EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
PROTEIN DESIGN LABS, INC.,
a Delaware corporation;
TIKAL ACQUISITION CORP.
a Delaware corporation; and
EOS BIOTECHNOLOGY, INC.,
a Delaware corporation
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Dated as of February 3, 2003
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ARTICLE I THE MERGER............................................................................................. 1
1.1 Merger of Merger Sub into the Company.......................................................... 1
1.2 Effect of the Merger........................................................................... 1
1.3 Closing; Effective Time........................................................................ 2
1.4 Certificate of Incorporation and Bylaws........................................................ 2
1.5 Directors and Officers......................................................................... 2
1.6 Aggregate Consideration; Effect on Company Capital Stock....................................... 2
1.7 Certain Adjustments............................................................................ 4
1.8 Fractional Shares.............................................................................. 4
1.9 Dissenting Shares.............................................................................. 4
1.10 Closing of the Company's Transfer Books........................................................ 5
1.11 Exchange of Certificates....................................................................... 5
1.12 Escrow......................................................................................... 7
1.13 Exemption from Registration, California Permit................................................. 7
1.14 Further Action................................................................................. 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY............................................................. 8
2.1 Organization and Good Standing................................................................. 8
2.2 Subsidiaries................................................................................... 8
2.3 Authority...................................................................................... 9
2.4 No Conflict.................................................................................... 9
2.5 Consents....................................................................................... 9
2.6 Governmental Authorization..................................................................... 9
2.7 Capitalization................................................................................. 10
2.8 Company Financial Statements................................................................... 11
2.9 Absence of Certain Changes..................................................................... 12
2.10 No Undisclosed Liabilities..................................................................... 12
2.11 Title to Property; Absence of Encumbrances; Condition of Equipment............................. 12
2.12 Restrictions on Business Activities............................................................ 13
2.13 Interested Party Transactions.................................................................. 13
2.14 Intellectual Property.......................................................................... 13
2.15 Taxes.......................................................................................... 16
2.16 Employee Benefit Plans......................................................................... 17
2.17 Employee Matters............................................................................... 20
2.18 Insurance...................................................................................... 20
2.19 Compliance with Legal Requirements............................................................. 20
2.20 Environmental Matters.......................................................................... 20
2.21 Legal Proceedings.............................................................................. 21
2.22 Contracts; No Defaults......................................................................... 21
2.23 Labor Matters.................................................................................. 22
2.24 Business Relationships......................................................................... 22
2.25 Regulatory Compliance.......................................................................... 22
2.26 Third Party Expenses........................................................................... 23
2.27 Minute Books................................................................................... 23
2.28 Complete Copies of Materials................................................................... 23
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2.29 Representations Complete....................................................................... 23
2.30 Tax Treatment.................................................................................. 23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.............................................. 24
3.1 Organization and Good Standing................................................................. 24
3.2 Authority...................................................................................... 24
3.3 No Conflict.................................................................................... 24
3.4 Consents....................................................................................... 24
3.5 Capitalization................................................................................. 25
3.6 SEC Reports.................................................................................... 25
3.7 Absence of Changes............................................................................. 25
3.8 Tax Treatment.................................................................................. 25
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................................................................... 26
4.1 Operation of the Company's Business............................................................ 26
4.2 No Solicitation................................................................................ 29
ARTICLE V ADDITIONAL AGREEMENTS.................................................................................. 29
5.1 Stockholder Approval........................................................................... 29
5.2 Access to Information.......................................................................... 30
5.3 Confidentiality................................................................................ 30
5.4 Legal Requirements............................................................................. 30
5.5 FIRPTA Compliance.............................................................................. 31
5.6 Expenses....................................................................................... 31
5.7 Termination of 401(k) Plan..................................................................... 31
5.8 Continuing Employees and Employee Benefits..................................................... 31
5.9 Indemnification of Officers and Directors...................................................... 32
5.10 Voting Agreements.............................................................................. 33
5.11 Affiliate Agreements........................................................................... 33
5.12 Statement of Expenses; Closing Date Balance Sheet.............................................. 33
5.13 Noncompetition Agreements...................................................................... 33
5.14 Public Disclosure.............................................................................. 33
5.15 Resignation of Officers and Directors.......................................................... 34
5.16 Permitted Loans................................................................................ 34
5.17 Preparation of Information Statement; Permit Application....................................... 34
5.18 Reorganization Tax Treatment................................................................... 35
5.19 Listing of Additional Shares................................................................... 35
ARTICLE VI CONDITIONS TO THE MERGER.............................................................................. 35
6.1 Conditions Precedent to Obligations of Each Party.............................................. 35
6.2 Conditions Precedent to Obligations of Parent and Merger Sub................................... 36
6.3 Conditions Precedent to Obligation of the Company.............................................. 39
ARTICLE VII INDEMNIFICATION AND ESCROW........................................................................... 40
7.1 Survival of Representations, Warranties, Covenants and Agreements.............................. 40
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7.2 Escrow and Indemnification..................................................................... 41
ARTICLE VIII TERMINATION PROVISIONS.............................................................................. 47
8.1 Termination.................................................................................... 47
8.2 Effect of Termination.......................................................................... 48
ARTICLE IX GENERAL PROVISIONS.................................................................................... 48
9.1 Amendment...................................................................................... 48
9.2 Waiver......................................................................................... 48
9.3 Entire Agreement; Counterparts................................................................. 49
9.4 Applicable Law; Jurisdiction................................................................... 49
9.5 Attorneys' Fees................................................................................ 49
9.6 Assignability.................................................................................. 49
9.7 Notices........................................................................................ 49
9.8 Cooperation.................................................................................... 50
9.9 Construction................................................................................... 50
9.10 Specific Performance........................................................................... 51
EXHIBITS
Exhibit A Certain Definitions
Exhibit B Form of Voting Agreements
Exhibit C Form of Affiliate Agreement
Exhibit D Form of Legal Opinion of Counsel to Company
Exhibit E Form of Release
Exhibit F Form of Legal Opinion of Counsel to Parent
Exhibit G Form of Escrow Agreement
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made and
entered into as of February 3, 2003, by and among: Protein Design Labs,
Inc., a Delaware corporation ("Parent"); Tikal Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub"); and Eos
Biotechnology, Inc., a Delaware corporation (the "Company"). Certain
capitalized terms used in this Agreement are defined in
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger (the
"Merger") of Merger Sub with and into the Company in accordance with this
Agreement and the Delaware General Corporation Law (the "DGCL"). Upon
consummation of the Merger, Merger Sub will cease to exist, and the Company
will become a wholly owned subsidiary of Parent.
B. The respective boards of directors of Parent, Merger Sub and the
Company have approved this Agreement and approved the Merger.
C. Simultaneously with the execution of this Agreement, and as an
inducement to Parent to enter into this Agreement, certain stockholders of
the Company are entering into Voting Agreements with Parent in the form of
Exhibit C, pursuant to which each such stockholder has, among other things,
agreed, upon the terms and subject to the conditions thereof, to vote such
stockholder's Company Capital Stock in favor of the Merger.
D. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code") and the parties adopt this Agreement as a plan of
reorganization within the meaning of Section 354(a) of the Code.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
1.1 Merger of Merger Sub into the Company. Upon the terms and
subject to the conditions set forth in this Agreement, at the Effective Time (as
defined in Section 1.3), Merger Sub shall be merged with and into the Company,
and the separate existence of Merger Sub shall cease. Following the Effective
Time, the Company shall continue as the surviving corporation (the "Surviving
Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set
forth in this Agreement and in the applicable provisions of the DGCL.
1.3 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Xxxx Xxxx Xxxx & Freidenrich,
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000 Xxxxxxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx, Xxxxxxxxxx, at 10:00 a.m., on a
date to be agreed by Parent and Company (the "Closing Date"), which shall be no
later than the third business day after the satisfaction or waiver of the last
to be satisfied or waived of the conditions set forth in Article VI (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the satisfaction or waiver of such conditions). Subject to the
provisions of this Agreement, a certificate of merger satisfying the applicable
requirements of the DGCL (the "Certificate of Merger") shall be duly executed by
the Company and, simultaneously with or as soon as practicable following the
Closing, filed with the Secretary of State of the State of Delaware (the
"Secretary of State"). The Merger shall become effective upon the latest of: (a)
the date and time of the filing of the Certificate of Merger with the Secretary
of State, or (b) such later date and time as may be specified in the Certificate
of Merger with the consent of Parent and Company (the "Effective Time").
1.4 Certificate of Incorporation and Bylaws. At the Effective
Time:
(a) the Company Certificate shall be amended and restated
to conform to the certificate of incorporation of Merger Sub as in effect
immediately prior to the Effective Time; and
(b) the Company Bylaws shall be amended and restated to
conform to the bylaws of Merger Sub as in effect immediately prior to the
Effective Time.
1.5 Directors and Officers. The directors and officers of the
Surviving Corporation immediately after the Effective Time shall be the
respective individuals who are directors and officers of Merger Sub immediately
prior to the Effective Time.
1.6 Aggregate Consideration; Effect on Company Capital Stock. At
the Effective Time, by virtue of the Merger and without any action on the part
of Parent, Merger Sub or the Company or the holders of any of the following
securities, the manner of converting or canceling shares in connection with the
Merger shall be as follows:
(a) Capital Stock of Merger Sub. Each issued and outstanding share
of the capital stock of Merger Sub shall be converted into and become one fully
paid and nonassessable share of Common Stock, $0.001 par value, of the Surviving
Corporation.
(b) Cancellation of Shares. Each share of Company Capital
Stock issued and outstanding immediately prior to the Effective Time and owned
by Parent, or any subsidiary of Parent, and each such share issued and held in
the Company's treasury immediately prior to Effective Time, shall, at the
Effective Time and by virtue of the Merger, and without any action on the part
of the holder thereof, cease to be outstanding, shall be canceled and retired
without payment of any consideration therefor and shall cease to exist.
(c) Cancellation of Company Warrants, Company Options,
and Convertible Debt. Parent shall not assume any Company Warrants, Company
Options, Company Convertible Debt (if any) or any other rights to purchase
Company Capital Stock. All Company Warrants, Company Options that are not
exercised prior to the Closing (including all Company Options that
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are not In-the-Money Options), Convertible Debt and other rights to purchase
securities of the Company shall terminate immediately prior to the Closing.
(d) Conversion of Shares. Subject to the terms of Section
1.9, each share of Company Capital Stock issued and outstanding immediately
prior to the Effective Time (other than shares of Company Capital Stock owned by
Parent, or any subsidiary of Parent, or held in the Company's treasury or shares
of Company Capital Stock that are held by stockholders duly exercising appraisal
rights pursuant to Section 262 of the DGCL or, to the extent applicable, Chapter
13 of the California Corporations Code (the "California Code") ("Dissenting
Shares")) shall be converted and exchanged into the right to receive a portion
of the Total Merger Consideration as follows:
(i) Company Common Stock. Each issued and
outstanding share of Company Common Stock (other than shares to be canceled in
accordance with Section 1.6(b) and any Dissenting Shares to the extent provided
in Section 1.9), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive that fraction
of a share of Parent Common Stock equal to the Common Stock Exchange Ratio.
(ii) Series E Preferred Stock. Subject to Section
1.12, each issued and outstanding share of Series E Preferred Stock (other than
shares to be canceled in accordance with Section 1.6(b) and any Dissenting
Shares to the extent provided in Section 1.9) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive that fraction of a share of Parent Common Stock equal to the
Series E Exchange Ratio.
(iii) Series D Preferred Stock. Subject to Section
1.12, each issued and outstanding share of Series D Preferred Stock (other than
shares to be canceled in accordance with Section 1.6(b) and any Dissenting
Shares to the extent provided in Section 1.9) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive that fraction of a share of Parent Common Stock equal to the
Series D Exchange Ratio.
(iv) Series C Preferred Stock. Subject to Section
1.12, each issued and outstanding share of Series C Preferred Stock (other than
shares to be canceled in accordance with Section 1.6(b) and any Dissenting
Shares to the extent provided in Section 1.9) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive that fraction of a share of Parent Common Stock equal to the
Series C Exchange Ratio.
(v) Series B Preferred Stock. Subject to Section
1.12, each issued and outstanding share of Series B Preferred Stock (other than
shares to be canceled in accordance with Section 1.6(b) and any Dissenting
Shares to the extent provided in Section 1.9) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive that fraction of a share of Parent Common Stock equal to the
Series B Exchange Ratio.
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(vi) Series A Preferred Stock. Subject to Section
1.12, each issued and outstanding share of Series A Preferred Stock (other than
shares to be canceled in accordance with Section 1.6(b) and any Dissenting
Shares to the extent provided in Section 1.9) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive that fraction of a share of Parent Common Stock equal to the
Series A Exchange Ratio.
1.7 Certain Adjustments. If, between the date of this Agreement
and the Effective Time, the outstanding shares of Company Capital Stock or
Parent Common Stock are changed into a different number or class of shares by
reason of any stock split, stock dividend, reverse stock split,
reclassification, recapitalization or other similar transaction, then the
applicable Exchange Ratio shall be appropriately adjusted.
1.8 Fractional Shares. No fractional shares of Parent Common Stock
shall be issued in connection with the Merger, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional shares, any holder
of Company Capital Stock who would otherwise be entitled to receive a fraction
of a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock issuable to such holder and allocating the initial
distribution of such shares between such holder and the Escrow Agent in
accordance with Section 1.12) shall, upon surrender of such holder's Company
stock certificate(s) (the "Company Stock Certificates"), be paid in cash the
dollar amount equal to such fractional share multiplied by the Parent Common
Stock Price.
1.9 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to
the contrary, any shares of Company Capital Stock held by a holder who has
exercised and perfected appraisal or dissenters' rights for such holder's
Dissenting Shares in accordance with applicable law and who, as of the Effective
Time, has not effectively withdrawn or lost such appraisal or dissenters'
rights, shall not be converted into or represent a right to receive Parent
Common Stock pursuant to Section 1.6(d) (and cash in lieu of fractional shares
in accordance with Section 1.8), but the holder thereof shall only be entitled
to such rights as are granted by applicable law.
(b) Notwithstanding the provisions of subsection (a), if
any holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) his or her appraisal or dissenters' rights
under applicable law, then, as of the later of the Effective Time and the
occurrence of such event, the shares of Company Capital Stock held by such
Stockholder that formerly constituted Dissenting Shares shall automatically be
converted into and represent only the right to receive Parent Common Stock as
provided in Section 1.6(d) (and cash in lieu of fractional shares in accordance
with Section 1.8), without interest thereon, upon surrender of the Company Stock
Certificate representing such shares.
(c) The Company shall give Parent (i) prompt written
notice of its receipt of any written demand for appraisal in respect of any
shares of Company Capital Stock, withdrawals of such demands and any other
instruments relating to the Merger served pursuant to applicable law and
received by the Company, and (ii) the opportunity to participate in all
negotiations and
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proceedings with respect to such demands. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to any such
demands or offers to settle or settle any such demands.
1.10 Closing of the Company's Transfer Books. At the Effective
Time: (a) all shares of Company Capital Stock outstanding immediately prior to
the Effective Time shall automatically be canceled and retired and shall cease
to exist, and all holders of Company Stock Certificates representing shares of
Company Capital Stock that were outstanding immediately prior to the Effective
Time shall cease to have any rights as stockholders of the Company, except the
right to receive the consideration described in Section 1.6(d); and (b) the
stock transfer books of the Company shall be closed with respect to all shares
of Company Capital Stock outstanding immediately prior to the Effective Time. No
further transfer of any such shares of Company Capital Stock shall be made on
such stock transfer books after the Effective Time. Subject to Section 1.11(f)
if, after the Effective Time, a valid Company Stock Certificate previously
representing any of such shares of Company Capital Stock is presented to the
Exchange Agent (as defined in Section 1.11) or to the Surviving Corporation or
Parent, such Company Stock Certificate shall be canceled and shall be exchanged
as provided in Section 1.11.
1.11 Exchange of Certificates.
(a) Exchange Agent. Mellon Investor Services LLC or such
other institution selected by Parent with the reasonable consent of the Company
shall act as exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock and Cash. Promptly
after the Effective Time, Parent shall supply or cause to be supplied to the
Exchange Agent for exchange in accordance with this Section 1 through such
reasonable procedures as Parent may adopt: (i) certificates evidencing the
shares of Parent Common Stock issuable pursuant to Section 1.6(d) in exchange
for shares of Company Capital Stock outstanding immediately prior to the
Effective Time, less the number of shares of Parent Common Stock to be deposited
into an escrow fund (the "Escrow Fund") pursuant to the requirements of Section
1.12 and Section 7.2; and (ii) cash in an amount sufficient to permit payment of
cash in lieu of fractional shares pursuant to Section 1.8 (collectively, (i) and
(ii) shall be referred to as the "Exchange Fund").
(c) Exchange Procedures. At least 10 business days prior
to the Effective Time, the Company, on behalf of Parent, shall cause to be
mailed to each holder of record of a Company Stock Certificate that immediately
prior to the Effective Time would represent outstanding shares of Company
Capital Stock, whose shares would be converted into the right to receive shares
of Parent Common Stock (and cash in lieu of fractional shares) pursuant to
Section 1.6(d), (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Company Stock Certificates
shall pass, only upon receipt of the Company Stock Certificates by the Exchange
Agent, and shall be in such form and have such other provisions as Parent may
reasonably specify, including a lock-up provision for a period not to exceed
ninety (90) days after the Effective Time for 50% of the aggregate Preferred
Merger Shares (with any Preferred Merger Shares subject to the Escrow Fund being
subject to the lock-up), issuable to Stockholders); (ii) such other customary
documents as may be required pursuant
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to such instructions; and (iii) instructions for use in effecting the surrender
of the Company Stock Certificates in exchange for certificates representing
shares of Parent Common Stock (and cash in lieu of fractional shares). Upon
surrender of a Company Stock Certificate for cancellation to the Exchange Agent
after the Effective Time or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal and other documents, duly
completed and validly executed in accordance with the instructions thereto, the
holder of such Company Stock Certificate shall be entitled to receive in
exchange therefore (x) a certificate representing the number of whole shares of
Parent Common Stock less the number of shares of Parent Common Stock to be
deposited in the Escrow Fund on such holder's behalf pursuant to Sections 1.12
and 7.2 hereof, (y) any dividends or other distributions to which such holder is
entitled pursuant to Section 1.11(d), and (z) cash (without interest) in respect
of fractional shares as provided in Section 1.8, and the Company Stock
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Company Stock Certificate that prior to the Effective Time
represented shares of Company Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes other than the payment of dividends,
to evidence the ownership of the number of full shares of Parent Common Stock
into which such shares of Company Capital Stock shall have been so converted and
the right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.8. If any Company Stock Certificate shall
have been lost, stolen or destroyed, Parent may, in its discretion and as a
condition precedent to the issuance of any certificate representing Parent
Common Stock require the owner of such lost, stolen or destroyed Company Stock
Certificate to provide an appropriate affidavit as indemnity against any claim
that may be made against the Exchange Agent, Parent or the Surviving Corporation
with respect to such Company Stock Certificate.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Company Stock Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Company
Stock Certificate shall surrender such Company Stock Certificate. Subject to
applicable law, following surrender of any such Company Stock Certificate, there
shall be paid to the record holder of the Company Stock Certificate a
certificate representing whole shares of Parent Common Stock issued in exchange
therefor, without interest at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable (but for the provisions of this Section 1.11(d)) with
respect to such shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares
of Parent Common Stock is to be issued in a name other than that in which the
Company Stock Certificate surrendered in exchange therefor is registered, it
will be a condition of the issuance thereof that the Company Stock Certificate
so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange will have paid to Parent
or any agent designated by it any transfer or other taxes required by reason of
the issuance of a certificate for shares of Parent Common Stock in any name
other than that of the registered holder of the Company Stock Certificate
surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
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(f) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the stockholders of the Company six
months after the Effective Time shall be delivered to Parent, upon demand, and
any stockholders of the Company who have not previously complied with this
Section 1.11 shall thereafter look only to Parent for payment of their claim for
their portion of the Merger Shares and any dividends or distributions with
respect to the Merger Shares.
(g) No Liability. Notwithstanding anything to the
contrary in this Section 1.11, none of the Exchange Agent, the Surviving
Corporation or any party hereto shall be liable to any person for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(h) Dissenting Shares. The provisions of this Section
1.11 shall also apply to Dissenting Shares that lose their status as such,
except that the obligations of Parent under this Section 1.11 shall commence on
the date of loss of such status and the holder of such shares shall be entitled
to receive in exchange for such Merger Shares to which such holder is entitled
pursuant to Section 1.6.
(i) Stockholder Loans. Section 2.4 of the Company
Disclosure Schedule lists each outstanding loan from the Company held by any
stockholder or employee of the Company as of the Effective Time (the
"Stockholder Loans").
1.12 Escrow. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Section 7.2 hereof, Parent
shall cause to be distributed to the Escrow Agent (as defined in Section 7.2
hereof) a certificate or certificates representing the sum of (i) [****]% of the
Aggregate Preferred Consideration to be issued at the Closing plus (ii) [****]%
of the Management Bonus Shares to be issued at the Closing pursuant to the
Management Acquisition Bonus Agreements (collectively, the "Escrow Shares")
(which shall be registered in the name of the Escrow Agent as nominee for the
holders of Company Stock Certificates canceled pursuant to Section 1.11). Such
shares shall be beneficially owned by such holders and such shares shall be held
in escrow and shall be available to compensate Parent for certain damages as
provided in Section 7. To the extent not used for such purposes, such shares
shall be released, all as provided in Section 7.
1.13 Exemption from Registration, California Permit. Parent and the
Company intend that the Merger Shares will be issued in a transaction exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations promulgated by the SEC thereunder, by
reason of Section 3(a)(l0) thereof and will be qualified under the California
Code pursuant to Section 25121 thereof after a fairness hearing has been held
pursuant to the authority granted by Section 25142 of the California Code (the
"Fairness
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* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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Hearing"). Parent, with and subject to the full cooperation of the Company,
shall use commercially reasonable efforts (i) to file promptly (and to the
extent reasonably practicable, within five (5) business days) following the
execution and delivery of this Agreement, an application (the "Permit
Application") for issuance of a permit pursuant to Section 25121 of the
California Code to issue such securities (the "California Permit") and (ii) to
obtain the California Permit promptly thereafter.
1.14 Further Action. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation with full
right, title and possession of and to all rights and property of Merger Sub and
the Company, the officers and directors of the Surviving Corporation and Parent
shall be fully authorized (in the name of Merger Sub, in the name of the Company
and otherwise) to take such action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents and warrants to Parent and Merger Sub that the
statements contained in this Article II are true and correct as set forth
herein and as qualified by the disclosure schedule delivered to the Parent
concurrently herewith, and which may be updated in accordance with Section
4.1 (the "Company Disclosure Schedule"). The disclosures set forth in the
Company Disclosure Schedule shall be arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article II.
2.1 Organization and Good Standing.
(a) Each of the Company and its Subsidiaries is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, with full corporate power and
authority to conduct its business as now being conducted and as proposed to be
conducted and to own or use it properties and assets. The Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which either the ownership or
use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, except where the failure to be so
qualified could not reasonably be expected to, individually or in the aggregate,
result in a Material Adverse Effect on the Company.
(b) The Company has delivered to Parent copies of the
Company Certificate, Company Bylaws and other organizational documents of the
Company and each Subsidiary, as currently in effect.
2.2 Subsidiaries. Section 2.1(b) of the Company Disclosure
Schedule lists all Subsidiaries and indicates as to each its jurisdiction of
organization and its stockholders. Except as set forth in Section 2.1(b) of the
Company Disclosure Schedule, the Company does not have, any Subsidiaries or
affiliated companies and does not otherwise own any shares in the capital of or
any interest in, or control, directly or indirectly, any corporation,
partnership, association, joint venture or other business entity.
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2.3 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and the other agreements required to be
executed and delivered in connection with the transactions contemplated hereby
(the "Ancillary Agreements"), to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Ancillary Agreements and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of the Company
subject only to the approval of this Agreement by the Stockholders holding the
requisite number of shares of Company Capital Stock needed to consummate the
Merger. The Board of Directors of the Company has unanimously approved this
Agreement and the Merger. This Agreement has been (and the Ancillary Agreements
will be at the Closing) duly executed and delivered by the Company, and this
Agreement constitutes (and the Ancillary Agreements will constitute at the
Closing) the valid and binding obligation of the Company enforceable against the
Company in accordance with their terms, except that such enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to creditors' rights generally, and is subject to general principles of
equity.
2.4 No Conflict. The execution and delivery by the Company of this
Agreement and the Ancillary Agreements to which the Company is a party, does
not, and the consummation of the transactions contemplated hereby and thereby
will not (i) conflict with, or result in any violation of, any provision of the
Company Certificate (in its current form and as it shall be amended immediately
prior to the Effective Time) or Company Bylaws, (ii) conflict with, or result in
any violation of or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any material obligation or loss of any material benefit under any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license of the Company or any Subsidiary, or (iii)
conflict with, or result in any violation of any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or any
Subsidiary or any of their respective properties or assets.
2.5 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to the Company in connection with the execution and delivery of
this Agreement by the Company and any Ancillary Agreement to which the Company
is a party or the consummation of the transactions contemplated hereby and
thereby, except for (a) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable securities laws, and (b) the filing of the Merger Certificate with
the Secretary of State of the State of Delaware.
2.6 Governmental Authorization. The Company and each Subsidiary
has obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (a)
pursuant to which the Company or its Subsidiaries currently operates or holds
any interest in any of its properties, or (b) that is required for the operation
of the Company's or its Subsidiaries' business or the holding of any such
interest and all of such authorizations are in full force and effect except
where the failure to obtain or have
9
any such authorizations could not reasonably be expected to have a Material
Adverse Effect on the Company.
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of: (i) 75,000,000 shares of Company Common Stock, of which 7,641,186 shares
have been issued and are outstanding as of the date of this Agreement; and (ii)
50,356,750 shares of Company Preferred Stock, (A) of which 950,000 shares are
designated as Series A Preferred Stock and of which 950,000 have been issued and
are outstanding as of the date of this Agreement; (B) of which 10,406,750 shares
are designated as Series B Preferred Stock and of which 10,328,750 have been
issued and are outstanding as of the date of this Agreement; (C) of which
5,000,000 shares are designated as Series C Preferred Stock and of which
5,000,000 have been issued and are outstanding as of the date of this Agreement;
(D) of which 22,000,000 shares are designated as Series D Preferred Stock and of
which 20,769,233 have been issued and are outstanding as of the date of this
Agreement; and (E) of which 12,000,000 shares are designated as Series E
Preferred Stock and of which 10,185,186 have been issued and are outstanding as
of the date of this Agreement. The Company Capital Stock is held by the persons,
with the domicile addresses and in the amounts set forth on Section 2.7(a) of
the Company Disclosure Schedule. There are not any notes or other indebtedness
or securities of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
Stockholders may vote. There are no shares of Company Capital Stock held in
treasury. All of the outstanding shares of Company Capital Stock (i) have been
duly authorized and validly issued, and are fully paid, non-assessable and free
of all liens or encumbrances other than any liens or encumbrances created by or
imposed by the holders thereof, (ii) are not subject to preemptive rights or
rights of first refusal created by statute, the Company Certificate, the Company
Bylaws or any agreement to which the Company is a part or by which it is bound
and (iii) have been issued in compliance with federal and state securities laws.
There are no declared or unpaid dividends with respect to any shares of the
Company's Capital Stock. Each share of Company Preferred Stock is convertible
into one share of Company Common Stock. Except as described in this Section
2.7(a), the Company has no other capital stock authorized, issued or
outstanding.
(b) Except for the Company's 1997 Stock Plan (the
"Company Stock Option Plan") or as set forth in Section 2.7(b) of the Company
Disclosure Schedule, the Company does not have any stock option plan or other
plan providing for any equity compensation for any Person. The Company has
reserved 10,435,000 shares of Company Common Stock for issuance under the
Company Stock Option Plan, of which, as of the date of this Agreement, 983,539
shares have been exercised and 4,971,401 shares are subject to outstanding
options. Stock options granted by the Company pursuant to its stock option plans
and any stock options granted outside of the Company Stock Option Plan are
referred to in this Agreement as "Company Options." The Company has delivered to
Parent accurate and complete copies of all stock option plans pursuant to which
the Company (or any of its predecessors) has ever granted stock options. Section
2.7(b) of the Company Disclosure Schedule accurately sets forth as of the date
of this Agreement, the names of all persons who hold outstanding Company
Options, and sets forth for each such person (i) the plans under which Company
Options have been issued to such
10
person, (ii) the number of vested Company Options held by such person, (iii) a
vesting schedule for the unvested Company Options held by such person and (iv)
the exercise prices for such Company Options. As of the date of this Agreement,
there were 200,000 shares of Company Common Stock, 78,000 shares of Company
Series B Preferred Stock, and 727,458 shares of Company Series D Preferred Stock
reserved for issuance upon the exercise of outstanding Company Warrants, and the
Company Warrants are held by the persons, with the domicile addresses and in the
amounts set forth in Section 2.7(b) of the Company Disclosure Schedule. The
Company has delivered to Parent true and complete copies of each warrant and
warrant agreement evidencing each Company Warrant and each form of agreement or
stock option plan evidencing each Company Option. Except for the rights created
pursuant to this Agreement and the rights otherwise described in this Section
2.7, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Company is a party or by which it is bound,
obligating Company to issue, deliver, sell, repurchase or redeem or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of Company Capital
Stock or obligating Company to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. All shares of Common Stock issuable upon
conversion of the Company Preferred Stock or upon exercise of the Company
Options described in this Section 2.7, and all shares of Company Preferred Stock
issuable upon exercise of the Company Warrants, will be, when issued pursuant to
the respective terms of such Preferred Stock, Company Options or Company
Warrants, duly authorized, validly issued, fully paid and nonassessable. There
are no other contracts, commitments or agreements relating to voting, purchase
or sale of Company's capital stock (a) between or among Company and any of its
stockholders; and (b) to Company's Knowledge, between or among any of Company's
stockholders, except for the stockholders delivering the Voting Agreements. As a
result of the Merger, Parent will be the record and sole beneficial owner of all
outstanding Company Capital Stock.
2.8 Company Financial Statements. The Company has delivered to
Parent its audited financial statements (balance sheet, statement of operations
and statement of cash flows) for each of the fiscal years ended 2001, 2000 and
1999, respectively, (collectively, the "Year-End Financials") and its unaudited
financial statements (balance sheet, statement of operations and statement of
cash flows) on a consolidated basis as at and for the twelve-month period ended
December 31, 2002 (the "Interim Financials"). Section 2.8 of the Company
Disclosure Schedule contains the Company's unaudited balance sheet as of
December 31, 2002 (the "Current Balance Sheet"). The Year-End Financials and the
Interim Financials have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated and with each other, subject,
in the case of the Interim Financials, to normal recurring year-end adjustments
(none of which, individually or in the aggregate, are material) and a lack of
footnotes. The Year-End Financials and the Interim Financials fairly present the
consolidated financial condition and operating results of Company as of the
dates, and for the periods, indicated therein. The Company maintains a standard
system of accounting established and administered in accordance with GAAP.
2.9 Absence of Certain Changes. Since December 31, 2002 (the "Base
Date"), the Company has conducted its business in the ordinary course consistent
with past practice and there has not occurred (a) any change, event or condition
(whether or not covered by insurance)
11
that has resulted in, or could reasonably be expected to result in, a Material
Adverse Effect on the Company; (b) any acquisition, sale or transfer of any
assets or properties of the Company or any creation of any security interest in
such assets or properties; (c) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by the
Company or any revaluation by the Company of any of its assets; (d) any
declaration, setting aside, or payment of a dividend or other distribution with
respect to the shares of the Company or any direct or indirect redemption,
purchase or other acquisition by the Company of any of its shares of capital
stock; (e) any Material Contract entered into by the Company, or any material
amendment or termination of, or default under, any Material Contract to which
the Company is a party or by which it is bound; (f) any amendment or change to
the Company Certificate or Company Bylaws; (g) any increase in or modification
of the compensation or benefits payable or to become payable by the Company to
any of its directors or employees; or (h) any agreement by the Company to do any
of the things described in the preceding clauses (a) through (g).
2.10 No Undisclosed Liabilities. The Company has no liabilities or
obligations of any nature (whether absolute, accrued, contingent (or otherwise),
except for (i) liabilities or obligations reflected or reserved against in the
Current Balance Sheet, (ii) current liabilities incurred in the ordinary course
of business and which do not have and could not reasonably be expected to have a
Material Adverse Effect on the Company, and (iii) liabilities incurred in
connection with the transactions contemplated hereby since the Base Date.
2.11 Title to Property; Absence of Encumbrances; Condition of
Equipment.
(a) Neither the Company nor any of its Subsidiaries owns
any real property nor has the Company or any Subsidiary ever owned any real
property. Section 2.11(a) of the Company Disclosure Schedule sets forth a list
of all real property currently leased by the Company or its Subsidiaries, the
name of the lessor, the date of the lease and each amendment thereto and, with
respect to any current lease, the aggregate annual rental and/or other fees
payable under any such lease. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event of default
(or event which with notice or lapse of time, or both, would constitute a
default).
(b) The Company and its Subsidiaries have good and valid
title to the properties, real and personal, reflected in the Current Balance
Sheet or acquired after the date thereof. All leasehold interests of the Company
are free and clear of any Encumbrances, except (i) statutory Encumbrances
securing payments not yet due and (ii) such imperfections or irregularities of
title or Encumbrances as do not affect the use of the properties or assets
subject thereto or affected thereby or otherwise materially impair business
operations at such properties, in either case in such a manner as to have a
Material Adverse Effect on the Company.
(c) Section 2.11(c) of the Company Disclosure Schedule
lists all material items of equipment (the "Equipment") owned or leased by the
Company or its Subsidiaries and such Equipment is, (i) adequate for the conduct
of the business of the Company and its Subsidiaries as currently conducted and
(ii) in good operating condition, regularly and properly maintained, subject to
normal wear and tear.
12
2.12 Restrictions on Business Activities. There is no agreement
(non-compete or otherwise), judgment, injunction, order or decree binding upon
the Company or any of its Subsidiaries that has or reasonably could be expected
to have, the effect of prohibiting or materially impairing any currently
contemplated acquisition of property by the Company or its Subsidiaries or the
conduct by the Company or any of its Subsidiaries of its business as currently
conducted or as currently proposed to be conducted.
2.13 Interested Party Transactions. Except as set forth on Section
2.13 of the Company Disclosure Schedule, neither the Company nor any Subsidiary
is indebted to any director, officer or employee of the Company or a Subsidiary
(except for amounts due as normal salaries and bonuses and in reimbursement of
ordinary expenses), and no such person is indebted to the Company or any
Subsidiary. Since January 1, 2002, the Company has not entered into any
transaction involving over $60,000 in which any director, officer or 5%
stockholder (or a member of such person's immediate family) had a direct or
indirect material interest, except where such person's interest arises solely
from his or her ownership of Company Capital Stock.
2.14 Intellectual Property.
(a) Each of the Company and its Subsidiaries owns and has
good and marketable title to, or possesses legally enforceable rights to use,
all Intellectual Property currently used or currently proposed to be used in the
business of the Company or its Subsidiaries as currently conducted or currently
proposed to be conducted by the Company. The Intellectual Property owned by and
licensed to the Company and its Subsidiaries collectively constitutes all of the
Intellectual Property necessary to enable the Company and its Subsidiaries to
conduct its business as such business is currently being conducted. To the
Company's Knowledge, there is no unauthorized use, disclosure or
misappropriation of any Company Intellectual Property (as defined in Section
2.14(b) below) or any Third Party Intellectual Property by any employee or
former employee of the Company or any Subsidiary or by any other Person. There
are no royalties, fees or other payments payable by the Company or its
Subsidiaries to any Person under any written or oral contract or understanding
by reason of the Company's ownership, use, sale or disposition of Intellectual
Property.
(b) With respect to each item of Intellectual Property
incorporated into any product of the Company and its Subsidiaries or otherwise
used in and material to the business of the Company and its Subsidiaries (except
Intellectual Property widely available through regular commercial distribution
channels at a cost not exceeding $25,000 on standard terms and conditions)
("Company Intellectual Property"), Section 2.14(b) of the Company Disclosure
Schedule lists:
(i) all Patents and Patent Applications, all
registered Trademarks, and pending trademark registrations, including the
jurisdictions in which each such Intellectual Property has been issued or
registered or in which any such application for such issuance and registration
has been filed;
(ii) the following agreements relating to each of
the compounds, proteins or other biological materials in clinical or
pre-clinical development by the Company and
13
its Subsidiaries (the "Company Products") or other Company Intellectual
Property: all (A) agreements granting any Person the right to market, distribute
or license a Company Product; (B) manufacturing or supply agreements; (C)
research and development agreements; and (D) any other agreement by which the
Company grants or receives any ownership, license or option right to any Company
Product or any of the Intellectual Property therein; and
(iii) all tissue sampling or similar agreements.
(c) Section 2.14(c) of the Company Disclosure Schedule
contains an accurate list as of the date of this Agreement of all licenses,
sublicenses and other agreements to which the Company or any Subsidiary is a
party and pursuant to which the Company or any Subsidiary is authorized to use
any Intellectual Property owned by any third party, excluding Intellectual
Property available at a cost not exceeding $25,000 and widely available through
regular commercial distribution channels on standard terms and conditions
("Third Party Intellectual Property").
(d) Neither the Company nor any Subsidiary has entered
into any agreement to indemnify any other Person against any charge that the
Company Intellectual Property infringes any Intellectual Property owned or
licensed by a third party.
(e) Neither the Company nor any Subsidiary is in breach
of any license, sublicense or other agreement relating to the Company
Intellectual Property or Third Party Intellectual Property. Neither the
execution, delivery or performance of this Agreement or any of the Ancillary
Agreements nor the consummation of the Merger or any of the transactions
contemplated by this Agreement or any of the Ancillary Agreements will
contravene, conflict with or result in any limitation on Parent's or the
Surviving Corporation's right to own or use any Company Intellectual Property,
including any Third Party Intellectual Property.
(f) None of the Patents, registered Trademarks,
registered service marks and registered Copyrights owned by the Company are
subject to any cancellation or reexamination proceeding or any other proceeding
challenging their extent or validity, and all maintenance and annual fees in
connection therewith have been fully paid and all fees paid during prosecution
and after issuance of any Patent comprising or relating to such item have been
paid in the correct amounts. The use of the Company Intellectual Property in the
Company's current business activities or the conduct of the Company's business
as currently conducted or currently proposed to be conducted relating to the
200-4 and 200-F Company Products, and to the Company's Knowledge, the use of the
Company Intellectual Property in the Company's current business activities or
the conduct of the Company's business as currently conducted by the Company
relating to all other Company Products does not, infringe, misappropriate or
otherwise violate the intellectual property rights of any third party, and
neither the Company nor any Subsidiary has received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of any proprietary
asset owned or used by any third party. There is no proceeding pending, or to
the Company's Knowledge threatened, nor has any claim or demand been made to the
Company that challenges the legality, validity, enforceability or ownership of
any item of Company Intellectual Property or Third Party Intellectual Property
or alleges a claim of infringement of any Patents, Copyrights,
14
Trademarks or service marks, or violation of any trade secret or other
proprietary right of any third party. Neither the Company nor any Subsidiary has
brought a proceeding alleging infringement of Company Intellectual Property or
breach of any license or agreement involving Intellectual Property against any
third party.
(g) All current and former officers and employees of the
Company and its Subsidiaries have executed and delivered to the Company an
agreement (containing no exceptions or exclusions from the scope of its
coverage) regarding the protection of proprietary information and the assignment
to the Company of any Intellectual Property arising from services performed for
the Company by such persons, the form of which has been supplied to Parent. All
current and former consultants and independent contractors to the Company and
its Subsidiaries involved in the development, modification and marketing of any
Company Products or Company Intellectual Property have executed and delivered to
the Company an agreement in the form provided to Parent or its counsel
(containing no exceptions or exclusions from the scope of its coverage)
regarding the protection of proprietary information and the assignment to the
Company of any Intellectual Property arising from services performed for the
Company by such persons. To the Company's Knowledge, no employee or independent
contractor of the Company or any Subsidiary is in violation of any term of any
confidentiality and invention assignment agreement or employment contract with
the Company or any other contract or agreement relating to the relationship of
any such employee or independent contractor with the Company. No current or
former officer, director, stockholder, employee, consultant or independent
contractor has any ownership right with respect to any Company Intellectual
Property.
(h) The Company and each of its Subsidiaries has taken
all commercially reasonable and customary measures and precautions to protect
and maintain the confidentiality of all Company Intellectual Property (except
such Company Intellectual Property whose value would be unimpaired by public
disclosure).
(i) No product liability claims have been communicated in
writing to or, to the Company's Knowledge, threatened against the Company or any
Subsidiary.
(j) The Company is not subject to any proceeding or
outstanding decree, order, judgment or stipulation restricting in any manner the
use, transfer or licensing of any Company Intellectual Property by the Company,
or which may affect the validity, use or enforceability of such Company
Intellectual Property. The Company is not subject to any agreement that
restricts in any material respect the use, transfer, delivery or licensing by
the Company of the Company Intellectual Property or Company Products.
2.15 Taxes.
(a) As used in this Agreement, the terms "Tax" and,
collectively, "Taxes" mean any and all federal, state and local taxes of any
country, assessments and other similar governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem, stamp
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any
15
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity;
(b) The Company and each of its Subsidiaries have
prepared and timely filed all Tax Returns relating to any and all Taxes
concerning or attributable to the Company and its Subsidiaries due on or before
the Closing Date and such Tax Returns are true and correct in all material
respects and have been completed in accordance with applicable law;
(c) The Company and each of its Subsidiaries, as of the
Effective Time, (i) will have paid all Taxes shown to be payable on such Tax
Returns covered by Section 2.15(b) and (ii) will have withheld with respect to
its employees all Taxes required to be withheld;
(d) There is no Tax deficiency outstanding or assessed
or, to the Company's Knowledge, proposed against the Company or any Subsidiary
that is not reflected as a liability on the Current Balance Sheet, nor has the
Company executed any agreements or waivers extending any statute of limitations
on or extending the period for the assessment or collection of any Tax (other
than extensions which have expired);
(e) Neither the Company nor any Subsidiary has any
liabilities for unpaid Taxes that have not been accrued for or reserved on the
Current Balance Sheet, whether asserted or unasserted, contingent or otherwise
and the Company has no knowledge of any basis for the assertion of any such
liability attributable to the Company or its Subsidiaries, its assets or
operations;
(f) Neither the Company nor any Subsidiary is a party to
any tax-sharing agreement or similar arrangement with any other party, and the
Company has not assumed any obligation to pay any Tax obligations of, or with
respect to any transaction relating to, any other person or agreed to indemnify
any other person with respect to any Tax;
(g) The Company's Tax Returns have never been audited by
a government or taxing authority, nor is any such audit in process or pending,
and the Company has not been notified of any request for such an audit or other
examination;
(h) The Company has never been a member of an affiliated
group of corporations filing a consolidated federal income tax return other than
a group of which the Company was the parent;
(i) The Company has disclosed to Parent (i) any Tax
exemption, Tax holiday or other Tax-sparing arrangement that the Company has in
any jurisdiction, including the nature, amount and lengths of such Tax
exemption, Tax holiday or other Tax-sparing arrangement; and (ii) any expatriate
tax programs or policies affecting the Company. The Company and its Subsidiaries
are in compliance in all material respects with all terms and conditions
required to maintain such Tax exemption, Tax holiday or other Tax-sparing
arrangement or order of any governmental entity and the consummation of the
transactions contemplated hereby will not have any adverse effect on the
continuing validity and effectiveness of any such Tax exemption, Tax holiday or
other Tax-sparing arrangement or order;
16
(j) The Company has delivered to Parent copies of all
income, sales and use Tax Returns filed for all periods since the Company's
inception;
(k) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) apply to any
disposition of assets owned by the Company;
(l) The Company has not been at any time a United States
Real Property Holding Corporation within the meaning of Section 897(c)(2) of the
Code; and
(m) The Company is not a party to any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G of the Code by the Company or
Merger Sub as an expense under applicable law.
2.16 Employee Benefit Plans.
(a) Section 2.16 of the Company Disclosure Schedule
contains a complete and accurate list of each plan, program, policy, practice,
contract, agreement or other arrangement providing for employment, compensation,
retirement, deferred compensation, loans, severance, separation, relocation,
repatriation, expatriation, visas, work permits, termination pay, performance
awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom
stock, stock appreciation right, supplemental retirement, fringe benefits,
cafeteria benefits or other benefits, whether written or unwritten, including
without limitation each "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is or has been sponsored, maintained, contributed to, or
required to be contributed to by the Company or any Subsidiary and, with respect
to any such plans which are subject to Code Section 401(a), any trade or
business (whether or not incorporated) that is or at any relevant time was
treated as a single employer with the Company within the meaning of Section
414(b), (c), (m) or (o) of the Code, (an "ERISA Affiliate") for the benefit of
any person who performs or who has performed services for the Company or any
Subsidiary or with respect to which the Company or any ERISA Affiliate has or
may have any liability (including without limitation contingent liability) or
obligation (collectively, the "Company Employee Plans"). Section 2.16 of the
Company Disclosure Schedule separately lists each Company Employee Plan that has
been adopted or maintained by the Company or its Subsidiaries, whether formally
or informally, for the benefit of employees outside the United States
(collectively, the "Company International Employee Plans").
(b) Documents. The Company has furnished to Parent true
and complete copies of documents embodying each of the Company Employee Plans
and related plan documents, including without limitation trust documents, group
annuity contracts, plan amendments, insurance policies or contracts, participant
agreements, employee booklets, administrative service agreements, summary plan
descriptions, standard COBRA forms and related notices, registration statements
and prospectuses and, to the extent still in its possession, any material
employee communications relating thereto. With respect to each Company
17
Employee Plan that is subject to ERISA reporting requirements, the Company has
provided copies of the Form 5500 reports filed for the last three plan years.
The Company has furnished to Parent with the most recent Internal Revenue
Service determination or opinion letter issued with respect to each such Company
Employee Plan, and to the Company's Knowledge nothing has occurred since the
issuance of each such letter that could reasonably be expected to cause the loss
of the tax-qualified status of any Company Employee Plan subject to Code Section
401(a).
(c) Compliance. (i) Each Company Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company; and the Company and each ERISA Affiliate have performed all material
obligations required to be performed by them under, are not in material respect
in default under or violation of and have no Knowledge of any material default
or violation by any other party to, any of the Company Employee Plans; (ii) any
Company Employee Plan which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA and which is intended to be qualified under
Section 401(a) of the Code has either obtained from the Internal Revenue Service
a favorable determination letter as to its qualified status under the Code,
including all currently effective amendments to the Code, may rely on an opinion
letter issued to a prototype plan sponsor with respect to a standardized plan
adopted by the Company in accordance with the requirements for such reliance; or
has time remaining to apply under applicable Treasury Regulations or Internal
Revenue Service pronouncements for a determination or opinion letter and to make
any amendments necessary to obtain a favorable determination or opinion letter;
(iii) none of the Company Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person; (iv) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA or Section 4975 of
the Code, with respect to any Company Employee Plan; (v) none of the Company or
any ERISA Affiliate is subject to any liability or penalty under Sections 4976
through 4980 of the Code or Title I of ERISA with respect to any Company
Employee Plan; (vi) all contributions required to be made by the Company or any
ERISA Affiliate to any Company Employee Plan have been paid or accrued; (vii)
with respect to each Company Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA
has occurred; (viii) to the Knowledge of the Company, each Company Employee Plan
subject to ERISA has prepared in good faith and timely filed all requisite
governmental reports, which were true and correct as of the date filed, and has
properly and timely filed and distributed or posted all notices and reports to
employees required to be filed, distributed or posted with respect to each such
Company Employee Plan; (ix) no suit, administrative proceeding, action or other
litigation has been brought, or to the Knowledge of the Company is threatened,
against or with respect to any such Company Employee Plan, including any audit
or inquiry by the IRS or United States Department of Labor; and (x) there has
been no amendment to, written interpretation or announcement by the Company or
any ERISA Affiliate that would materially increase the expense of maintaining
any Company Employee Plan above the level of expense incurred with respect to
that Plan for the most recent fiscal year included in the Company Financial
Statements.
18
(d) No Title IV or Multiemployer Plan. Neither the
Company nor any ERISA Affiliate has ever maintained, established, sponsored,
participated in, contributed to, or is obligated to contribute to, or otherwise
incurred any obligation or liability (including without limitation any
contingent liability) under any "multiemployer plan" (as defined in Section
3(37) of ERISA) or to any "pension plan" (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA or Section 412 of the Code. None of the Company or
any ERISA Affiliate has any actual or potential withdrawal liability (including
without limitation any contingent liability) for any complete or partial
withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any
multiemployer plan.
(e) COBRA, FMLA, HIPAA, Cancer Rights. With respect to
each Company Employee Plan, the Company and each Subsidiary has complied with
(i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
regulations thereunder or any state law governing health care coverage extension
or continuation; (ii) the applicable requirements of the Family and Medical
Leave Act of 1993 and the regulations thereunder; (iii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996
("HIPAA"); and (iv) the applicable requirements of the Cancer Rights Act of
1998, except to the extent that any such failure to comply could not reasonably
be expected, individually or in the aggregate, to have a Material Adverse Effect
on the Company. Neither the Company nor any Subsidiary has any material
unsatisfied obligations to any employees, former employees or qualified
beneficiaries pursuant to COBRA, HIPAA or any state law governing health care
coverage extension or continuation.
(f) Effect of Transaction. The consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee or other service provider of the Company or any ERISA Affiliate
to severance benefits or any other payment (including without limitation
unemployment compensation, golden parachute, bonus or benefits under any Company
Employee Plan), except as expressly provided in this Agreement; or (ii)
accelerate the time of payment or vesting of any such benefits or increase the
amount of compensation due any such employee or service provider. No benefit
payable or that may become payable by the Company pursuant to any Company
Employee Plan or as a result of or arising under this Agreement shall constitute
an "excess parachute payment" (as defined in Section 280G(b)(1) of the Code)
subject to the imposition of an excise Tax under Section 4999 of the Code or the
deduction for which would be disallowed by reason of Section 280G of the Code.
Each Company Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without material
liability to Parent or the Company other than ordinary administration expenses
typically incurred in a termination event.
2.17 Employee Matters. Each of the Company and its Subsidiaries is
in compliance with all currently applicable laws and regulations respecting
terms and conditions of employment, including without limitation, immigration
laws, discrimination laws, verification of employment eligibility, employee
leave laws, classification of workers as employees and independent contractors,
wage and hour laws, and occupational safety and health laws. There are no
proceedings pending or, to the Company's Knowledge, reasonably expected or
threatened, between the Company or any Subsidiary, on the one hand, and any or
all of its current or former employees, on the other hand, including without
limitation any claims for actual or alleged
19
harassment or discrimination based on race, national origin, age, sex, sexual
orientation, religion, disability, or similar tortious conduct, breach of
contract, wrongful termination, defamation, intentional or negligent infliction
of emotional distress, interference with contract or interference with actual or
prospective economic advantage. There are no claims pending, or, to the
Company's Knowledge, reasonably expected or threatened, against the Company or
any Subsidiary under any workers' compensation or long-term disability plan or
policy. The Company and each Subsidiary has provided all employees with all
wages, benefits, relocation benefits, stock options, bonuses and incentives, and
all other compensation that became due and payable through the date of this
Agreement.
2.18 Insurance. Since January 1, 2002 (and since August 2, 2002
with regard to directors' and officers' liability insurance), the Company has
had in effect policies of insurance of the type and in amounts customarily
carried by persons conducting businesses or owning assets similar to those of
the Company. There is no material claim pending under any of such policies as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies. All premiums due and payable under all such policies have been
paid and, to the Company's Knowledge, the Company is otherwise in compliance
with the terms of such policies. To the Company's Knowledge, there is no
threatened termination of, or material premium increase with respect to, any of
such policies.
2.19 Compliance with Legal Requirements. Each of the Company and
its Subsidiaries has complied in all material respects with, is not in material
violation of, and has not received any written or, to the Company's Knowledge,
other notices of violation with respect to, any Legal Requirement or regulation
with respect to the conduct of its business, or the ownership or operation of
its business. The Company has not received any written or, to the Company's
Knowledge, other notices or other communication from any Governmental Body
regarding (A) any actual, alleged, possible, or potential violation of, or
failure to comply with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of the Company to undertake, or to
bear all or any portion of the cost of, any remedial action of any nature.
2.20 Environmental Matters. Each of the Company and its
Subsidiaries is, and at all times has been, in compliance in all material
respects with, and has not been and is not in material violation of or subject
to any material liability under, any Environmental Law. The Company has no basis
to expect, nor has it or, to the Company's Knowledge, any other Person for whose
conduct it is or may be held responsible, received, any actual or threatened
order, notice, or other written communication from (i) any Governmental Body or
private citizen acting in the public interest, or (ii) the current or prior
owner or operator of any Facilities, of any actual or potential violation of or
failure to comply with any Environmental Law, or of any actual or threatened
obligation to undertake or bear the cost of any Environmental, Health, and
Safety Liabilities with respect to any of the Facilities or any other properties
or assets (whether real, personal, or mixed) in which the Company has or has had
an interest, or with respect to any property or Facility at or to which
Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by the Company, or from which Hazardous Materials
have been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
20
2.21 Legal Proceedings.
(a) There is no pending Legal Proceeding that has been
commenced by or against the Company or any Subsidiary or, to the Company's
Knowledge, that otherwise could reasonably be expected to adversely affect the
business of, or any of the assets owned or used by, the Company.
(b) To the Company's Knowledge, (i) no Legal Proceeding
that if pending would be required to be disclosed under the preceding paragraph
has been threatened, and (ii) no event has occurred or circumstance exists that
could reasonably be expected to give rise to or serve as a basis for the
commencement of any such Legal Proceeding.
(c) There is no judgment, decree or order against the
Company or any Subsidiary, or, to the Company's Knowledge, any of its respective
directors or officers (in their capacities as such), that could prevent, enjoin,
or materially alter or delay any of the transactions contemplated by this
Agreement, or any ancillary agreement contemplated hereby, or that could
reasonably be expected to have a Material Adverse Effect on the Company.
2.22 Contracts; No Defaults.
(a) Section 2.22 of the Company Disclosure Schedule lists
each Material Contract. The Company has delivered to Parent true and correct
copies of each Material Contract.
(i) Each Material Contract is in full force and
effect and is enforceable in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
(ii) Neither the Company nor any Subsidiary has
violated or breached, or committed any material default under, any Material
Contract, and, to the Knowledge of the Company, no other Person has violated or
breached, or is in any default under, any Material Contract. To the Knowledge of
the Company, no event has occurred, and no circumstance or condition exists,
that (with or without notice or lapse of time) will or would reasonably be
expected to, (A) result in a violation or breach of any of the provisions of any
Material Contract, (B) give any Person the right to declare a default or
exercise any remedy under any Material Contract, (C) give any Person the right
to receive or require a rebate, chargeback, penalty or change in delivery
schedule under any Material Contract, (D) give any Person the right to
accelerate the maturity or performance of any Material Contract or (E) give any
Person the right to cancel, terminate or modify any Material Contract. Neither
the Company nor any Subsidiary has received notice or other written or, to the
Company's Knowledge, oral communication regarding any actual or possible
violation or breach of, or default under, any Material Contract.
2.23 Labor Matters. Neither the Company nor any Subsidiary is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. To the
Knowledge of the Company, the Company is not the
21
subject of any Legal Proceeding asserting that the Company has committed an
unfair labor practice or seeking to compel it to bargain with any labor
organization as to wages or conditions of employment. There is no strike, work
stoppage or other labor dispute involving the Company pending or, to the
Company's Knowledge, threatened against the Company. To the Knowledge of the
Company, no grievance with any Governmental Body is pending or threatened
against the Company, and the Company is not a party to, or otherwise bound by,
any consent decree with, or citation by, any Governmental Body relating to
employees or employment practices.
2.24 Business Relationships. Since January 1, 2002, there has not
been any change or, to the Knowledge of the Company, any threat of any material
change in the Company's relations (except as reflected in amendments to
agreements) with any of the licensors or suppliers of the Company. To the
Company's Knowledge, the execution of this Agreement and the consummation of the
Merger and the other transactions contemplated by this Agreement will not
adversely affect the Company's relations with any of its licensors or suppliers.
2.25 Regulatory Compliance.
(a) As to each Company Product subject to the
jurisdiction of the U.S. Food and Drug Administration ("FDA") under the Federal
Food, Drug and Cosmetic Act and the regulations thereunder ("FDCA") (each such
product, a "Pharmaceutical Product") that is manufactured, tested, distributed
and/or marketed by the Company, whether for commercial sale or otherwise, such
Pharmaceutical Product is being manufactured, tested, distributed and/or
marketed in compliance with all applicable requirements under FDCA and similar
Legal Requirements, including those relating to investigational use, premarket
clearance, good manufacturing practices, labeling, advertising, record keeping,
filing of reports and security. The Company has not received any notice or other
communication from the FDA or any other Governmental Entity (i) contesting the
premarket clearance or approval of, the uses of or the labeling and promotion of
any the Company Products, (ii) otherwise alleging any violation of any Legal
Requirement by the Company, or (iii) questioning or raising issues about the
development or proposed development of any Company Pharmaceutical Product.
(b) No Pharmaceutical Products have been recalled,
withdrawn, suspended or discontinued by the Company in the United States or
outside the United States (whether voluntarily or otherwise). No proceedings in
the United States and outside the United States of which the Company has
Knowledge (whether completed or pending) seeking the recall, withdrawal,
suspension or seizure of any Pharmaceutical Product are pending against the
Company, nor have any such proceedings been pending at any time.
(c) Each article of any biological or drug manufactured
and/or distributed by the Company is not adulterated within the meaning of 21
U.S.C. section 351 (or similar Legal Requirements) or misbranded within the
meaning of 21 U.S.C. section 352 (or similar Legal Requirements), and is not a
product that is in violation of 21 U.S.C. section 355 (or similar Legal
Requirements), except where the failure in compliance with the foregoing could
not reasonably be expected to have a Material Adverse Effect on the Company.
22
(d) Neither the Company, nor any officer, employee or
agent of either the Company has made an untrue statement of a material fact or
fraudulent statement to the FDA or other Governmental Entity or failed to
disclose a material fact required to be disclosed to the FDA or any other
Governmental Entity. Neither the Company, nor any officer, employee or agent of
the Company, has been convicted of any crime or engaged in any conduct for which
debarment is mandated by 21 U.S.C. section 335a(a) or any similar Legal
Requirement or authorized by 21 U.S.C. section 335a(b) or any similar Legal
Requirement
(e) The Company has not received any written notice that
the FDA or any other Governmental Entity has commenced, or threatened to
initiate, any action to withdraw its approval or request the recall of any
product of the Company, or commenced, or overtly threatened to initiate, any
action to enjoin production at any facility of the Company or, to the Company's
Knowledge, at which any of the Company Products are manufactured.
2.26 Third Party Expenses. Section 2.26 of the Company Disclosure
Schedule sets forth the Company's reasonable estimate of all Third Party
Expenses expected to be incurred by the Company in connection with the
negotiation and effectuation of the terms and conditions of this Agreement, the
Ancillary Agreements and the transactions contemplated hereby and thereby.
2.27 Minute Books. The minute books of the Company contain a
materially complete and accurate summary of all meetings of directors and
stockholders or actions by written consent since the time of incorporation of
the Company through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
2.28 Complete Copies of Materials. The Company has delivered or
made available true and complete copies of each document that has been requested
by Parent or its counsel in connection with their due diligence review of the
Company.
2.29 Representations Complete. This Agreement (including the
Company Disclosure Schedule, as may be updated prior to the Effective Time) does
not, and the certificates referred to in Section 6.2 will not as of the
Effective Time, contain any representation, warranty or information that (i)
contains an untrue statement of a material fact, or (ii) omits to state any
material fact necessary in order to make the statements herein (in the light of
the circumstances under which such statements have been made) not misleading.
2.30 Tax Treatment. Neither the Company nor any of its affiliates
has knowingly taken or agreed to take any action that would prevent the Merger
from constituting a reorganization qualifying under the provisions of Section
368(a) of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Parent represents and warrants to the Company that the statements contained in
this Article III are true and correct as set forth herein and as qualified
by the disclosure schedule delivered to the Company concurrently herewith,
and which may be updated in accordance with Section 4.1
23
(the "Parent Disclosure Schedule"). The disclosures set forth in the Parent
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III.
3.1 Organization and Good Standing. Parent and Merger Sub are
corporations duly organized, validly existing, and in good standing under the
laws of the State of Delaware, with full corporate power and authority to
conduct its business as now being conducted and to own or use its properties and
assets. Each of Parent and Merger Sub is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by them, or the nature of the activities conducted by them, requires
such qualification, except where the failure to be so qualified could not
reasonably be expected to, individually or in the aggregate, result in a
Material Adverse Effect on Parent.
3.2 Authority. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been, or will
have been by the Closing, duly authorized by all necessary corporate action on
the part of Parent and Merger Sub. This Agreement has been duly executed and
delivered by Parent and Merger Sub and constitutes the valid and binding
obligations of Parent and Merger Sub enforceable against Parent and Merger Sub
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to creditors' rights generally, and subject to general principles of
equity.
3.3 No Conflict. The execution and delivery by Parent of this
Agreement and the Ancillary Agreements to which Parent is a party, does not, and
the consummation of the transactions contemplated hereby and thereby will not
(i) conflict with, or result in any violation of, any provision of Parent's
Certificate of Incorporation or Bylaws, (ii) conflict with, or result in any
violation of or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any material obligation or loss of any material benefit under any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license of Parent, or (iii) conflict with, or result in
any violation of any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or any of its properties or assets.
3.4 Consents. No consent, approval, order or authorization of or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Parent or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by Parent and Merger Sub or the
consummation by Parent and Merger Sub of the transactions contemplated hereby,
except (i) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
securities laws, (ii) the filing of the Merger Agreement with the Secretary of
State of the State of Delaware and (iii) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not have a Material Adverse Effect on Parent.
24
3.5 Capitalization. The authorized capital stock of Parent
consists of 250,000,000 shares of Common Stock, $.01 par value, and 10,000,000
shares of Preferred Stock, $.01 par value, of which there were issued and
outstanding as of the close of business on January 27, 2003, 89,180,845 shares
of Common Stock and no shares of Preferred Stock. The authorized capital stock
of Merger Sub consists of 1,000 shares of Common Stock, all of which are issued
and outstanding and are held by Parent. All outstanding shares of Parent and
Merger Sub have been duly authorized, validly issued, fully paid and are
nonassessable. The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, and non-assessable,
free of any liens or encumbrances other than any liens or encumbrances created
by or imposed by the holders thereof, and subject to Section 6.1(c), shall be
issued in compliance with all applicable federal and state securities laws.
3.6 SEC Reports. As of their respective filing dates, all
statements, reports, schedules, forms and other documents filed by Parent with
the SEC since January 1, 2001 (the "Parent SEC Reports") (i) were prepared in
accordance with the requirements of the Securities Act and the Exchange Act, as
the case may be, and the rules and regulations thereunder and (ii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. No Subsidiary of Parent is or has been required to file any form,
report, registration statement or other document with the SEC. The consolidated
financial statements contained in Parent SEC Reports: (a) complied as to form in
all material respects with the published rules and regulations of the SEC
applicable thereto; (b) were prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments; and (c) fairly present in all material respects the consolidated
financial position of Parent and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows of Parent and
its subsidiaries for the periods covered thereby. All financial statements
(including any related notes) contained in Parent SEC Reports filed after the
date hereof and until the earlier of the Closing or the date set forth in
Section 8.1(b) shall meet the conditions set forth in clauses (a), (b) and (c)
of this Section 3.6.
3.7 Absence of Changes. Since December 31, 2002, no event has
occurred that has had or would reasonably be expected to have a Material Adverse
Effect on Parent.
3.8 Tax Treatment. Neither Parent nor any of its affiliates has
knowingly taken or agreed to take any action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of Section 368(a)
of the Code.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Operation of the Company's Business. Except (i) as set forth
in Section 4.1 of the Company Disclosure Statement and (ii) for the effect of
the consummation of the transactions contemplated by this Agreement, during the
period from the date of this Agreement through the
25
earlier of the termination of this Agreement or the Effective Time (the
"Pre-Closing Period"),the Company shall conduct its business and operations in
the ordinary course and in accordance with past practices, and the Company shall
use its reasonable efforts to preserve intact its current business organization
and maintain its relations and goodwill with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other Persons having
business relationships with it. The Company agrees to promptly notify Parent of
(i) any material event or occurrence not in the ordinary course of its business,
and (ii) any event that could reasonably be expected to have a Material Adverse
Effect on the Company. Without limiting the generality of the foregoing, during
the Pre-Closing Period, the Company shall not (without Parent's consent, which
will not be unreasonably withheld) do, cause or permit any of the following
actions:
(a) Dividends; Changes in Capital Stock. Declare, accrue,
set aside or pay any dividend or make any other distribution in respect of any
shares of capital stock, or repurchase, redeem or otherwise reacquire any shares
of capital stock or other securities;
(b) Issuance of Securities. Sell, issue, grant or
authorize the issuance or grant of any capital stock or other security, any
option, call, warrant or right to acquire any capital stock or other security,
or any instrument convertible into or exchangeable for any capital stock or
other security other than the issuance of shares of Company Common Stock or
Company Preferred Stock pursuant to the exercise of stock options, warrants or
convertible debt outstanding on the date of this Agreement;
(c) Stock Option Plans, Etc. Amend or waive any of its
rights under any provision of the Company Stock Option Plan, any provision of
any agreement evidencing any outstanding stock option or any restricted stock
purchase agreement, or otherwise modify any of the terms of any outstanding
option, warrant or other security or any related Contract, provided however that
the Company may fully accelerate the vesting of all In-the-Money Options and
permit such In-the-Money Options to be exercised by the holders thereof on a net
exercise basis prior to the Effective Time;
(d) Charter Documents. Amend or permit the adoption of
any amendment to the Company Certificate, Company Bylaws or other charter or
organizational documents, other than as provided in Sections 6.2(w) and 6.3(d);
(e) Subsidiaries. Form any Subsidiary or acquire any
equity interest or other interest in any other Entity;
(f) Capital Expenditures. Make any capital expenditure,
capital additions or capital improvements in excess of $10,000 individually or
$20,000 in the aggregate;
(g) Agreements. Enter into, terminate, amend or enter
into any waiver with regard to, (or agree to do so), (i) any agreement involving
the obligation to pay or the right to receive $50,000 or more; (ii) any
agreement relating to the license, transfer or other disposition or acquisition
of Intellectual Property rights or rights to market or sell Company Products; or
(iii) any other agreement material to the business of Company or that is or
would be a Material
26
Contract; provided, however, that the Company will be permitted to take the
actions contemplated by Section 4.1(g) of the Company Disclosure Schedule;
(h) Legal Proceedings. Commence or enter into any
settlement of any Legal Proceeding involving payments by the Company in excess
of $25,000 or involving any material asset of the Company;
(i) Insurance. Materially reduce the amount or scope of
any material insurance coverage provided by existing insurance policies;
(j) Dispositions. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are material,
individually or in the aggregate, to its business, except in connection with the
Permitted Loans;
(k) Leases. Enter into any operating leases;
(l) Indebtedness. Borrow from or lend money to any
Person, or incur or guarantee any indebtedness except for borrowing under the
Permitted Loans;
(m) Employee Benefit Plans; Pay Increases. Establish,
adopt or amend any employee benefit plan, pay any bonus or make any
profit-sharing or similar payment to, or increase the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees; provided, however, that
the Company will be permitted to take the actions contemplated by Section 4.1(g)
of the Company Disclosure Schedule;
(n) Labor Agreements. Enter into any employment contract
or, except if required by applicable law, any collective bargaining agreement;
(o) Severance Arrangements. Enter into agreements or
modifications of agreements with regard to the payment of severance or
termination pay, or grant any acceleration or extension of the exercisability or
vesting of any equity securities held by any director, officer or employee,
other than (i) the acceleration of vesting of the In-the-Money Options, (ii)
permitting such options to be exercised by the holders thereof on a net exercise
basis prior to the Effective Time, (iii) permitting the Company to take the
actions contemplated by Section 4.1(g) of the Company Disclosure Schedule, and
(iv) entering into severance arrangements with its employees in a manner
consistent with Section 6.2(k);
(p) Lawsuits. Commence a lawsuit other than (i) for the
routine collection of obligations, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, or (iii) for a breach of this Agreement;
(q) Acquisitions. Acquire or agree to acquire any Entity
or division thereof (whether by merger, consolidation, share exchange,
reorganization, stock purchase, asset purchase, or otherwise) or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the Company's business, or acquire or agree to acquire any
27
equity securities of or interests in any Entity, or enter into any material
strategic relationships or alliances;
(r) Change in Policies. Change any of its personnel
policies or other business policies, or any of its methods of accounting or
accounting practices in any respect;
(s) Taxes. Make any Tax election, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes;
(t) Material Transactions. Enter into any material
transaction or take any other material action outside the ordinary course of
business or inconsistent with past practices, other than as contemplated by
Sections 4.1(c), (g), (m) and (o) above;
(u) Payment of Obligations. Pay, discharge or satisfy, in
an amount in excess of $50,000 in the aggregate, any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business or in connection with the
transactions contemplated hereby, other than the payment, discharge or
satisfaction of liabilities reflected or reserved against in the Current Balance
Sheet; or
(v) Other Actions. Agree or commit to take any of the
actions described in Section 4.1(a) through (u), or any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder or any other action not in the ordinary course of the
Company's business and consistent with past practice.
During the Pre-Closing Period, each of Parent and Company shall promptly
notify the other party in writing (by updating and delivering to the other
party the Parent Disclosure Schedule or Company Disclosure Schedule, as
applicable) of: (i) the discovery by such party of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of
this Agreement and that caused or constitutes a material inaccuracy in any
representation or warranty made by such party in this Agreement; (ii) any
event, condition, fact or circumstance that occurs, arises or exists after
the date of this Agreement and that would cause or constitute a material
inaccuracy in any representation or warranty made by such party in this
Agreement if (A) such representation or warranty had been made as of the
time of the occurrence, existence or discovery of such event, condition,
fact or circumstance, or (B) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement; (iii)
any material breach of any covenant or obligation of such party; and (iv)
any event, condition, fact or circumstance that would make the timely
satisfaction of any of the closing conditions set forth in Sections 6.1, 6.2
or 6.3 (and applicable to such party) impossible or unlikely. Without
limiting the generality of the foregoing, each party shall promptly advise
the other party in writing of any material Legal Proceeding or material
claim threatened, commenced or asserted against or with respect to such
party. Unless otherwise agreed by Parent, no notification given to Parent
pursuant to this Section 4.1 shall limit or otherwise
28
affect any of the representations, warranties, covenants or obligations of
the Company contained in this Agreement.
4.2 No Solicitation. During the Pre-Closing Period:
(a) The Company shall not directly or indirectly, and
shall not authorize or permit any of its Representatives directly or indirectly
to, (i) take any action to solicit, initiate, encourage, induce or facilitate
the making, submission or announcement of any Acquisition Proposal or take any
action that could reasonably be expected to lead to an Acquisition Proposal or
(ii) subject to the terms of subsection (b) below, disclose any information
relating to the Company to any Person in connection with or in response to an
Acquisition Proposal or an inquiry or indication of interest that could
reasonably be expected to lead to an Acquisition Proposal, or engage in
discussions or negotiations with any Person with respect to any Acquisition
Proposal, or approve, endorse or recommend any Acquisition Proposal or enter
into any letter of intent, preliminary agreement or similar arrangement
contemplating or otherwise relating to any Acquisition Transaction.
(b) Company shall notify Parent immediately (and no later
than 24 hours) after receipt by Company (or its advisors) of any Acquisition
Proposal or any request for nonpublic information in connection with an
Acquisition Proposal or for access to the properties, books or records of
Company by any person or entity that informs Company that it is considering
making, or has made, an Acquisition Proposal. Such notice shall be made orally
and in writing and shall indicate in reasonable detail the identity of the
offeror and the terms and conditions of such proposal, inquiry or contact.
(c) The Company shall immediately cease and cause to be
terminated, and represents and warrants that it has the legal right to do so
without payment of any fee or other penalty, any existing discussions with any
Person that relate to any Acquisition Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Stockholder Approval. As soon as practicable following the
Fairness Hearing and the issuance of the California Permit, the Company shall
submit to the Stockholders: (a) this Agreement and the transactions contemplated
hereby for approval and adoption as provided by the Delaware General Corporation
Law ("Delaware Law") and the California Code, to the extent applicable, the
Company Certificate and Company Bylaws, and (b) such other documents as are
necessary in connection with the issuance and sale of the Merger Shares. The
Company shall use its reasonable best efforts to solicit and obtain the consent
of its Stockholders sufficient to approve the Merger and this Agreement and to
enable the Closing to occur as soon as possible. The materials submitted to the
Stockholders shall be subject to review and approval by Parent and include
information regarding (i) the Company; (ii) the terms of the Merger, this
Agreement and the Ancillary Agreements; and (iii) the unanimous recommendation
of the Board of Directors of the Company in favor of the Merger, this Agreement
and the Ancillary Agreements.
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5.2 Access to Information.
(a) The Company shall afford Parent and its
Representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of the Company's properties,
books, contracts, commitments and records, (ii) all other information concerning
the business, properties and personnel of the Company as Parent may reasonably
request, and (iii) employees of the Company as identified by Parent and with the
Company's consent, not to be unreasonably withheld. The Company agrees to
provide to Parent and its accountants, counsel and other representatives copies
of internal financial statements promptly upon request.
(b) No information or knowledge obtained in any
investigation pursuant to this Section 5.2 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
(c) The Company shall provide Parent and its
Representatives reasonable access, during normal business hours during the
period prior to the Effective Time, to all of the Company's Tax Returns and
other records and workpapers relating to Taxes, and shall also provide the
following information upon the request of Parent: (i) a schedule of the types of
Tax Returns being filed by the Company in each taxing jurisdiction; (ii) a
schedule of the year of the commencement of the filing of each such type of Tax
Return; (iii) a schedule of all closed years with respect to each such type of
Tax Return filed in each jurisdiction; (iv) a schedule of all material Tax
elections filed in each jurisdiction by the Company; (v) a schedule of any
deferred intercompany gain with respect to transactions to which the Company has
been a party; and (vi) receipts for any Taxes paid to foreign Tax authorities.
5.3 Confidentiality. Each of Parent, Merger Sub and Company hereby
agrees that the information obtained in any investigation pursuant to Section
5.2, or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transaction contemplated hereby shall be governed by the
terms of the Confidential Disclosure Agreement previously executed by and
between the Company and Parent (the "Confidentiality Agreement").
5.4 Legal Requirements. Parent and the Company shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the Merger and make effective the other transactions contemplated by
this Agreement and the Ancillary Agreements. Without limiting the generality of
the foregoing, Parent and the Company (i) shall make all filings (if any) and
give all notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by this
Agreement and to submit promptly any additional information requested in
connection with such filings and notices, (ii) shall use all reasonable efforts
to obtain each Consent (if any) required to be obtained (pursuant to any
applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the Merger or any of the other transactions contemplated by this
Agreement or the Ancillary Agreements, and (iii) shall use all reasonable
efforts to lift any restraint, injunction or other legal bar to the Merger. Each
party shall promptly deliver to the other party a copy of each such filing made,
each such notice given and each such Consent obtained by such party during the
Pre-Closing Period.
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5.5 FIRPTA Compliance. On the Closing Date, the Company shall
deliver to Parent a properly executed statement in a form reasonably acceptable
to Parent for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
5.6 Expenses.
(a) Except as set forth in Section 5.6(b), whether or not
the Merger is consummated, Third Party Expenses incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the Ancillary Agreements and the transactions contemplated
hereby and thereby, shall be the obligation of the respective party incurring
such fees and expenses.
(b) In the event that the Merger is consummated, Parent
agrees to pay the Covered Transaction Expenses. Parent shall have full recourse
out of the Escrow Fund for payment of all Third Party Expenses of the Company
that exceed the Covered Transaction Expenses to the extent such excess was not
deducted from the Preferred Merger Consideration.
5.7 Termination of 401(k) Plan. The Company agrees to terminate
its 401(k) Plan(s) immediately prior to the Closing, unless Parent, in its sole
and absolute discretion, agrees to sponsor and maintain such plan by providing
the Company with notice of such election at least five (5) days before the
Closing Date. Unless Parent provides such written notice to the Company at least
two (2) days prior to the Closing Date, the Company shall provide Parent with
evidence that such Company 401(k) Plan(s) have been terminated (effective as of
the day immediately preceding the Effective Time) pursuant to resolutions of the
Company's Board of Directors. The form and substance of such resolutions shall
be subject to review and approval of Parent. The Company also shall take such
other actions in furtherance of terminating such Company 401(k) Plan(s) as
Parent may reasonably require. In the event the Company 401(k) Plan(s) is
terminated and makes lump sum distributions available to those Company employees
who continue to be employees of the Company after the Effective Time, such lump
sum distributions may be rolled over to the plan of Parent that is intended to
include a Code Section 401(k) arrangement (the Parent 401(k) Plan) subject to
applicable law.
5.8 Continuing Employees and Employee Benefits.
(a) The Company will assist Parent to identify which
employees of the Company should receive offers to remain in the employment of
Parent, the Surviving Corporation or any Subsidiary thereof after the Effective
Time (the "Continuing Employees"). The Company will also assist Parent to
identify up to [****] "key employees" from among the Continuing Employees (the
"Key Employees"). The Continuing Employees will be provided the opportunity to
enter into at-will employment arrangements with Parent, subject to and in
compliance with Parent's standard human resources policies and procedures.
Parent agrees that all Continuing Employees shall receive credit for service
prior to the Effective Time for purposes
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* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
31
of vacation accrual with Parent or the Surviving Corporation, and shall be
eligible to participate in those benefit plans and programs maintained for
similarly situated employees of Parent (or in substantially similar programs),
on the same terms applicable to similarly situated employees of Parent. Nothing
in this Section 5.8 or elsewhere in this Agreement shall be construed to create
a right in any employee to employment with Parent, the Surviving Corporation or
any other Subsidiary of Parent and, subject to any other binding agreement
between an employee and Parent, the Surviving Corporation or any other
Subsidiary of Parent, the employment of each Continuing Employee shall be "at
will" employment.
(b) The Board of Directors of Parent, or a committee of
non-employee directors thereof (as such term is defined for purposes of Rule
16b-3(d) under the Exchange Act) shall, reasonably promptly after the date
hereof, and in any event prior to the Effective Time, adopt a resolution
providing that the receipt, by those officers and directors of the Company who
may be subject to the reporting requirements of Section 16(a) of the Exchange
Act with respect to Parent Common Stock following the Effective Time, of Parent
Common Stock in the Merger is intended to be an exempt transaction under such
Rule 16b-3.
5.9 Indemnification of Officers and Directors.
(a) All rights to indemnification existing in favor of
those Persons who are, or were, directors and officers of the Company at or
prior to the date of this Agreement (the "Indemnified Directors and Officers")
shall survive the Merger and shall be observed by Parent to the fullest extent
permitted by Delaware Law for a period of six years from the Effective Time.
(b) From the Effective Time until the sixth anniversary
of the Effective Time, Parent shall cause to be maintained the current policies
of the officers' and directors' liability insurance maintained by the Company
covering persons who are presently covered by the Company's officers' and
directors' liability insurance policies with respect to actions and omissions
occurring on or prior to the Effective Time to the extent available; provided,
that policies with third party insurers of similar or better A.M. Best rating of
at least the same coverage containing terms and conditions that are not less
advantageous to the insured may be substituted therefore; provided, further,
that in no event shall Parent be required to maintain or procure insurance
coverage pursuant to this Section 5.9 for coverages that are not commercially
available or that are only available for an amount per annum in excess of 175%
of the current annual premiums with respect to each such policy; provided,
however, that if the annual premiums of such insurance coverage exceed such
amount, Parent shall obtain or cause to be obtained policies with the best
coverage available for a cost not exceeding such amount.
(c) Parent shall bear and pay, and shall reimburse the
Indemnified Directors and Officers for, all costs and expenses, including
attorneys' fees, that may be incurred by the Indemnified Directors and Officers
in seeking to enforce their rights against Parent and the Surviving Corporation
under this Section 5.9.
(d) This Section 5.9 shall survive the consummation of
the Merger and the Effective Time, is intended to benefit and may be enforced by
the Indemnified Directors and
32
Officers and their respective heirs, successors and assigns and shall be binding
on Parent and the Surviving Corporation and their respective successors and
assigns.
5.10 Voting Agreements. The Company shall deliver or cause to be
delivered to Parent, concurrently with the execution of this Agreement, from the
Stockholders listed on Schedule 5.10 an executed Voting Agreement with Parent
substantially in the form attached hereto as Exhibit B (the "Voting
Agreements").
5.11 Affiliate Agreements. Schedule 5.11 sets forth those persons
who are, in the Company's reasonable judgment, "affiliates" of the Company
within the meaning of Rule 145 (each such person a "Company Affiliate")
promulgated under the Securities Act ("Rule 145"). The Company shall provide
Parent such information and documents as Parent shall reasonably request for
purposes of reviewing such list. The Company shall use its reasonable best
efforts to deliver or cause to be delivered to Parent, concurrently with the
execution of this Agreement (and in any case prior to the Effective Time) from
each of the Affiliates of the Company who own any securities of the Company, an
executed Affiliate Agreement in the form attached hereto as Exhibit C. Parent
shall be entitled to place appropriate legends on the certificates evidencing
any Parent Common Stock to be received by such Affiliates pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for Parent Common Stock, consistent with the terms of such
Affiliate Agreements.
5.12 Statement of Expenses; Closing Date Balance Sheet. At least
three (3) business days prior to the Closing Date, the Company shall provide
Parent with (a) a statement of its Third Party Expenses (the "Statement of
Expenses"), which Statement of Expenses shall be documented to Parent's
reasonable satisfaction, prepared in good faith and based on reasonable
assumptions, and certified by the Chief Financial Officer and Chief Executive
Officer of the Company as being true and correct in all material respects, and
(b) the Closing Date Balance Sheet.
5.13 Noncompetition Agreements. The Company shall deliver or cause
to be delivered to Parent, concurrently with the execution of this Agreement,
from the individuals listed on Schedule 5.13, an executed Noncompetition
Agreement with Parent in a form reasonably acceptable to Parent (the
"Noncompetition Agreements").
5.14 Public Disclosure. Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statement with respect to the Merger or any of the other transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, neither party shall, and shall not permit any of its Representatives
to, make any disclosure regarding the Merger, the subject matter of this
Agreement or the Ancillary Agreements or any of the other transactions
contemplated hereby or thereby unless (a) the other party shall have approved
such disclosure or (b) the disclosing party shall have been advised by its
outside legal counsel that such disclosure is required by applicable law.
5.15 Resignation of Officers and Directors. The Company shall use
its reasonable best efforts to obtain and deliver to Parent prior to the Closing
the resignation of each officer and director of the Company.
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5.16 Permitted Loans. The Company and Parent shall cooperate in
good faith in obtaining any documentation necessary to evidence the Permitted
Loans, including, if required, an inter-creditor agreement between Parent and
the lenders of the Company Stockholder Loan.
5.17 Preparation of Information Statement; Permit Application.
(a) As soon as reasonably practicable after the execution
of this Agreement, the Company shall prepare, with the cooperation of Parent
(including Parent's supplying all reasonably necessary information describing or
otherwise relating to Parent), an information statement to be distributed to the
Stockholders in connection with soliciting Stockholder approval for this
Agreement, the Ancillary Agreements and the transactions contemplated hereby
(the "Information Statement"). The Company and Parent shall each use
commercially reasonable efforts to cause the Information Statement to comply
with applicable federal and state securities laws requirements. Each of the
Company and Parent shall provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the Information Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Information Statement.
The Company shall promptly advise Parent, and Parent shall promptly advise the
Company, in writing if at any time prior to the Effective Time either the
Company or Parent shall obtain knowledge of any fact that might make it
necessary or appropriate to amend or supplement the Information Statement in
order to make the statements contained or incorporated by reference therein not
misleading or to comply with applicable laws. The Information Statement shall
contain the unanimous recommendation of the Board of Directors of the Company
that the Stockholders approve the Merger and this Agreement and the conclusion
of the Company Board of Directors that the terms and conditions of the Merger
are fair and reasonable to the Stockholders. Each of the Company and Parent
covenant that the information supplied by Company and Parent, as applicable, for
inclusion in the Information Statement shall not, on the date the Information
Statement is first mailed to Stockholders or at the Effective Time contain any
statement that, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication that has become false or
misleading. Anything to the contrary contained herein notwithstanding, the
Company shall not include in the Information Statement any information with
respect to Parent or its affiliates or associates, the form and content of which
information shall not have been approved by Parent prior to such inclusion.
(b) Promptly after the date hereof and subject to Section
1.13, Parent shall, with the cooperation of the Company, prepare and file the
Permit Application. Parent and the Company shall each use commercially
reasonable efforts to cause the Permit Application to comply with the
requirements of applicable federal and state laws. Each of Parent and the
Company shall provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable judgment of
the providing party or its counsel, may be required or appropriate for inclusion
in the Permit Application, or in any amendments or supplements thereto, and to
cause its counsel and auditors to cooperate with the
34
other's counsel and auditors in the preparation and completion of the Permit
Application. The Company shall promptly advise Parent, and Parent shall promptly
advise the Company, in writing if at any time prior to the Effective Time either
the Company or Parent, as applicable, shall obtain knowledge of any fact that
might make it necessary or appropriate to amend or supplement the Permit
Application in order to make the statements contained or incorporated by
reference therein not misleading or to comply with applicable law. Anything to
the contrary contained herein notwithstanding, Parent shall not include in the
Permit Application any information with respect to the Company or its affiliates
or associates, the form and content of which information shall not have been
approved by Company prior to such inclusion.
5.18 Reorganization Tax Treatment. Neither Parent, Merger Sub nor
Company has taken or will take any action, or has failed to take or will fail to
take any action, either before or after the Closing of the Merger, which could
reasonably be expected to cause the Merger to fail to qualify as a
reorganization, and Parent, Merger Sub and Company shall report the Merger for
federal income tax purposes as a reorganization.
5.19 Listing of Additional Shares Prior to the Effective Time, if
required by applicable rules, Parent shall file with the Nasdaq National Market
a Notification Form for Listing of Additional Shares with respect to the Merger
Shares.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions Precedent to Obligations of Each Party. The
obligation of each party to effect the Merger and otherwise consummate the
transactions contemplated by this Agreement is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions:
(a) No Restraints. No temporary restraining order,
preliminary or permanent injunction or other order preventing the consummation
of the Merger shall have been issued by any court of competent jurisdiction or
any other Governmental Body and shall remain in effect, and there shall not be
any Legal Requirement enacted, adopted or deemed applicable to the Merger that
makes consummation of the Merger illegal.
(b) Governmental Approvals. All authorizations, consents,
orders, declarations or approvals of, or filings with, or terminations or
expirations of waiting periods imposed by, any Governmental Entity which the
failure to obtain, make or occur would have a Material Adverse Effect on Parent
or the Surviving Corporation shall have been obtained, made or occurred.
(c) Permit; Compliance With Section 3(a)(10) of the
Securities Act. The California Commissioner shall have issued a permit under
Section 25121 of the California Code (following a hearing upon the fairness of
the terms and conditions of the Merger, conducted pursuant to Section 25142 of
the California Code) for the issuance of the Parent Common Stock to be issued
in the Merger, and all applicable requirements of Section 3(a)(10) of the
Securities Act shall have been satisfied.
35
(d) Company Stockholder Approval. The requisite
Stockholders of the Company entitled to vote on or consent to this Agreement and
the Merger in accordance with Delaware Law (and, if applicable, the California
Code) and the Company Certificate shall have adopted and approved this Agreement
and the Merger.
6.2 Conditions Precedent to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing of each of the following conditions:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of the Company in this Agreement shall be true
and correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality or
Material Adverse Effect, which representations and warranties as so qualified
shall be true and correct in all respects) both when made and on and as of the
Closing Date, (ii) the Company shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by it prior to the Effective Time and
(iii) the Stockholders of the Company shall have complied in all material
respects with any covenants applicable to them.
(b) Consents. All Consents set forth on Schedule 6.2(b)
shall have been obtained, made or given and shall be in full force and effect.
(c) Company Stockholder Approval. This Agreement shall
have been approved and adopted, and the Merger shall have been duly approved, by
Stockholders holding a number of shares of Company Capital Stock equal to a
minimum of 90% of the number of shares of Company Capital Stock issued and
outstanding on the date on which the Board of Directors of the Company shall
establish as the record date for purposes of such approval, and in compliance
with applicable law, the Certificate of Incorporation and Company Bylaws, in
each case as amended and any agreement to which the Company is a party or by
which it is bound.
(d) Stockholder Approval of Certain Payments. Any
agreements or arrangements that may result in the payment of any amount that
would not be deductible by reason of Section 280G of the Internal Revenue Code
shall have been approved by such number of Stockholders as is required by the
terms of Section 280G(b)(5)(B) and shall be obtained in a manner that satisfies
all applicable requirements of such Section 280G(b)(5)(B) and the proposed
Treasury regulations thereunder.
(e) Limitation on Dissent. Appraisal, dissenters' or
similar rights under any applicable law shall not have been exercised by holders
of more than 5% of the Company Capital Stock outstanding immediately prior to
the Effective Time.
(f) Legal Opinion. Parent shall have received a legal
opinion from Venture Law Group, legal counsel to the Company, in substantially
the form attached hereto as Exhibit D.
36
(g) Noncompetition Agreements. Each of the persons listed
on Schedule 5.13 shall have entered into a Noncompetition Agreement with Parent
and each of such Noncompetition Agreements shall be in full force and effect at
the Effective Time and no party to any such agreement shall be in breach of the
agreement, threatening to breach such agreement or taking any action materially
inconsistent with the party's obligations under the agreement.
(h) Statement of Expenses; Closing Date Balance Sheet.
Parent shall have received the Statement of Expenses and the Closing Date
Balance Sheet, each of which shall have been certified by the Chief Financial
Officer and Chief Executive Officer of the Company as being true and correct in
all material respects, from the Company no later than three (3) business days
prior to the Closing Date.
(i) Termination of 401(k) Plan. Unless otherwise
requested by Parent pursuant to Section 5.7, the Board of Directors of the
Company shall have adopted resolutions terminating the Company's 401(k) Plan as
of immediately prior to the Closing.
(j) Termination of Company Options and Company Warrants.
Each unexercised Company Option and Company Warrant, whether vested or unvested,
that has not been exercised in full prior to the Effective Time shall have been
terminated at the Effective Time. Parent shall have received evidence of the
termination of each Company Warrant in form and substance reasonably
satisfactory to Parent and shall have received evidence of the Company's
compliance with all applicable notice provisions in connection with the
termination of such Company Options and Company Warrants.
(k) Employment Arrangements. The persons identified by
Parent as Continuing Employees that were offered regular "at-will" employment or
consulting arrangements with Parent or the Surviving Corporation, or a
Subsidiary thereof: (i) shall be the only remaining employees of Company as of
the Effective Time and (ii) at least [****] of the [****] Key Employees listed
on Schedule 6.2(k)(1)(i) and each of the Key Employees listed on Schedule
6.2(k)(l)(ii) shall have executed such "at-will" employment arrangements with
Parent or the Surviving Corporation, or a Subsidiary thereof, in a form
substantially similar to Parent's standard form. [****] shall have executed an
agreement, in the form delivered to [****] prior to the date of this Agreement,
providing for non-solicitation anywhere in the world with any business of the
Company currently conducted or reasonably contemplated as of the date of this
Agreement. The employees of Company who are not Continuing Employees or who are
offered employment by Parent but decline such offer shall be offered the
severance payments provided business of the Company currently conducted or
reasonably contemplated as of the date of this Agreement. The employees of
Company who are not Continuing Employees or who are offered employment by Parent
but decline such offer shall be offered the severance payments provided on
Schedule 6.2(k)(3) (the "Severed Employees Severance") in exchange for executed
releases in a form reasonably satisfactory to Parent.
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* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
37
(l) Resignations of Directors and Officers. The directors
and officers of the Company shall have signed and tendered their resignation
from their position as officers and directors of the Company, in each case
effective as of the Effective Time.
(m) Termination of Investors' Rights Agreement. The
Fourth Amended and Restated Investors' Rights Agreement effective as of
September 7, 2000, by and between the Company and the investors named therein
(the "Investors' Rights Agreement"), shall have been terminated, effective as of
the day immediately preceding the Closing Date, and Parent shall have received
evidence of such terminations in form and substance reasonably satisfactory to
Parent, including without limitation a written consent from the investors named
therein holding the requisite number of shares of Company Capital Stock needed
to terminate such agreement, acknowledging and consenting to the termination of
each of the Investors' Rights Agreement (the form and substance of which shall
have been subject to review and approval by Parent).
(n) Certificate of the Company. Parent shall have been
provided with a certificate executed on behalf of the Company by its Chief
Executive Officer and its Chief Financial Officer as to the satisfaction of the
conditions set forth in Section 6.2(a).
(o) Secretary's Certificate. Parent shall have received
from the Company a certificate, validly executed by the Secretary of the
Company, certifying that (i) attached as exhibits thereto are true and complete
copies of the Company Certificate, as amended pursuant to Section 6.2(t), and
the Company Bylaws, each as in effect as of Closing, and (ii) attached as
exhibits thereto are true and complete copies of resolutions duly adopted by the
Board of Directors and Stockholders of the Company, approving the Agreement, the
Merger and the other transactions contemplated hereby, which resolutions remain
in full force and effect as of the Closing and are the only resolutions so
adopted with respect to the transactions contemplated hereby.
(p) No Material Adverse Change. There shall not have
occurred any change in the business, condition (financial or otherwise), results
of operations or assets (including intangible assets) and properties of the
Company that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect on the Company.
(q) Claims. After the date of this Agreement, no Person
shall have (i) commenced, or shall have notified either Parent or Company that
it intends to commence, a Legal Proceeding or (ii) provided Parent or Company
with written notice, in either case which allege(s) that any of the Intellectual
Property presently embodied, or proposed to be embodied, in Company Products
infringes or otherwise violates the intellectual property rights of such person,
is available for licensing from a potential licensor providing the notice, or
otherwise alleges that Company does not otherwise own or have the right to
exploit such Intellectual Property, in each case where such Legal Proceeding or
notice is reasonably likely to materially and adversely affect the Company and
its Business.
(r) Releases. The Company shall have delivered to Parent
a release of claims of the Company in the form of Exhibit E hereto (each a
"Release") executed by each of the stockholders of the Company set forth on
Schedule 6.2(r).
38
(s) Affiliate Agreements. Parent shall have received from
each Company Affiliate an executed Affiliate Agreement, which shall be in full
force and effect.
(t) Voting Agreements. The Company and its officers,
directors and Stockholders listed on Schedule 5.10 shall have entered into a
Voting Agreement and shall have cooperated in good faith to effectuate the
Closing.
(u) No Clinical Hold. No clinical hold shall have been
imposed by the FDA with respect to the [****].
(v) Amendment of Management Acquisition Bonus Agreements.
Each of the Management Acquisition Bonus Agreements shall be amended to provide
that the consideration to be provided thereunder shall be calculated based on
the Preferred Merger Consideration as contemplated by this Agreement.
(w) Company Certificate. The liquidation preferences
provisions of the Company Certificate shall be amended as necessary to provide
for the payment of the Preferred Merger Consideration and the Common Merger
Consideration as contemplated by this Agreement.
(x) Audited Financial Statements. Parent shall have
received the audited financial statements for the Company for the fiscal year
ended December 31, 2002 (the "2002 Audited Financial Statements", and such 2002
Audited Financial Statements shall not contain any material change from the
Interim Financials.
(y) Ancillary Agreements. The Company shall have executed
and delivered to Parent the Escrow Agreement and any other Ancillary Agreements
contemplated by this Agreement to which the Company is a signatory.
6.3 Conditions Precedent to Obligation of the Company. The
obligation of the Company to effect the Merger and otherwise consummate the
transactions contemplated by this Agreement is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Parent in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
that are qualified by their terms by a reference to materiality or Material
Adverse Effect, which representations and warranties as so qualified shall be
true and correct in all respects) both when made and on and as of the Closing
Date, and (ii) Parent shall have performed and complied in all material respects
with all covenants, obligations and conditions of this Agreement required to be
performed and complied with by it prior to the Effective Time.
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* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
39
(b) Certificate. The Company shall have received a
certificate executed on behalf of Parent by an executive officer of Parent,
confirming that the conditions set forth in Section 6.2(a) have been satisfied.
(c) Legal Opinion. The Company shall have received a
legal opinion from Xxxx, Xxxx, Xxxx and Freidenrich, legal counsel to Parent, in
substantially the form attached hereto as Exhibit F.
(d) Company Certificate. The liquidation preferences
provisions of the Company Certificate shall be amended as necessary to provide
for the payment of the Preferred Merger Consideration and the Common Merger
Consideration as contemplated by this Agreement.
(e) No Material Adverse Change. There shall not have
occurred any change in the business, condition (financial or otherwise), results
of operations or assets (including intangible assets) and properties of Parent
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Parent.
(f) Secretary's Certificate. The Company shall have
received from Parent a certificate, validly executed by the Secretary of Parent,
certifying that (i) attached as exhibits thereto are true and complete copies of
Parent's Certificate of Incorporation and Parent's Bylaws, each as in effect as
of Closing, and (ii) attached as exhibits thereto are true and complete copies
of resolutions duly adopted by the Board of Directors of Parent, approving the
Agreement, the Merger and the other transactions contemplated hereby, which
resolutions remain in full force and effect as of the Closing and are the only
resolutions so adopted with respect to the transactions contemplated hereby.
(g) Ancillary Agreements. Parent shall have executed and
delivered to the Company the Escrow Agreement and any other Ancillary Agreements
contemplated by this Agreement to which Parent is a signatory.
ARTICLE VII
INDEMNIFICATION AND ESCROW
7.1 Survival of Representations, Warranties, Covenants and
Agreements. Notwithstanding any right of Parent or the Company (whether or not
exercised) to investigate the affairs of Parent or the Company (whether pursuant
to Section 5.2 or otherwise) or a waiver or non-assertion by Parent or the
Company of any condition to Closing set forth in Article VI or any termination
right set forth in Article VIII, each party shall have the right to rely fully
upon the representations, warranties, covenants and agreements of the other
party contained in this Agreement, the Ancillary Agreements or any instrument
delivered pursuant to this Agreement or any of the Ancillary Agreements. All of
the representations, warranties, covenants and agreements of the Company
contained in this Agreement, the Ancillary Agreements or any instrument
delivered pursuant to this Agreement or any of the Ancillary Agreements shall
survive
40
the Merger and continue until the [****] anniversary of the Effective Time (the
"Expiration Date").
7.2 Escrow and Indemnification.
(a) Escrow Fund.
(i) At the Closing, the Escrow Shares shall be
registered in the name of, and be deposited with, U.S. Bank Trust (or other
institution selected by Parent with the reasonable consent of the Company) as
escrow agent (the "Escrow Agent"), such deposit and any Additional Escrow Shares
to constitute the Escrow Fund and to be governed by the terms set forth herein
and in the Escrow Agreement attached hereto as Exhibit G. The Escrow Fund shall
be available to compensate Parent pursuant to the indemnification obligations of
the Stockholders. In the event Parent issues any Additional Escrow Shares, such
shares will be issued in the name of the Escrow Agent and delivered to the
Escrow Agent in the same manner as the Escrow Shares delivered at the Closing.
(ii) Except for dividends paid in stock declared
with respect to the Escrow Shares ("Additional Escrow Shares"), which shall be
treated as Escrow Shares pursuant to this Section 7.2 and all references in this
Section 7.2 to the term "Escrow Shares" shall be deemed to include any
Additional Escrow Shares, any cash dividends, dividends payable in securities or
other distributions of any kind made in respect of the Escrow Shares will be
delivered to the Stockholders of the Company on a pro rata basis based upon
their respective interests in the Escrow Fund at the time of distribution (in
each case, such Stockholder's "Pro Rata Share"). Each Stockholder of the Company
will have voting rights with respect to such stockholder's Pro Rata Share of the
Escrow Shares deposited in the Escrow Fund so long as such Escrow Shares are
held in escrow, and Parent will take all reasonable steps necessary to allow the
exercise of such rights. While the Escrow Shares remain in the Escrow Agent's
possession pursuant to this Agreement, each Stockholder of the Company will
retain and will be able to exercise all other incidents of ownership of such
stockholder's Pro Rata Share of the Escrow Shares which are not inconsistent
with the terms and conditions of this Agreement.
(b) Indemnification.
(i) Indemnification. Subject to the limitations
set forth in this Section 7.2, the Stockholders will, severally and not jointly,
and in accordance with each such Stockholder's Pro Rata Share of the Escrow
Fund, indemnify and hold harmless Parent and the Surviving Corporation and their
respective officers, directors, agents, attorneys and employees, and each
person, if any, who controls or may control Parent or the Surviving Corporation
within the meaning of the Securities Act (individually a "Parent Indemnified
Person" and collectively the "Parent Indemnified Persons") from and against any
and all losses, costs, damages, liabilities and expenses arising from claims,
demands, actions, causes of action, including, without and
-------------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
41
each person, if any, who controls or may control Parent or the Surviving
Corporation within the meaning of the Securities Act (individually a "Parent
Indemnified Person" and collectively the "Parent Indemnified Persons") from and
against any and all losses, costs, damages, liabilities and expenses arising
from claims, demands, actions, causes of action, including, without limitation,
legal fees, (collectively, "Damages") arising out of, resulting from or incident
to (i) any misrepresentation or breach of any of the representations,
warranties, covenants and agreements given or made by the Company in this
Agreement, the Company Disclosure Schedule or any exhibit or schedule to this
Agreement, (ii) the Excess Employee Expenses (to the extent such Excess Employee
Expenses were not deducted from the Preferred Merger Consideration), (iii) all
Excess Transaction Fees (to the extent that such Excess Transaction Fees were
not deducted from the Preferred Merger Consideration), and (iv) any Excess
Liabilities (to the extent that such Excess Liabilities were not deducted from
the Preferred Merger Consideration). Except as set forth in Section 7.2(b)(ii),
the sole recourse of the Parent Indemnified Persons shall be against the Escrow
Fund and claims against the Escrow Fund shall be the sole and exclusive remedy
of Parent Indemnified Persons for any Damages in connection with this Agreement
or the transactions contemplated hereby. The parties shall cooperate in the
administration of this Article XII to ensure that there is no double-counting
for claims (e.g., an item that gives rise to both an Excess Employee Expense and
an Excess Liability will only be counted once in determining the appropriate
claim against the Escrow Fund).
(ii) No Limitation. Nothing in this Agreement
shall limit the liability in amount or otherwise (A) of the Company for any
breach of any representation, warranty or covenant if the Merger does not close;
or (B) of any Company Stockholder in connection with any breach by such
Stockholder of any representation or covenant in the Voting Agreement, or (C) of
the Company with respect to fraud or criminal activity or intentional breach of
any covenant contained in this Agreement.
(iii) Threshold for Claims. No claim for Damages
shall be made under Section 7.2 unless the aggregate of Damages exceeds $[****]
for which claims are made hereunder by the Parent Indemnified Persons, in which
case the Parent Indemnified Person shall be entitled to seek compensation for
all Damages without regard to the limitation set forth in this Section
7.2(b)(iii) (the "Limitation").
(c) Expiration Date; Release From Escrow.
(i) The Escrow Fund shall terminate upon the
Expiration Date; provided, however, that a portion of the Escrow Fund that, in
the reasonable judgment of Parent subject to the objection of the Stockholders'
Agent and the subsequent arbitration of the matter in the manner provided in
Section 7.2(f), is necessary to satisfy any unsatisfied claims specified in any
Officer's Certificate (as defined below) delivered to the Escrow Agent on or
prior to the Expiration Date, with respect to facts and circumstances existing
on or prior to the Expiration
-------------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
42
Date (the "Disputed Portion"), shall remain in the Escrow Fund until such claims
have been resolved.
(ii) If any Escrow Shares remain in the Escrow
Fund on the Expiration Date, within two (2) business days after such date (the
"Release Date"), the Escrow Agent shall release from escrow to the Stockholders
their Pro Rata Share of the Escrow Shares less the Disputed Portion, if any. Any
Disputed Portion shall be released to the Stockholders according to their Pro
Rata Share of such Disputed Portion or released to Parent (as appropriate)
promptly upon resolution of each specific indemnification claim for Damages
involved. Parent will take such action as may be necessary to cause such
certificates to be issued in the names of the appropriate persons. No fractional
shares shall be released and delivered from Escrow to the Stockholders. In lieu
of any fraction of an Escrow Share to which a Stockholder would otherwise be
entitled, such Stockholder will receive from Parent an amount of cash (rounded
to the nearest whole cent) equal to the product of such fraction multiplied by
the Parent Common Stock Price.
(iii) No Escrow Shares or any beneficial interest
therein may be pledged, sold, assigned or transferred, including by operation of
law, by any Stockholder or be taken or reached by any legal or equitable process
in satisfaction of any debt or other liability of any such Stockholder, prior to
the delivery to such stockholder of such Stockholder's pro rata portion of the
Escrow Fund by the Escrow Agent as provided herein.
(iv) The Escrow Agent is hereby granted the power
to effect any transfer of Escrow Shares contemplated by this Agreement. Parent
will cooperate with the Escrow Agent in promptly issuing stock certificates to
effect such transfers.
(d) Claims Upon Escrow Fund. Upon receipt by the Escrow
Agent on or before the Expiration Date of a certificate signed by any officer of
Parent (an "Officer's Certificate") alleging in good faith that Damages exist or
are reasonably anticipated from threatened or pending litigation with respect to
the indemnification obligations of the Stockholders of the Company set forth in
Section 7.2(b), and specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid, or
properly accrued or arose, and the nature of the misrepresentation, breach of
warranty, covenant or claim to which such item is related, the Escrow Agent
shall, subject to the provisions of this Section 7.2, deliver to Parent out of
the Escrow Fund, as promptly as practicable, Parent Common Stock or other assets
held in the Escrow Fund having a value equal to such Damages. For the purpose of
compensating Parent for its Damages pursuant to this Agreement, the Parent
Common Stock in the Escrow Fund shall be valued at the Parent Common Stock
Price.
(e) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's
Certificate shall be delivered to the Stockholders' Agent. For a period of
thirty (30) days after such delivery, the Escrow Agent shall make no delivery of
Parent Common Stock or other property pursuant to Section 7.2(d) unless the
Escrow Agent shall have received written authorization from the Stockholders'
Agent to make such delivery. After the expiration of such thirty (30) day
period, the Escrow Agent shall make delivery of the Parent Common Stock or other
property in the Escrow Fund in accordance
43
with Section 7.2(d), provided that no such payment or delivery may be made if
the Stockholders' Agent shall object in a written statement to the claim made in
the Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent and to Parent prior to the expiration of such thirty (30) day
period. In the event that in connection with the Stockholders' Agent's
investigation of any such claim he shall make a request to Parent for
information about the claim in accordance with Section 7.2(h)(iii), and access
to such information is not provided within a reasonable amount of time, the
running of such 30-day period shall be tolled for a period in time equal to the
duration of any such delay in access.
(f) Resolution of Conflicts and Arbitration.
(i) If the Stockholders' Agent objects in
writing to any claim or claims made by Parent in any Officer's Certificate
within thirty (30) days after delivery of such Officer's Certificate by Parent
to the Stockholders' Agent, the Stockholders' Agent and Parent shall attempt in
good faith for a period of not to exceed 30 days to agree upon the rights of the
respective parties with respect to each such claim. If the Stockholders' Agent
and Parent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the appropriate portion of the Escrow Amount from the Escrow Fund in
accordance with the terms of the memorandum.
(ii) If no such agreement can be reached after
good faith negotiation within such 30-day period, either Parent or the
Stockholders' Agent may demand arbitration of any such matter; provided,
however, that if the amount of the Damages at issue is the subject of pending
litigation with a third party, arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration. In either such
event, the matter shall be settled by binding arbitration in San Francisco,
California under the American Arbitration Association ("AAA") International
Arbitration Rules and Supplemental Procedures for Large Complex Disputes (the
"AAA Rules") by one arbitrator. The arbitration shall be conducted by a neutral
arbitrator who is independent and disinterested with respect to the parties,
this Agreement, and the outcome of the arbitration. If the parties are unable to
agree to an arbitrator, the arbitrator shall be appointed by AAA in accordance
with the AAA Rules, upon the application of either party. Any appeal shall be
heard and decided by a panel of three neutral arbitrators selected from the same
panel as the initial arbitrator. The parties shall use their commercially
reasonable efforts to cooperate with each other in causing the arbitration to be
held in as efficient and expeditious a manner as practicable, including but not
limited to, providing such documents and making available such of their
personnel as the arbitrator may request, so that the arbitrator's decision on
the matter may be timely. The arbitrator shall have the power to decide all
questions of arbitrability. The parties to the arbitration may apply to any
court of competent jurisdiction for a temporary restraining order, preliminary
injunction or other interim or conservatory relief, as necessary, without breach
of this arbitration provision and without any abridgement of the powers of the
arbitrators but shall not otherwise have the rights to remove the proceedings to
a court of law or equity or superseded the arbitration by a judicial proceeding
except by mutual consent. The parties hereto agree that, any provision of
applicable law notwithstanding, they will not request and the arbitrator shall
have no authority to award punitive or exemplary damages against any party and
that the remedy or relief granted by the arbitrator must be consistent with
44
the remedies and limitations set forth in this Agreement. Judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator may award to the prevailing party, if any, as determined
by the arbitrator, all of its reasonable costs and fees, including, without
limitation, AAA administrative fees, arbitrator fees and attorney's fees. Unless
and until the arbitrator decides that one party is to apply for all (or share)
of such expenses, or unless otherwise set forth in this Agreement, both parties
shall share equally in the payment of the arbitrator's fees as and when billed
by the arbitrator.
(iii) Except as set forth below, the parties shall
keep confidential the fact of the arbitration, the dispute being arbitrated, and
the decision of the arbitrator. Notwithstanding the foregoing, the parties may
disclose information about the arbitration to persons who have a need to know,
such as directors, trustees, management employees, witnesses, experts,
investors, attorneys, lenders, insurers, and others who may be directly
affected. Additionally, if a party has stock that is publicly traded, the party
may make such disclosures as are required by applicable securities laws.
Further, if a party is expressly asked by a third party about the dispute or the
arbitration, the party may disclose and acknowledge in general and limited terms
that there is a dispute with the other party that is being (or has been)
arbitrated. Once the arbitration award has become final, if the arbitration
award is not promptly satisfied, then these confidentiality provisions shall no
longer be applicable.
(iv) The Escrow Agent shall be entitled to act in
accordance with such judgment and make or withhold payments out of the Escrow
Fund in accordance therewith. Promptly following its receipt thereof, the Escrow
Agent shall distribute the Escrow Shares in accordance with the terms of the
arbitration award and/or the judgment in accordance with the procedures
specified in Section 7.2(d) hereof.
(g) Recoveries. The amount of indemnifiable Damages
required to be paid under this Article VII shall be reduced by (or if already
paid, shall be promptly repaid in the amount of) any recoveries actually
received by an Parent Indemnified Person under insurance policies or other form
of payment received from a third party.
(h) Stockholders' Agent.
(i) Xxxx Craves shall be constituted and
appointed as agent ("Stockholders' Agent") for and on behalf of the Stockholders
to give and receive notices and communications, to authorize delivery to Parent
of the Parent Common Stock or other property from the Escrow Fund in
satisfaction of claims by Parent, to object to such deliveries to make claims on
behalf of the Stockholders pursuant to Section 7.2(e) to agree to, negotiate,
enter into settlements and compromises of, and demand arbitration and comply
with orders of courts and awards of arbitrators with respect to such claims, and
to take all actions necessary or appropriate in the judgment of the
Stockholders' Agent for the accomplishment of the foregoing. Such agency may be
changed by the holders of a majority in interest of the Escrow Fund from time to
time upon not less than 10 days' prior written notice to Parent. No bond shall
be required of the Stockholders' Agent, and the Stockholders' Agent shall
receive no compensation for his services. Notices or communications to or from
the Stockholders' Agent shall constitute notice to or from each of the Company
stockholders.
45
(ii) The Stockholders' Agent shall not be liable
for any act done or omitted hereunder as Stockholder' Agent while acting in good
faith and in the exercise of reasonable judgment and any act done or omitted
pursuant to the advice of counsel shall be conclusive evidence of such good
faith. The Stockholders shall severally indemnify and hold the Stockholders'
Agent harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(iii) The Stockholders' Agent shall have
reasonable access to information about the Company and the reasonable assistance
of the Company's officers and employees for purposes of performing his duties
and exercising his rights hereunder, provided that the Stockholders' Agent shall
treat confidentially and not disclose any nonpublic information from or about
the Company to anyone (except on a need to know basis to individuals who agree
to treat such information confidentially).
(i) Actions of the Stockholders' Agent. A decision, act,
consent or instruction of the Stockholders' Agent shall constitute a decision of
all the Company stockholders for whom shares of Parent Common Stock otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each such the Company stockholder, and the Escrow Agent and
Parent may rely upon any decision, act, consent or instruction of the
Stockholders' Agent as being the decision, act, consent or instruction of each
and every such the Company stockholder. The Escrow Agent and Parent are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agent.
(j) Third-Party Claims. In the event Parent becomes aware
of a third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Stockholders' Agent of such claim, and the
Stockholders' Agent and the Company Stockholders for whom shares of Parent
Common Stock otherwise issuable to them are deposited in the Escrow Fund shall
be entitled, at their expense, to participate in any defense of such claim with
the consent of Parent which shall not be unreasonably withheld. Whether or not
the Stockholders' Agent participates in the defense of such claim, Parent shall
be entitled to compromise or settle such claim; provided, however, that Parent
shall not compromise or settle such claim without the prior written consent of
the Stockholders' Agent, such consent not to be unreasonably withheld. In the
event that the Stockholders' Agent has consented to any such settlement, the
Stockholders' Agent shall have no power or authority to object under Section
7.2(e) or any other provision of this Section 7.2 to any claim by Parent against
the Escrow Fund for indemnity with respect to such settlement for the amount of
the settlement.
ARTICLE VIII
TERMINATION PROVISIONS
8.1 Termination. This Agreement may be terminated prior to the
Effective Time (whether before or after adoption of this Agreement by the
Company's stockholders):
(a) by mutual written consent of Parent and the Company;
46
(b) by either Parent or the Company if: (i) the Merger
shall not have been consummated by April 30, 2003 (unless the failure to
consummate the Merger is attributable to a failure on the part of the party
seeking to terminate this Agreement to perform any material obligation required
to be performed by such party at or prior to the Effective Time), (ii) there
shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Merger; or (iii) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity that would make consummation of the Merger
illegal; provided, however, that (x) the Company may elect to extend such date
to May 31, 2003 if holders of the Company Stockholder Loan elect to increase the
principal amount of the Company Stockholder Loan to such amount as is necessary
to fund the operations of the Company through May 31, 2003, and (y) Parent may
elect to extend such date to May 31, 2003 if the Company has not by April 26,
2003 notified Parent in writing of its election to extend such date under clause
(x) of this section, and of the increase of the principal amount of the Company
Stockholder Loan, and such election by Parent shall be made in writing by notice
to the Company on or prior to April 30, 2003. If Parent makes such election, it
shall advance Two Million Dollars ($2,000,000) (or such lesser amount as may be
requested by the Company) to the Company on May 1, 2003 as a Parent Loan;
(c) by Parent if there shall be any action taken, or any
law or rule enacted, promulgated or issued or deemed applicable to the Merger,
by any Governmental Entity, which would: (i) prohibit Parent's ownership or
operation of all or any portion of the business of the Company or (ii) compel
Parent to dispose of or hold separate all or any portion of the Assets and
Properties of the Company, or limit its operation of the Company's business, as
a result of the Merger;
(d) by Parent if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement or
any Ancillary Agreements on the part of the Company and such breach has not been
cured within ten (10) calendar days after written notice to the Company;
provided, however, that, no cure period shall be required for a breach which by
its nature cannot be cured;
(e) by Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement or
any Ancillary Agreements on the part of Parent and such breach has not been
cured within ten (10) calendar days after written notice to Parent; provided,
however, that, no cure period shall be required for a breach which by its nature
cannot be cured;
(f) by Parent if, since the date of this Agreement, there
shall have occurred any Material Adverse Effect on the Company, or there shall
have occurred any event or circumstance that, in combination with any other
events or circumstances, could reasonably be expected to have a Material Adverse
Effect on the Company; or
(g) by the Company if, since the date of this Agreement,
there shall have occurred any Material Adverse Effect on Parent, or there shall
have occurred any event or
47
circumstance that, in combination with any other events or circumstances, could
reasonably be expected to have a Material Adverse Effect on Parent.
(h) by Parent if there has been a breach of any
representation, warranty, covenant or agreement contained in any Voting
Agreement on the part of any Stockholder party thereto that has a material and
adverse impact on Parent's ability to consummate the Merger.
8.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 8.1, this Agreement shall be of no further
force or effect; provided, however, that (i) this Section 8.2, Section 5.3,
Section 5.6 and Section 5.14 shall survive the termination of this Agreement and
shall remain in full force and effect, and (ii) the termination of this
Agreement shall not relieve any party from any liability for any material
inaccuracy in or breach of any representation or any material breach of any
warranty, covenant or other provision contained in this Agreement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Amendment. This Agreement may be amended with the approval of
the respective boards of directors of the Company and Parent at any time. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
9.2 Waiver.
(a) No failure on the part of any party to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any party in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
(b) No party shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
9.3 Entire Agreement; Counterparts. This Agreement, the Ancillary
Agreements and the documents, instruments and other agreements referred to
herein constitute the entire agreement and supersede all other prior agreements
and understandings, both written and oral, among or between any of the parties
with respect to the subject matter hereof and thereof; provided, however, that
the Confidentiality Agreement shall not be superceded and shall remain in full
force and effect. This Agreement may be executed in several counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same instrument.
9.4 Applicable Law; Jurisdiction. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might
48
otherwise govern under applicable principles of conflicts of laws thereof.
Except as otherwise provided under this Agreement, in any action between any of
the parties arising out of or relating to this Agreement or any of the
transactions contemplated by this Agreement: (a) each of the parties irrevocably
and unconditionally consents and submits to the exclusive jurisdiction and venue
of the state and federal courts located in the State of California; (b) if any
such action is commenced in a state court, then, subject to applicable law, no
party shall object to the removal of such action to any federal court located in
the Northern District of California; (c) each of the parties irrevocably waives
the right to trial by jury; and (d) each of the parties irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 9.7.
9.5 Attorneys' Fees. Except as otherwise provided under this
Agreement, in any action at law or suit in equity to enforce this Agreement or
the rights of any of the parties hereunder, the prevailing party in such action
or suit shall be entitled to receive a reasonable sum for its attorneys' fees
and all other reasonable costs and expenses incurred in such action or suit.
9.6 Assignability. This Agreement shall be binding upon, and shall
be enforceable by and inure solely to the benefit of, the parties hereto and
their respective successors and assigns; provided, however, that neither this
Agreement nor any of the Company's rights hereunder may be assigned by the
Company without the prior written consent of Parent, and any attempted
assignment of this Agreement or any of such rights by the Company without such
consent shall be void and of no effect. Except as set forth in Section 5.9(d),
nothing in this Agreement, express or implied, is intended to or shall confer
upon any Person (other than the parties hereto) any right, benefit or remedy of
any nature whatsoever under or by reason of this Agreement.
9.7 Notices. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):
if to Parent or Merger Sub:
Protein Design Labs, Inc.
00000 Xxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: General Counsel
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
J. Xxxxxx Xxxxxx
Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxxxxx Xxxxxx, Xxxxx 000
00
Xxx Xxxxxxxxx, XX 00000-0000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
if to the Company:
Eos Biotechnology, Inc.
000 X Xxxxxxx Xxxxxxxxx
Xxxxx Xxx Xxxxxxxxx, XX 00000
Attention: President and Chief Operating Officer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxx
Venture Law Group
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
9.8 Cooperation. The Company agrees to cooperate fully with Parent
and to execute and deliver such further documents, certificates, agreements and
instruments and to take such other actions as may be reasonably requested by
Parent to evidence or reflect the transactions contemplated by this Agreement
and to carry out the intent and purposes of this Agreement.
9.9 Construction.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include masculine and feminine genders.
(b) The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
50
(e) The bold-faced headings contained in this Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
9.10 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
9.11 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law or regulation,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Agreement and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
51
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first above written.
PROTEIN DESIGN LABS, INC.
By: /s/ XXXX XXXXXX
Name: Xxxx XxXxxx
Title: Chief Executive Officer
TIKAL ACQUISITION CORP.
By: /s/ XXXX XXXXXX
Name: Xxxx XxXxxx
Title: Chief Executive Officer
EOS BIOTECHNOLOGY, INC.
By: /s/ XXXXXX X. XXXXXXXXXX
Name: Xxxxxx X. Xxxxxxxxxx
Title: President
52
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
"Acquisition Proposal" shall mean any offer, proposal, inquiry or indication of
interest (other than an offer, proposal, inquiry or indication of interest by
Parent) contemplating or otherwise relating to any Acquisition Transaction.
"Acquisition Transaction" shall mean any transaction or series of transactions
involving:
(a) any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange
offer or other similar transaction in which the Company or any of its
Subsidiaries is a constituent corporation, and (i) in which either a Person or
"group" (as defined in the Exchange Act and the rules promulgated thereunder)
of Persons directly or indirectly acquires beneficial or record ownership of
securities representing at least 15% of the outstanding securities of the
voting securities of the Company or any of its Subsidiaries, or (ii) in which
the Company or any of its Subsidiaries issues or sells securities representing
at least 15% of the outstanding securities of voting securities of the Company
or any of its Subsidiaries; or
(b) any sale (other than sales of inventory in the ordinary course of
business), lease (other than in the ordinary course of business), exchange,
transfer (other than sales of inventory in the ordinary course of business),
license (other than nonexclusive licenses in the ordinary course of business
or as disclosed pursuant to the Company Disclosure Schedule), acquisition or
disposition of any business or businesses or assets that constitute or account
for at least 15% of the consolidated net revenues, net income or assets of the
Company of its Subsidiaries.
"Agreement" shall mean the Agreement and Plan of Merger and Reorganization to
which this Exhibit A is attached, as it may be amended from time to time.
"Aggregate Preferred Consideration" shall mean the aggregate amount of
consideration in Parent Common Stock and/or cash paid by Parent to holders of
Company Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock.
"Aggregate Series A Merger Shares" shall be the result obtained by multiplying
(i) the Series A Exchange Ratio by (ii) the aggregate number of shares of
Series A Preferred Stock outstanding immediately prior to the Effective Time.
"Aggregate Series B Merger Shares" shall be the result obtained by multiplying
(i) the Series B Exchange Ratio by (ii) the aggregate number of shares of
Series B Preferred Stock outstanding immediately prior to the Effective Time.
-1-
"Aggregate Series C Merger Shares" shall be the result obtained by multiplying
(i) the Series C Exchange Ratio, by (ii) the aggregate number of shares of
Series C Preferred Stock outstanding immediately prior to the Effective Time.
"Aggregate Series D Merger Shares" shall be the result obtained by multiplying
(i) the Series D Exchange Ratio, by (ii) the aggregate number of shares of
Series D Preferred Stock outstanding immediately prior to the Effective Time.
"Aggregate Series E Merger Shares" shall be the result obtained by multiplying
(i) the Series E Exchange Ratio, by (ii) the aggregate number of shares of
Series E Preferred Stock outstanding immediately prior to the Effective Time.
"Closing Date Balance Sheet" shall mean the unaudited estimated balance sheet of
the Company dated the Closing Date, prepared in accordance with GAAP and in
good faith and based upon assumptions consistent with the Company's past
practice and certified by the Chief Financial Officer and Chief Executive
Officer of the Company as being true and correct in all material respects
pursuant to Section 6.2(g).
"Common Merger Consideration" means $2,500,000.
"Common Merger Shares" means the Common Merger Consideration divided by the
Parent Common Stock Price.
"Common Stock Exchange Ratio" shall mean the result obtained by dividing (i) the
number of Common Merger Shares, by (ii) the total number of shares of Company
Common Stock outstanding immediately prior to the Effective Time.
"Company Bylaws" shall mean the bylaws of Company currently in effect.
"Company Capital Stock" shall mean shares of Company Common Stock, Company
Preferred Stock and shares of any other capital stock of the Company.
"Company Certificate" shall mean the Amended and Restated Certificate of
Incorporation of the Company, dated as of September 6, 2000.
"Company Common Stock" shall mean shares of the Common Stock of the Company
$0.001 par value.
"Company Convertible Debt" shall mean any debt of the Company that is
convertible into Company Capital Stock.
"Company Disclosure Schedule" shall have the meaning set forth in Article II.
"Company Options" shall mean all options to purchase, acquire or otherwise
receive shares of Company Common Stock (whether or not vested) held by current
or former employees or directors of or consultants to the Company and
excluding all Company Warrants and Company Preferred Stock.
-2-
"Company Preferred Stock" shall mean shares of Company Series A Preferred Stock,
shares of Company Series B Preferred Stock, shares of Company Series C
Preferred Stock, shares of Company Series D Preferred Stock, shares of Company
Series E Preferred Stock and all other shares of preferred stock of the
Company.
"Company Series A Preferred Stock" shall mean shares of the Series A Preferred
Stock of the Company, $0.001 par value.
"Company Series B Preferred Stock" shall mean shares of the Series B Preferred
Stock of the Company, $0.001 par value.
"Company Series C Preferred Stock" shall mean shares of the Series C Preferred
Stock of the Company, $0.001 par value.
"Company Series D Preferred Stock" shall mean shares of the Series D Preferred
Stock of the Company, $0.001 par value.
"Company Series E Preferred Stock" shall mean shares of the Series E Preferred
Stock of the Company, $0.001 par value.
"Company Stockholder Loan" shall mean one or more loans to the Company made
after the date of this Agreement to the Company by one or more of the Company
Stockholders executing the Voting Agreements or affiliates thereof (the
"Company Lenders") (i) in the amount of up to Two Million Two Hundred Fifty
Thousand Dollars ($2,250,000) (or if the holders of such notes make the
election to advance additional amounts pursuant to Section 8.1(b) clause (x),
in the amount of up to Four Million Five Hundred Thousand Dollars ($4,500,000)
in aggregate, (ii) on commercially reasonable terms including the absence of
any warrants and a commercially reasonable rate of interest not to exceed 8%,
(iii) accompanied by a grant of a security interest in a form acceptable to
the Company and to the extent deemed necessary or appropriate by the Company
Lenders, and (iv) payable on or promptly after the Effective Time (or if this
Agreement shall be terminated in accordance with Section 8.1 prior to the
consummation of the Merger, within 90 days following such termination date)
without prepayment penalty.
"Company Stock Option Plan" shall have the meaning set forth in Section 2.7(b).
"Company Warrants" shall mean all warrants to purchase, acquire or otherwise
receive shares of Company Capital Stock (whether or not vested) other than
Company Options.
"Consent" shall mean any approval, consent, ratification, permission, waiver or
authorization (including any Governmental Authorization).
"Continuing Employees" shall have the meaning set forth in Section 5.8.
"Contract" shall mean any written, oral or other agreement, contract,
subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature.
-3-
"Covered Employee Expenses" means (i) severance payments potentially payable to
certain executive officers of the Company, not to exceed an aggregate amount
of $1,710,000, pursuant to the forms of severance agreements referred to in
Section 2.4 of the Company Disclosure Schedule, (ii) the Severed Employees
Severance and (iii) the Non-Officer Acquisition Bonuses.
"Covered Transaction Expenses" shall mean up to an aggregate of $[****] of Third
Party Expenses, including (i) up to $[****] payable as a fee to Lazard Freres
& Co., investment banker to the Company, (ii) up to $[****] in legal fees in
connection with the Merger and (iii) up to $[****] in accounting fees.
"Encumbrance" shall mean any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, claim, infringement, interference, option,
right of first refusal, preemptive right, community property interest or
restriction of any nature (including any restriction on the voting of any
security, any restriction on the transfer of any security or other asset, any
restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
"Entity" shall mean any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any company limited by shares,
limited liability company or joint stock company), firm, society or other
enterprise, association, organization or entity.
"Environment" shall mean soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins,
and wetlands), groundwaters, drinking water supply, stream sediments, ambient
air (including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" shall mean any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(i) any environmental, health, or safety matters
or conditions (including on-site or off-site contamination, occupational safety
and health, and regulation of chemical substances or products);
(ii) fines, penalties, judgments, awards,
settlements, legal or administrative Legal Proceedings, damages, losses, claims,
demands and response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health Law;
----------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
-4-
(iii) financial responsibility under Environmental
Law or Occupational Safety and Health Law for cleanup costs or corrective
action, including any investigation, cleanup, removal, containment, or other
remediation or response actions ("Cleanup") required by applicable Environmental
Law or Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or
(iv) any other compliance, corrective,
investigative, or remedial measures required under Environmental Law or
Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended
("CERCLA").
"Environmental Law" shall mean any Legal Requirement that requires or relates
to:
(v) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencements of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(vi) preventing or reducing to acceptable levels the
release of pollutants or hazardous substances or materials into the
Environment;
(vii) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(viii) assuring that products are designed, formulated,
packaged, and used so that they do not present unreasonable risks to
human health or the Environment when used or disposed of;
(ix) protecting resources, species, or ecological
amenities;
(x) reducing to acceptable levels the risks inherent in
the transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(xi) cleaning up pollutants that have been released,
preventing the threat of release, or paying the costs of such clean up
or prevention; or
(xii) making responsible parties pay private parties, or
groups of them, for damages done to their health or the Environment, or
permitting self-appointed representatives of the public interest to
recover for injuries done to public assets.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
-5-
"Excess Employee Expenses" means the excess amount, if any, of expenses (other
than accrued salaries and vacation payable to Company employees) which are (i)
amounts payable to employees of the Company upon the Merger, other than the
value of Parent Common Stock received by such employee pursuant to Section
1.6(d) of this Agreement, and (ii) payments made as a result of the
termination of any employee of the Company on or before the Effective Time
paid prior to the Expiration Date, over the Covered Employee Expenses.
"Excess Expenses" shall mean the aggregate amount, if any, of (i) Excess
Liabilities, (ii) Excess Transaction Fees, and (iii) Excess Employee Expenses.
"Excess Liabilities" shall mean the amount by which the Company's Total
Liabilities other than Third Party Expenses, Covered Employee Expenses, Excess
Employee Expenses, liabilities associated with the Permitted Loans and a
potential $750,000 liability to ICOS if it becomes an accrued liability,
exceed $6,820,000.
"Excess Transaction Fees" means the amount, if any, of Third Party Expenses
incurred by the Company in connection with the Merger in excess of the Covered
Transaction Fees.
"Exchange Ratio" shall mean the Series A Exchange Ratio, the Series B Exchange
Ratio, the Series C Exchange Ratio, the Series D Exchange Ratio, or the Series
E Exchange Ratio, as applicable.
"Facilities" shall mean any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company or its Subsidiaries and
any buildings, plants, structures, or equipment (including motor vehicles,
tank cars, and rolling stock) currently or formerly owned or operated by any
the Company or its Subsidiaries.
"GAAP" shall mean United States generally accepted accounting principles.
"Governmental Authorization" shall mean any: (a) permit, license, certificate,
franchise, permission, variance, clearance, registration, qualification or
authorization issued, granted, given or otherwise made available by or under
the authority of any Governmental Entity or pursuant to any Legal Requirement;
or (b) right under any Contract with any Governmental Entity.
"Governmental Entity" shall mean any: (a) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government; or (c)
governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or Entity and any court or other tribunal).
"Hazardous Materials" shall mean any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution
thereof, and specifically including petroleum and all derivatives thereof or
synthetic substitutes therefor and asbestos or asbestos-containing materials.
-6-
"Information Statement" shall have the meaning set forth in Section 5.16(a).
"Intellectual Property" shall mean:
(i) all issued patents, reissued or reexamined
patents, revivals of patents, utility models, certificates of invention,
registrations of patents and extensions thereof, regardless of country or formal
name (collectively, "Issued Patents")
(ii) all published or unpublished nonprovisional
and provisional patent applications, reexamination proceedings,
invention disclosures and records of invention (collectively, "Patent
Applications" and, with the Issued Patents, the "Patents");
(iii) all copyrights, copyrightable works, and all
rights to register and obtain renewals and extensions of registrations,
together with all other interests accruing by reason of international
copyright conventions (collectively, "Copyrights");
(iv) trademarks, registered trademarks,
applications for registration of trademarks, service marks, registered
service marks, applications for registration of service marks, trade
names, registered trade names and applications for registrations of
trade names (collectively, "Trademarks") and domain name registrations;
(v) all inventions, compounds, proteins,
biological materials, formulae, designs, technology, ideas, proprietary
information, manufacturing and operating specifications, know-how,
trade secrets, technical data, computer programs, hardware, software
and processes; and
(vi) all other intangible assets, properties and
rights (whether or not appropriate steps have been taken to protect,
under applicable law, such other intangible assets, properties or
rights).
"In-the-Money Options" shall refer to all Company Options issued and outstanding
as of the Effective Time, whether vested or unvested, that have an exercise
price per share less than the product of (i) the Common Stock Exchange Ratio
multiplied by (ii) the Parent Common Stock Price.
"Knowledge" shall mean the actual knowledge, after reasonable diligence, of the
directors, executive officers and management team of any entity to which such
term applies.
"Legal Proceeding" shall mean any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit, examination or investigation
commenced, brought, conducted or heard by or before, or otherwise involving,
any court or other Governmental Entity or any arbitrator or arbitration panel.
"Legal Requirement" shall mean any federal, state, local, municipal, foreign or
other law, statute, constitution, principle of common law, resolution,
ordinance, code, edict, decree, rule, regulation, ruling or requirement
issued, enacted, adopted, promulgated, implemented or
-7-
otherwise put into effect by or under the authority of any Governmental Entity
(or under the authority of the Nasdaq National Market).
"Management Acquisition Bonus Agreements" shall mean the bonus agreements listed
on Schedule 2.4 of the Company Disclosure Schedule pursuant to which nine
percent (9%) of the Preferred Merger Consideration (subject to the
contribution of a portion of the Management Bonus Shares to the Escrow Fund
pursuant to Section 1.12) is to be distributed as a special bonus to those
employees of the Company, and in the amounts set forth in each such agreement,
contingent in all cases upon the consummation of the Merger.
"Management Bonus Shares" means the shares of Parent Common Stock to be issued
to the officers of the Company at Closing pursuant to the Management
Acquisition Bonus Agreements.
An event, violation, inaccuracy, circumstance or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such event, violation,
inaccuracy, circumstance or other matter is materially adverse to the
business, condition (financial or otherwise), properties, assets (including
intangible assets), liabilities, operations or results of operations of the
Company (or, after the Effective Time, the Surviving Corporation) and its
Subsidiaries, taking the Company (or, after the Effective Time, the Surviving
Corporation) together with its Subsidiaries as a whole, provided, however,
that none of the following, in and of themselves, shall constitute a Material
Adverse Effect on the Company: (a) any event, matter, change, condition,
circumstance or effect which the Company successfully bears the burden of
proving results from changes affecting any of the industries or economies in
which the Company operates as a whole (which changes do not disproportionately
affect the Company); or (b) any adverse event, matter, change, condition,
circumstance or effect which the Company successfully bears the burden of
proving is directly and primarily caused by the announcement or pendency of
the Merger.
An event, violation, inaccuracy, circumstance or other matter will be deemed to
have a "Material Adverse Effect" on Parent if such event, violation,
inaccuracy, circumstance or other matter is materially adverse to the
business, condition (financial or otherwise), properties, assets (including
intangible assets), liabilities, operations or results of operations of Parent
and its Subsidiaries, taking Parent together with its Subsidiaries as a whole;
provided, however, that none of the following, in and of themselves, shall
constitute a Material Adverse Effect on Parent: (a) a decrease in the trading
price of Parent Common Stock; (b) any event, matter, change, condition,
circumstance or effect which Parent successfully bears the burden of proving
results from changes affecting any of the industries or economies in which
Parent operates as a whole (which changes do not disproportionately affect
Parent); or (c) any adverse event, matter, change, condition, circumstance or
effect which Parent successfully bears the burden of proving is directly and
primarily caused by the announcement or pendency of the Merger.
"Material Contract" shall mean any agreement, instrument or document
(including any amendment to any of the foregoing):
(i) with any director, officer or affiliate of the Company;
-8-
(ii) evidencing, governing or relating to indebtedness for borrowed
money;
(iii) not entered into in the ordinary course of business that involves
expenditures or receipts in excess of $25,000;
(iv) that in any way purports to restrict the business activity of the
Company or any of its affiliates or to limit the freedom of the Company or any
of its affiliates to engage in any line of business or to compete with any
Person or in any geographic area or to hire or retain any Person;
(v) relating to the employment of, or the performance of services by, any
employee or consultant, or pursuant to which the Company is or may become
obligated to make any severance, termination or similar payment to any current
or former employee or director; or pursuant to which the Company is or may
become obligated to make any bonus or similar payment (other than payments
constituting base salary) to any current or former employee or director;
(vi) required to be listed pursuant to Section 2.14(b)(ii) or Section
2.14(c) of this Agreement;
(vii) (A) relating to the acquisition, issuance, voting, registration, sale
or transfer of any securities, (B) providing any Person with any preemptive
right, right of participation, right of maintenance or any similar right with
respect to any securities, or (C) providing the Company with any right of
first refusal with respect to, or right to repurchase or redeem, any
securities, except for Contracts pursuant to the Company Stock Option Plan;
(viii) incorporating or relating to any guaranty or any indemnity or similar
obligation;
(ix) relating to any currency hedging;
(x) (A) imposing any confidentiality obligation on the Company, or (B)
containing "standstill" or similar provisions;
(xi) (A) to which any Governmental Entity is a party or under which any
Governmental Entity has any rights or obligations, or (B) directly or
indirectly benefiting any Governmental Entity (including any subcontract or
other Contract between the Company and any contractor or subcontractor to any
Governmental Entity); and
(xii) that could reasonably be expected to have a Material Adverse Effect on
the Company or on any of the transactions contemplated by this Agreement or
any of the Ancillary Agreements.
"Merger Shares" means the Preferred Merger Shares, the Common Merger Shares and
the Management Bonus Shares, taken together as a whole.
"Non-Officer Acquisition Bonuses" means the bonus payments payable, upon closing
of the Merger, to two non-officer employees of the Company in an aggregate
amount not to exceed $75,000.
-9-
"Occupational Safety and Health Law" shall mean any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and
insurance companies), designed to provide safe and healthful working
conditions.
"Parent Common Stock" shall mean the Common Stock, $0.001 par value per share,
of Parent.
"Parent Common Stock Price" shall be $8.658, representing the average closing
sale price of Parent Common Stock on the Nasdaq National Market for a period
of five (5) consecutive trading days immediately preceding the last trading
day prior to the date of this Agreement.
"Parent Loan" shall mean a loan to Company made by Parent pursuant to Section
8.1(b) clause (y) in an amount of Two Million Dollars ($2,000,000) (or such
lesser amount as may be requested by the Company) and otherwise on the same
terms and conditions as the Company Stockholder Loan and on parity in right of
payment and security with the Company Stockholder Loan.
"Permitted Loans" means the Parent Loan and the Company Stockholder Loan.
"Person" shall mean any individual, Entity or Governmental Body.
"Preferred Merger Consideration" shall mean the Total Merger Consideration less
(i) the Common Merger Consideration, (ii) the aggregate amount payable
pursuant to the Management Acquisition Bonus Agreements and (iii) any Excess
Expenses.
"Preferred Merger Shares" shall mean the Preferred Merger Consideration divided
by the Parent Common Stock Price.
"Preferred Preference" shall mean the sum of (i) the Series A Preference, (ii)
the Series B Preference, (iii) the Series C Preference, (iv) the Series D
Preference and (v) the Series E Preference.
"Representatives" shall mean officers, directors, employees, agents, attorneys,
accountants, investment bankers, advisors and representatives.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Exchange Ratio" shall mean the result obtained by dividing (i) the
product of (A) the Series A Preference Percentage multiplied by (B) the
Preferred Merger Shares, by (ii) the total number of shares of Series A
Preferred Stock outstanding immediately prior to the Effective Time.
"Series A Preference" shall mean the result of multiplying (i) the aggregate
number of shares of Series A Preferred Stock outstanding immediately prior to
the Effective Time by (ii) $0.40.
-10-
"Series A Preference Percentage" shall mean the result of dividing (i) the
Series A Preference, by (ii) the Preferred Preference.
"Series A Preferred Stock" shall mean the Series A Preferred Stock, $0.001 par
value per share, of the Company.
"Series B Exchange Ratio" shall mean the result obtained by dividing (i) the
product of (A) the Series B Preference Percentage multiplied by (B) the
Preferred Merger Shares, by (ii) the total number of shares of Series B
Preferred Stock outstanding immediately prior to the Effective Time.
"Series B Preference" shall mean the result of multiplying (i) the aggregate
number of shares of Series B Preferred Stock outstanding immediately prior to
the Effective Time by (ii) $0.80.
"Series B Preference Percentage" shall mean the result of dividing (i) the
Series B Preference, by (ii) the Preferred Preference.
"Series B Preferred Stock" shall mean the Series B Preferred Stock, $0.001 par
value per share, of the Company.
"Series C Exchange Ratio" shall mean the result obtained by dividing (i) the
product of (A) the Series C Preference Percentage multiplied by (B) the
Preferred Merger Shares, by (ii) the total number of shares of Series C
Preferred Stock outstanding immediately prior to the Effective Time.
"Series C Preference" shall mean the result of multiplying (i) the aggregate
number of shares of Series C Preferred Stock outstanding immediately prior to
the Effective Time by (ii) $1.60.
"Series C Preference Percentage" shall mean the result of dividing (i) the
Series C Preference, by (ii) the Preferred Preference.
"Series C Preferred Stock" shall mean the Series C Preferred Stock, $0.001 par
value per share, of the Company.
"Series D Exchange Ratio" shall mean the result obtained by dividing (i) the
product of (A) the Series D Preference Percentage multiplied by (B) the
Preferred Merger Shares, by (ii) the total number of shares of Series D
Preferred Stock outstanding immediately prior to the Effective Time.
"Series D Preference" shall mean the result of multiplying (i) the aggregate
number of shares of Series D Preferred Stock outstanding immediately prior to
the Effective Time by (ii) $1.30.
"Series D Preference Percentage" shall mean the result of dividing (i) the
Series D Preference, by (ii) the Preferred Preference.
"Series D Preferred Stock" shall mean the Series D Preferred Stock, $0.001 par
value per share, of the Company.
-11-
"Series E Exchange Ratio" shall mean the result obtained by dividing (i) the
product of (A) the Series E Preference Percentage multiplied by (B) the
Preferred Merger Shares, by (ii) the total number of shares of Series E
Preferred Stock outstanding immediately prior to the Effective Time.
"Series E Preference" shall mean the result of multiplying (i) the aggregate
number of shares of Series E Preferred Stock outstanding immediately prior to
the Effective Time by (ii) $2.70.
"Series E Preference Percentage" shall mean the result of dividing (i) the
Series E Preference, by (ii) the Preferred Preference.
"Series E Preferred Stock" shall mean the Series E Preferred Stock, $0.001 par
value per share, of the Company.
"Stockholder" shall mean each holder of any Company Capital Stock immediately
prior to the Effective Time.
An entity shall be deemed to be a "Subsidiary" of another Person if such Person
directly or indirectly owns, beneficially or of record, (a) an amount of
voting securities of other interests in such Entity that is sufficient to
enable such Person to elect at leased a majority of the members of such
Entity's board of directors or other governing body, or (b) at least 50% of
the outstanding equity or financial interests of such Entity.
"Tax" shall mean any tax (including any income tax, franchise tax, capital gains
tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem tax,
transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
"Tax Return" shall mean any return (including any information return), report,
statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of any
Tax or in connection with the administration, implementation or enforcement of
or compliance with any Legal Requirement relating to any Tax.
"Third Party Expenses" shall mean, whether or not the Merger is consummated, all
fees and expenses incurred in connection with the Merger and the other
transactions contemplated hereby (including, without limitation, the Covered
Transaction Expenses, all legal, accounting, financial advisory, consulting
and all other fees and expenses of third parties incurred by the Company in
connection with the negotiation, performance and effectuation of the terms and
conditions of this Agreement and the Ancillary Agreements, the performance of
the terms and conditions hereof and thereof, and the consummation of the
transactions contemplated hereby and thereby); provided however that Third
Party Expenses shall not include legal expenses incurred by the Company prior
to the Effective Time in connection with the negotiation and
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documentation of any business development or licensing agreements with third
parties, any employment matters and other ongoing or ordinary course legal
matters that are not related to the Merger, but only to the extent that such
legal expenses were incurred by the Company in connection with matters that
were unrelated and independent of this Agreement and any and all transactions
contemplated hereby.
"Total Liabilities" shall mean total liabilities of the Company as determined in
accordance with GAAP, and as reflected in the Closing Date Balance Sheet,
specifically including any amounts owed to Company employees in severance
payments and vacation accruals.
"Total Merger Consideration" shall mean $37,500,000.
"Total Outstanding Common Shares" shall mean the aggregate number of shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time.
"Total Outstanding Series A Preferred Shares" shall mean the aggregate number of
shares of Company Series A Preferred Stock issued and outstanding immediately
prior to the Effective Time.
"Total Outstanding Series B Preferred Shares" means the aggregate number of
shares of Company Series B Preferred Stock issued and outstanding immediately
prior to the Effective Time.
"Total Outstanding Series C Preferred Shares" means the aggregate number of
shares of Company Series C Preferred Stock issued and outstanding immediately
prior to the Effective Time.
"Total Outstanding Series D Preferred Shares" means the aggregate number of
shares of Company Series D Preferred Stock issued and outstanding immediately
prior to the Effective Time.
"Total Outstanding Series E Preferred Shares" means the aggregate number of
shares of Company Series E Preferred Stock issued and outstanding immediately
prior to the Effective Time.
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