transition Support........................................ 25
d. Non-Competition Agreement................................. 26
e. Purchaser Research and Development Commitment............. 27
10. Miscellaneous..................................................... 27
a. Survival of Representation and warranties................ 27
b. Fees and Expenses......................................... 27
c. Entire Agreement; Third-Party Beneficiaries............... 27
d. Amendments................................................ 27
e. Notices................................................... 27
f. Assignment................................................ 28
g. Incorporation by Reference................................ 28
h. Governing................................................. 28
i. Captions.................................................. 29
j. Attorneys' Fees........................................... 29
k. No Waiver................................................. 29
l. Counterparts.............................................. 29
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-iii-
DURECT CORPORATION
ASSET PURCHASE AGREEMENT
------------------------
This Agreement is made as of October 1, 1999, by and among Durect
Corporation, a Delaware corporation ("Purchaser"), and IntraEAR, Inc., a
---------
Delaware corporation ("Seller").
------
A. Seller is in the business of developing and commercializing
products (including but not limited to medical devices, therapeutic agents or
drug delivering technologies) aimed at treatment or diagnosis of inner ear
disorders (the "Business").
--------
B. Seller desires to sell and Purchaser desires to purchase
substantially all of the assets and assume certain specified liabilities of
Seller in a taxable transaction (the "Acquisition").
-----------
C. Seller and Purchaser entered into a Letter of Intent dated
September 10, 1999 reflecting their mutual understanding regarding the
transactions contemplated by this Agreement. This Agreement supersedes and
supplements any and all prior agreements between Seller and Purchaser with
respect to the Acquisition (except for the Confidentiality Agreement dated as of
August 10, 1999 (the "Confidentiality Agreement")), including such Letter of
-------------------------
Intent, and is, together with all documents contemplated by this Agreement,
intended as a complete statement of the terms relating to the subject matter
hereof and thereof.
NOW, THEREFORE, in consideration of the mutual agreements,
representations and warranties contained in this Agreement, the parties agree as
follows:
1. Sale and Purchase of Purchased Assets.
-------------------------------------
a. Purchase and Sale. Subject to the terms and conditions
-------------
contained in this Agreement and except for certain Excluded Assets as set forth
in Section 1.b(i) below, at the Closing (as defined in Section 1.d below) Seller
shall sell, assign, grant, transfer and convey to Purchaser, free and clear of
all liens and encumbrances, and Purchaser shall purchase from Seller,
substantially all of the assets of Seller, including all tangible and intangible
personal and real property of every kind and nature owned by Seller
(collectively, the "Purchased Assets"), and Seller shall deliver good, clear and
-----------------
marketable title to each and every Purchased Asset, together with such bills of
sale, assignments and other instruments of conveyance as may be reasonably
requested by Purchaser to permit such delivery. Without limiting the foregoing,
the Purchased Assets shall be deemed to include the following:
(i) All patents, copyrights, trademarks, trade names, trade
styles, business names, service marks, internet domain names and applications
and registrations therefor, including without limitation those patents, patent
applications and trademarks listed on Exhibit A, as such Exhibit may be amended
---------
with Purchaser's consent from time to time, and any continuations,
continuations-in-part, divisional applications, re-issues, re-examinations,
extensions, foreign counterparts and equivalents thereof, all rights and
licenses thereto and all
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
inventions (whether or not patentable), trade secrets, know-how, lab notebooks,
processes, formulae, business and marketing plans, worldwide marketing rights
(subject to Assigned Contracts, defined below), computer software data, customer
and supplier lists, price lists, mailing lists, customer and supplier records
and confidential and other proprietary information throughout the world (the
"Intellectual Property Assets");
----------------------------
(ii) All of Seller's rights under any contract, agreement,
lease or other arrangement listed on Exhibit B-1, as such Exhibit may be updated
-----------
with Purchaser's consent from time to time (the "Assigned Contracts");
------------------
(iii) All of Seller's regulatory approvals, regulatory
audits and manufacturing certifications listed on Exhibit B-2, as such Exhibit
-----------
may be updated with Purchaser's consent from time to time (the "Regulatory
----------
Approvals");
---------
(iv) All right, title and interest in the equipment,
fixtures, machinery, furniture, computers and telecommunications equipment and
supplies listed on Exhibit C, as such Exhibit may be updated with Purchaser's
---------
consent from time to time hereto (the "Equipment");
---------
(v) All inventory owned or controlled by, or in the
possession of, Seller, including without limitation raw materials, work-in-
process, finished goods, supplies, prototypes and all interests therein listed
on Exhibit D, as such Exhibit may be updated with Purchaser's consent from time
---------
to time;
(vi) All books and records, whether originals or copies,
whether financial, medical or otherwise, relating to the Purchased Assets or the
Business; provided that the Seller and its designated legal and financial
advisors shall have reasonable access to such books and records during normal
business hours following the Closing Date for any valid purpose, and Seller
shall be entitled, at Seller's expense, to make and retain photocopies of such
records for the purpose of tax compliance;
(vii) All of Seller's rights under manufacturers'
warranties and guarantees relating to the Equipment;
(viii) All benefits and proceeds with respect to the
Equipment under any policy of insurance;
(ix) All licenses, permits, authorizations and other
approvals from any federal, state, local or foreign governmental, public or
self-regulatory body or authority relating to the Business and Purchased Assets
or the Assumed Liabilities (as defined in Section 1.c below) (collectively, the
"Permits");
-------
(x) All accounts receivable, prepaid expenses, deposits
(including, without limitation, deposits under the Assigned Contracts), and
purchase orders;
(xi) All cash, other forms of bank deposits and stock and
other securities;
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-2-
(xii) All goodwill relating to the Business; and
(xiii) All other assets as relate primarily to the Purchased
Assets that are not specifically listed as Excluded Assets in Section 1.b below.
b. Excluded Assets. The Purchased Assets shall not include the
---------------
assets described with specificity on Exhibit E.
---------
c. Liabilities. Except as expressly provided herein with
-----------
respect to the Assigned Contracts, Purchaser shall not assume, or take title to
the Purchased Assets subject to, or in any way be liable or responsible for any
liabilities or obligations of any kind of Seller, and Seller shall continue to
remain responsible for the same. Those liabilities and obligations which
Purchaser assumes pursuant to the express terms of this Agreement are referred
to herein as the "Assumed Liabilities." Without limiting the generality of the
-------------------
foregoing, Purchaser shall not assume or take title to the Purchased Assets
subject to any of the following:
(i) Except for the performance of obligations and duties
set forth in the Assigned Contracts, any obligations, liabilities, debts or
other charges of Seller outstanding on the Closing Date or arising after the
Closing Date;
(ii) Any liability or obligation of Seller (existing prior
to, on or after the Closing Date) arising from claims for personal injury
(including death) or damage to property, including (without limitation) in
respect of any negligence, malpractice or other wrongful action in connection
therewith;
(iii) Any liability or obligation of Seller, or any of its
employees (existing prior to, on or after the Closing Date), for any federal,
state, local or foreign income, sales, employee, use and any other taxes of any
kind, including, without limitation, any of such taxes arising out of or in
connection with the purchase of the Purchased Assets by Purchaser hereunder;
(iv) Any liability or obligation (existing prior to, on or
after the Closing Date) in respect of any plan, agreement, arrangement or
understanding under which benefits or compensation are provided by Seller for
its employees (including but not limited to, any contract or other obligation
for health insurance, or any commissions or revenue or profit sharing);
(v) Any liability or obligation of Seller (existing prior
to, on or after the Closing Date) based upon or arising under any contract or
agreement existing prior to or at the time of Closing, other than a liability or
obligation incurred pursuant to an Assigned Contract after the Closing Date;
(vi) Any lien, encumbrance, mortgage, security interest or
other charge of any nature whatsoever; or
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-3-
(vii) Any liabilities or obligations arising from any
action, proceeding or litigation to which Seller is or would be a party that is
pending, threatened or based upon facts that arise prior to or on the Closing.
d. Closing and Closing Date. Unless otherwise agreed by the
------------------------
parties, a consummation of the transactions contemplated by this Agreement shall
take place at a closing (the "Closing") to be held at the offices of Venture Law
-------
Group, counsel to Purchaser, on October 1, 1999, or such other time or date as
Seller and Purchaser shall mutually agree, such time and date being referred to
herein as the "Closing Date."
------------
e. Actions at the Closing. At the Closing, Seller and
----------------------
Purchaser shall take such actions and execute and deliver such agreements, bills
of sale and other instruments and documents as necessary or appropriate to
effect the transactions contemplated by this Agreement in accordance with its
terms, including without limitation the following:
(i) ▇▇▇▇ of Sale. Seller shall deliver to Purchaser a
------------
general ▇▇▇▇ of sale substantially in the form attached as Exhibit G (the "▇▇▇▇
--------- ----
of Sale") with respect to each Purchased Asset, in each case duly executed by
-------
Seller, assigning to Purchaser all of Seller's right, title and interest in and
to the Purchased Assets.
(ii) Purchase Price. Purchaser shall deliver the Purchase
--------------
Price (defined in Section 2.a below) to Seller in accordance with the provisions
of Section 2, which shall be deemed to satisfy any obligation of Purchaser with
respect to Taxes (defined in Section 3.n below) in connection with the
transactions contemplated by this Agreement.
(iii) Title. Seller shall provide reasonable evidence of
-----
valid title to such of the Purchased Assets as Purchaser may reasonably request
in writing prior to the Closing, in form and substance reasonably satisfactory
to Purchaser (including, but not limited to, patent, copyright and trademark
assignments).
(iv) Third Party Consents and Assignments. Seller shall
------------------------------------
deliver to Purchaser any assignments, and any required consents to assignment,
that it has obtained in respect of the Assigned Contracts, duly executed by the
appropriate parties having the authority so to assign or consent to assign, in
form and substance as Purchaser shall reasonably request.
(v) Escrow Agreement and Trust Agreement. The parties
------------------------------------
shall deliver executed copies of the Escrow Agreement in substantially the form
attached hereto as Exhibit L (the "Escrow Agreement") and the Trust Agreement in
--------- ----------------
substantially the form attached hereto as Exhibit N (the "Trust Agreement").
--------- ---------------
(vi) Intellectual Property Transfer. Seller shall
------------------------------
deliver patent and trademark assignments reasonably required by Purchaser and
sufficient to assign the Intellectual Property on Exhibit A to Purchaser.
f. Assumption. Purchaser hereby agrees to assume, and to
----------
faithfully discharge, the Assigned Contracts, with respect to the obligations of
Seller arising thereunder from and after the later of the Closing Date or the
date of the written assignment, as applicable.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-4-
2. Purchase Price; Terms of Payment.
--------------------------------
a. Purchase Price. The purchase price to be paid for the
--------------
Purchased Assets (the "Purchase Price") shall consist of [***] (the "Cash") and
-------------- ----
325,023 shares of unregistered Series B-1 Preferred Stock of Purchaser (the
"Securities") with the rights, preferences and privileges set forth on the
-----------
Certificate of Designation of Rights, Preferences and Privileges attached hereto
as Exhibit H (the "Certificate of Designation"). [***] shares of the Securities
--------- -------------------------- ----
shall be held in escrow according to the terms of the Escrow Agreement and shall
constitute an "Escrow Fund" to be used as set forth in Section 9. The cash
-----------
shall be deposited in a trust account pursuant to the Trust Agreement and shall
constitute a trust fund as set forth in the Trust Agreement to be used to pay
liabilities of Seller incurred prior to the Closing Date.
b. Allocation of Purchase Price. The Purchase Price, with an
----------------------------
aggregate value of [***], shall be allocated as provided in Exhibit I hereto
---- ---------
(which Exhibit I will be prepared promptly after the Closing) for purposes of
---------
complying with the requirements of Section 1060 of the Internal Revenue Code of
1986, as amended (the "Code"). Each party hereto agrees to prepare its federal
----
and state income tax returns for all current and future tax reporting periods
and file Form 8594 (and corresponding state forms) with respect to this
transaction in a manner consistent with the allocations set forth in said
Exhibit I. If any state or federal taxing authority challenges such allocation,
---------
the party receiving notice of such challenge shall give the other prompt written
notice of such challenge, and the parties shall cooperate in good faith in
responding to it in order to preserve the effectiveness of such allocation, and
shall take no position in any tax proceeding inconsistent therewith.
c. Taxes Arising from Transfer. Seller shall pay any sales,
---------------------------
use, transfer, excise or other similar taxes, if any, arising out of the
transfer of the Purchased Assets, or otherwise as a consequence of the
transactions contemplated by this Agreement.
d. Income Tax Treatment. It is the intent of the parties that
--------------------
the Acquisition will fail to qualify as a "reorganization" within the meaning of
Section 368(a) of the Code and will instead be treated as a transfer of assets
resulting in recognition of gain or loss by Seller. Each party hereto agrees to
prepare its federal and state income tax returns for all current and future tax
reporting periods in a manner consistent with such intention and to take no
position in any tax proceeding inconsistent therewith.
3. Representations and Warranties of Seller. Except as set forth on
----------------------------------------
Seller Disclosure Statement attached hereto as Exhibit K, as such Exhibit may be
---------
updated with Purchaser's consent from time to time, Seller represents and
warrants to Purchaser that:
a. Organization. Seller is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and has the requisite company power and authority to own, lease and operate its
properties and to transact its business as it is now being conducted and to
carry out this Agreement and the transactions contemplated herein. Seller holds
all licenses and permits known by Seller to be necessary and required therefor,
and is duly qualified or licensed to do business and is in good standing in each
place and jurisdiction where the nature of the business conducted by it or the
ownership, lease or operation
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-5-
of its properties requires such license or qualification, except where the
failure to hold such license or permit or to be so qualified would not have a
material adverse effect on the Purchased Assets or the Business. Seller has no
subsidiaries and holds no equity investment in any other person or entity.
b. Title to Purchased Assets. Seller has and will convey on
-------------------------
the Closing Date full, absolute, good and marketable title to the Purchased
Assets, free and clear of all security interests, mortgages, liens (including,
but not limited to, liens with respect to taxes), attachments, orders of court,
rights of redemption, debts, claims, charges, or other encumbrances of any kind
whatsoever and not subject to any continuing commission, profit or revenue
sharing or other compensation contract or obligation that could apply to
Purchaser or the Purchased Assets. No liens affecting any of the Purchased
Assets will arise or would, with notice or lapse of time or both, arise as a
result of the transactions contemplated by this Agreement or by any agreement
contemplated by this Agreement. Except as a stockholder of Seller, no officer,
director, employee or stockholder of, or any consultant or person similarly
related to, Seller, nor any spouse, child or other relative of any of the
foregoing, owns or has any direct or indirect interest in the Purchased Assets.
Except as specifically set forth in the Assigned Contracts, no restrictions
created by Seller or known by Seller exist on Purchaser's right to sell or
resell the Purchased Assets or products incorporating any of the Purchased
Assets, nor will any restrictions be imposed as a consequence of the
transactions contemplated by this Agreement. Except as specifically set forth
in the Assigned Contracts, no proprietary technology of any third-party was
licensed or otherwise acquired in the design or development of (or otherwise
with respect to) any of the Purchased Assets.
c. Contracts with Respect to the Purchased Assets.
----------------------------------------------
(i) Exhibit B-1 and the Seller Disclosure Statement,
-----------
combined, set forth a true and complete list of all contracts, licenses and
other agreements with respect to the Purchased Assets (other than cash),
including without limitation any right to manufacture, use, copy, distribute or
sublicense the Purchased Assets, and a true and complete list of any and all
third parties to whom Seller has sold, licensed, loaned or otherwise delivered
or transferred any of the Purchased Assets (in each such case identifying the
nature of such contract). Other than as set forth on Exhibit B-1, no Purchased
-----------
Asset is subject to any contract, license or agreement, and no person other than
Seller owns any right, title or interest in or to any such Purchased Assets,
except as expressly set forth in Seller Disclosure Statement.
(ii) Except as specifically set forth in the Assigned
Contracts, Purchaser shall not by virtue of any contractual arrangement between
Seller and any third party be obligated to provide to any third party any
documentation concerning the Purchased Assets, or any modifications,
enhancements or upgrades thereto or derivative works thereof.
d. Other Contracts. Seller is not a party to, nor are any of
---------------
the Purchased Assets (other than Assigned Contracts) bound by, any distributor's
or manufacturer's representative or agency agreement, any output or requirements
agreement, any indenture, mortgage, deed of trust or lease. Seller is not in
default, and there has been no event that with notice or lapse of time or both
would constitute a default by Seller, with regard to any agreement.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-6-
To the knowledge of Seller, no other party is in default, and no event that with
notice or lapse of time or both would constitute a default by such other party,
has occurred with respect to any agreement affecting the Purchased Assets.
Seller has not received notice that any party to any existing agreement intends
to cancel or terminate any such agreement or to exercise or not exercise any
options under any such agreement.
e. Due Authority; Valid and Binding Agreements. Seller has the
-------------------------------------------
power and authority to enter into and be bound by the terms and conditions of
this Agreement, and agreements contemplated by this Agreement, including without
limitation, the Escrow Agreement, the Trust Agreement, the ▇▇▇▇ of Sale and all
other documents that Seller is required to deliver pursuant to this Agreement
(the "Related Agreements"), and to carry out its obligations pursuant hereto and
------------------
thereto. The consummation by Seller of the transactions contemplated by this
Agreement and by the Related Agreements has been duly authorized by all
necessary action by the Board of Directors and stockholders of Seller, and no
other act or proceeding on the part of or on behalf of Seller, or any of its
stockholders, is necessary to approve the execution of this Agreement and the
Related Agreements. Each of this Agreement and the Related Agreements is a
valid and binding obligation of Seller, enforceable against Seller in accordance
with its terms except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors' rights generally, and as limited
by laws relating to the availability of specific performance, injunctive relief,
or other equitable remedies.
f. No Conflicts or Violations. Neither the execution and
--------------------------
delivery of this Agreement and the Related Agreements nor the consummation of
the transactions contemplated hereby and thereby will (i) conflict with or
result in any violation of or constitute a default under any agreement
(including but not limited to any Assigned Contract), mortgage, bond, indenture,
franchise or other instrument or obligation to which Seller is a party or by
which it is bound, (ii) conflict with, violate or result in any breach of the
terms, conditions or provisions of the Certificate of Incorporation or bylaws of
Seller, (iii) result in the creation of any lien or other encumbrance upon any
Purchased Asset pursuant to the terms of any such mortgage, bond, indenture,
franchise or other instrument or obligation, (iv) violate any judgment, order,
injunction, decree or award of any court, administrative agency or governmental
body against, or binding upon, either Seller or upon any of the Purchased
Assets, (v) to Seller's knowledge, constitute a violation by Seller of any law
or regulation of any jurisdiction in which Seller conducts its business, (vi)
result in the breach of any of the terms or conditions of, or constitute a
default under, or otherwise cause any impairment of, any permit or license or
other governmental authorization held by Seller, or (vii) result in any
liability or expense to Purchaser under any collective bargaining agreements to
which Seller is a party.
g. Inventory and Equipment. The lists of the Equipment and
-----------------------
Inventory attached hereto as Exhibit C and Exhibit D, respectively, are complete
--------- ---------
and accurate lists of all tangible assets of Seller, none of which are being
retained by Seller, and there are no other tangible assets not reflected in
Exhibits C, D and E, and the Inventory is in merchantable quality, saleable in
-------------------
the ordinary course of business.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-7-
h. Financial Information. The audited financial statements of
---------------------
Seller as of and for the fiscal year ended December 31, 1998 and the unaudited
financial statements as of and for the six-month period ended June 30, 1999, and
the unaudited balance sheet of Seller as of August 31, 1999 (collectively, the
"Seller Financial Statements") are or shall be complete and correct in all
---------------------------
material respects and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated ("GAAP") (except that the unaudited Seller Financial Statements do not
----
contain notes or normal year-end adjustments), and fairly and accurately set
forth the operating results of Seller as of the dates and for the periods
indicated therein. Since August 31, 1999, there has not been any adverse change
in the revenues, liabilities or operating results of Seller or any change in
Seller's business from that reflected in such financial statements. Except as
set forth in Seller Financial Statements, Seller has no liabilities, contingent
or otherwise which would be required to be reflected under GAAP as of the date
thereof.
i. Absence of Certain Changes. Between August 31, 1999 and the
--------------------------
date of this Agreement, Seller has not (except as contemplated by this
Agreement) (i) incurred any obligation or liability (absolute or contingent) in
excess of $10,000 individually and $25,000 in the aggregate, (ii) discharged or
satisfied any lien or encumbrance, or paid any obligation or liability (absolute
or contingent), other than current liabilities reflected in Seller Financial
Statements and current liabilities incurred since the date of Seller Financial
Statements in the ordinary course of business but in an aggregate amount which
does not exceed $10,000, (iii) mortgaged, pledged or subjected to lien or any
other encumbrance any assets (tangible or intangible), (iv) sold or transferred
any tangible assets or canceled any debts or claims, except in the ordinary
course of business but in an aggregate amount which does not exceed $10,000, (v)
sold, assigned, licensed or transferred any patents, trademarks, tradenames,
copyrights, or registrations or applications therefor, or any license or other
intangible assets, pertaining to or connected with the Purchased Assets, (vi)
suffered any extraordinary loss or waived any right of substantial value, (vii)
entered into any transactions other than in the ordinary course of business or
(viii) agreed to do any of the foregoing.
j. No Violation of Law. Seller has conducted its business in
-------------------
compliance with all material applicable laws and regulations of federal, state,
local and foreign governmental authorities. Seller possesses, and is in
compliance with, all licenses, permits, approvals and other governmental
authorizations necessary to the conduct of its business except where the failure
to do so would not have a material adverse effect on Seller, its business and
the Purchased Assets. No governmental authority has conducted any audit of
Seller during the last five (5) years.
k. Litigation, etc. There are no suits, actions or
---------------
administrative, arbitration, unfair labor practice, worker's compensation or
other proceedings, pending or, to Seller's knoweldge, threatened, nor to
Seller's knowledge is there any governmental investigation against or relating,
directly or indirectly, to the Purchased Assets, Seller, or its Business, which
could result in a lien on or impair Purchaser's ownership or operation of the
Purchased Assets or the Business, nor does Seller believe that there is any
basis for the foregoing. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court, administrative agency or by
arbitration, pursuant to a grievance or other procedure) against or
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-8-
relating to either Seller or the Purchased Assets that could result in a
material adverse effect, or any lien or other encumbrance, on the Purchased
Assets. There are no claims, actions, suits, inquiries, proceedings or
investigations pending by or against Seller, relating to any products or
containing allegations that such products are defective or were improperly
designed or manufactured or improperly labeled or otherwise improperly described
for use.
l. No Brokers. Seller is not obligated nor has Seller
----------
obligated Purchaser for the payment of fees or expenses of any broker or finder
in connection with the origin, negotiation or execution of this Agreement or in
connection with any transaction contemplated hereby.
m. Assignability of Contracts; No Default. Seller has no
--------------------------------------
reason to believe that assignments or other transfers of the Assigned Contracts
(on terms at least as favorable to Purchaser) will not be obtained for transfer
to Purchaser in accordance with Section 5.f hereof at or prior to the Closing,
without default, penalty or other similar restriction. Seller is not in
default, and, to the knowledge of Seller, no other party is in default, with
respect to the Assigned Contracts. Seller is not aware of any payments (other
than those specifically called for by the written terms of the Assigned
Contracts) that will be required in the future to be made under the Assigned
Contracts.
n. Taxes.
-----
(i) All sales and use taxes, real and personal property
taxes, gross receipts taxes, documentary transfer taxes, employment taxes,
withholding taxes, unemployment insurance contributions and other taxes or
governmental charges of any kind, however denominated, for which Purchaser could
become liable as a result of acquiring the Purchased Assets or which could
result in a lien on or charge against the Purchased Assets (collectively,
"Taxes") have been or will be paid for all periods prior to and including the
-----
Closing Date. Seller has duly and timely filed (or will file prior to the
Closing Date) all returns and reports of Taxes and Income Taxes required to be
filed prior to such date, such returns are true, correct, complete, and Seller
has paid all Taxes and Income Taxes shown thereon.
(ii) As used herein, "Income Taxes" shall mean all federal,
------------
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities related to taxes based upon or measured by
gross receipts, income, profits, franchise, including the alternative minimum
tax and other minimum taxes, together with all interest, penalties and additions
imposed with respect to such amounts.
(iii) There are not, and as of the Closing will not be, any
liens for Taxes or Income Taxes on any of the Purchased Assets (other than liens
for Taxes or Income Taxes not yet due and payable). Seller has complied in all
material respects with all record keeping and tax reporting obligations relating
to Income Taxes and income and employment taxes due with respect to compensation
paid to Employees. Seller is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Code. There are no pending or, to Seller's knowledge,
threatened proceedings with respect to Taxes or Income Taxes. No agreement or
arrangement regarding compensation that will be assumed by Purchaser provides
for any payments which could
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-9-
result in a nondeductible expense to Purchaser pursuant to Section 280G of the
Code or an excise tax to the recipient of such payment pursuant to Section 4999
of the Code.
o. Health, Safety, Employment and Environmental Matters.
----------------------------------------------------
(i) Seller is in compliance and has conducted its
Business in compliance with all federal, state, local and foreign health and
occupational safety laws and all federal, state, local and foreign laws related
to employment and employment practices, compensation and benefits, which are
applicable to Seller or its Business except to the extent noncompliance would
not have a material adverse effect on Seller's Business or on the Purchased
Assets.
(ii) Seller is in compliance and has conducted its
Business in compliance with the terms and conditions of all environmental
permits, licenses, and other authorizations required under applicable laws
relating in any way to pollution of the environment except to the extent
noncompliance would not have a material adverse effect on Seller's Business or
on the Purchased Assets.
(iii) Seller is in compliance and has conducted its business
in compliance with all applicable federal, state, local and foreign laws
relating to emissions, discharges, and releases of hazardous materials into the
environment and the generation, treatment, storage, transportation and disposal
of hazardous wastes, including, without limitation, any applicable provisions of
the Resource Conservation and Recovery Act of 1976 or the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 except to the
extent noncompliance would not have a material adverse effect on Seller's
Business or on the Purchased Assets.
(iv) There has been no unlawful production, use, treatment,
storage, transportation or disposal by Seller of any Hazardous Substance, as
hereinafter defined, at or on such real property nor any release or threatened
release by Seller of any Hazardous Substance, pollutant or contaminant into or
upon or over the real property or into or upon ground or surface water at or
within 2,000 feet of the boundaries of such real property except in compliance
with applicable law or where noncompliance would not have a material adverse
effect on Seller's business or the Purchased Assets. No Hazardous Substance is
now or ever have been stored by Seller on such real property in underground
tanks, pits or surface impoundments except in compliance with applicable law or
where non-compliance would not have a material adverse effect on Seller's
business or the Purchased Assets.
(v) There is no action, investigation, proceeding, permit
revocation, permit amendment, writ, injunction or claim pending or, to Seller's
knowledge, threatened, concerning or relating to (i) the use, storage, sale or
disposal of any Hazardous Substance related to or affecting the Purchased
Assets, (ii) the exposure of any person to any Hazardous Substance as a
consequence of any activity related to or affecting the Purchased Assets or
(iii) the presence of any Hazardous Substance in, on or under any of Seller's
facilities or any property owned, leased or occupied by Seller that is related
to or affecting the Purchased Assets.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-10-
(vi) For purposes of this Agreement, "Hazardous Substance"
-------------------
shall mean any environmentally hazardous or toxic substance, material or waste
that is currently regulated as such by any local governmental authority, any
state or the United States Government.
p. Review of Purchaser Financial Information. Seller has been
-----------------------------------------
provided with copies of Purchaser's audited financial statements for the fiscal
year ended December 31, 1998 and unaudited financial statements for the six-
month period ended June 30, 1999 (including a balance sheet, income statement
and statement of cash flows) (collectively, the "Purchaser's Financial
---------------------
Statements"). Seller has reviewed and understood Purchaser's financial
----------
condition and results of operations as set forth in Purchaser's Financial
Statements and have conferred, or had the opportunity to confer, with their
professional financial advisors with respect to such matters.
q. Intellectual Property Assets.
----------------------------
(i) The execution, delivery and performance of this
Agreement and the Related Agreements, and the consummation of the transactions
contemplated hereby and thereby, will not breach, violate or conflict with any
instrument or agreement governing any Intellectual Property Asset and will not
cause the forfeiture or termination or give rise to a right of forfeiture or
termination of any such Intellectual Property Asset or in any way impair the
right of Purchaser or any of its affiliates to use, sell, license or dispose of,
or to bring any action for the infringement of, any such Intellectual Property
Asset or portion thereof;
(ii) Neither the development, manufacture, marketing,
license, sale or use of any product currently licensed or sold by Seller or, to
Seller's knowledge after reasonable investigation with respect to products
currently under development, violates or will violate any license or agreement
to which Seller is a party or infringes or will infringe any assets or rights of
any other party; there is no pending or, to the knowledge of Seller, threatened
claim or litigation contesting the validity, ownership or right to use, sell,
license or dispose of any of the Intellectual Property Assets or necessary or
required for, or used in, the conduct of the Business of Seller as presently
conducted nor, to the knowledge of Seller, is there any basis for any such
claim, nor has Seller received any notice asserting that any such Intellectual
Property Asset or the proposed use, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, nor, to the
knowledge of Seller after reasonable investigation, is there any basis for any
such assertion; to the knowledge of Seller, after reasonable investigation,
there is no infringement on the part of any third party of the Intellectual
Property Assets;
(iii) Seller has taken reasonable and practicable steps
(including, without limitation, entering into confidentiality and non-disclosure
agreements with all officers and employees of and consultants to Seller with
access to or knowledge of Seller's Intellectual Property Assets) to maintain the
secrecy and confidentiality of, and its proprietary rights in, the Intellectual
Property Assets. Exhibit A attached hereto includes a complete and accurate
---------
list of all applications, filings and other formal actions made or taken
pursuant to federal, state, local and foreign laws by Seller to perfect or
protect its interest in the Intellectual Property Assets,
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-11-
including, without limitation, all patents, patent applications, trademarks,
trademark applications, service marks and copyright or mask work registrations;
and
(iv) All fees to maintain Seller's rights in the
Intellectual Property Assets, including, without limitation, patent and
trademark registration and prosecution fees and all professional fees in
connection therewith pertaining to the Intellectual Property Assets due and
payable on or before the Closing Date, have been paid by Seller or will be paid
by Seller before the Closing Date.
(v) Seller has not granted any license, security interest
in or otherwise pledged any of the Intellectual Property to any other party.
r. Food and Drug. Seller and all of its products have been at
-------------
all times and continue to be in compliance with the Food, Drug and Cosmetic Act
(the "Act") and all regulations promulgated thereunder by the United States Food
---
and Drug Administration ("FDA") and equivalent foreign agencies except to the
---
extent that noncompliance would not have a material adverse effect on Seller's
business or the Purchased Assets. Without limitation on the foregoing
representation and warranty, Seller further represents and warrants as follows,
in each case except where the failure would not have a material adverse effect
on the Purchased Assets or the Business:
(i) Seller has properly filed pre-market notices ("PMNs")
----
under Section 510(k) of the Act for all products commercially distributed or
introduced into interstate commerce for commercial distribution by Seller which
require the filing of such notices. Seller has properly filed for and obtained
a CE ▇▇▇▇ for its products and is in compliance with all requirements to
maintain a CE ▇▇▇▇ for all of its products in all markets where the sale or
marketing of its products has been approved and where the maintenance of the CE
▇▇▇▇ is required.
(ii) Seller has been at all times and is in material
compliance with all applicable FDA good manufacturing practices, equivalent
foreign manufacturing processes and ISO 9002 compliance.
(iii) Seller is registered with the FDA or equivalent
foreign agencies, to the extent such registration is required by FDA regulations
or the regulation of equivalent foreign agencies, and all of Seller's medical
devices are listed with the FDA or equivalent foreign agencies to the extent
such listing is required by FDA regulations or the regulations of equivalent
foreign agencies.
(iv) Seller has investigational device exemptions for all
products requiring such exemptions, and such products have not been and are not
being sold or distributed outside the terms of such investigational device
exemptions.
(v) To Seller's knowledge, Seller's marketed devices (A)
have not caused or contributed to a death or serious injury, or (B)
malfunctioned such that the device would be likely to cause or contribute to a
death or serious injury.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-12-
(vi) (A) Seller has no reason to believe that the FDA or
any equivalent foreign agency will ultimately prohibit the marketing, sale,
license or use in the United States or abroad of any product proposed to be
developed, produced or marketed by Seller ("Planned Product"), and (B) Seller
---------------
knows of no product or process which the FDA or equivalent foreign agency has
prohibited from being marketed or used in the United States or abroad which in
function and composition is substantially similar to any Planned Product.
s. Fair Consideration; No Fraudulent Conveyance. After due
--------------------------------------------
inquiry and negotiation, the sale and purchase of the Purchased Assets pursuant
to this Agreement is made in exchange for fair and equivalent consideration, and
Seller is not now insolvent and will not be rendered insolvent by the sale,
transfer and assignment of the Purchased Assets pursuant to the terms of this
Agreement. Seller is not entering into this Agreement with the intent to
defraud, delay or hinder their respective creditors and the consummation of the
transactions contemplated by this Agreement will not have any such effect. The
transactions contemplated in this Agreement will not constitute a fraudulent
conveyance or any act with similar consequences or potential consequences, or
otherwise give rise to any right of any creditor of Seller whatsoever to lodge
any claim against any of the Purchased Assets in the hands of Seller after the
applicable Closing.
t. Investment Intent. The Securities will be distributed by
-----------------
Seller only to Seller's stockholders. Upon distribution of the Securities,
Seller will have each of Seller's stockholders confirm that the Securities
acquired by such stockholder will be acquired for investment for such
stockholder's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such stockholder has no
present intention of selling, granting any participation in, or otherwise
distributing the same. Seller will have each of Seller's stockholders represent
that such stockholder does not presently have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Securities, and agree to be bound by the provisions of the Company's Amended
Rights Agreement, including the standard lock-up agreement entered between the
Company and its stockholders.
u. Disclosure of Information. Seller believes it has received
-------------------------
all the information it considers necessary or appropriate for deciding whether
to acquire the Securities. Seller further represents that it has had an
opportunity to ask questions and receive answers from Purchaser regarding the
Securities.
v. Investment Experience. Upon distribution of the Securities,
---------------------
Seller will have each of Seller's stockholders confirm that (i) such member
understands that the Securities have not been, and will not be, registered under
the Securities Act of 1933, as amended (the "Securities Act") by reason of a
--------------
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of such member's representations; and (ii) such stockholder has
not been formed for the specific purpose of acquiring the Securities.
w. Restricted Securities. Seller understands, and upon
---------------------
distribution of the Securities, Seller will have each of Seller's stockholders
confirm that they understand, that the Securities are characterized as
"restricted securities" under the federal securities laws inasmuch as
---------------------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-13-
they are being acquired from Purchaser in a transaction not involving a public
offering and that under such laws and applicable regulations such Securities may
be resold without registration under the Securities Act, only in certain limited
circumstances. In this connection, upon distribution of the Securities, Seller
will have each of Seller's stockholders represent that he or she is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
x. Legends. Seller understands that the Securities, and any
-------
securities issued in respect thereof or exchange therefor, may bear one or all
of the following legends:
(i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT."
(ii) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations.
(iii) Any legend required by the Blue Sky laws of any other
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
y. Corporate Securities Law. THE SALE OF THE SECURITIES THAT
------------------------
IS THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA. THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
z. Full Disclosure. Seller is not aware of any facts
---------------
specifically pertaining to the Purchased Assets (including but not limited to
the Intellectual Property Assets) that they believe affect, or are likely in the
future to affect, the Business conducted with the Purchased Assets or the
Purchased Assets in a material adverse manner. Neither this Agreement, nor any
representation or warranty contained in this Agreement, nor any other agreement
(including the Related Agreements), exhibit, schedule, or certificate being
entered into or delivered pursuant hereto, when read as a whole, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-14-
aa. Creditor Filings. No bulk sales filing (e.g., any filing to
----------------
notify creditors of a change of ownership of personal property not accompanied
by a physical relocation of the personal property) is necessary in order to
prevent the creditors of Seller from prosecuting any claims against Seller by
means of levying or taking any similar action with respect to the Purchased
Assets.
bb. No Knowledge of Breach. Seller is not aware that any of the
----------------------
representations and warranties of Purchaser hereunder are untrue.
4. Representations and Warranties of Purchaser. Except as set forth
-------------------------------------------
on Purchaser Disclosure Statement attached hereto as Exhibit J, Purchaser hereby
---------
represents and warrants to Seller that:
a. Organization, Good Standing and Qualification. Purchaser is
---------------------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to transact its business
as it is now being conducted and to carry out this Agreement and the
transactions contemplated herein. Purchaser is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the failure so to
qualify would have a material adverse effect on its business or properties.
b. Capitalization.
--------------
(i) The authorized capital of Purchaser will consist prior
to the Closing of:
(A) 24,141,867 shares of Preferred Stock (the
"Preferred Stock"), 5,600,000 of which shares have been designated Series A-1
---------------
Preferred Stock, 5,600,000 of which are issued and outstanding, 8,641,867 shares
of which have been designated Series A-2 Preferred Stock, 8,641,867 of which are
issued and outstanding, 9,378,140 of which shares have been designated Series B
Preferred Stock, 9,378,140 of which are issued and outstanding, and 450,000 of
which have been designated Series B-1 Preferred Stock, none of which are issued
and outstanding immediately prior to the Closing. The rights, preferences and
privileges of the Series A-1, Series A-2 and Series B Preferred Stock are as set
forth in Purchaser's Amended and Restated Certificate of Incorporation, as
provided to counsel for Seller. The rights, preferences, privileges and
restrictions of the Securities will be as stated in the Certificate of
Designation.
(B) 41,541,867 shares of Common Stock (the "Common
------
Stock"), 8,403,500 shares of which are issued and outstanding.
-----
(ii) Except as provided herein and for (i) 2,000,000 shares
of Common Stock reserved for issuance under Purchaser's 1998 Stock Plan, of
which options to purchase 1,170,000 shares have been granted and 830,000 shares
remain available for issuance thereunder, (ii) the conversion privileges of
Purchaser's Series A-1, Series A-2 and Series B Preferred Stock and (iii) the
right of first offer provided in the Amended and Restated Rights
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-15-
Agreement dated July 19, 1999 (the "Rights Agreement"), there are no other
----------------
outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from Purchaser of any
shares of its capital stock. Purchaser is not a party or subject to any
agreement or understanding, and, to Purchaser's knowledge, there is no agreement
or understanding between any persons and/or entities, which affects or relates
to the voting or giving of written consents with respect to any security or by a
director of Purchaser. As of the Closing, all of the outstanding shares of
Purchaser's capital stock shall be validly issued, fully paid and non-
assessable.
c. Subsidiaries. Purchaser does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
d. Authorization. All corporate action on the part of
-------------
Purchaser, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the Related
Agreements, the performance of all obligations of Purchaser hereunder and
thereunder and the authorization and issuance (or reservation for issuance) of
the Securities being sold hereunder has been taken or will be taken prior to the
Closing, and this Agreement and the Related Agreements constitute valid and
binding obligations of Purchaser, enforceable in accordance with their terms.
e. Valid Issuance of Preferred and Common Stock.
--------------------------------------------
(i) The Securities when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and, based in part upon
the representations of Seller made in this Agreement and/or to be made upon
distribution of the Securities, will be issued in compliance with all applicable
federal and state securities laws, and will be free of restrictions on transfer
other than restrictions on transfer under this Agreement, the Amendment to the
Rights Agreement attached hereto as Exhibit M, and under applicable state and
---------
federal securities laws. The Common Stock issuable upon conversion of the
Securities has been duly and validly reserved for issuance, and upon issuance in
accordance with the terms of the Certificate of Designation, shall be duly and
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the Rights
Agreement and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws.
(ii) The outstanding shares of Common Stock and Preferred
Stock are all duly and validly authorized and issued, fully paid and
nonassessable, and were issued in compliance with all applicable federal and
state securities laws.
f. Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of Purchaser is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the filing pursuant to
Section 25102(f) of the California Corporate Securities Law of 1968, as amended,
and the rules thereunder.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-16-
g. Litigation. There is no action, suit, proceeding or
----------
investigation pending or to Purchaser's knowledge currently threatened against
Purchaser which questions the validity of this Agreement, or the right of
Purchaser to enter into it, or to consummate the transactions contemplated
hereby, or which might result, either individually or in the aggregate, in any
material adverse changes in the assets, condition, affairs or prospects of
Purchaser, financially or otherwise, or any change in the current equity
ownership of Purchaser, nor is Purchaser aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or, to
Purchaser's knowledge, threatened (or any basis therefor known to Purchaser)
involving the prior employment of any of Purchaser's employees, their use in
connection with Purchaser's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. Purchaser is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by Purchaser currently pending or which Purchaser intends to
initiate.
h. Compliance with Other Instruments. Purchaser is not in
---------------------------------
violation or default of any provisions of its Articles of Incorporation or
Bylaws or of any instrument, judgment, order, writ, decree or contract to which
it is a party or by which it is bound or, to its knowledge, of any provision of
federal or state statute, rule or regulation applicable to Purchaser. The
execution, delivery and performance of this Agreement and the Related
Agreements, and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of Purchaser.
i. Disclosure. Purchaser has fully provided Seller with all
----------
the information which Seller has requested for deciding whether to purchase the
Securities and all information which Purchaser believes is reasonably necessary
to enable Seller to make such decision. Neither this Agreement nor any other
statements or certificates made or delivered in connection herewith contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading.
j. Offering. Subject in part to the truth and accuracy of
--------
Seller's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Securities as contemplated by this Agreement are exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Act"), and neither Purchaser nor any authorized agent acting on its behalf
---
has taken or will take any action hereafter that would cause the loss of such
exemption.
k. Permits. Purchaser has all franchises, permits, licenses,
-------
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of Purchaser.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-17-
l. Financial Statements. Purchaser has delivered to Seller its
--------------------
audited financial statements at December 31, 1998 and for the fiscal year then
ended and its unaudited financial statements at June 30, 1999 (collectively, the
"Purchaser Financial Statements"). Purchaser Financial Statements are complete
------------------------------
and correct in all material respects and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated. Purchaser Financial Statements fairly and
accurately set out and describe the financial condition and operating results of
Purchaser as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments. Except as set forth in Purchaser Financial
Statements, Purchaser has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business, and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business, which, individually or in the aggregate, are not material to the
financial condition or operating results of Purchaser.
m. No Material Adverse Change. Since the date of the June 30,
--------------------------
1999 balance sheet provided pursuant to Section 4.1 (the "Most Recent Balance
-------------------
Sheet"), there has been no material adverse change in the financial condition,
-----
operating results, assets, operations, business prospects, employee relations or
customer or supplier relations to Purchaser.
n. Taxes. Purchaser owes no taxes as of the date of the Most
-----
Recent Balance Sheet. Purchaser has timely filed or has obtained presently
effective extensions with respect to all Federal, state, county, local and
foreign tax returns which are required to be filed by it, such returns are true
and correct and all taxes shown thereon to be due have been timely paid, with
any exceptions permitted by any taxing authority not having a materially adverse
effect on Purchaser. Federal income tax returns of Purchaser have not been
audited by the Internal Revenue Service, and no controversy with respect to
taxes of any type is pending or, to the knowledge of Purchaser, threatened.
o. Property and Assets. Purchaser has good title to all of its
-------------------
material properties and assets, including all properties and assets reflected in
the Most Recent Balance Sheet, except those disposed of since the date thereof
in the ordinary course of business, and none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, lease, charge or
encumbrance other than those the material terms of which are described in the
Most Recent Balance Sheet.
p. Insurance. Purchaser maintains valid policies for workers'
---------
compensation insurance and insurance related to its properties and business of
the kinds and in the amounts customary for the type of business engaged in and
anticipated to be engaged in by Purchaser, including products liability
insurance in amounts reasonably customary in the industry with respect to sales
of products of Seller sold by Purchaser after the Closing Date.
q. Material Contracts and Obligations. The Purchaser
----------------------------------
Disclosure Schedule sets forth a list of all material agreements of any nature
to which Purchaser is a party or by which it is bound, including without
limitation (a) each agreement which requires future expenditures by Purchaser in
excess of $50,000; (b) all material employment agreements, employee benefit,
bonus, pension, profit-sharing, stock option, stock purchase and similar plans
and arrangements, and distributor and sales representative agreements; and (c)
any material
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-18-
agreement with any stockholder, officer or director of Purchaser, or any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), including, without
limitation, any agreement or other arrangement providing for the furnishing of
services by, rental of real or personal property from, or otherwise requiring
payments to, any such person or entity. Purchaser has delivered to counsel for
Seller copies of such of the foregoing agreements as such counsel as requested.
All of such agreements and contracts are valid, binding and in full force and
effect.
r. Employees. None of the employees of Purchaser is
---------
represented by any labor union, and there is no labor strike or other labor
trouble (including, without limitation, any organizational drive) pending or, to
the knowledge of Purchaser, threatened with respect to Purchaser.
s. Key Employees. Purchaser is not aware that any officer or
-------------
key employee, or that any group of key employees, intends to terminate their
employment with Purchaser, nor does Purchaser have a present intention to
terminate the employment of any of the foregoing.
t. No Brokers. Purchaser is not obligated nor has Purchaser
----------
obligated Seller for the payment of fees or expenses of any broker or finder in
connection with the origin, negotiation or execution of this Agreement or in
connection with any transaction contemplated hereby.
u. Intellectual Property. Purchaser owns all of its patents,
---------------------
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and proprietary rights and processes, free and clear of any lien,
license or other restriction, without any conflict therewith or claim or
encumbrance thereto. To its best knowledge, Purchaser owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and proprietary rights and
processes necessary for its business without any conflict with, or infringement
of, the rights of others. Purchaser is not bound by nor a party to any
licenses, options or agreements of any kind relating to any patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes, whether the foregoing are owned by Purchaser
or any other person or entity. Purchaser has not received any communications
alleging that Purchaser has violated or, by conducting its business, would
violate any of the patents, trademarks, service marks, tradenames, copyrights,
trade secrets, licenses, information or other proprietary rights or processes of
any other person or entity and Purchaser does not know of any likely basis
therefore. Purchaser is not aware of any action, suit, proceeding or
investigation pending or currently threatened against Purchaser which relate to
Purchaser's ownership of its patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information or other proprietary rights or
processes.
v. No Knowledge of Breach. Purchaser is not aware that any of
----------------------
the representations or warranties of Seller hereunder are untrue.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-19-
5. Interim Agreements.
------------------
a. Access; Confidentiality. Seller agrees to make available
-----------------------
all books, records, facilities, employees and information necessary for
Purchaser to evaluate the Purchased Assets, and Purchaser agrees to make
available all books, records, facilities, employees and information necessary
for Seller to evaluate their investment in Purchaser subject to the
Confidentiality Agreement.
b. Public Announcements. Seller agrees not to make any public
--------------------
announcement regarding this Agreement or the transactions contemplated hereby
without the prior written consent of the Purchaser, except as may be required by
law.
c. Interim Operations. Seller agrees that, from the date of
------------------
this Agreement to the Closing Date, Seller will carry on its activities with
respect to the Purchased Assets and the Business in the ordinary course and in
substantially the same manner as it has prior to this Agreement, and shall take
no action (i) that could reasonably be expected to diminish in any way the value
of the Purchased Assets except as contemplated by this Agreement and the
transactions contemplated herein, or (ii) that would result in any
representation or warranty of Seller being untrue in any material respect at the
applicable Closing Date.
d. Ordinary Course Covenant. Seller agrees that from the date
------------------------
of this Agreement to the Closing Date, Seller will not, without Purchaser's
prior written approval, make any expenditure or incur any indebtedness or
obligation in excess of $10,000 individually or in excess of $25,000 in the
aggregate, other than Seller's September payroll consistent with past practices.
Seller agrees that from the date of this Agreement to the Closing Date, Seller
shall not transfer or license any of the Purchased Assets other than sales of
Inventory in the ordinary course of business. Seller agrees that from the date
of this Agreement to the Closing Date, Seller shall not sell or transfer to any
third party any finished goods or raw materials without Purchaser's prior
approval other than sales of Inventory in the ordinary course of business.
Seller agrees that from the date of this Agreement to the Closing Date, Seller
shall reclaim any products or Equipment other than Inventory held by
distributors or consignees.
e. Occurrence of Conditions. Each party hereto shall use its
------------------------
reasonable best efforts, or where appropriate cooperate in the efforts of the
other party, to cause the occurrence of the conditions specified in Section 6
and Section 7 of this Agreement.
f. Certain Assignments. Seller and Purchaser shall use their
-------------------
respective reasonable best efforts to obtain third-party acceptance of
assignments to Purchaser of each of the Assigned Contracts on terms no less
favorable to Purchaser as currently exist with respect to Sellers.
g. No Other Bids. Between the date of this Agreement and the
-------------
earlier of (i) the Closing Date, (ii) October 9, 1999 or (iii) the termination
of this Agreement by Purchaser pursuant to Section 8 of this Agreement, Seller,
its stockholders, officers, employees, and agents will not, directly, or
indirectly, solicit, initiate, entertain or encourage any proposals or offers
from any third party related to any merger or consolidation of Seller, the
dissolution of
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-20-
Seller or the acquisition of any or all of the Purchased Assets, or participate
in any discussions regarding, or furnish to any person any information with
respect to, or otherwise cooperate with, facilitate or encourage any such
transaction. Seller agrees promptly to inform Purchaser of any inquiries or
proposals from third parties with respect to such matters.
6. Conditions to Obligations of Purchaser. Absent a waiver in
--------------------------------------
writing, all obligations of Purchaser at the Closing under this Agreement,
except the obligations set forth in Section 9 hereof, are subject to the
satisfaction of the conditions set forth in this Section 6, to Purchaser's
reasonable satisfaction, on or before the completion of the Closing on the
Closing Date:
a. Representations, Warranties and Performance. The
-------------------------------------------
representations and warranties of Seller contained herein shall be deemed to
have been made again at and as of the Closing Date and shall then be true and
correct in all material respects with the same force and effect as if such
representations and warranties have been made at and as of the Closing Date;
Seller shall have performed and complied with all agreements, conditions and
covenants required by this Agreement to be performed or complied with by Seller
prior to or at the Closing Date; and Seller shall have furnished to Purchaser an
officer's certificate dated the Closing Date, verifying, in such detail as
Purchaser may reasonably request, the fulfillment of the foregoing conditions.
b. Litigation. Except as expressly set forth in the Seller
----------
Disclosure Schedule, there shall not be pending any litigation before any court
or governmental agency (i) the outcome of which could reasonably be expected to
have a material adverse affect on the Purchased Assets or their value to
Purchaser, (ii) to restrain or prohibit or to obtain damages or other relief in
connection with, or which is related to or arises out of, this Agreement, the
Related Agreements or the transactions contemplated hereby or thereby or (iii)
otherwise pending against Seller.
c. Certain Assignments. Purchaser shall have received, on
-------------------
material terms no less favorable to Purchaser than those now existing for
Seller, assignments of the Assigned Contracts.
d. Absence of Adverse Changes. There shall not have been any
--------------------------
material adverse change in or to the Purchased Assets or the Business.
e. Related Agreements. Seller shall have executed and
------------------
delivered each of the Related Agreements to which it is a party.
f. Approvals. All consents, approvals and filings required
---------
under any applicable law, rule or regulation to be completed or obtained prior
to the transactions contemplated by this Agreement and the Related Agreements
shall have been so completed or obtained, as the case may be. All corporate,
including Board of Directors and stockholder approvals to be obtained prior to
the transactions contemplated by this Agreement and the Related Agreements shall
have been obtained.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-21-
g. Affidavit. Seller shall have provided Purchaser with an
---------
affidavit stating, under penalty of perjury, that Seller is not a "foreign
person" for tax purposes and providing such Seller's U.S. taxpayer
identification number.
h. Escrow Agreement and Trust Agreement. An escrow agreement
------------------------------------
substantially in the form of the Escrow Agreement shall have executed by the
parties thereto. A trust agreement substantially in the form of the Trust
Agreement shall have been executed by the parties thereto.
i. Opinion of Counsel. Purchaser shall have received an
------------------
opinion from ▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, counsel to Seller, and from such other
counsel to Seller as Purchaser may reasonably require, dated as of the Closing
Date, addressed to Purchaser, and reasonably satisfactory in form and substance
to Purchaser.
j. Employment Agreements. Purchaser and each of the employees
---------------------
listed on Exhibit F (the "Employees") shall have entered into employment or
--------- ---------
consulting agreements with Purchaser in form reasonably satisfactory to
Purchaser and such employee.
k. Intellectual Property Assignments. Seller shall deliver
---------------------------------
patent and trademark assignments reasonably required by Purchaser and sufficient
to transfer the Intellectual Property on Exhibit A to Purchaser.
l. Due Diligence. Purchaser and its advisors shall have
-------------
completed due diligence of Seller, subject to the satisfaction of Purchaser in
its sole discretion.
7. Conditions to Obligations of Seller. Absent a waiver in writing,
-----------------------------------
all obligations of Seller at the Closing under this Agreement, except the
obligations set forth in Section 9 hereof, are subject to the satisfaction of
the following conditions, to Seller's reasonable satisfaction, on or before the
completion of the Closing on the Closing Date:
a. Representations, Warranties and Performance. The representations
-------------------------------------------
and warranties of Purchaser shall be deemed to have been made again at and as of
the Closing Date and shall then be true and correct in all material respects
with the same force and effect as if such representations and warranties had
been made at and as of the Closing Date; Purchaser shall have performed and
complied with all agreements, conditions and covenants required by this
Agreement to be performed or complied with by it prior to or at the Closing
Date, and Purchaser shall have furnished to Sellers an officer's certificate
dated the Closing Date, verifying, in such detail as Sellers may reasonably
request, to the fulfillment of the foregoing conditions.
b. Litigation. There shall not be pending any litigation
----------
before any court or governmental agency to restrain or prohibit or to obtain
damages or other relief in connection with, or which is related to or arises out
of, this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby.
c. Related Agreements. Purchaser shall have executed and
------------------
delivered the Related Agreements to which it is a party.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-22-
d. Approvals. All consents, approvals and filings required
---------
under any applicable law, rule or regulation to be completed or obtained prior
to the transactions contemplated by this Agreement and the Related Agreements
shall have been so completed or obtained, as the case may be. All corporate
approvals, including Board of Director and any required stockholder approvals,
to be obtained prior to the transactions contemplated by this Agreement and the
Related Agreements shall have been obtained.
e. Absence of Adverse Changes. There shall not have been any
--------------------------
material adverse change in or to the business of Purchaser.
f. Escrow Agreement and Trust Agreement. An escrow agreement
------------------------------------
substantially in the form of the Escrow Agreement shall have executed by the
parties thereto. A trust agreement substantially in the form of the Trust
Agreement shall have been executed by the parties thereto.
g. Certificate of Designation. The Certificate of Designation
--------------------------
shall have been filed with the Delaware Secretary of State.
h. Opinion of Counsel. Seller shall have received an opinion
------------------
of Venture Law Group, A Professional Corporation, counsel to Purchaser, dated
the Closing Date addressed to Seller, and reasonably satisfactory in form and
substance to Seller.
i. Employment Agreements. Purchaser and each of the employees
---------------------
listed on Exhibit F shall have entered into an employment or consulting
---------
agreement with Purchaser in form reasonably satisfactory to Purchaser and such
employee.
8. Termination; Survival and Effect of Termination.
-----------------------------------------------
a. Termination. Anything contained herein to the contrary
-----------
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(i) By mutual consent of Purchaser and Seller;
(ii) By Purchaser, if any of the conditions set forth in
Section 6 shall not have been satisfied or waived by Purchaser prior to October
31, 1999, through no fault of Purchaser;
(iii) By Seller, if any of the conditions set forth in
Section 7 shall have not been satisfied or waived by Seller prior to October 31,
1999, through no fault of Seller;
(iv) By either Purchaser, on one hand, or Seller, on the
other hand, if (A) the other has breached this Agreement in any material respect
or (B) any of the representations and warranties made by the other in Section 3
or Section 4 of this Agreement (as the case may be) is false or inaccurate in
any material respect; or
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-23-
(v) Without limiting the foregoing, by Purchaser if there
has been a material adverse change in the Purchased Assets or the Business; or
by Seller if there shall have been any material adverse change in or to the
business of Purchaser.
b. Survival. If this Agreement is terminated prior to the
--------
Closing and the transactions contemplated hereby are not consummated at said
time as described above, this Agreement shall become void and of no further
force and effect, except for the provisions of Section 5.a (relating to the
obligations of confidentiality); Section 5.b (relating to disclosure); Section 8
(relating to termination); and Section 10 (relating to certain miscellaneous
provisions); provided, however, that such termination shall not limit any rights
or obligations of any party hereto for breach of this Agreement or any Related
Agreement.
9. Covenants Following Closing.
---------------------------
a. Indemnification.
---------------
(i) Indemnification by Seller. Seller agrees to indemnify,
-------------------------
defend and hold Purchaser, its officers, directors, stockholders, employees and
agents (collectively "Indemnified Persons") harmless from and against any and
-------------------
all losses, claims, demands, damages, costs and expenses (including without
limitation, reasonable attorneys' fees and disbursements) of every kind, nature
and description (collectively "Claims") based upon, arising out of or otherwise
------
in respect of (A) any inaccuracy in or any breach of any representation,
warranty, covenant or agreement of Seller contained in this Agreement or in any
certificate, document or instrument delivered pursuant to this Agreement; (B)
any uninsured claim arising out of or related to liabilities not expressly
assumed by Purchaser (including, without limitation, those liabilities described
in Section 1.c hereof); (C) any claim arising out of or related to performance
of any Assigned Contract prior to the date of assignment thereof to Purchaser or
(D) any claim arising out of any tax obligation of Seller. This indemnification
shall terminate twelve months following the Closing as to all matters except
those for which written notice has been delivered pursuant to Section 9.b.
(ii) Damages Threshold. Notwithstanding the foregoing,
-----------------
Purchaser may not receive any Securities from the Escrow Fund unless and until a
certificate signed by an officer of Purchaser (an "Officer's Certificate")
---------------------
identifying Claims in the aggregate amount in excess of [***] has been delivered
to the Escrow Agent and such amount is determined pursuant to the Escrow
Agreement to be payable, in which case Purchaser shall receive Securities equal
in value to the full amount of such Claims without deduction. In determining the
amount of any Claims attributable to a breach, any materiality standard
contained in a representation, warranty or covenant of Purchaser shall be
disregarded. In determining the number of any Securities to be delivered to
Purchaser from the Escrow Fund, such Securities shall be deemed to have a value
equal to the most recent price at which Purchaser sold at least [***] worth of
---
shares of capital stock to venture capital investors, or, if Purchaser has sold
shares of Common Stock to the public pursuant to an underwritten public offering
under the Securities Act of 1933, as amended, the average closing price of
Purchaser's Common Stock as quoted on The Nasdaq National Market (or other
national exchange if so listed) for the five days prior to, but not including,
the date on which it is determined that such Securities are to be delivered.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-24-
(iii) Limitation on Seller's Indemnification. Except with
--------------------------------------
respect to fraud, the aggregate liability of Seller to Purchaser under Section
9(a) shall not exceed the amount of the Escrow Fund. In the absence of fraud,
Purchaser's claims against the Escrow Fund shall be Purchaser's sole contractual
remedy, provided that such limitation shall not apply to a breach of the
Confidentiality Agreement or any covenant not to compete applicable to Seller
hereunder or under any of the Related Agreements.
(iv) Indemnification by Purchaser. Purchaser agrees to
---------------------------
indemnify, defend and hold Seller, its officers, directors, stockholders,
employees and agents (collectively "Indemnified Persons") harmless from and
-------------------
against any and all losses, claims, demands, damages, costs and expenses
(including without limitation, reasonable attorneys' fees and disbursements) of
every kind, nature and description (collectively "Claims") based upon, arising
------
out of or otherwise in respect of any claim arising out of or related to
performance of any Assigned Contract after the date of assignment thereof to
Purchaser.
b. Certain Tax Certificates. To the extent necessary under the
------------------------
laws of the States of Colorado or Delaware, within sixty days following the
Closing Date, Seller will deliver to Purchaser a tax clearance certificate from
the appropriate state government agencies in Colorado and Delaware stating that
no contributions, interest or penalties are due to such states or any agencies
or departments thereof, and, if applicable, the income tax withholding
provisions of such states tax codes.
c. Transition Support.
------------------
(i) Seller will cooperate in good faith and use reasonable
efforts to assist Purchaser in achieving the orderly transition of the Purchased
Assets to Purchaser in order that Purchaser may incorporate the Purchased Assets
into its existing operations with no diminution in the value of the Purchased
Assets.
(ii) Seller shall observe faithfully the terms of all
Assigned Contracts until assignments or transfers thereof have been obtained.
Purchaser agrees promptly to reimburse Seller for any out-of-pocket expenses
reasonably incurred (and documented) by Seller in carrying out their obligations
under such Assigned Contracts following the Closing Date and through the date of
such assignment.
(iii) Seller and Purchaser shall provide each other with
such information and access to books and records as may reasonably be requested
by the other in connection with any Claim or the preparation of any returns of
Taxes and audits or other proceedings relating to Taxes.
(iv) Subsequent to the Closing Date, Seller shall from time
to time execute and deliver, or cause its managers or officers, and shall use
its reasonable company best efforts to cause its former employees to deliver,
upon the request of Purchaser, all such further materials and documents and
instruments of conveyance, transfer or assignment as may reasonably be requested
by Purchaser to effect, record or verify the transfer to, and vesting in
Purchaser, of Seller's right, title and interest in and to the Purchased Assets
(including without
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-25-
limitation the Intellectual Property Assets), free and clear of all liens and
encumbrances, in accordance with the terms of this Agreement.
d. Non-Competition Agreement.
-------------------------
(i) In consideration of Purchaser entering into this
Agreement, Seller undertakes that for [***] years after the Closing Date it will
not:
(A) [***]
(B) [***]
(C) [***]
(D) [***]
(ii) If any of the separate and independent covenants and
restraints referred to in clause (i) of this Section 9.e are or become invalid
or unenforceable for any reason then that invalidity or unenforceability will
not affect the validity or enforceability of any other separate and independent
covenants and restraints.
(iii) If any prohibition or restriction contained in clause
(i) of this Section 9.e is judged to go beyond what is reasonable in the
circumstances, but would be judged reasonable if that activity was deleted or
that period or area was reduced, then the prohibitions or restrictions apply
with that activity deleted or period or area reduced by the minimum amount
necessary.
(iv) Seller acknowledges that:
(A) the prohibitions and restrictions contained in
clause (i) of this Section 9.e are reasonable and necessary; and
(B) Seller has received valuable consideration for
agreeing to the covenants in clause (a) of this Section 9.e.
(v) Seller and Purchaser acknowledge and agree that it
will be difficult to compute the amount of damage or loss to Purchaser if Seller
violated any of its agreements under this Section 9.e, that Purchaser will be
without an adequate legal remedy if Seller violated the provisions of this
Section 9.e, and that any such violation may cause substantial irreparable
injury and damage to Purchaser not fully compensable by monetary damages.
Therefore, Seller and Purchaser agree that in the event of any violation by
Seller of this Section 9.e, Purchaser shall be entitled (i) to recover from
Seller monetary damages, (ii) to obtain specific performance, injunctive or
other equitable relief, of either a preliminary or permanent type, and (iii) to
seek any other available rights or remedies at law or in equity which may be
exercised concurrently with the rights granted hereunder.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-26-
e. Purchaser Research and Development Commitment. During
---------------------------------------------
Purchaser's fiscal year 2000, Purchaser agrees that it shall invest at least
[***]. Such amount may include amounts paid to the Employees engaged in
------
research or development activities pursuant to any employment or consulting
agreement entered in connection with this Agreement.
10. Miscellaneous.
-------------
a. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties of Seller made in this Agreement or in any
certificate, document or other instrument delivered pursuant hereto shall
survive the execution and delivery hereof and the Closing until the date that is
twelve months following the Closing.
b. Fees and Expenses. Each of the parties hereto shall bear
-----------------
its own fees and expenses, including fees of counsel and accountants, incurred
in connection with the negotiation of this Agreement and the Related Agreements
and the consummation of the transactions contemplated hereby and thereby or
otherwise arising out of, or by reason of, this Agreement or any Related
Agreement.
c. Entire Agreement; Third-Party Beneficiaries. This
-------------------------------------------
Agreement, the Related Agreements and the Confidentiality Agreement (including
the exhibits and schedules hereto and thereto) constitute the entire agreement
between the parties hereto and thereto with respect to the subject matter hereof
and thereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties with respect thereto. The parties hereto acknowledge and agree that no
third party (including any employee of Seller) is intended to be a third-party
beneficiary of this Agreement or any Related Agreement.
d. Amendments. No amendment, modification or rescission of
----------
this Agreement or any Related Agreement shall be effective unless set forth in
writing executed by the party sought to be bound thereby.
e. Notices. Any notice given hereunder or under any Related
-------
Agreement (except as otherwise provided therein) shall be in writing and shall
be deemed effective upon the earlier of personal delivery (including personal
delivery by telex or other means), the day after delivery by commercial courier
to a responsible individual or the third day after mailing by certified or
registered mail, postage prepaid, as follows:
(1) If to Purchaser:
Durect Corporation
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇, Vice President and General Counsel
With a copy to:
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-27-
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Venture Law Group
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
(2) If to Seller prior to Closing:
IntraEAR, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
If to Seller after Closing:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
In either case, with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party may have furnished in writing to the other
party in the manner provided above.
f. Assignment. No party may assign this Agreement or any
----------
Related Agreement, nor may any of its rights hereunder be assignable or
transferable, in any manner by a party, without the prior written consent of the
other party; provided, however that Purchaser may assign its rights and
obligations under this agreement to an acquiror of all or substantially all of
its assets or a majority of its voting capital stock. Any proposed assignment
in violation of this Section 10.f shall be void. Subject to the foregoing, this
Agreement and the Related Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective transferees, successors,
assigns and legal representatives.
g. Incorporation by Reference. All Exhibits referred to in
--------------------------
this Agreement are by this reference incorporated herein as an integral part
hereof.
h. Governing Law. This Agreement and the Related Agreements
-------------
and the respective rights and obligations of the parties hereto and thereto
shall be construed under and by the laws of the State of California, without
reference to conflicts of laws principles.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-28-
i. Captions. The title to the Sections and subsections of this
--------
Agreement and the Related Agreements are included herein solely for convenience,
are not a part of this Agreement or any Related Agreement and do not in any way
limit or amplify the terms of this Agreement or any Related Agreement.
j. Attorneys' Fees. If any legal action or proceeding is
---------------
brought to enforce or interpret this Agreement or any Related Agreement, or
because of an alleged dispute, breach, default or misrepresentation in
connection with this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees and costs in connection with such action or
proceeding in addition to all other relief to which such party may be entitled.
k. No Waiver. It is understood and agreed that no failure or
---------
delay by any party in exercising any right, power, or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege be deemed to operate as a waiver of any other right,
power or privilege hereunder.
l. Counterparts. This Agreement and any Related Agreement may
------------
be executed in any number of counterparts, each of which shall be considered to
be an original, but all of which together shall constitute one and the same
instrument. Copies of signature pages delivered by facsimile shall be deemed to
be originals, provided that original copies thereof are provided promptly.
[SIGNATURE PAGE FOLLOWS]
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-29-
IN WITNESS WHEREOF, the undersigned Purchaser and Seller have duly executed
this Agreement as of the date first set forth above.
PURCHASER: DURECT CORPORATION
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
SELLER: IntraEAR, Inc.
a Delaware corporation
By: /s/ ▇▇. ▇. ▇▇▇▇▇▇▇ Arenberg
----------------------------
▇▇. ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
President
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-30-
LIST OF EXHIBITS
----------------
Exhibit A Intellectual Property Assets
Exhibit B-1 Assigned Contracts
Exhibit B-2 Regulatory Approvals
Exhibit C Equipment
Exhibit D Inventory
Exhibit E Excluded Assets
Exhibit F Employees
Exhibit G ▇▇▇▇ of Sale
Exhibit H Certificate of Designation
Exhibit I Purchase Price Allocation
Exhibit J Purchaser Disclosure Statement
Exhibit K Seller Disclosure Statement
Exhibit L Escrow Agreement
Exhibit M Amendment to Rights Agreement
Exhibit N Trust Agreement
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
EXHIBIT A
---------
INTELLECTUAL PROPERTY ASSETS
----------------------------
IntraEAR, INC. STATUS REPORT
U.S. ISSUED PATENTS
-------------------
1. US-1 - Patent No. 5,421,818 issued 6/6/95 for MULTI-FUNCTIONAL INNER EAR
TREATMENT AND DIAGNOSTIC SYSTEM
[***]
2. US-1(a) - Patent No. 5,476,446 issued 12/19/95 for MULTI-FUNCTIONAL INNER
EAR TREATMENT AND DIAGNOSTIC SYSTEM
[***]
3. US-1(b) - Patent No. 5,474,529 issued 12/12/95 for MULTI-FUNCTIONAL INNER
EAR TREATMENT AND DIAGNOSTIC SYSTEM
[***]
U.S. PENDING PATENT APPLICATIONS
--------------------------------
1. [***]
2. [***]
---------
3. [***]
---------
4. [***]
---------
Foreign Issued Patents
----------------------
1. ▇▇-▇ ▇▇.▇ - ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇. ▇▇▇▇▇▇ issued 10/17/94 for MULTI-
FUNCTIONAL INNER TREATMENT AND DIAGNOSTIC SYSTEM
[***]
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
Foreign Pending Patent Applications
-----------------------------------
1. [***]
-----
2. [***]
---------
3. [***]
---------
4. [***]
---------
U.S. TRADEMARKS
---------------
1. U.S. Trademark Registration No. 2,261,390 issued 7/13/99 for ▇▇▇▇ INTRAEAR
in International Class 10
[***]
-----
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-2-
EXHIBIT B-1
-----------
ASSIGNED CONTRACTS
------------------
1. [***]
--
2. [***]
----------
3. [***]
----------
4. [***]
----------
5. [***]
----------
6. [***]
----------
7. [***]
----------
8. [***]
----------
9. [***]
----------
10. [***]
----------
11. [***]
----------
12. [***]
----------
13. [***]
----------
14. [***]
----------
15. [***]
----------
16. [***]
----------
17. [***]
----------
18. [***]
----------
19. [***]
----------
20. [***]
----------
21. [***]
----------
22. [***]
----------
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-3-
Attachment I to Exhibit B-1
---------------------------
Confidential Disclosure Agreements
----------------------------------
------------------------------------------------------------------------------------------------------
Name Company Location Date Begin Date End Form Title
---- ------- -------- ---------- -------- ---- -----
Name
----
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-5-
EXHIBIT B-2
SELLER'S REGULATORY APPROVALS
-----------------------------
1. United States Food and Drug Administration
------------------------------------------
. Round Window (U) Cath(TM) - 510(k) clearance - K965115 - dated March
10, 1997, amended December 23, 1998.
. Round Window E-Cath(TM) 510(k) clearance - K965115 - dated March 23,
1998 amended December 23, 1998.
2. European Economic Community
---------------------------
. EC Certificate No.: G2D 98 05 31594 001 (covers all products that
carry the IntraEAR label)
. EN 46002: 08.96, certificate #Q2 98 03 31594 002 (production and
distribution of drug delivery catheters)
3. International Standards Organization
------------------------------------
. ISO 9002: 07.94, certificate #Q2 98 03 31594 002 (production and
distribution of drug delivery catheters)
4. Australia
---------
. Certificate of Listing, ARTG Listing Number: AUST L 63785
5. Taiwan
------
. D.O.H. license no. 08926
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-7-
EXHIBIT C
---------
IntraEAR, Inc.
Fixed Assets to be Acquired
New or Purch Book Value Fair/Liquid
Desc Model/Detail/ID# Used Location Date Cost 9/30/99 Value Notes
--- ---------------- ---- -------- ---- ---- ------- ----- -----
FIXED ASSETS TO BE SHIPPED TO CUPERTINO
---------------------------------------
[***]
-----
FIXED ASSETS WITH STRATEGIC VALUE ONLY (TO BE KEPT IN SAN DIEGO FOR R&D- NO
---------------------------------------------------------------------------
LIQUID VALUE)
-------------
[***]
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-8-
EXHIBIT D
---------
IntraEAR, Inc.
Inventory
On Hand Avg Cost Asset Value
---------- ---------- ------------
Inventory
[***]
-----
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
EXHIBIT E
---------
Excluded Assets
FIXED ASSETS TO BE LIQUIDATED
-----------------------------
New or Purch Book Value Fair/Liquid
Desc Model/Detail/ID# Used Location Date Cost 9/30/99 Value Notes
---- ---------------- ---- -------- ---- ---- ------- ----- -----
[***]
-----
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
EXHIBIT F
---------
Employees
[***]
-----
[***]
[***]
[***]
[***]
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
EXHIBIT G
---------
▇▇▇▇ OF SALE
------------
KNOW ALL MEN BY THESE PRESENTS, that IntraEAR, Inc., a Delaware
corporation (the "Transferor"), in exchange for consideration set forth in the
----------
Asset Purchase Agreement (the "Agreement") dated as of September __, 1999 by and
---------
among the Transferor and Durect Corporation, a Delaware corporation (the
"Transferee"), hereby sells, transfers, assigns and conveys unto Transferee, its
-----------
successors and assigns, free and clear of all liens and encumbrances, all of the
right, title and interest of Transferor in and to the Purchased Assets (as
described in the Agreement), including the equipment and other personal property
described in Attachment A hereto.
------------
TO HAVE AND TO HOLD the same unto the Transferee, its successors or
assigns, forever, and the Transferor hereby agrees that the Transferor will from
time to time, if requested by the Transferee, its successors and assigns,
execute, acknowledge and deliver, or will cause to be done, executed and
delivered to the Transferee, or its successors or assigns, all further acts,
transfers, assignments, deeds, powers and assurances of title, and additional
papers and instruments, and do or cause to be done all acts or things as often
as may be proper or necessary for better assuring, conveying, transferring and
assigning all of the property hereby conveyed, transferred or assigned, and
effectively to carry out the intent hereof, and to vest in the Transferee the
entire right, title and interest of the Transferor in and to all of the said
property, and the Transferors will warrant and defend the same to the
Transferee, its successors and assigns, forever against all claims or demands
whatsoever.
IN WITNESS WHEREOF, the Transferor has executed this instrument as of
___________ __, 1999.
IntraEAR, Inc.
By: ______________________________________
▇▇. ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-2-
EXHIBIT H
---------
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES B-1 PREFERRED STOCK
OF
DURECT CORPORATION
Pursuant to Section 151 of the General Corporation Law of the State of Delaware
We, ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇, the Chief Executive Officer and the
Secretary, respectively, of Durect Corporation, a Delaware corporation (the
"Corporation"), in accordance with the provisions of Section 103 thereof, DO
-----------
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Amended and Restated Certificate of Incorporation of the said Corporation (the
"Restated Certificate"), the Board of Directors on September __, 1999 adopted
--------------------
the following resolution creating a series of shares of Preferred Stock
designated as Series B-1 Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the corporation by the Restated Certificate, the Board of Directors does
hereby provide for the issue of a Series of Preferred Stock, $0.0001 par value,
of the Corporation, to be designated "Series B-1 Preferred Stock", initially
consisting of Four Hundred and Fifty Thousand (450,000) shares, and to the
extent that the designations, powers, preferences and relative and other special
rights and the qualifications, limitations and restrictions of the Series B-1
Preferred Stock are not stated and expressed in the Restated Certificate, does
hereby fix and herein state and express such designations, powers, preferences
and relative and other special rights and the qualifications, limitations and
restrictions thereof, as follows (all terms used herein which are defined in the
Restated Certificate shall be deemed to have the meanings provided therein):
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series B-1 Preferred Stock", par value $0.0001 per share, and the
number of shares constituting such series shall be Four Hundred and Fifty
Thousand (450,000).
Section 2. Dividend Provisions. Subject to the rights of series of
-------------------
Preferred Stock which may from time to time come into existence, the holders of
shares of Series B-1 Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of the
Corporation) on the Common Stock of the Corporation, at the rate of $0.13975 per
share (as adjusted for stock splits, stock dividends,
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
reclassification and the like) per annum on each outstanding share of Series B-1
Preferred Stock, payable quarterly when, as and if declared by the Board of
Directors; provided, however, that no dividend shall be declared or paid on the
shares of Series B-1 Preferred Stock unless dividends have been declared and
paid in full to the holders of Series A, Series A-1 and Series B Preferred
Stock. Such dividends shall not be cumulative.
Section 3. Liquidation.
-----------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, the holders of the Series B-1 Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Series A-1 Preferred Stock or Common Stock by
reason of their ownership thereof, an amount per share equal to $2.15 per share
(as adjusted for stock splits, stock dividends, reclassification and the like)
for each share of Series B-1 Preferred Stock then held by them, plus declared
but unpaid dividends. If, upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A-2, Series B and Series
B-1 Preferred Stock shall be insufficient to permit the payment to such holders
of the full preferential amounts due to such holders pursuant to the foregoing
and pursuant to the Corporation's Amended and Restated Certificate of
Incorporation, then, subject to the rights of series of Preferred Stock that may
from time to time come into existence, the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A-2, Series B and Series B-1 Preferred Stock in
proportion to the preferential amount each such holder is otherwise entitled to
receive
(b) Remaining Assets. Upon the completion of the distribution
----------------
required by Section 3(a) above and any other distribution that may be required
with respect to series of Preferred Stock that may from time to time come into
existence, if assets remain in the Corporation, such assets will be distributed
as set forth in Article IV, Section 2(b) of the Restated Certificate.
(c) Certain Acquisitions.
--------------------
(i) Deemed Liquidation. For purposes of this Section 3, a
------------------
liquidation, dissolution or winding up of the Corporation shall be deemed to
occur as set forth in Article IV, Section 2(c)(i) of the Restated Certificate.
(ii) Notice of Transaction. The Corporation shall give each
---------------------
holder of record of Series B-1 Preferred Stock written notice of a deemed
liquidation as described in Section 3(c)(i) hereof according to the same terms
and subject to the same provisions with respect to the shortening of such notice
periods as set forth in Article IV, Section 2(c)(iii) of the Restated
Certificate with respect to holders of Series A-1, Series A-2 and Series B
Preferred Stock.
Section 4. Redemption. The Series B-1 Preferred Stock is not redeemable.
----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-2-
Section 5. Conversion. The holders of the Series B-1 Preferred Stock
----------
shall have conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 5(c), each share of Series
----------------
B-1 Preferred Stock shall be convertible, at the option of the holder thereof,
at any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing $2.15 by
the Conversion Price applicable to such share, determined as hereafter provided,
in effect on the date the certificate is surrendered for conversion. The
initial Conversion Price per share of Series B-1 Preferred Stock shall be $2.15.
Such initial Conversion Price shall be subject to adjustment as set forth in
Section 5(d).
(b) Automatic Conversion. Each share of Series B-1 Preferred Stock
--------------------
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such share immediately upon the earlier of (i)
except as provided below in Section 5(c), the Corporation's sale of its Common
Stock in a firm commitment underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with a per share public offering price of at least $7.00 and
--------------
which results in gross proceeds to the Corporation of $25 million or (ii) the
date specified by vote or written consent, as provided by law, of the holders of
at least a majority of the then outstanding shares of Series A-1, Series A-2,
Series B and Series B-1 Preferred Stock, voting together as a single class,
provided that all shares of Series A-1, Series A-2, Series B and Series B-1
Preferred Stock are converted at such time.
(c) Mechanics of Conversion. Before any holder of Series B-1
-----------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for such
series of Preferred Stock, and shall give written notice to the Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of such series of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act the conversion may, at the option of any holder tendering such
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock upon conversion of such Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
-------------------------------------------
B-1 Preferred Stock shall be subject to adjustment from time to time as follows:
(i) Issuance of Additional Stock below Conversion Price. If
---------------------------------------------------
the Corporation shall issue, after the date upon which any shares of Series B-1
Preferred Stock were first issued (the "Purchase Date" with respect to such
-------------
series), any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall
automatically be adjusted as set forth in this Section 5(d)(i), unless otherwise
provided in this Section 5(d)(i).
(A) Adjustment Formula. Whenever the Conversion Price
------------------
is adjusted pursuant to this Section (5)(d)(i), the new Conversion Price shall
be determined by multiplying the Conversion Price then in effect by a fraction,
(x) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (the "Outstanding Common") plus
------------------
the number of shares of Common Stock that the aggregate consideration received
by the Corporation for such issuance would purchase at such Conversion Price;
and (y) the denominator of which shall be the number of shares of Outstanding
Common plus the number of shares of such Additional Stock. For purposes of the
foregoing calculation, the term "Outstanding Common" shall include shares of
Common Stock deemed issued pursuant to Section 5(d)(i)(E) below.
(B) Definition of "Additional Stock". For purposes of
-------------------------------
this Section 5(d)(i), "Additional Stock" shall mean any shares of Common Stock
----------------
issued (or deemed to have been issued pursuant to Section 5(d)(i)(E)) by the
Corporation after the Purchase Date other than
(1) Common Stock issued pursuant to a transaction
described in Section 5(d)(ii) hereof,
(2) Not more than 2,000,000 shares of Common Stock
issuable or issued prior to, on or after the Purchase Date to employees,
consultants or directors of the Corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board of Directors of the
Corporation,
(3) Not more than 500,000 shares of capital stock,
or options or warrants to purchase capital stock, issued to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings or similar transactions approved by the Board of Directors,
(4) Capital stock or warrants or options to
purchase capital stock issued in connection with bona fide acquisitions,
mergers, partnering transactions or similar transactions ("Transactions"), the
terms of which are approved by the Board of Directors, unless the Director
designated by the Series B Preferred Stock reasonably
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-4-
determines in good faith, in his or her capacity as Director of the Corporation,
that the value of the assets, consideration or rights received by the
Corporation in such Transaction, when taken as a whole, would not contribute to
increasing the value of the Corporation so as to justify issuance of such
capital stock or warrants or options to purchase capital stock in such
Transaction,
(5) Shares of Common Stock issued or issuable upon
conversion of the Series A-1, Series A-2, Series B or Series B-1 Preferred
Stock, and
(6) Shares of Common Stock issued or issuable in a
public offering prior to or in connection with which all outstanding shares of
Series A-1, Series A-2, Series B and Series B-1 Preferred Stock will be
converted into shares of Common Stock.
(C) No Fractional Adjustments. No adjustment of the
-------------------------
Conversion Price for the Series B-1 Preferred Stock shall be made in an amount
less than one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
the earlier of three years from the date of the event giving rise to the
adjustment being carried forward or the conversion of such shares into Common
Stock in accordance with the terms hereof, or shall be made on the earlier of
the end of three years from the date of the event giving rise to the adjustment
being carried forward or such conversion.
(D) Determination of Consideration. In the case of the
------------------------------
issuance of Common Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
In the case of the issuance of the Common Stock for a consideration in whole or
in part other than cash, the consideration other than cash shall be deemed to be
the fair value thereof as determined in good faith by the Board of Directors;
provided, however, if the holders of a majority of the then outstanding shares
of the Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B
Preferred Stock (the "Contesting Holders") notify the Board of Directors of the
Corporation within ten (10) business days after receiving written notification
of such determination of the fair market value that they disagree with such
determination, then the fair market value of the consideration shall be mutually
agreed upon by the Board of Directors and the holders of a majority of the
Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B Preferred
Stock within thirty (30) days after the receipt of notice by the Board of
Directors from the Contesting Holders.
(E) Deemed Issuances of Common Stock. In the case of
--------------------------------
the issuance (whether before, on or after the applicable Purchase Date) of
options to purchase or rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock or options to purchase
or rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 5(d)(i):
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-5-
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Section 5(d)(i)(D)), if any, received by the Corporation upon the issuance of
such options or rights plus the minimum exercise price provided in such options
or rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Section
5(d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of each of the Series A-1, Series A-2, Series B and Series B-1
Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of each of the Series A-1, Series A-2, Series B
and Series B-1 Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities which remain
in effect) actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options or
rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections
5(d)(i)(E)(1) and
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-6-
5(d)(i)(E)(2) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either Section 5(d)(i)(E)(3) or
5(d)(i)(E)(4).
(F) No Increased Conversion Price.
-----------------------------
Notwithstanding any other provisions of this Section (5)(d)(i), except to the
limited extent provided for in Sections 5(d)(i)(E)(3) and 5(d)(i)(E)(4), no
adjustment of the Conversion Price pursuant to this Section 5(d)(i) shall have
the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(ii) Stock Splits and Dividends. In the event the
--------------------------
Corporation should at any time or from time to time after the Purchase Date fix
a record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
------------------------
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of the Series B-1 Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series of Preferred Stock shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
Section 5(d)(i)(E).
(iii) Reverse Stock Splits. In the event the number
--------------------
of shares of Common Stock outstanding at any time after the Purchase Date is
decreased by a combination of the outstanding shares of Common Stock, then,
immediately following the record date of such combination, the Conversion Price
of the Series B-1 Preferred Stock shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of such
series shall be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation
-------------------
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in Section 5(d)(ii), then,
in each such case for the purpose of this Section 5(e), the holders of Series B-
1 Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to
-----------------
time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-7-
of assets transaction provided for elsewhere in this Section 5 or Section 3)
provision shall be made so that the holders of the Series B-1, Preferred Stock
shall thereafter be entitled to receive upon conversion of such Preferred Stock
the kind and number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of such Preferred Stock
after the recapitalization to the end that the provisions of this Section 5
(including adjustment of the Conversion Price then in effect and the number of
shares issuable upon conversion of such Preferred Stock) shall be applicable
after that event and be as nearly equivalent as practicable.
(g) No Impairment. The Corporation will not, by
-------------
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Series B-1 Preferred Stock against
impairment.
(h) No Fractional Shares and Certificate as to
------------------------------------------
Adjustments.
-----------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series B-1 Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share with one-half being rounded upward. The number of shares issuable
upon such conversion shall be determined on the basis of the total number of
shares of Series B-1 Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series B-1 Preferred Stock pursuant to
this Section 5, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of such Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B-1 Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price for such series of
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of such series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking
----------------------
by the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-8-
class or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Series B-1 Preferred Stock, at least
ten (10) days prior to the date specified therein, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A-1, Series A-2, Series B and Series B-1
Preferred Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of such
series of Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of such series of Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Preferred Stock,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate of
Incorporation.
(k) Notices. Any notice required by the provisions of this
-------
Section 5 to be given to the holders of shares of Series B-1 Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation.
Section 6. Voting Rights. The holder of each share of Series B-1
-------------
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Preferred Stock could then be converted, and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of the Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares into which shares of Series B-1
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
Section 7. Protective Provisions. So long as 200,000 shares of Series B-1
---------------------
Preferred Stock are outstanding (as adjusted for stock splits, stock dividends
or recapitalizations), the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Series B-1 Preferred Stock,
voting together as a class: (i) alter or change the rights, preferences or
privileges of the shares of Series B-1 Preferred Stock or (ii) amend the
Certificate of Incorporation or the Bylaw of the Corporation so as to affect
adversely the shares of Series B-1 Preferred Stock in a manner materially
different from any other series of Preferred Stock.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-9-
Section 8. Status of Converted Stock. In the event any shares of Series
-------------------------
B-1 Preferred Stock shall be converted pursuant to Section 5 hereof, the shares
so converted shall be cancelled and shall not be issuable by the Corporation.
The Certificate of Incorporation of the Corporation shall be appropriately
amended to effect the corresponding reduction in the Corporation's authorized
capital stock.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-10-
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this __th day of
September, 1999.
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
ATTEST:
____________________________________
▇▇▇▇ ▇. ▇▇▇▇▇, Secretary
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-11-
EXHIBIT I
Pursuant to Section 2.b of the Asset Purchase Agreement, the Purchase Price of
[***]] shall be allocated as follows:
First, [***] to Class I assets (cash, demand deposits and like accounts in
banks, savings and loan associations (and other depository institutions), and
other similar items);
Second, [***] to Class II assets (certificates of deposit, US government
securities, readily marketable stock or securities, and foreign currency);
Third, [***] to Class III assets (all assets other than Class I, II, IV and
V);
Fourth, [***] to Class IV assets (all section 197 intangibles (goodwill, going
concern value, workforce in place, business books and records, operating
systems, customer lists, patents, copyrights, formulae, processes, designs,
patterns, know-how, formats, customer based intangibles, supplier based
intangibles, governmental licenses and permits, covenants not to compete,
franchises, trademarks, or trade names) other than those in the nature of
goodwill and going concern value); and
Fifth, [***] to Class V assets (all section 197 intangibles in the nature of
------------
goodwill and going concern value (which allocation is done using a residual
method, with all consideration not allocable to Class I, II, III and IV assets
being allocated here)).
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
EXHIBIT J
---------
PURCHASER DISCLOSURE STATEMENT
------------------------------
This Purchaser Disclosure Statement is made and given by Purchaser to
Seller in connection with the Asset Purchase Agreement ("Agreement"). Unless
the context otherwise requires, all capitalized terms used herein shall have the
same meanings as set forth in the Agreement. All disclosures and exceptions
contained herein are intended to modify Purchaser's representations and
warranties contained in the Agreement, and the section headings used below are
for convenience only.
[***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-2-
EXHIBIT K
---------
SELLER DISCLOSURE STATEMENT
---------------------------
This Seller Disclosure Statement is made and given by Seller to Purchaser
in connection with the Asset Purchase Agreement ("Agreement"). Unless the
context otherwise requires, all capitalized terms used herein shall have the
same meanings as set forth in the Agreement. All disclosures and exceptions
contained herein are intended to modify Seller's representations and warranties
contained in the Agreement, and the section headings used below are for
convenience only. Disclosures made under one heading shall be deemed to be made
under any other heading where such disclosure would be relevant.
[***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
EXHIBIT L
---------
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement") is entered into as of October 1,
---------
1999 (the "Closing Date"), by and among Durect Corporation, a Delaware
------------
corporation ("Buyer"), IntraEAR, Inc., a Delaware corporation ("Seller"), ▇▇▇▇▇▇
----- ------
Arenberg ("Seller's Representative") and ▇▇▇▇▇▇ Trust Company of California
-----------------------
("Escrow Agent").
------------
RECITALS
--------
Buyer and Seller have entered into an Asset Purchase Agreement dated as of
September 24, 1999 (the "Purchase Agreement"), pursuant to which Buyer will
------------------
acquire substantially all of the assets of Seller. The Purchase Agreement
provides that the escrow fund provided for hereby will secure the
indemnification obligations of Seller to the Buyer, on the terms and conditions
set forth herein. Pursuant to the Purchase Agreement, Buyer will deliver [***]
shares of its Series B-1 Preferred Stock to be deposited into the escrow fund
provided for hereby. The parties desire to establish the terms and conditions
pursuant to which such escrow fund will be established and maintained.
AGREEMENT
---------
The parties agree as follows:
1. Defined Terms. Capitalized terms used in this Agreement and not
-------------
otherwise defined herein shall have the meanings given them in the Purchase
Agreement.
2. Consent of Seller Stockholders. By virtue of the approval by the
------------------------------
Seller Stockholders ("Seller Stockholders") immediately prior to the Closing
-------------------
Date of the Purchase Agreement and the exhibits thereto, Seller Stockholders
have, without any further act of Seller Stockholders consented to: (a) the
establishment of the Escrow Fund (as defined in Section 3(a) below) to secure
the indemnification obligations of Seller under Section 9.a of the Purchase
Agreement, (b) the appointment of Seller's Representative as their
representative for the purposes of this Agreement and as attorney-in-fact and
agent for and on behalf of Seller Stockholders with respect to the subject
matter of this Agreement, and the taking by Seller's Representative of any and
all actions and the making of any decisions required or permitted to be taken or
made by them under this Agreement and (c) all of the other terms, conditions and
limitations set forth in this Agreement.
3. Escrow and Indemnification.
--------------------------
(a) Escrow Fund. As soon as practicable after the Closing Date, Buyer
-----------
shall deposit with the Escrow Agent a certificate representing [***] shares of
Buyer's Series B-1 Preferred Stock registered in the name of ▇▇▇▇▇▇ Trust
Company of California as Escrow Agent, (the "Escrow Shares" and, as so
-------------
deposited, the "Escrow Fund"). Exhibit A hereto sets forth the name and address
----------- ---------
of each Seller Stockholder and the number of Escrow Shares contributed to the
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Escrow Fund on behalf of each such Seller Stockholder pursuant to Section 9 of
the Purchase Agreement. The number of Escrow Shares contributed on behalf of
each Seller Stockholder divided by the total amount of Escrow Shares contributed
by all Seller Stockholders to the Escrow Fund shall be each such Seller
Stockholder's "proportionate interest" in the Escrow Shares. The Escrow Fund
----------------------
shall be held as an escrow fund and shall not be subject to any lien,
attachment, trustee process or any other judicial process of any creditor of any
party hereto. Escrow Agent agrees to accept delivery of the Escrow Fund and to
hold such Escrow Fund in escrow subject to the terms and conditions of this
Agreement. Attached hereto as Exhibit B are the names, titles and specimen
---------
signatures of each of the persons who are authorized on behalf of Buyer, Seller
and Seller's Representative to execute and deliver written notices and
instructions to the Escrow Agent.
(b) Indemnification. Seller has agreed in Section 9 of the Purchase
---------------
Agreement to indemnify and hold harmless the Buyer, its officers, directors,
stockholders, employees and agents (collectively "Indemnified Persons") from and
-------------------
against Claims, as defined in Section 9.a(i) of the Purchase Agreement. The
Escrow Fund shall be security for this indemnity obligation of Seller, subject
to the limitations, and in the manner provided, in this Agreement.
4. Administration of Escrow Fund. Escrow Agent shall administer the
-----------------------------
Escrow Fund as follows:
(a) Escrow Agent shall hold and safeguard the Escrow Fund during the
Escrow Period (as defined in Section 6 below), shall treat such fund as an
escrow fund in accordance with the terms of this Agreement and as property of
the Seller Stockholders and not as the property of Buyer and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof.
(b) Upon receipt by Escrow Agent at any time on or before the last
day of the Escrow Period of a certificate signed by any officer of Buyer (an
"Officer's Certificate"):
---------------------
(i) stating that Buyer has paid or reasonably anticipates that
it will have to pay or incur Claims, which on a cumulative basis with all prior
claims exceeds [***], and
(ii) specifying the individual items of Claims included in the
amount so stated, the date each such item was paid or incurred, or the basis for
such anticipated liability, and the nature of the misrepresentation, breach of
warranty or claim to which such item is related, Escrow Agent shall, subject to
the provisions of Section 4(c) below, deliver to Buyer out of the Escrow Fund,
as promptly as practicable, Escrow Shares held in the Escrow Fund in an amount
equal to such Claims. For the purposes of determining the number of Escrow
Shares to be delivered to Buyer out of the Escrow Fund pursuant to this Section
4(b), the shares of Buyer Series B-1 Preferred Stock shall be deemed to have a
value equal to the most recent price at which Buyer sold at least [***] worth of
shares of capital stock to venture capital investors, or, if Buyer has sold
shares of Common Stock to the public pursuant to an underwritten public offering
under the Securities Act of 1933, as amended, the average closing price of
Buyer's Common Stock as quoted on The Nasdaq National Market (or other national
exchange if so listed) for the
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-2-
five days prior to, but not including, the date on which it is determined that
such Securities are to be delivered. Said value shall be provided to Escrow
Agent in writing by Buyer.
(c) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to Escrow Agent, a duplicate copy of such certificate shall be
delivered to Seller's Representative by Buyer, and for a period of 30 days after
receipt of the Officer's Certificate, Escrow Agent shall make no delivery to
Buyer from the Escrow Fund pursuant to Section 4(b) hereof unless Escrow Agent
shall have received written authorization from Seller's Representative to make
such delivery. After the expiration of such 30-day period, Escrow Agent shall
make delivery from the Escrow Fund in accordance with Section 4(b) hereof,
provided that no such payment or delivery may be made if Seller's Representative
shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to Escrow Agent and
Buyer prior to the expiration of such 30-day period.
(d) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case Seller's Representative shall so object in writing
to any claim or claims made in any Officer's Certificate, Seller's
Representative and Buyer shall attempt in good faith to agree upon the rights of
the respective parties with respect to each of such claims within 45 days after
Escrow Agent's receipt of Seller's Representative's written objection to the
claim pursuant to Section 4(c) (the "Negotiation Period"). If Seller's
------------------
Representative and Buyer should so agree during the Negotiation Period, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to Escrow Agent. Escrow Agent shall be entitled
to rely on any such memorandum and distribute the Escrow Shares and/or other
property from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement has been reached by the end of the
Negotiation Period, either Buyer or Seller's Representative may demand
arbitration of the matter unless the amount of the Claims is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained by settlement or a non-appealable decision of a
court of competent jurisdiction or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration as provided in
Section 9.b of the Purchase Agreement. The arbitration shall be conducted in San
Jose, California. The written, final and non-appealable decision of the
arbitrator as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this Agreement,
and notwithstanding anything in Section 4(c) hereof, 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. The arbitrator shall award
reimbursement to the prevailing party in the arbitration of its reasonable
expenses of the arbitration (including costs and reasonable attorneys' fees).
The award of the arbitrator shall be the sole and exclusive monetary remedy of
the parties and shall be enforceable in any court of competent jurisdiction.
Notwithstanding the foregoing, any party shall be entitled to seek injunctive
relief or other equitable remedies from any court of competent jurisdiction.
5. Third-Party Claims. In the event Buyer becomes aware of a third-party
------------------
claim which Buyer believes may result in a demand against the Escrow Fund, Buyer
shall notify Seller's
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-3-
Representative of such claim, and Seller's Representative and Seller through
Seller's Representative shall be entitled, at their expense, to participate in
any defense of such claim; provided, however, that failure to so notify Seller's
Representative shall not relieve Seller from any liability it has under this
Agreement or the Purchase Agreement with respect to such third party claim
unless and to the extent Seller is prejudiced thereby. Buyer shall have the
right in its discretion to settle any such claim; provided, however, that except
with the written consent of Seller's Representative, no settlement of any such
claim with third-party claimants shall alone be determinative of the validity of
any claim against the Escrow Fund. In the event that Seller's Representative has
consented in writing to any such settlement, Seller's Representative shall have
no power or authority to object under any provision hereof or Sections 8 or 9 of
the Purchase Agreement to the amount of any claim by Buyer against the Escrow
Fund consistent with such settlement.
6. Release of Escrow Fund. Subject to the following requirements, the
----------------------
Escrow Fund shall remain in existence from the Closing Date until one year from
the Closing Date (the "Escrow Period"). Upon the expiration of the Escrow
-------------
Period, the Escrow Fund shall terminate with respect to all Escrow Shares then
remaining in the Escrow Fund, and all such Escrow Shares shall be delivered to
Seller Stockholders; provided, however, that a number of Escrow Shares, which,
in the reasonable judgment of Buyer, is necessary to satisfy any unsatisfied
claims specified in any Officer's Certificate delivered to Escrow Agent prior to
the expiration of such Escrow Period with respect to facts and circumstances
existing on or prior to the end of the Escrow Period shall remain in the Escrow
Fund (and the Escrow Fund shall remain in existence) until such claims have been
resolved; provided further, that Buyer agrees to notify Escrow Agent in writing
of the expiration of the Escrow Period. As soon as all such claims have been
resolved and upon receipt of joint written instructions from Seller's
Representative and Buyer, Escrow Agent shall deliver to Seller all Escrow Shares
then remaining in the Escrow Fund and not required to satisfy such claims.
Deliveries of Escrow Shares and other property to Seller Stockholders pursuant
to this Section 6 shall be made in accordance with each Seller Stockholder's
proportionate interest in the Escrow Shares and in accordance with the address
provided on Exhibit A hereto.
7. Seller's Representative.
-----------------------
(a) Seller's Representative may be changed by Seller from time to
time upon not less than 10 days' prior written notice to Buyer and Escrow Agent
and subject to the consent of Buyer, whose consent shall not be unreasonably
withheld; provided that Seller's Representative may not be removed unless
holders of a majority in interest of the Escrow Fund agree to such removal and
to the identity of the substituted agent. No bond shall be required of Seller's
Representative, and Seller's Representative shall not receive compensation for
his or her services. Notices or communications to or from Seller's
Representative shall constitute notice to or from Seller. Seller's
Representative shall be entitled to submit a claim and receive reimbursement
from the Escrow Fund for all reasonable, documented out-of-pocket expenses
incurred by Seller's Representative as a result of acting as the Seller's
Representative; provided, however, that such right to reimbursement shall be
subordinate to Buyer's claims on the Escrow, if any, and shall be paid only
after all such claims have been satisfied. The Escrow Agent shall have no duty
to examine any such claim to determine the reasonableness or legitimacy of such
claim. Any such reimbursement shall be paid in Escrow Shares out of the Escrow
Fund. For purposes of such
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-4-
reimbursement of the Seller's Representative, Escrow Shares shall be valued at
the most recent price at which Buyer sold at least [***] of shares of capital
stock to venture capital investors, or, if Buyer has sold shares of Common Stock
to the public pursuant to an underwritten public offering under the Securities
Act of 1933, as amended, the average closing price of Buyer's Common Stock as
quoted on The Nasdaq National Market (or other national exchange if so listed)
for the five days prior to, but not including, the date on which it is
determined that such Securities are to be delivered. Said value shall be
provided to Escrow Agent in writing by Buyer.
(b) Seller's Representative shall not be liable for any act done or
omitted hereunder as Seller's Representative while acting in good faith and in
the exercise of reasonable judgment. Seller shall indemnify Seller's
Representative and hold Seller's Representative harmless against any loss,
liability or expense incurred without gross negligence, bad faith or willful
misconduct on the part of Seller's Representative and arising out of or in
connection with the acceptance or administration of Seller's Representative's
duties hereunder, including the reasonable fees and expenses of any legal
counsel retained by Seller's Representative.
(c) Seller's Representative shall act by vote or written action or
consent of the holders of a majority of the membership units of Seller. A
decision, act, consent or instruction of Seller's Representative shall
constitute a decision of Seller and shall be final, binding and conclusive upon
Seller, Buyer and Escrow Agent, and Buyer may rely upon any such decision, act,
consent or instruction of Seller's Representative as being the decision, act,
consent or instruction of Seller. Escrow Agent and Buyer and 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 Seller's
Representative.
8. Escrow Agent's Duties.
---------------------
(a) Buyer, Seller and Seller's Representative acknowledge and agree
that Escrow Agent (i) shall not be responsible for any of the agreements
referred to herein but shall be obligated only for the performance of such
duties as are specifically set forth in this Agreement and as set forth in any
additional written escrow instructions which Escrow Agent may receive after the
date of this Agreement that are signed by an officer of Buyer and Seller's
Representative; and no implied covenants and obligations shall be read into this
agreement against the Escrow Agent (ii) shall not be obligated to take any legal
or other action hereunder which might in its reasonable judgment involve expense
or liability unless it shall have been furnished with indemnity reasonably
acceptable to it; (iii) may rely on and shall be protected in acting or
refraining from acting upon any written notice, instruction, instrument,
statement, request or document furnished to it hereunder and reasonably believed
by it to be genuine and to have been signed or presented by the proper person,
and shall have no responsibility for determining the accuracy thereof; and (iv)
may consult with counsel (of its choice) regarding any of its duties or
obligations hereunder, and shall be fully protected in any action taken in good
faith in accordance with such advice.
(b) Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person,
excepting only (i) notices, instructions, instruments, statements, requests or
documents furnished pursuant to Section 8(a) or (ii) final, unappealable orders
or process of courts of law or written decision of arbitrator pursuant
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-5-
to Section 4(d), and is hereby expressly authorized to comply with and obey
orders, judgments or decrees of any court or written decision of arbitrator. In
case Escrow Agent obeys or complies with any such final, unappealable order,
judgment or decree of any court or written decision of arbitrator, Escrow Agent
shall not be liable to any of the parties hereto or to any other person by
reason of such compliance, notwithstanding any such order, judgment or decree
being subsequently annulled, set aside, vacated or found to have been entered
without jurisdiction.
(c) Escrow Agent shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(d) Escrow Agent shall not be liable for the expiration of any rights
under any statute of limitations with respect to this Agreement or any documents
deposited with Escrow Agent.
(e) Neither Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers or employees hereunder except in the
case of gross negligence or willful misconduct. Subject to Section 8(g) below,
Buyer and Seller (collectively, the "Indemnifying Parties") covenant and agree
--------------------
to jointly and severally indemnify Escrow Agent and hold it harmless from and
against any fee, loss, liability or expense (including reasonable attorney's
fees and expenses) (a "Loss") incurred by Escrow Agent arising out of or in
----
connection with the performance of its obligations in accordance with the
provisions of this Agreement or with the administration of its duties hereunder,
unless such Loss shall arise out of or be caused by Escrow Agent's gross
negligence or willful misconduct; provided, however, that indemnification for
Escrow Agent's standard fees and expenses set forth on the fee schedule attached
hereto as Exhibit A shall be borne exclusively by Buyer, and provided further
---------
that the indemnity agreement contained in this Section 8(e) shall not apply to
amounts paid in settlement of any Loss if such settlement is effected without
the consent of Buyer and Seller's Representative. The costs and expenses of
enforcing this right of indemnification shall also be paid by the Indemnifying
Parties.
(f) To the extent that Escrow Agent becomes liable for the payment of
any taxes in respect of income derived from the investment of funds held or
payments made hereunder, Escrow Agent shall satisfy such liability to the extent
possible from the Escrow Fund. Subject to Section 8(g) below, Indemnifying
Parties agree to jointly and severally indemnify and hold Escrow Agent harmless
from and against any taxes, additions for late payment, interest, penalties and
other expenses, that may be assessed against Escrow Agent on any payment or
other activities under this Agreement unless any such tax, addition for late
payment, interest, penalty or other expense shall arise out of or be caused by
the actions of, or a failure to act by, Escrow Agent. No distributions of
investment income, if any, will be made to Seller unless Escrow Agent is
supplied with an original, signed Form W-9 or its equivalent prior to
distribution.
(g) Notwithstanding the joint and several nature of the obligations
of Indemnifying Parties under Section 8(e) and 8(f), Seller's liability for
indemnification of Escrow Agent under Sections 8(e) and 8(f) hereof (the
"Indemnification Liability") shall in no event exceed the value of the Escrow
-------------------------
Fund then available to pay such liability and any amount of
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-6-
Indemnification Liability attributable to Seller in excess of the value of the
Escrow Fund shall be paid by Buyer. Subject to the foregoing, each of the
Indemnifying Parties shall contribute to the Indemnification Liability in such
proportion as is appropriate to reflect the relative fault of each individual
Indemnifying Party, including up to all such Indemnification Liability in the
case of any tax liability arising from failure to provide correct information
with respect to any taxes pursuant to Section 8(f) above. In all cases where
there is no such basis for allocating contribution for such Indemnification
Liability or except as otherwise provided in Section 8(e), one half of the total
Indemnification Liability shall be paid out of the Escrow Fund by Seller, and
one half of the total Indemnification Liability shall be paid by Buyer.
(h) Escrow Agent may resign at any time upon giving at least 30 days'
written notice to Buyer and Seller's Representative; provided, however, that no
such resignation shall become effective until the appointment of a successor
escrow agent, which shall be accomplished as follows: Buyer and Seller's
Representative shall use their best efforts to mutually agree upon a successor
agent within 30 days after receiving such notice. If the parties fail to agree
upon a successor escrow agent within such time, Seller's Representative with the
consent of Buyer, which shall not be unreasonably withheld, shall have the right
to appoint a successor escrow agent authorized to do business in California.
The successor escrow agent selected in the preceding manner shall execute and
deliver an instrument accepting such appointment and it shall thereupon be
deemed Escrow Agent hereunder and it shall without further acts be vested with
all the estates, properties, rights, powers, and duties of the predecessor
Escrow Agent as if originally named as Escrow Agent. If no successor escrow
agent is named, Escrow Agent may at the expense of the Buyer apply to a court of
competent jurisdiction for the appointment of a successor escrow agent.
Thereafter, the predecessor Escrow Agent shall be discharged from any further
duties and liabilities under this Agreement. The provisions of paragraphs 8(e)
and 8(f) shall survive the resignation or removal of Escrow Agent or the
termination of this Agreement.
(i) In no event shall the Escrow Agent be liable to any party hereto
for any special, indirect or consequential loss or damage of any kind
whatsoever, even if the Escrow Agent has been previously advised of such loss or
damage.
9. Fees, Expenses and Taxes. Buyer agrees to pay or reimburse Escrow
------------------------
Agent for its normal services hereunder in accordance with the fee schedule
attached hereto as Exhibit C. The Escrow Agent shall be entitled to
---------
reimbursement upon 30 days' written notice for all expenses incurred in
connection with Sections 8(e) and 8(f) above, and payment of any legal fees and
expenses incurred by the Escrow Agent in connection with the resolution of any
claim by any party hereunder. If the Escrow Agent has not been reimbursed for
the foregoing fees and expenses, the Escrow Agent shall make no delivery of the
Escrow Fund.
10. Miscellaneous.
-------------
(a) Amendments and Waivers. Any term of this Agreement may be amended
----------------------
or waived with the written consent of the parties or their respective successors
and assigns. Any amendment or waiver effected in accordance with this Section
10(a) shall be binding upon the parties and their respective successors and
assigns.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-7-
(b) Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(c) Governing Law; Jurisdiction. This Agreement and all acts and
---------------------------
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law. Each of the parties to this Agreement consents to the exclusive
jurisdiction and venue of the courts of the state and federal courts of Santa
▇▇▇▇▇ County, California.
(d) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(e) Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(f) Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed given upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile,
after being deposited in the regular mail as certified or registered mail
(airmail if sent internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party's address or facsimile
number as set below or on the signature pages hereto, or as subsequently
modified by written notice.
(g) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith, in order to maintain the economic position enjoyed
by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(h) Entire Agreement. Except as set forth in the Purchase Agreement
----------------
and the Related Agreements, this Agreement is the product of all of the parties
hereto, and constitutes the entire agreement between such parties pertaining to
the subject matter hereof, and merges all prior negotiations and drafts of the
parties with regard to the transactions contemplated herein. Any and all other
written or oral agreements existing between the parties hereto regarding such
transactions are expressly canceled.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-8-
(i) Advice of Legal Counsel. Each party acknowledges and represents
-----------------------
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-9-
The parties have executed this Escrow Agreement as of the date first above
written.
BUYER:
DURECT CORPORATION
By:________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive Officer
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇, Vice President and General Counsel
SELLER:
IntraEAR, Inc.
By:________________________________________
▇▇. ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
ESCROW AGENT:
▇▇▇▇▇▇ TRUST COMPANY OF CALIFORNIA, as Escrow Agent
By:________________________________________
Name:______________________________________
(print)
Title:_____________________________________
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇., #▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
SIGNATURE PAGE TO EXCROW AGREEMENT
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
SELLER'S REPRESENTATIVE
___________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Address:6385 S. ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
SIGNATURE PAGE TO EXCROW AGREEMENT
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
EXHIBIT A
SELLER STOCKHOLDERS/ESCROW SHARES
---------------------------------
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
EXHIBIT B
AUTHORIZED SIGNATORIES
----------------------
For Durect Corporation ("Buyer") the following named persons with title and
specimen signature shown below:
Name Title Signature
----------------------- ---------------------------- --------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇ Chief Executive Officer ____________________
AUTHORIZED SIGNATORIES
----------------------
For IntraEAR, Inc. ("Seller") the following named persons with title and
specimen signature shown below:
Name Title Signature
----------------------- ---------------------------- --------------------
▇▇. ▇. ▇▇▇▇▇▇▇ Arenberg President ____________________
AUTHORIZED SIGNATORIES
----------------------
For ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ("Seller's Representative") the following named person
with title and specimen signature shown below:
Name Title Signature
----------------------- ---------------------------- --------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Seller's Representative ____________________
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
EXHIBIT C
FEE SCHEDULE
------------
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
EXHIBIT M
---------
AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
This Amendment (the "Amendment") is made as of October __, 1999 between
---------
Durect Corporation, a Delaware corporation ("Buyer"), IntraEAR, Inc., a
-----
Delaware corporation ("Seller"), and the holders of a majority of the
------
Registrable Securities, other than Founders (the "Investors") who are parties to
---------
the Amended and Restated Investors' Rights Agreement among the Company and
certain investors dated July 19, 1999 (the "Investors' Rights Agreement").
---------------------------
Unless specifically designated otherwise, capitalized terms used in this
Amendment shall have the meanings given them in the Rights Agreement.
RECITALS
--------
A. Buyer and Seller have entered into an Asset Purchase Agreement dated
as of September __, 1999 (the "Purchase Agreement"), pursuant to which Buyer
------------------
will acquire substantially all of the assets of Seller and will issue to Seller
shares of Buyer's Series B-1 Preferred Stock. As a condition to Closing, the
Purchase Agreement provides that the parties hereto will execute this Amendment.
B. The Investors desire to amend the Investors' Rights Agreement as set
forth herein.
AGREEMENT
---------
The parties agree as follows:
1. Subject to Section 2 of this Amendment, Section 2.1(b)(i) of the
Investors' Rights Agreement shall be replaced in its entirety as follows:
"(i) the shares of Common Stock issuable or issued upon conversion of the
Series A-1, Series A-2, Series B and Series B-1 Preferred Stock".
2. Seller shall be bound by and entitled to all of terms of the
Investors' Rights Agreements, except that Seller shall not be bound by or
entitled to the terms contained in Sections 1.2, 1.4, 1.7(a), 1.7(c), 1.13 and 2
of the Investors' Rights Agreement, and provided further that for the purpose of
any transfer of Registrable Securities by Seller to its stockholders in
connection with a dissolution or winding up of Seller, the minimum number of
shares limitation of Section 1.12 of the Investors' Rights Agreement shall not
apply.
3 Except as expressly set forth herein, the Investors' Rights Agreement
shall remain in full force and effect and shall not be modified or altered in
any other way.
4 This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
instrument.
[Signature Page Follows]
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
The parties hereto have executed this Amendment to Investors' Rights
Agreement as of the date first set forth above.
BUYER:
DURECT CORPORATION
By:________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive Officer
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇, Vice President and General Counsel
SELLER:
IntraEAR, Inc.
By:________________________________________
▇▇. ▇. ▇▇▇▇▇▇▇ Arenberg, President
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-2-
INVESTORS:
_______________________________________
By:____________________________________
Title:_________________________________
Print Name:____________________________
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-3-
EXHIBIT N
---------
TRUST AGREEMENT
---------------
This Trust Agreement (the "Agreement") is entered into as of October 1,
---------
1999, by and among Durect Corporation, a Delaware corporation ("Buyer"),
-----
IntraEAR, Inc., a Delaware corporation ("Seller") and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------
("Trustee").
-------
RECITALS
Buyer and Seller have entered into an Asset Purchase Agreement (the "Asset
-----
Purchase Agreement") pursuant to which Buyer will acquire substantially all of
------------------
the assets of Seller. The Asset Purchase Agreement provides that parties will
enter into this Trust Agreement to provide a fund for the payment of liabilities
of Seller.
AGREEMENT
The parties agree as follows:
1. Defined Terms. Capitalized terms used in this Agreement and not
-------------
otherwise defined herein shall have the meanings given them in the Asset
Purchase Agreement.
2. Trust Fund and Uses.
-------------------
(a) Trust Fund. As soon as practicable after the Closing Date, Buyer
----------
shall deposit into an account specifically designated by Trustee solely for the
purposes set forth herein [***] in cash (the "Trust Fund"). The Trust Fund
----------
shall be held as a trust fund and shall not be subject to any lien, attachment,
trustee process or any other judicial process of any creditor of any party
hereto. Trustee agrees to accept delivery of the Trust Fund and to hold such
Trust Fund in trust subject to the terms and conditions of this Agreement.
(b) Investment of Trust Fund. Trustee shall invest the Trust Fund in
------------------------
any of the following:
(i) obligations issued by or guaranteed by the United States of
America or any agency or instrumentality thereof;
(ii) certificates of deposit of or interest bearing accounts
with national banks or corporations endowed with trust powers, having capital
and surplus in excess of $100,000,000;
(iii) commercial paper that at the time of investment is rated ▇-
▇ by Standard and Poor's Corporation or P-1 by ▇▇▇▇▇'▇ Investor Service;
(iv) repurchase agreements with any bank or corporation
described in clause (ii), above, fully secured by obligations described in
clause (i), above; or
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
(v) any money market fund registered under the Investment
Company Act of 1940, as amended.
Any interest or other income earned on the Trust Fund shall become part of
the Trust Fund.
(c) Use of Trust Fund. Trustee shall use the Trust Fund to pay fees
-----------------
and other expenses (i) to settle liabilities incurred by Seller prior to the
Closing, (ii) reasonably incurred in connection with the dissolution or winding
up of Seller; (iii) reasonably incurred by Seller in connection with the
termination of any contracts or the assignment of any Assigned Contracts to
Buyer; (iv) reasonably incurred in connection with the distribution of the
assets of Seller to its stockholders; or (v) to the extent approved beforehand
in writing at the sole discretion of Buyer, necessary to defend Seller against
claims from third parties. Except as otherwise agreed by Buyer in writing, the
Trustee shall not use the Trust Fund for any other purpose.
3. Administration of Trust Fund. Trustee shall administer the Trust Fund
----------------------------
as follows:
(a) Trustee shall hold and safeguard the Trust Fund during the Trust
Period (as defined in Section 5 below), shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Buyer and
shall hold and dispose of the Trust Fund only in accordance with the terms
hereof.
(b) Trustee shall pay the fees and expenses set forth in Section 2(c)
from the Trust Fund as they come due; provided, however, that Trustee shall give
written notice to Buyer of any payments made from the Trust Fund, specifying the
amount paid and in reasonable detail the reason for such payments.
4. Third-Party Claims. In the event Trustee becomes aware of a third-
------------------
party claim which Trustee believes may result in a demand against the Trust
Fund, Trustee shall notify Buyer of such claim, and Buyer shall be entitled, at
its expense, to participate in any defense of such claim. Trustee shall not
have the right to settle any such claim without Buyer's prior written consent.
5. Release of Trust Fund. Subject to the following requirements, the
---------------------
Trust Fund shall remain in existence from the Closing until the earlier of: (i)
the date upon which Trustee determines that no further payments shall be made
from the Trust Fund pursuant to Section 2(c) hereof or (ii) the date that is
eighteen (18) months from the date of this Agreement (the "Trust Period"). Upon
------------
the expiration of the Trust Period, the Trust Fund shall terminate, and all
monies remaining in the Trust Fund, other than [***] to be reserved for the
payment of Seller's retention under its products liability insurance policy (the
"Retention Amount"), shall be delivered to Buyer. The Retention Amount shall be
delivered to Buyer promptly after such time as Seller's products liability
insurance policy shall no longer be in effect.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-2-
6. Trustee.
-------
(a) Trustee may be changed by Seller from time to time upon not less
than 10 days' prior written notice to Buyer and subject to the consent of Buyer,
whose consent shall not be unreasonably withheld; provided that Trustee may not
be removed unless holders of a majority in interest of the units of Seller agree
to such removal and to the identity of the substituted agent. No bond shall be
required of Trustee.
(b) Trustee shall not be liable for any act done or omitted hereunder
as Trustee while acting in good faith and which is not the result of gross
negligence.
7. Miscellaneous.
-------------
(a) Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived with the written consent of the parties or their respective
successors and assigns. Any amendment or waiver effected in accordance with this
Section 7(a) shall be binding upon the parties and their respective successors
and assigns.
(b) Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(c) Governing Law; Jurisdiction. This Agreement and all acts and
---------------------------
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law. Each of the parties to this Agreement consents to the exclusive
jurisdiction and venue of the courts of the state and federal courts of San
Jose, California.
(d) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(e) Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(f) Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth on the signature page hereto, or as subsequently
modified by written notice.
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-3-
(g) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith, in order to maintain the economic position enjoyed
by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(h) Entire Agreement. Except as set forth in the Purchase Agreement
----------------
and the Related Agreements, this Agreement is the product of all of the parties
hereto, and constitutes the entire agreement between such parties pertaining to
the subject matter hereof, and merges all prior negotiations and drafts of the
parties with regard to the transactions contemplated herein. Any and all other
written or oral agreements existing between the parties hereto regarding such
transactions are expressly canceled.
(i) Advice of Legal Counsel. Each party acknowledges and represents
-----------------------
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
[Signature Page Follows]
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-4-
The parties have executed this Agreement as of the date first above
written.
BUYER:
DURECT CORPORATION
By:_______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive Officer
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇, Vice President and General Counsel
SELLER:
IntraEAR, Inc.
By:_______________________________________
▇▇. ▇. ▇▇▇▇▇▇▇ Arenberg, President
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
TRUSTEE:
By:_______________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
Address:__________________________________
__________________________________
*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
-5-