EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
among
DISCOVERY LABORATORIES, INC.
ATI ACQUISITION CORP.
AND
ACUTE THERAPEUTICS, INC.
March 5, 1998
TABLE OF CONTENTS
Page
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ARTICLE 1 THE MERGER......................................................... 2
Section 1.1 The Merger............................................... 2
Section 1.2 Closing and Effective Time............................... 2
Section 1.3 Directors and Officers of the Surviving Corporation...... 2
Section 1.4 Certificate of Incorporation............................. 2
Section 1.5 Bylaws................................................... 2
Section 1.6 Effect of the Merger..................................... 2
ARTICLE 2 CONVERSION OR EXCHANGE OF SECURITIES............................... 3
Section 2.1 Conversion of Capital Stock.............................. 3
Section 2.3 Payment for Common Shares; Surrender of Certificates..... 4
Section 2.4 Appraisal Rights......................................... 5
Section 2.5 Seller Option Plan....................................... 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER........................... 6
Section 3.1 Organization............................................. 6
Section 3.2 Capitalization........................................... 6
Section 3.3 Authorization; Validity of Agreement; Necessary Action... 7
Section 3.4 Consents and Approvals; No Violations.................... 7
Section 3.5 [RESERVED]............................................... 8
Section 3.6 Absence of Certain Changes............................... 8
Section 3.7 No Undisclosed Liabilities............................... 9
Section 3.8 Litigation............................................... 9
Section 3.9 No Default; Compliance with Applicable Laws.............. 9
Section 3.10 Intellectual Property ................................... 9
Section 3.11 Tax Returns and Payments ................................ 10
Section 3.12 Certificate of Incorporation and Bylaws ................. 10
Section 3.13 Title to Property ....................................... 10
Section 3.14 Employee Benefits and Contracts ......................... 11
Section 3.15 Employment; Labor Matters ............................... 12
Section 3.16 Brokers ................................................. 12
Section 3.17 Environmental Laws ...................................... 12
Section 3.18 Insurance ............................................... 13
Section 3.19 Contracts and Commitments ............................... 13
Section 3.20 Interests of Officers and Directors ..................... 14
Section 3.21 Questionable Payments ................................... 14
Section 3.22 Certain Tax Matters ..................................... 14
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND
ACQUISITION SUBSIDIARY............................................. 15
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Section 4.1 Organization............................................. 15
Section 4.2 Capitalization........................................... 15
Section 4.3 Authorization; Validity of Agreement; Necessary Action... 16
Section 4.4 Consents and Approvals; No Violations.................... 17
Section 4.5 SEC Reports and Financial Statements..................... 17
Section 4.6 Absence of Certain Changes............................... 18
Section 4.7 No Undisclosed Liabilities............................... 19
Section 4.8 Litigation............................................... 19
Section 4.9 No Default; Compliance with Applicable Laws.............. 19
Section 4.10 Intellectual Property ................................... 20
Section 4.11 Tax Returns and Payments ................................ 20
Section 4.12 Certificate of Incorporation and Bylaws ................. 21
Section 4.13 Title to Property ....................................... 21
Section 4.14 Employee Benefits and Contracts ......................... 21
Section 4.15 Employment; Labor Matters ............................... 22
Section 4.16 Brokers ................................................. 23
Section 4.17 Environmental Laws ...................................... 23
Section 4.18 Insurance ............................................... 23
Section 4.19 Contracts and Commitments ............................... 23
Section 4.20 Interests of Officers and Directors ..................... 24
Section 4.21 Questionable Payments ................................... 24
Section 4.22 Certain Tax Matters ..................................... 25
Section 4.23 No Prior Activities ..................................... 25
ARTICLE 5 COVENANTS......................................................... 25
Section 5.1 Interim Operations of Seller and Buyer................... 25
Section 5.2 Access; Confidentiality.................................. 27
Section 5.3 Additional Agreements.................................... 27
Section 5.4 Consents and Approvals; HSR Act.......................... 28
Section 5.5 Exclusivity.............................................. 28
Section 5.6 Publicity................................................ 28
Section 5.7 Notification of Certain Matters.......................... 28
Section 5.8 Indemnification.......................................... 29
Section 5.9 Approval of Stockholders................................. 29
Section 5.10 Buyer Proxy Statement ................................... 30
Section 5.11 Seller Information Statement ............................ 30
Section 5.12 Tax Treatment............................................ 31
Section 5.13 Form S-8 ................................................ 31
Section 5.14 Reservation of Buyer Common Stock ....................... 31
Section 5.15 Consolidation of Operations ............................. 31
Section 5.16 Consolidation of Board of Directors ..................... 32
Section 5.17 Incentive Bonus Payments ................................ 32
ARTICLE 6 CONDITIONS......................................................... 32
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger................................................... 32
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Section 6.2 Additional Conditions to Obligations of Seller........... 33
Section 6.3 Additional Conditions to Obligations of Buyer and
Acquisition Subsidiary................................... 34
ARTICLE 7 TERMINATION........................................................ 35
Section 7.1 Termination.............................................. 35
Section 7.2 Effect of Termination.................................... 36
ARTICLE 8 MISCELLANEOUS..................................................... 36
Section 8.1 Fees and Expenses........................................ 36
Section 8.2 Amendment and Modification............................... 36
Section 8.3 Nonsurvival of Representations and Warranties............ 36
Section 8.4 Notices.................................................. 37
Section 8.5 Interpretation........................................... 38
Section 8.6 Counterparts............................................. 38
Section 8.7 Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership...................................... 38
Section 8.8 Severability............................................. 38
Section 8.9 Governing Law............................................ 38
Section 8.10 Assignment .............................................. 39
Exhibit A - Form of Xxxxxxxx Employment Agreement
Exhibit B - Form of Key Executive Employment Agreement
Exhibit C - Form of Option Agreement for 338,500 Shares
Exhibit D - Form of Option Agreement for 175,000 Shares
Exhibit E - Form of Option Agreement for 160,000 Shares
Exhibit F - Form of Registration Rights Agreement
Exhibit G - Form of Investment Agreement
Exhibit H - Form of Lock-up Agreement
Exhibit I - Form of Buyer 1998 Stock Option Plan
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated March 5, 1998, by and among Discovery
Laboratories, Inc., a Delaware corporation ("Buyer" or "Discovery"), ATI
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Buyer
("Acquisition Subsidiary"), and Acute Therapeutics, Inc., a Delaware corporation
("Seller" or "Acute").
RECITALS:
WHEREAS, upon and subject to the terms and conditions of this Agreement,
Acquisition Subsidiary will merge with and into Seller (the "Merger") and Seller
will become a wholly-owned subsidiary of Buyer;
WHEREAS, the Boards of Directors of Seller and Buyer have each determined
that it is in the best interests of their respective stockholders for Buyer to
acquire Seller upon the terms and subject to the conditions set forth herein;
and
WHEREAS, also in furtherance of such acquisition, the Boards of Directors
of Seller and Buyer have each approved this Agreement and the Merger of
Acquisition Subsidiary with and into Seller in accordance with the Delaware
General Corporation Law ("DGCL"), and upon the terms and subject to the
conditions set forth herein; and
WHEREAS, the Board of Directors of Seller has resolved to recommend
approval of this Agreement and the Merger to the holders of shares of Seller's
Common Stock, $0.001 par value per share (the "Common Shares") and the holder of
shares of Seller's Series A Preferred Stock, $0.001 par value per share (the
"Series A Acute Preferred Shares");
WHEREAS, for federal income tax purposes it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code"); and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Seller, Buyer and Acquisition Subsidiary hereby agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2 hereof), Seller and
Acquisition Subsidiary shall consummate the Merger pursuant to which Acquisition
Subsidiary shall be merged with and into Seller in accordance with Section 251
of the DGCL, the separate corporate existence of Acquisition Subsidiary shall
cease, and Seller shall continue as the surviving corporation in the Merger
(Seller is sometimes referred to as the "Surviving Corporation").
Section 1.2 Closing and Effective Time . The closing of the Merger (the
"Closing") shall take place (i) at 10:00 a.m., New York time, on a date to be
specified by the parties, which shall be no later than the fifth business day
after satisfaction or waiver of all of the conditions set forth in Article 6
hereof, at the offices of Xxxxxxx, Phleger & Xxxxxxxx LLP, 0000 Xxxxxxxx, 00xx
Xxxxx, Xxx Xxxx, XX 00000 or (ii) at such other time and place as Buyer and
Seller shall agree (the "Closing Date"). Immediately after completion of the
Closing, the parties shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") executed in accordance with
the relevant provisions of the DGCL and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at the
time when the Certificate of Merger has been duly filed with the Delaware
Secretary of State, or such time as is agreed upon by the parties and specified
in the Certificate of Merger, and such time is hereinafter referred to as the
"Effective Time." The date of the Effective Time is hereinafter referred to as
the "Effective Date."
Section 1.3 Directors and Officers of the Surviving Corporation. The
directors and officers of Seller at the Effective Time shall be the initial
directors and officers, respectively, of the Surviving Corporation.
Section 1.4 Certificate of Incorporation. The certificate of incorporation
of Acquisition Subsidiary in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law.
Section 1.5 Bylaws. The bylaws of Acquisition Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
Section 1.6 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time all the property, rights, privileges, powers and franchises of Seller and
Acquisition Subsidiary shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Seller and Acquisition Subsidiary shall become the
debts, liabilities and duties of the Surviving Corporation.
ARTICLE 2
CONVERSION OR EXCHANGE OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of Buyer, Acquisition
Subsidiary, Seller, or the holders of any Common Shares or Series A Acute
Preferred Shares or Series B Acute Preferred Shares (as herein defined) or any
shares of capital stock of Acquisition Subsidiary:
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(a) Acquisition Subsidiary Capital Stock. Each issued and outstanding
share of capital stock of Acquisition Subsidiary shall be converted into and
become one fully paid and nonassessable share of common stock of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Series A Acute Preferred Shares.
All Common Shares that are owned by Seller and all Series A Acute Preferred
Shares that are owned by Buyer shall be cancelled and extinguished without any
conversion thereof and no consideration shall be delivered in exchange therefor.
(c) Conversion of Common Shares. Each issued and outstanding Common Share
(other than Common Shares to be canceled in accordance with Section 2.1(b) and
any dissenting Common Shares which are held by stockholders exercising appraisal
rights pursuant to the DGCL ("Dissenting Stockholders")) shall by virtue of the
Merger and without any action on the part of the holder thereof, be
automatically converted into the right to receive, upon surrender of the
certificate formerly representing such Common Share (the "Common Share
Certificate") in the manner provided in Section 2.3 below, 3.91 shares of Common
Stock, $.001 par value of Buyer ("Buyer Common Stock"). The number of shares of
Buyer Common Stock into which each Common Share will be automatically converted
is referred to as the "Conversion Ratio." All such Common Shares, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such Common Shares shall cease to have any rights with respect
thereto, except the right to receive the merger consideration therefor upon the
surrender of such certificate in accordance with Section 2.3, or, in the case of
Dissenting Stockholders, the right, if any, to receive payment from the
Surviving Corporation of the fair value of such Common Shares as determined in
accordance with the DGCL. No fractional shares of Buyer Common Stock shall be
issued and, in lieu thereof, a cash payment shall be made pursuant to Section
2.3(c).
Section 2.2 Exchange of Series B Acute Preferred Shares. Each issued and
outstanding Share of Seller's Series B Preferred Stock, $0.001 par value per
share (the "Series B Acute Preferred Shares") shall, at the Closing, be
exchanged for one share of Series A Preferred Stock, $0.001 par value per share
of Buyer (the "Discovery Preferred Shares"), pursuant to an exchange agreement
between Buyer and Xxxxxxx & Xxxxxxx Development Corporation ("JJDC")(the
"Exchange Agreement") in form and substance reasonably acceptable to Buyer and
Seller.
Section 2.3 Payment for Common Shares; Surrender of Certificates
(a) Letter of Transmittal. As soon as practicable after the Effective
Time, Buyer will send to each record holder of Common Shares at the Effective
Time a letter of transmittal and other appropriate materials for use in
surrendering Common Share Certificates to Buyer's transfer agent, who shall be
appointed exchange agent with respect to the Merger (the "Exchange Agent").
(b) Payment Procedures. Promptly after the Effective Time, Buyer shall
request that the Exchange Agent distribute to each former holder of Common
Shares, upon surrender to the Exchange Agent of one or more Common Share
Certificates for cancellation together with a duly executed and properly
completed letter of transmittal, the shares of Buyer Common Stock receivable by
such holder in accordance with the provisions of Section 2.1(c). If Buyer Common
Stock is to be delivered to a person other than the person in whose name a
Common Share Certificate is so registered, the Common Share Certificate is so
surrendered shall be properly endorsed, with signatures guaranteed, or otherwise
in proper form for transfer, and the person requesting such payment shall pay
any transfer or other taxes required by reason of the delivery to a person other
than the registered holder of such Common Share Certificate surrendered, or such
person shall establish to the satisfaction of Buyer that such tax has been paid
or is not
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applicable. No interest shall be paid on any consideration payable in the Merger
to former holders of Common Shares.
(c) No Fractional Shares.
(i) No fractional shares of Buyer Common Stock shall be issued as
a result of the Merger. In lieu of the issuance of fractional
shares, cash adjustments will be paid to the former holder of
Common Shares in respect of any fraction of a share of Buyer
Common Stock which would otherwise be issuable under this
Agreement. Such cash adjustment shall be equal to an amount
determined by multiplying (A) the fractional share of Buyer
Common Stock to which the holder of Seller Common Stock would
be otherwise entitled under Section 2.1(c) (after aggregating
all shares of Buyer Common Stock to which such holder is
entitled), by (B) the average closing price of shares of Buyer
Common Stock on The Nasdaq Small Cap Market for the twenty
trading days immediately preceding the Effective Date.
(ii) As soon as practicable after the determination of the amount
of cash, if any, to be paid to former holders of Common Shares
with respect to any fractional share interests of Buyer Common
Stock, the Exchange Agent shall promptly pay such amounts to
such former holders of Common Shares subject to and in
accordance with the terms of this Section 2.3. Buyer will make
available to the Exchange Agent the cash necessary for this
purpose.
Section 2.4 Appraisal Rights. Notwithstanding any other provision of this
Agreement to the contrary, including but without limitation Section 6.3(f),
Common Shares held by a holder who has not voted such Common Shares in favor of
the approval of this Agreement and the Merger or consented thereto in writing
and with respect to which appraisal rights shall have been demanded and
perfected in accordance with Section 262 of the DGCL (the "Dissenting Common
Shares") and as of the Effective Time not withdrawn shall not be converted into
the right to receive the consideration payable pursuant to Section 2.1(c) at or
after the Effective Time, but such Common Shares shall become the right to
receive such consideration as may be determined to be due to holders of
Dissenting Common Shares pursuant to the laws of the State of Delaware unless
and until the holder of such Dissenting Common Shares withdraws his or her
demand for such appraisal or becomes ineligible for such appraisal. If a holder
of Dissenting Common Shares shall withdraw his or her demand for such appraisal
or shall become ineligible for such appraisal (through failure to perfect or
otherwise), then, as of the Effective Time or the occurrence of such event,
whichever last occurs, such holder's Dissenting Common Shares shall
automatically be converted into and represent the right to receive the merger
consideration as provided in Section 2.1(c). Seller shall give Buyer (i) prompt
written notice of any demands for appraisal of Common Shares received by Seller
and (ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. Seller shall not, without prior
written consent of Buyer, make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands.
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Section 2.5 Seller Option Plan.
(a) Assumption of Options. Each outstanding option to purchase Common
Shares issued to employees, non-employee directors and consultants of Seller
pursuant to Seller's 1996 Stock Option/Stock Issuance Plan, as amended (the
"Seller Option Plan"), except for options to purchase 44,800 Common Shares
granted on October 10, 1996, as listed on Schedule 2.5 hereto which shall
terminate on the Closing, whether vested or unvested (each a "Stock Option"),
shall remain outstanding after the Effective Time and shall be assumed by Buyer.
The parties intend that Buyer's assumption of the Stock Options shall be treated
as "assuming a stock option in a transaction to which Section 424(a) applies"
within the meaning of Section 424 of the Code and this subsection (a) shall be
interpreted and applied consistent with such intent. Each Stock Option assumed
by Buyer shall be exercisable upon the same terms and conditions as under the
Seller Option Plan and applicable option agreement issued thereunder, except
that (i) such option shall be exercisable for that number of shares of Buyer
Common Stock equal to the number of Common Shares for which such option was
exercisable times the Conversion Ratio, and (ii) the exercise price of such
option shall be equal to the exercise price of such option divided by the
Conversion Ratio. The number of shares of Buyer Common Stock subject to an
option assumed by Buyer shall be rounded to the nearest whole number (with .5
rounded up) and the exercise price thereof shall be rounded up to the nearest
whole cent.
(b) Notice. As soon as practicable after the Effective Time, Buyer shall
deliver to the holders of Stock Options appropriate notices setting forth such
holders' rights pursuant to the Buyer Option Plan (as defined in Section 4.2
hereof). The agreements evidencing the grants of such Stock Options shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 2.5 after giving effect to the Merger).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF SELLER
Seller represents and warrants to Buyer and Acquisition Subsidiary as
follows:
Section 3.1 Organization.
(a) Except as set forth in Section 3.1 of the disclosure schedule
delivered to Buyer on or before the date hereof (the "Seller Disclosure
Schedule"), Seller is a corporation duly organized, validly existing and in good
standing under the laws of Delaware and has the requisite corporate power and
authority and any necessary governmental authority to own, operate or lease the
properties that it purports to own, operate or lease and to carry on its
business as it is now being conducted, and, except as set forth in Section 3.1
of the Seller Disclosure Schedule, is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned, operated or leased or the nature of its activities
makes such qualification necessary, except for such failure which, when taken
together with all other such failures, would not have a Seller Material Adverse
Effect (as defined below in Section 3.1(b)). Seller does not own or control any
subsidiary.
(b) The term "Seller Material Adverse Effect" means any individual
material adverse effect, or adverse effects which in the aggregate (whether or
not related and whether or not any individual effect is material) have a
material adverse effect, on the business, operations, properties (including
intangible properties), condition (financial or otherwise), assets or
liabilities of Seller or could reasonably be expected to prevent or materially
delay the consummation of the Merger.
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Section 3.2 Capitalization.
(a) Capitalization. The authorized capital stock of Seller consists of
2,000,000 Common Shares, par value $0.001 per share and 1,000,000 shares of
Preferred Stock, $0.001 par value per share, of which 600,000 shares are
designated Series A Acute Preferred Shares and 2,200 shares are designated
Series B Acute Preferred Shares. The outstanding Series A Acute Preferred Shares
are convertible into 600,000 shares of Common Shares at the conversion price in
effect with respect thereto. The Series B Acute Preferred Shares are not
convertible. As of December 31, 1997, (i) 202,000 Common Shares were issued and
outstanding, (ii) 600,000 Series A Acute Preferred Shares were issued and
outstanding and were convertible into 600,000 Common Shares, (iii) 2,039 Series
B Acute Preferred Shares were issued and outstanding and held by JJDC, (iv) no
shares of Common Stock were held in the treasury of Seller, and (v) 202,300
Common Shares were reserved for issuance upon exercise of outstanding options
under the Seller Option Plan. Section 3.2 of the Seller Disclosure Schedule sets
forth a true and correct list as of December 31, 1997 of all holders of options
to purchase Common Shares, the number of such options outstanding as of such
date and the exercise price per option. All of the outstanding shares of Common
Shares have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights. Except as set forth in this Section
3.2 and in Section 3.2 of the Seller Disclosure Schedule, there are no other
options, warrants or other rights, convertible debt, agreements, arrangements or
commitments of any character obligating Seller to issue or sell any shares of
capital stock of or other equity interests in Seller. Seller is not obligated to
redeem, repurchase or otherwise reacquire any of its capital stock or other
securities.
(b) Seller does not directly or indirectly own or have a right to acquire
an equity interest in any corporation, partnership, joint venture or other
business association or entity.
Section 3.3 Authorization; Validity of Agreement; Necessary Action. Seller
has full corporate power and authority to execute and deliver this Agreement,
all agreements to which Seller is or will be a party that are exhibits to this
Agreement and the Management Agreement of even date herewith between Buyer and
Seller (the "Management Agreement") and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Seller of this Agreement and such other agreements and the consummation of the
Merger and of the other transactions contemplated hereby and thereby, have been
duly authorized by the Board of Directors of Seller and no other corporate or
stockholder action on the part of Seller is necessary to authorize the execution
and delivery by Seller of this Agreement and such other agreements and the
consummation of the transactions contemplated hereby and thereby (other than the
approval of this Agreement and the Merger by the holders of a majority of the
outstanding shares of Seller capital stock entitled to vote with respect
thereto). This Agreement and such other agreements have been duly executed and
delivered by Seller and, assuming due and valid authorization, execution and
delivery hereof by the other parties thereto are valid and binding obligations
of Seller, enforceable against Seller in accordance with its terms.
Section 3.4 Consents and Approvals; No Violations. Except for the filings
or the consents, authorizations or approvals under the agreements set forth in
Section 3.4 of the Seller Disclosure Schedule and the filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Exchange Act of 1934 (the "Exchange
Act"), the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), state securities or blue sky laws, the DGCL and the filing and
recordation of a Certificate of Merger under the DGCL, neither the execution,
delivery or performance of this Agreement by Seller nor the consummation by
Seller of the transactions contemplated hereby nor compliance by Seller with any
of the provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or the bylaws of Seller, (ii)
require
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any filing with, or permit, authorization, consent or approval of any court,
arbitration tribunal, administrative agency or commission or other governmental
or other regulatory authority or agency, domestic or foreign (a "Governmental
Entity") on the part of Seller, (iii) require the consent of any person under,
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Seller is a party or by
which Seller or any of its properties or assets may be bound (the "Seller
Specified Agreements"), the lack of which consent, or which violation, breach or
default, individually or in the aggregate, could reasonably be expected to have
a Seller Material Adverse Effect or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Seller, any of its
subsidiaries or any of their properties or assets.
Section 3.5 [RESERVED]
Section 3.6 Absence of Certain Changes. Since December 31, 1997, except as
contemplated by this Agreement, there has not been:
(a) any Seller Material Adverse Effect;
(b) any material damage, destruction or loss (whether or not covered by
insurance) with respect to any of the material assets of Seller;
(c) any issuance, redemption or acquisition of capital stock by Seller or
any declaration or payment of any dividend or other distribution in cash, stock
or property with respect to capital stock;
(d) any stock split, reverse stock split, combination, reclassification or
other similar action with respect to capital stock;
(e) any entry into any material commitment or transaction (including,
without limitation, any borrowing or capital expenditure) other than in the
ordinary course of business or as contemplated by this Agreement;
(f) any acquisition or disposition of rights (pursuant to license,
sublicense or otherwise) under or with respect to any patent, copyright,
trademark, tradename or other intellectual property right or registration
thereof or application therefor;
(g) any mortgage, pledge, security interest or imposition of lien or other
encumbrance on any material asset of Seller; or
(h) any change by Seller in accounting principles or methods except
insofar as may have been required by a change in generally accepted accounting
principles and disclosed in the Buyer Financial Statements (as defined in
Section 4.5 below).
Except as set forth in Section 3.6 of the Seller Disclosure Schedule,
since December 31, 1997 Seller has conducted its business only in the ordinary
course and in a manner consistent with past practice and has not made any
material change in the conduct of its business or operations. Except as set
forth in Section 3.6 of the Seller Disclosure Schedule, no person has or will
have the right to receive any severance, bonus, other payment, increase or
change in benefits or vesting of stock options, shares or other benefits as a
result of any of the transactions contemplated by this Agreement.
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Section 3.7 No Undisclosed Liabilities. Except as set forth in Section 3.7
of the Seller Disclosure Schedule, and except as reflected in the Buyer
Financial Statements, Seller has no liabilities of any nature (whether accrued,
absolute, contingent or otherwise), except those liabilities incurred in the
ordinary course of business which could not, individually or in the aggregate,
reasonably be expected to have a Seller Material Adverse Effect.
Section 3.8 Litigation. Except as disclosed in Section 3.8 of the Seller
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Seller, threatened against Seller.
Except as disclosed in Section 3.8 of the Seller Disclosure Schedule, Seller is
not subject to any outstanding order, writ, injunction or decree.
Section 3.9 No Default; Compliance with Applicable Laws. The business of
Seller is not being conducted in default or violation of any term, condition or
provision of (i) its certificate of incorporation or bylaws, (ii) any Seller
Specified Agreement or (iii) any federal, state, local or foreign statute, law,
ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to Seller, excluding from the foregoing clauses (ii) and (iii),
defaults or violations which could not, individually or in the aggregate,
reasonably be expected to have a Seller Material Adverse Effect. As of the date
of this Agreement, no investigation or review by any Governmental Entity or
other entity with respect to Seller is pending or, to the knowledge of Seller,
threatened, nor has any Governmental Entity or other entity indicated an
intention to conduct the same. Seller has in effect all Federal, state, local
and foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Seller Permits") necessary
for it to own, lease or operate its properties and assets and to carry on its
business as now conducted, and there has occurred no default under any such
Seller Permit.
Section 3.10 Intellectual Property. Except as set forth in Section 3.10 of
the Seller Disclosure Schedule, or as could not reasonably be expected to have,
individually or in the aggregate, a Seller Material Adverse Effect, Seller owns
or possesses adequate licenses or other valid rights to use all patents,
trademarks, trade names, copyrights, service marks, trade secrets, know-how and
other proprietary rights and information used or held for use in connection with
the business of Seller as currently conducted, and Seller is unaware of any
assertion or claim challenging the validity of any of the foregoing. Section
3.10 of the Seller Disclosure Schedule lists all material licenses, sublicenses
and other agreements to which Seller is a party and pursuant to which (i) any
third party is authorized to use any intellectual property right of Seller and
(ii) Seller is authorized to use any intellectual property rights (other than
pursuant to shrink-wrap licenses and other software licenses) of a third party,
true and correct copies of which have been provided to Buyer and Acquisition
Subsidiary. The conduct of the business of Seller as currently conducted does
not conflict in any way with any patent, license, trademark, or copyright of any
third party. To the knowledge of Seller, there are no infringements of any
proprietary rights owned by or licensed by or to Seller that could reasonably be
expected to have, individually or in the aggregate, a Seller Material Adverse
Effect. Seller has taken reasonable security measures to protect the
confidentiality of its trade secrets. Except as set forth in Section 3.10 of the
Seller Disclosure Schedule, all current and past employees or consultants of
Seller, who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed such trade secrets, or who have or
had access to information disclosing such trade secrets, have entered into
confidentiality and non-disclosure agreements with Seller (the "Seller Trade
Secret Agreements"). Any exception which has been taken to the Trade Secrets
Agreements (for example an employee or consultant excluding a prior invention)
is described in Section 3.10 of the Seller Disclosure Schedule, including the
exception taken and the employee taking such exception. To the knowledge of
Seller, neither Seller, nor its employees or its consultants have caused any of
Seller's trade secrets to become part of the public knowledge or literature, nor
has Seller, its employees or consultants permitted
8
any such trade secrets to be used, divulged or appropriated for the benefit of
persons to the material detriment of Seller.
Section 3.11 Tax Returns and Payments. Except as set forth in Section 3.11
of the Seller Disclosure Schedule, all tax returns and reports with respect to
Seller required by law to be filed under the laws of any jurisdiction, domestic
or foreign, have been duly and timely filed and all taxes, fees or other
governmental charges of any nature which were required to have been paid have
been paid or provided for. Seller has no knowledge of any unpaid taxes or any
actual or threatened assessment of deficiency or additional tax or other
governmental charge or a basis for such a claim against Seller. Seller has no
knowledge of any tax audit of Seller by any taxing or other authority in
connection with any of its fiscal years; Seller has no knowledge of any such
audit currently pending or threatened, and Seller has no knowledge of any tax
liens on any of the properties of Seller.
Section 3.12 Certificate of Incorporation and Bylaws. Seller has
heretofore furnished to Buyer and Acquisition Subsidiary a complete and correct
copy of the certificate of incorporation and the bylaws, each as amended to the
date hereof, of Seller. Such certificate of incorporation and bylaws are in full
force and effect. Seller is not in violation of any of the provisions of its
certificate of incorporation or bylaws.
Section 3.13 Title to Property.
(a) Seller has good and marketable title, or valid leasehold rights in the
case of leased property, to all real property and all personal property
purported to be owned or leased by it, free and clear of all material liens,
security interests, claims, encumbrances and charges, excluding (i) immaterial
liens for fees, taxes, levies, imposts, duties or governmental tax of any kind
which are not yet delinquent or are being contested in good faith by appropriate
proceedings which suspend the collection thereof, (ii) immaterial liens for
mechanics, materialmen, laborers, employees, suppliers or other liens arising by
operation of law for sums which are not yet delinquent or are being contested in
good faith by appropriate proceedings, (iii) purchase money liens on office,
computer and related equipment and supplies incurred in the ordinary course of
business, and (iv) liens or defects in title or leasehold rights that,
individually or in the aggregate, could not reasonably be expected to have a
Seller Material Adverse Effect.
(b) Consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation of, or require the consent of others under, any lease in which
Seller is a lessee, except for breaches or defaults which, individually, or in
the aggregate, could not reasonably be expected to have a Seller Material
Adverse Effect.
Section 3.14 Employee Benefits and Contracts.
(a) Section 3.14 of the Seller Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) maintained by Seller. Each of
such employee benefit plans complies in all material respects with applicable
requirements of ERISA or the Code of 1986 and no "reportable event" or
"prohibited transaction" (as such terms are defined in ERISA) has occurred with
respect to any such plan, and no termination, if it has occurred or were to
occur before the Effective Date, would present a risk of liability to any
Governmental Entity or other persons that would have a Seller Material Adverse
Effect.
(b) Seller has never maintained an employee benefit plan subject to
Section 412 of the Code or Title IV of ERISA. Each employee benefit plan of
Seller intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service
9
confirming such qualification. Seller has never had an obligation to contribute
to a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA. There are
no unfunded obligations under any employee benefit plan of Seller providing
benefits after termination of employment to any employee or former employee,
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980(B) of the Code. Each employee benefit plan of Seller may be amended
or terminated by Seller without the consent or approval of any other person.
There is no employee benefit plan, stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, or severance benefit plan of
Seller, any of the benefits of which will be increased or the vesting of the
benefits under which will be accelerated by the occurrence of any of the
transactions contemplated by this Agreement or the benefits under which will be
calculated on the basis of the transactions contemplated by this Agreement.
(c) Seller is not obligated to make any parachute payment, as
defined in Section 280G(b)(2) of the Code, nor will any parachute payment be
deemed to have occurred as a result of or arising out of any of the transactions
contemplated by this Agreement. Seller has no contract, agreement, obligation or
arrangement with any employee or other person, any of the benefits of which will
be increased or the vesting of the benefits under which will be accelerated by
any change of control of Seller or the occurrence of any of the transactions
contemplated by this Agreement or the benefits under which will be calculated on
the basis of the transactions contemplated by this Agreement.
Section 3.15 Employment; Labor Matters.
(a) Seller has delivered to Buyer true, complete and correct copies of all
employment agreements and all consulting agreements to which Seller is a party.
(b) Except as set forth in Section 3.15 of the Seller Disclosure Schedule
(i) Seller is not a party to any outstanding employment agreements or contracts
with directors, officers, employees or consultants; (ii) Seller is not a party
to any agreement, policy or practice that requires it to pay termination or
severance pay to employees (other than as required by law); and (iii) Seller is
not a party to any collective bargaining agreement or other labor union contract
applicable to persons employed by Seller, nor does Seller know of any activities
or proceedings of any labor union to organize any such employees.
Section 3.16 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Seller.
Section 3.17 Environmental Laws. Except as could not reasonably be
expected to have, individually or in the aggregate, a Seller Material Adverse
Effect: (i) Seller is in compliance with all applicable Environmental Laws (as
defined below); (ii) all past noncompliance, if any, of Seller with
Environmental Laws or Environmental Permits (as defined below) has been resolved
without any pending, ongoing or future obligation, cost or liability; and (iii)
Seller has not released or transported a Hazardous Material (as defined below),
in violation of any Environmental Law.
For purposes of this Agreement:
(a) "Environmental Law" shall mean any law and any enforceable
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in effect as
of the date hereof.
10
(b) "Environmental Permit" shall mean any permit, approval,
identification number, license or other authorization required under or issued
pursuant to any applicable Environmental Law.
(c) "Hazardous Material" shall mean any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
government authority, any state or the United State Government.
Section 3.18 Insurance. Section 3.18 of the Seller Disclosure
Schedule sets forth a true and complete list of all insurance policies in force
at the date hereof, with respect to the assets, properties or operations of
Seller. True and complete copies of all such insurance policies have been made
available to Buyer and Acquisition Subsidiary by Seller. Such policies are in
full force and effect.
Section 3.19 Contracts and Commitments.
(a) Except as disclosed in Section 3.10, 3.15 or 3.19 of the Seller
Disclosure Schedule, Seller is not a party or subject to:
(i) any plan, contract or arrangement, written or oral, which
requires aggregate payments by Seller in excess of $50,000 per year or
which provides for bonuses, pensions, deferred compensation, severance pay
or benefits, retirement payments, profit-sharing, or the like;
(ii) any joint marketing, joint development or joint venture
contract or arrangement or any other agreement which has involved or is
expected to involve a sharing of profits with other persons;
(iii) any lease for real or personal property in which the amount of
payments which Seller is required to make on an annual basis exceeds
$50,000;
(iv) any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession, arrangement,
commitment or authorization which may be, by its terms, terminated or
breached by reason of the execution of this Agreement, the Merger, or the
consummation of the transactions contemplated hereby or thereby;
(v) except for trade indebtedness incurred in the ordinary course of
business, any instrument evidencing or related in any way to indebtedness
in excess of $50,000 incurred in the acquisition of companies or other
entities or indebtedness in excess of $50,000 for borrowed money by way of
direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee, indemnification or otherwise;
(vi) any contract containing covenants purporting to limit Seller's
freedom to compete in any line of business or in any geographic area or
with any third party,
(vii) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $50,000; or
(viii) any other agreement, contract or commitment which is material
to Seller taken as a whole.
11
(b) Except as disclosed in Section 3.19 of the Seller Disclosure Schedule,
each agreement, contract, mortgage, indenture, plan, lease, instrument, permit,
concession, franchise, arrangement, license and commitment listed in Section
3.19 of the Seller Disclosure Schedule is valid and binding on Seller and the
other party(ies) thereto, is in full force and effect, and neither Seller, nor
to the knowledge of Seller any other party thereto, has breached any material
provision of, or is in material default under the terms of, any such agreement,
contract, mortgage, indenture, plan, lease, instrument, permit, concession,
franchise, arrangement, license or commitment.
(c) There is no agreement, judgment, injunction, order or decree binding
upon Seller which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current business practice of Seller, any
acquisition of property by Seller or the conduct of business by Seller as
currently conducted or as proposed to be conducted by Seller.
Section 3.20 Interests of Officers and Directors. To Seller's knowledge,
except as set forth in Section 3.20 of the Seller Disclosure Schedule, no
officer or director of Seller has had, either directly or indirectly, a material
interest in: (i) any person or entity which purchases from or sells, licenses or
furnishes to Seller any goods, property rights or services; (ii) except for the
employment or consulting contracts listed in Section 3.15 of the Seller
Disclosure Schedule, any contract or agreement to which Seller is a party or by
which it may be bound or affected; or (iii) any property, real or personal,
tangible or intangible, used in or pertaining to its business.
Section 3.21 Questionable Payments. Neither Seller nor to its knowledge
any director, officer, agent or other employee of Seller has: (i) made any
payments or provided services or other favors in the United States of America or
in any foreign country in order to obtain preferential treatment or
consideration by any Governmental Entity with respect to any aspect of the
business of Seller; or (ii) made any political contributions which would not be
lawful under the laws of the United States or the foreign country in which such
payments were made. Neither Seller nor to its knowledge any director, officer,
agent or other employee of Seller has been the subject of any inquiry or
investigation by any Governmental Entity in connection with payments or benefits
or other favors to or for the benefit of any governmental or armed services
official, agent, representative or employee with respect to any aspect of the
business of Seller or with respect to any political contribution.
Section 3.22 Certain Tax Matters. Neither Seller nor, to the knowledge of
Seller, any of its affiliates has taken or agreed to take any action that could
be expected to prevent the Merger from constituting a transaction qualifying
under Section 368 of the Code. Seller is not aware of any agreement, plan or
other circumstances that could reasonably be expected to prevent the Merger from
so qualifying under Section 368 of the Code.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF BUYER AND ACQUISITION SUBSIDIARY
Buyer and Acquisition Subsidiary represent and warrant to Seller as
follows:
Section 4.1 Organization.
(a) Except as set forth in Section 4.1 of the disclosure schedule
delivered to Seller on or before the date hereof (the "Buyer Disclosure
Schedule"), each of Buyer and Acquisition Subsidiary (which is the only
subsidiary of Buyer other than Seller) is a corporation duly organized, validly
existing and in good
12
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and any necessary governmental authority
to own, operate or lease the properties that it purports to own, operate or
lease and to carry on its business as it is now being conducted, and, except as
set forth in Section 4.1 of the Buyer Disclosure Schedule, is duly qualified as
a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, operated or leased or
the nature of its activities makes such qualification necessary, except for such
failure which, when taken together with all other such failures, would not have
a Buyer Material Adverse Effect (as defined below in Section 4.1(b)).
(b) The term "Buyer Material Adverse Effect" means any individual material
adverse effect, or adverse effects which in the aggregate (whether or not
related and whether or not any individual effect is material) have a material
adverse effect, on the business, operations, properties (including intangible
properties), condition (financial or otherwise), assets or liabilities of Buyer
and its subsidiaries taken as a whole or that could reasonably be expected to
prevent or materially delay the consummation of the Merger.
(c) For purposes of this Article 4 and Article 5, Acute shall not be
considered to be a subsidiary of Buyer.
Section 4.2 Capitalization.
(a) Capitalization. The authorized capital stock of Buyer consists of
20,000,000 shares of Buyer Common Stock, par value $0.001 per share, and
5,000,000 shares of Preferred Stock, par value $0.001 per share, of which
2,420,282 are designated Series B Convertible Preferred Stock (the "Series B
Preferred Stock"). As of December 31, 1997, (i) 3,176,065 shares of Buyer Common
Stock were issued and outstanding, (ii) 2,200,256 shares of Series B Preferred
Stock were issued and outstanding and were convertible into 3,424,980 shares of
Buyer Common Stock, (iii) 115,491 shares of Buyer Common Stock were held in the
treasury of the Buyer, (iv) 253,535 shares of Buyer Common Stock were reserved
for issuance upon exercise of outstanding options issued under the 1996 Stock
Option Plan of Discovery Laboratories, Inc., a former Delaware corporation ("Old
Discovery") and outside such plan and assumed by Buyer, (v) an aggregate of
116,162 shares of Buyer Common Stock were reserved for issuance under stock
options granted pursuant to Buyer's 1993 and 1995 Stock Option Plans (the "Buyer
Option Plans"), (vi) an aggregate of 2,297 shares of Buyer Common Stock were
reserved for issuance under stock options granted by Buyer outside the Buyer
Option Plans, (vii) an aggregate of 2,055,624 shares of Buyer Common Stock were
reserved for issuance under outstanding warrants as more fully described in
Section 4.2 of the Buyer Disclosure Schedule, (viii) 342,499 shares of Buyer
Common Stock were reserved for issuance upon conversion of the 220,026 shares of
Series B Preferred Stock issuable upon the exercise of outstanding warrants, and
(ix) 173,333 shares of Buyer Common Stock were reserved for issuance upon
exercise of Buyer's outstanding unit purchase option (including warrants
issuable upon the exercise of such unit purchase option). Section 4.2 of the
Buyer Disclosure Schedule sets forth a true and correct list as of December 31,
1997 of all holders of options to purchase shares of Buyer Common Stock, the
number of such options outstanding as of such date and the exercise price per
option. All of the outstanding shares of Buyer Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive rights. Except as set forth in this Section 4.2 and Section 4.2 of
the Buyer Disclosure Schedule, there are no other options, warrants or other
rights, convertible debt, agreements, arrangements or commitments of any
character obligating Buyer or Acquisition Subsidiary to issue or sell any shares
of capital stock of or other equity interests in Buyer or Acquisition Subsidiary
other than Buyer's obligation to reset the conversion price applicable to the
Series B Preferred Stock under the circumstances described in Buyer's Restated
Certificate of Incorporation. Buyer is not obligated to redeem, repurchase or
otherwise reacquire any of its capital stock or other securities.
13
(b) Except as set forth in Section 4.2 of the Buyer Disclosure Schedule,
all of the outstanding shares of the capital stock of Acquisition Subsidiary are
beneficially owned by Buyer, directly or indirectly, and all such shares have
been duly authorized, validly issued and are fully paid and nonassessable and
are owned by either Buyer or one of its subsidiaries free and clear of all
liens, security interests, charges, claims or encumbrances of any nature
whatsoever. There are no existing options, calls or commitments of any character
relating to the issued or unissued capital stock or other securities of
Acquisition Subsidiary. Except as set forth in Section 4.2 of the Buyer
Disclosure Schedule, Buyer does not directly or indirectly own or have a right
to acquire an equity interest in any corporation, partnership, joint venture or
other business association or entity.
Section 4.3 Authorization; Validity of Agreement; Necessary Action. Each
of Buyer and Acquisition Subsidiary has full corporate power and authority to
execute and deliver this Agreement and all agreements to which Buyer and
Acquisition Subsidiary is or will be a party that are exhibits to this
Agreement, including the Employment Agreements (as defined in Section 6.2
herein), and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by Buyer and Acquisition Subsidiary of this
Agreement, and the consummation of the Merger and of the other transactions
contemplated hereby and thereby, have been duly authorized by the Boards of
Directors of Buyer and Acquisition Subsidiary, as the case may be, and no other
corporate or stockholder action on the part of Buyer and Acquisition Subsidiary
is necessary to authorize the execution and delivery by Buyer or Acquisition
Subsidiary of this Agreement and the consummation of the transactions
contemplated hereby and thereby (other than the approval of this Agreement and
the Merger by the holders of a majority of the outstanding shares (on an
as-converted basis) of Buyer capital stock entitled to vote with respect
thereto). This Agreement has been duly executed and delivered by Buyer and
Acquisition Subsidiary and assuming due and valid authorization, execution and
delivery hereof by Seller, is a valid and binding obligation of Buyer and
Acquisition Subsidiary, as the case may be, enforceable against Buyer and
Acquisition Subsidiary in accordance with their respective terms.
Section 4.4 Consents and Approvals; No Violations. Except for the filings
or the consents, authorizations or approvals under the agreements set forth in
Section 4.4 of the Buyer Disclosure Schedule and the filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act, the HSR Act, state securities or
blue sky laws, the DGCL and the filing and recordation of a Certificate of
Merger under the DGCL, neither the execution, delivery or performance of this
Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby nor compliance by Buyer with any of the provisions hereof
will (i) conflict with or result in any breach of any provision of the
certificate of incorporation or the bylaws of Buyer or Acquisition Subsidiary,
(ii) require any filing with, or permit, authorization, consent or approval of,
a Governmental Entity, on the part of Buyer or Acquisition Subsidiary, (iii)
require the consent of any person under, result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which Buyer or Acquisition Subsidiary is a party or by which any of them or
any of their properties or assets may be bound (the "Buyer Specified
Agreements"), the lack of which consent, or which violation, breach or default,
individually or in the aggregate, could reasonably be expected to have a Buyer
Material Adverse Effect, or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Buyer, Acquisition Subsidiary or any
of their properties or assets.
Section 4.5 SEC Reports and Financial Statements.
(a) Buyer has timely filed with the Securities and Exchange Commission
(the "SEC"), and has delivered to Seller, true and complete copies of, all
forms, reports, schedules, statements and other
14
documents required to be filed by it since January 1, 1996, under the Securities
Act of 1933, as amended, or the Exchange Act (collectively, the "SEC
Documents"). Except as set forth in Section 4.5 of the Buyer Disclosure
Schedule, the SEC Documents (i) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be,
including without limitation the applicable accounting requirements thereunder
and the published rules and regulations of the SEC with respect thereto, (ii)
when filed, 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 therein, in the light of the circumstances under which they
were made, not misleading, and (iii) taken as a whole, do 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 therein, in the
light of the circumstances under which they were made, not misleading.
Acquisition Subsidiary is not required to file any statements or reports with
the SEC pursuant to Sections 13(a) or 15(d) of the Exchange Act.
(b) Except as set forth in Section 4.5 of the Buyer Disclosure Schedule,
the consolidated financial statements of Buyer contained in the SEC Documents
(the "Buyer Financial Statements"), have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present the financial position and the results of operations
and cash flows (and changes in financial position, if any) of Buyer and
Acquisition Subsidiary as of the respective dates and for the respective periods
thereof, except that the unaudited interim quarterly financial statements were
or are subject to normal and recurring year-end adjustments which were or are
not expected to be material in amount and did not or may not have included
footnote disclosure that would otherwise be required by GAAP. Except as set
forth in Section 4.5 of the Buyer Disclosure Schedule, Buyer is not aware of any
facts or circumstances which would require Buyer to amend or restate any of the
SEC Documents, including without limitation the financial information included
therein.
Section 4.6 Absence of Certain Changes. Since December 31, 1997, except as
contemplated by this Agreement or set forth in Section 4.6 of the Buyer
Disclosure Schedule, there has not been:
(a) any Buyer Material Adverse Effect;
(b) any material damage, destruction or loss (whether or not covered by
insurance) with respect to any of the material assets of Buyer or Acquisition
Subsidiary;
(c) any issuance, redemption or acquisition of capital stock by Buyer or
Acquisition Subsidiary or any declaration or payment of any dividend or other
distribution in cash, stock or property with respect to capital stock;
(d) any stock split, reverse stock split, combination, reclassification or
other similar action with respect to capital stock;
(e) any entry into any material commitment or transaction (including,
without limitation, any borrowing or capital expenditure) other than in the
ordinary course of business or as contemplated by this Agreement;
(f) any acquisition or disposition of rights (pursuant to license,
sublicense or otherwise) under or with respect to any patent, copyright,
trademark, tradename or other intellectual property right or registration
thereof or application therefor;
15
(g) any mortgage, pledge, security interest or imposition of lien or other
encumbrance on any material asset of Buyer or Acquisition Subsidiary; or
(h) any change by Buyer in accounting principles or methods except insofar
as may have been required by a change in generally accepted accounting
principles and disclosed in the SEC Documents.
Except as set forth in Section 4.6 of the Buyer Disclosure Schedule, since
December 31, 1997, Buyer and its subsidiaries have conducted their business only
in the ordinary course and in a manner consistent with past practice and have
not made any material change in the conduct of the business or operations of
Buyer and Acquisition Subsidiary taken as a whole. Except as set forth in
Section 4.14(b) of the Buyer Disclosure Schedule, no person has or will have the
right to receive any severance, bonus, other payment, increase or change in
benefits or vesting of stock options, shares or other benefits as a result of
any of the transactions contemplated by this Agreement.
Section 4.7 No Undisclosed Liabilities. Except as set forth in Section 4.7
of the Buyer Disclosure Schedule, and except as reflected in the Buyer Financial
Statements contained in the SEC Documents, Buyer and Acquisition Subsidiary have
no liabilities of any nature (whether accrued, absolute, contingent or
otherwise), except those liabilities incurred in the ordinary course of business
which could not, individually or in the aggregate, reasonably be expected to
have a Buyer Material Adverse Effect.
Section 4.8 Litigation. Except as disclosed in the SEC Documents or in
Section 4.8 of the Buyer Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of Buyer, threatened
against Buyer. Except as disclosed in the SEC Documents or in Section 4.8 of the
Buyer Disclosure Schedule, neither Buyer nor Acquisition Subsidiary is subject
to any outstanding order, writ, injunction or decree.
Section 4.9 No Default; Compliance with Applicable Laws. Except as
disclosed in Section 4.9 of the Buyer Disclosure Schedule, the business of each
of Buyer and Acquisition Subsidiary is not being conducted in default or
violation of any term, condition or provision of (i) its certificate of
incorporation or bylaws, (ii) any Buyer Specified Agreement or (iii) any
federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to Buyer or Acquisition
Subsidiary, excluding from the foregoing clauses (ii) and (iii), defaults or
violations which could not, individually or in the aggregate, reasonably be
expected to have a Buyer Material Adverse Effect. Except as disclosed in Section
4.9 of the Buyer Disclosure Schedule, as of the date of this Agreement, no
investigation or review by any Governmental Entity or other entity with respect
to Buyer or Acquisition Subsidiary is pending or, to the knowledge of Buyer,
threatened, nor has any Governmental Entity or other entity indicated an
intention to conduct the same. Each of Buyer and Acquisition Subsidiary has in
effect all Federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights ("Buyer Permits") necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, and there
has occurred no default under any such Buyer Permit.
Section 4.10 Intellectual Property. Except as set forth in Section 4.10 of
the Buyer Disclosure Schedule, or as could not reasonably be expected to have,
individually or in the aggregate, a Buyer Material Adverse Effect, Buyer and its
subsidiaries own or possess adequate licenses or other valid rights to use all
patents, trademarks, trade names, copyrights, service marks, trade secrets,
know-how and other proprietary rights and information used or held for use in
connection with the business of Buyer and its subsidiaries as currently
conducted, and Buyer is unaware of any assertion or claim challenging the
validity of any of the foregoing. Section 4.10 of the Buyer Disclosure Schedule
lists all material licenses, sublicenses and other agreements to which the Buyer
or Acquisition Subsidiary is a party and pursuant to which (i) any third party
16
is authorized to use any intellectual property right of the Buyer or Acquisition
Subsidiary and (ii) Buyer or its subsidiaries are authorized to use any
intellectual property rights (other than pursuant to shrink-wrap licenses and
other software licenses) of a third party, true and correct copies of which have
been provided to Seller. Except as set forth in Section 4.10 of the Buyer
Disclosure Schedule, the conduct of the business of Buyer and its subsidiaries
as currently conducted does not conflict in any way with any patent, license or
copyright of any third party. To the knowledge of Buyer, except as set forth in
Section 4.10 of the Buyer Disclosure Schedule, there are no infringements of any
proprietary rights owned by or licensed by or to Buyer or Acquisition Subsidiary
that could reasonably be expected to have, individually or in the aggregate, a
Buyer Material Adverse Effect. Buyer has taken reasonable security measures to
protect the confidentiality of its trade secrets. All current and past employees
or consultants of Buyer, who, either alone or in concert with others, developed,
invented, discovered, derived, programmed or designed such trade secrets, or who
have or had access to information disclosing such trade secrets, have entered
into confidentiality and non-disclosure agreements with Buyer (the "Buyer Trade
Secret Agreements"). Any exception which has been taken to the Buyer Trade
Secrets Agreements (for example an employee or consultant excluding a prior
invention) is described in Section 4.10 of the Buyer Disclosure Schedule,
including the exception taken and the employee taking such exception. To the
knowledge of Buyer, neither Buyer, nor its employees or its consultants have
caused any of Buyer's trade secrets to become part of the public knowledge or
literature, nor has Buyer, its employees or consultants permitted any such trade
secrets to be used, divulged or appropriated for the benefit of persons to the
material detriment of Buyer.
Section 4.11 Tax Returns and Payments. All tax returns and reports with
respect to Buyer or Acquisition Subsidiary required by law to be filed under the
laws of any jurisdiction, domestic or foreign, have been duly and timely filed
and all taxes, fees or other governmental charges of any nature which were
required to have been paid have been paid or provided for. Buyer and Acquisition
Subsidiary have no knowledge of any unpaid taxes or any actual or threatened
assessment of deficiency or additional tax or other governmental charge or a
basis for such a claim against Buyer or Acquisition Subsidiary. Buyer and
Acquisition Subsidiary have no knowledge of any tax audit of Buyer or
Acquisition Subsidiary by any taxing or other authority in connection with any
of its fiscal years; Buyer and Acquisition Subsidiary have no knowledge of any
such audit currently pending or threatened, and Buyer and Acquisition Subsidiary
have no knowledge of any tax liens on any of the properties of Buyer or
Acquisition Subsidiary.
Section 4.12 Certificate of Incorporation and Bylaws. Buyer and
Acquisition Subsidiary have heretofore furnished to Seller a complete and
correct copy of the certificate of incorporation and the bylaws, each as amended
to the date hereof, of Buyer and Acquisition Subsidiary. Such certificate of
incorporation and bylaws are in full force and effect. Neither Buyer nor
Acquisition Subsidiary is in violation of any of the provisions of its
certificate of incorporation.
Section 4.13 Title to Property.
(a) Except as disclosed in Section 4.13 to the Buyer Disclosure Schedule,
Buyer and Acquisition Subsidiary has good and marketable title, or valid
leasehold rights in the case of leased property, to all real property and all
personal property purported to be owned or leased by them, free and clear of all
material liens, security interests, claims, encumbrances and charges, excluding
(i) immaterial liens for fees, taxes, levies, imposts, duties or governmental
tax of any kind which are not yet delinquent or are being contested in good
faith by appropriate proceedings which suspend the collection thereof, (ii)
immaterial liens for mechanics, materialmen, laborers, employees, suppliers or
other liens arising by operation of law for sums which are not yet delinquent or
are being contested in good faith by appropriate proceedings, (iii) purchase
money liens on office, computer and related equipment and supplies incurred in
the ordinary course of business, and (iv) liens or defects in title or leasehold
rights that, individually or in the aggregate, could not reasonably be expected
to have a Buyer Material Adverse Effect.
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(b) Except as set forth in Section 4.13(b) of the Buyer Disclosure
Schedule, consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation of, or require the consent of others under, any lease in which
Buyer or Acquisition Subsidiary is a lessee, except for breaches or defaults
which, individually or in the aggregate, could not reasonably be expected to
have a Buyer Material Adverse Effect.
Section 4.14 Employee Benefits and Contracts.
(a) Section 4.14 of the Buyer Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of the ERISA) maintained by Buyer and
Acquisition Subsidiary. Each of such employee benefit plans complies in all
material respects with applicable requirements of ERISA or the Internal Revenue
Code of 1986, as amended (the "Code") and no "reportable event" or "prohibited
transaction" (as such terms are defined in ERISA) has occurred with respect to
any such plan, and no termination, if it has occurred or were to occur before
the Effective Date, would present a risk of liability to any Governmental Entity
or other persons that would have a Buyer Material Adverse Effect.
(b) Buyer and Acquisition Subsidiary has never maintained an
employee benefit plan subject to Section 412 of the Code or Title IV of ERISA.
Each employee benefit plan of Buyer or Acquisition Subsidiary intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service confirming such
qualification. Neither Buyer nor Acquisition Subsidiary has ever had an
obligation to contribute to a "multi-employer plan" as defined in Section
4001(a)(3) of ERISA. There are no unfunded obligations under any employee
benefit plan of Buyer or Acquisition Subsidiary providing benefits after
termination of employment to any employee or former employee, including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under Section 4980(B)
of the Code. Each employee benefit plan of Buyer or Acquisition Subsidiary may
be amended or terminated by Buyer or Acquisition Subsidiary without the consent
or approval of any other person. There is no employee benefit plan, stock option
plan, stock appreciation right plan, restricted stock plan, stock purchase plan,
or severance benefit plan of Buyer or Acquisition Subsidiary, any of the
benefits of which will be increased or the vesting of the benefits under which
will be accelerated by the occurrence of any of the transactions contemplated by
this Agreement or the benefits under which will be calculated on the basis of
the transactions contemplated by this Agreement, except as set forth in Section
4.14(b) of the Buyer Disclosure Schedule.
(c) Neither Buyer nor Acquisition Subsidiary is obligated to make
any parachute payment, as defined in Section 280G(b)(2) of the Code, nor will
any parachute payment be deemed to have occurred as a result of or arising out
of any of the transactions contemplated by this Agreement. Neither Buyer nor
Acquisition Subsidiary has any contract, agreement, obligation or arrangement
with any employee or other person, any of the benefits of which will be
increased or the vesting of the benefits under which will be accelerated by any
change of control of Buyer or Acquisition Subsidiary or the occurrence of any of
the transactions contemplated by this Agreement or the benefits under which will
be calculated on the basis of the transactions contemplated by this Agreement
except as set forth in Section 4.14(b) of the Buyer Disclosure Schedule.
Section 4.15 Employment; Labor Matters.
(a) Buyer has delivered to Seller true, complete and correct copies of all
employment agreements and all consulting agreements to which Buyer or
Acquisition Subsidiary is a party.
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(b) Except as set forth in Section 4.15 of the Buyer Disclosure Schedule
(i) neither Buyer nor Acquisition Subsidiary is a party to any outstanding
employment agreements or contracts with directors, officers, employees or
consultants; (ii) neither Buyer nor Acquisition Subsidiary is a party to any
agreement, policy or practice that requires it to pay termination or severance
pay to employees (other than as required by law); and (iii) neither Buyer nor
Acquisition Subsidiary is a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by Buyer or
Acquisition Subsidiary, nor does Buyer or Acquisition Subsidiary know of any
activities or proceedings of any labor union to organize any such employees.
Section 4.16 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of Buyer or Acquisition Subsidiary.
Section 4.17 Environmental Laws. Except as disclosed in Section 4.17 of
the Buyer Disclosure Schedule or as could not reasonably be expected to have,
individually or in the aggregate, a Buyer Material Adverse Effect: (i) Buyer and
Acquisition Subsidiary is in compliance with all applicable Environmental Laws;
(ii) all past noncompliance, if any, of Buyer or Acquisition Subsidiary with
Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future obligation, cost or liability; and (iii) neither
Buyer nor Acquisition Subsidiary has released or transported a Hazardous
Material, in violation of any Environmental Law.
Section 4.18 Insurance. Section 4.18 of the Buyer Disclosure Schedule sets
forth a true and complete list of all insurance policies in force at the date
hereof, with respect to the assets, properties or operations of each of Buyer
and Acquisition Subsidiary. True and complete copies of all such insurance
policies have been made available to Seller by Buyer. Such policies will not be
terminated as a result of the Merger, subject to payment of applicable premiums.
Such policies also are in full force and effect.
Section 4.19 Contracts and Commitments.
(a) Except as disclosed in Section 4.10, 4.15 or 4.19 of the Buyer
Disclosure Schedule, neither Buyer nor Acquisition Subsidiary is a party or
subject to:
(i) any plan, contract or arrangement, written or oral, which
requires aggregate payments by Buyer or Acquisition Subsidiary in excess
of $50,000 per year or which provides for bonuses, pensions, deferred
compensation, severance pay or benefits, retirement payments,
profit-sharing, or the like;
(ii) any joint marketing, joint development or joint venture
contract or arrangement or any other agreement which has involved or is
expected to involve a sharing of profits with other persons;
(iii) any lease for real or personal property in which the amount of
payments which Buyer or Acquisition Subsidiary is required to make on an
annual basis exceeds $50,000;
(iv) any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession, arrangement,
commitment or authorization which may be, by its terms, terminated or
breached by reason of the execution of this Agreement, the Merger, or the
consummation of the transactions contemplated hereby or thereby;
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(v) except for trade indebtedness incurred in the ordinary course of
business, any instrument evidencing or related in any way to indebtedness
in excess of $50,000 incurred in the acquisition of companies or other
entities or indebtedness in excess of $50,000 for borrowed money by way of
direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee, indemnification or otherwise;
(vi) any contract containing covenants purporting to limit Buyer's
or Acquisition Subsidiary's freedom to compete in any line of business or
in any geographic area or with any third party,
(vii) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $50,000; or
(viii) any other agreement, contract or commitment which is material
to Buyer and Acquisition Subsidiary taken as a whole.
(b) Except as disclosed in Section 4.19 of the Buyer Disclosure Schedule,
each agreement, contract, mortgage, indenture, plan, lease, instrument, permit,
concession, franchise, arrangement, license and commitment listed in Section
4.19 of the Buyer Disclosure Schedule is valid and binding on Buyer or
Acquisition Subsidiary and the other party(ies) thereto, as applicable, and
assuming due and valid authorization, execution and delivery by all counter
parties, is in full force and effect, and neither Buyer, Acquisition Subsidiary,
nor to the knowledge of Buyer any other party thereto, has breached any material
provision of, or is in material default under the terms of, any such agreement,
contract, mortgage, indenture, plan, lease, instrument, permit, concession,
franchise, arrangement, license or commitment.
(c) There is no agreement, judgment, injunction, order or decree binding
upon the Buyer or Acquisition Subsidiary which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any current
business practice of Buyer or Acquisition Subsidiary, any acquisition of
property by Buyer or Acquisition Subsidiary or the conduct of business by Buyer
or Acquisition Subsidiary as currently conducted or as proposed to be conducted
by Buyer or Acquisition Subsidiary.
Section 4.20 Interests of Officers and Directors. To Buyer's knowledge,
except as set forth in Section 4.20 of the Buyer Disclosure Schedule, no officer
or director of Buyer or Acquisition Subsidiary has had, either directly or
indirectly, a material interest in: (i) any person or entity which purchases
from or sells, licenses or furnishes to Buyer or Acquisition Subsidiary any
goods, property rights or services; (ii) except for the contracts listed in
Section 4.15 of the Buyer Disclosure Schedule, any contract or agreement to
which Buyer or Acquisition Subsidiary is a party or by which it may be bound or
affected; or (iii) any property, real or personal, tangible or intangible, used
in or pertaining to its business or that of Acquisition Subsidiary.
Section 4.21 Questionable Payments. Neither Buyer nor Acquisition
Subsidiary nor to its knowledge any director, officer, agent or other employee
of Buyer or Acquisition Subsidiary has: (i) made any payments or provided
services or other favors in the United States of America or in any foreign
country in order to obtain preferential treatment or consideration by any
Governmental Entity with respect to any aspect of the business of Buyer or
Acquisition Subsidiary; or (ii) made any political contributions which would not
be lawful under the laws of the United States or the foreign country in which
such payments were made. Neither Buyer nor Acquisition Subsidiary nor to its
knowledge any director, officer, agent or other employee of Buyer or Acquisition
Subsidiary has been the subject of any inquiry or investigation by any
Governmental Entity in connection with payments or benefits or other favors to
or for the benefit of any
20
governmental or armed services official, agent, representative or employee with
respect to any aspect of the business of Buyer or Acquisition Subsidiary or with
respect to any political contribution.
Section 4.22 Certain Tax Matters. Except as disclosed in Section 4.22 of
the Buyer Disclosure Schedule, neither Buyer nor, to the knowledge of Buyer, any
of its affiliates has taken or agreed to take any action that could be expected
to prevent the Merger from constituting a transaction qualifying under Section
368 of the Code. Buyer is not aware of any agreement, plan or other
circumstances that could reasonably be expected to prevent the Merger from so
qualifying under Section 368 of the Code.
Section 4.23 No Prior Activities. Except for obligations or liabilities
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and the transactions contemplated hereby
(including any financing), Acquisition Subsidiary has not incurred any
obligations or liabilities, and has not engaged in any business or activities of
any type or kind whatsoever or entered into any agreements or arrangements with
any person or entity. Acquisition Subsidiary is a wholly-owned subsidiary of
Buyer.
ARTICLE 5
COVENANTS
Section 5.1 Interim Operations of Seller and Buyer. Seller and Buyer each
hereby covenants and agrees with the other that, except (i) as expressly
contemplated by this Agreement, (ii) as set forth in Section 5.1 of the Seller
Disclosure Schedule, (iii) as set forth in Section 5.1 of the Buyer Disclosure
Schedule or (iv) as agreed in writing by Seller and Buyer, after the execution
and delivery of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time:
(a) the business of such party and its subsidiaries shall be conducted
only in the ordinary and usual course and, to the extent consistent therewith,
each party and its subsidiaries shall use its reasonable commercial efforts to
preserve its business organization intact and maintain its existing relations
with customers, suppliers, employees, creditors and business partners;
(b) each such party shall not, directly or indirectly, amend its or any of
its subsidiaries' certificate of incorporation or bylaws or similar
organizational documents;
(c) each such party shall not, and it shall not permit its subsidiaries
to: (i)(A) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to such party's capital stock or that of
its subsidiaries, or (B) redeem, purchase or otherwise acquire directly or
indirectly any of such party's capital stock (or options, warrants, calls,
commitments or rights of any kind to acquire any shares of capital stock) or
that of its subsidiaries; (ii) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, capital
stock of any class of such party or its subsidiaries, other than Common Shares
or Buyer Common Stock issuable upon the exercise of options and warrants
outstanding on the date hereof and described in Section 3.2 of this Agreement or
the Seller Disclosure Schedule or Section 4.2 of this Agreement or the Buyer
Disclosure Schedule; (iii) split, combine or reclassify the outstanding capital
stock of such party or of its subsidiaries; or (iv) amend or otherwise modify
the terms of any rights, warrants or options with respect to such party or of
its subsidiary's capital stock;
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(d) each such party shall not, and it shall not permit its subsidiaries
to, acquire or agree to acquire, or dispose of or agree to dispose of, any
material assets, either by purchase, merger, consolidation, sale of shares in
any of its subsidiaries or otherwise, other than in the ordinary course of
business;
(e) each such party shall not, and it shall not permit its subsidiaries
to, transfer, lease, license, sell, mortgage, pledge or encumber any assets;
(f) except as contemplated by Section 4.14(b), neither such party nor its
subsidiaries shall: (i) grant any increase in the compensation payable to any of
its officers, directors or key employees; or (ii)(A) adopt any new, or (B)
except as contemplated by Section 2.5, amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become payable
under any existing, bonus, incentive compensation, deferred compensation,
severance, profit sharing, stock option, stock purchase, insurance, pension,
retirement or other employee benefit plan, agreement or arrangement; or (iii)
enter into or modify or amend any employment or severance agreement with or,
except as required by applicable law, grant any severance or termination pay to
any officer, director or employee of Seller or any of its subsidiaries; or (iv)
enter into any collective bargaining agreement;
(g) neither such party nor any of its subsidiaries shall, without the
other party's prior written consent, which consent shall not be unreasonably
withheld, modify, amend or terminate any of its contracts or waive, release or
assign any rights or claims;
(h) neither such party nor any of its subsidiaries shall: (i) incur or
assume any indebtedness for money borrowed; (ii) modify any such indebtedness or
other liability; (iii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person, other than immaterial amounts in the ordinary course of
business consistent with past practice and other than for any subsidiary; (iv)
make any loans, advances or capital contributions to, or investments in, any
other person (other than to wholly-owned subsidiaries of such party); (v) change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the year ended December 31, 1997, or (vi) enter into any material
commitment or transaction except as contemplated by this Agreement;
(i) neither such party nor any of its subsidiaries shall change any of the
accounting methods, practices or policies used by it unless required by a change
in GAAP;
(j) such party shall not, and it shall not permit its subsidiaries to,
make or agree to make any new capital expenditures in excess of $10,000 in the
aggregate;
(k) such party shall not, and it shall not permit its subsidiaries to,
make any tax election (unless required by law) or settle or compromise any
income tax liability; and
(l) neither party nor any of its subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
Section 5.2 Access; Confidentiality. Each of Seller and Buyer shall (and
Buyer shall cause each of its subsidiaries to) (a) afford to the officers,
employees, accountants, counsel and other representatives of Seller and Buyer,
as the case may be, reasonable access to and the right to inspect and observe,
during normal business hours during the period prior to the Effective Time, its
personnel, accountants, representatives, properties, books, contracts, insurance
policies, commitments and records, offices, plants and other facilities, (b)
make available promptly to Seller or Buyer, as the case may be (i) a copy of
each
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report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of federal securities laws,
if applicable and (ii) all other information concerning its business, properties
and personnel as Seller or Buyer may reasonably request. Each party will treat
any such information in accordance with the provisions of the letter agreement
dated the date hereof between Seller and Buyer (the "Confidentiality
Agreement"). No investigation conducted by Seller or Buyer shall impact any
representation or warranty given by Seller to Buyer hereunder.
Section 5.3 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable commercial
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations, or to remove any injunctions or other impediments or delays, legal
or otherwise, to consummate and make effective the Merger and the other
transactions contemplated by this Agreement. Buyer also agrees to timely file
all filings required to be made with the SEC with respect to such transactions.
Section 5.4 Consents and Approvals; HSR Act. Each of Seller, Buyer and
Acquisition Subsidiary will take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on it with respect to
this Agreement and the transactions contemplated hereby (which actions shall
include, without limitation, furnishing all information required under the HSR
Act and in connection with approvals of or filings with any other Governmental
Entity) and will promptly cooperate with and furnish information to each other
in connection with any such requirements imposed upon any of them or any of
their subsidiaries in connection with this and the transactions contemplated
hereby. Each of Seller, Buyer and Acquisition Subsidiary will, and will cause
its subsidiaries to, take all reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other public or
private third party required to be obtained or made by Buyer, Acquisition
Subsidiary, Seller or any of their subsidiaries in connection with the Merger or
the taking of any action contemplated thereby or by this Agreement. Each party
shall promptly inform the other party of any communication with, and any
proposed understanding, undertaking, or agreement with, any Governmental Entity
regarding any such filings or any such transaction.
Section 5.5 Exclusivity. From the date hereof until the earlier of
termination of this Agreement or consummation of the Merger, neither Seller nor
Buyer nor any of their officers, directors, employees, representatives
(including any investment banker, attorney or accountant retained by them),
agents or affiliates shall directly or indirectly encourage, solicit, initiate,
facilitate or conduct discussions or negotiations with, provide any information
to, or enter into any agreement with, any corporation, partnership, person or
other entity or group concerning or expressing an interest in or proposing any
merger, consolidation, reorganization, share exchange, business combination,
liquidation, dissolution sale of all or other significant assets or securities
or other similar transaction involving such party, except to the extent required
by their fiduciary duties as determined by the Board of Directors of such party
after discussion with their counsel.
Section 5.6 Publicity. So long as this Agreement is in effect, neither
Seller, Buyer nor any of their respective affiliates shall issue or cause the
publication of any press release or other public announcement with respect to
the Merger, this Agreement or the other transactions between the parties
contemplated hereby without the prior consultation of the other party, except as
may be required by law or by any listing agreement with a national securities
exchange or trading market.
Section 5.7 Notification of Certain Matters. Seller shall give prompt
notice to Buyer and Acquisition Subsidiary, and Buyer and Acquisition Subsidiary
shall give prompt notice to Seller, of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would cause any
representation or warranty made by such party or parties in this Agreement to be
untrue or inaccurate in any
23
material respect at or prior to the Effective Time and (ii) any failure of
Seller, Buyer or Acquisition Subsidiary, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.7 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice. Seller also shall give prompt
notice to Buyer, and Buyer or Acquisition Subsidiary shall give prompt notice to
Seller, of:
(i) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement (unless the requirement for
such consent is set forth in Section 3.4 of the Seller Disclosure Schedule
or Section 4.4 of the Buyer Disclosure Schedule);
(ii) any notice or other communication from any Governmental Entity
in connection with the transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or
involving or otherwise affecting it or any of its subsidiaries or which
relate to the consummation of the transactions contemplated by this
Agreement; and
(iv) any occurrence of any event having, or which could reasonably
be expected to have, a Seller Material Adverse Effect or Buyer Material
Adverse Effect.
Section 5.8 Indemnification. Notwithstanding Section 8.7 hereof, Buyer
agrees that all rights to indemnification existing in favor of directors,
officers or employees of Seller as provided in Seller's certificate of
incorporation or bylaws, with respect to matters occurring through the Effective
Time, shall survive the Merger and shall continue in full force and effect. If
the Surviving Corporation or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 5.8.
Section 5.9 Approval of Stockholders.
(a) Buyer shall, promptly after the date of this Agreement, take all
actions necessary in accordance with the requirements of the bylaws of the
National Association of Securities Dealers, Inc. ("NASD"), DGCL and its
certificate of incorporation and bylaws to convene a meeting of Buyer's
stockholders to act on this Agreement (the "Buyer Stockholders' Meeting") and
Buyer shall consult with Seller in connection therewith.
(b) Unless Seller's Board of Directors in the good faith exercise of its
fiduciary duties, after receiving advice from outside legal counsel, determines
not to recommend, or to withdraw its recommendation that such matters be
approved by Seller's stockholders, Seller shall, promptly after the date of this
Agreement, take all actions necessary in accordance with DGCL and its
certificate of incorporation and bylaws to obtain the unanimous written consent
of Seller's stockholders to act on this Agreement, and Seller shall consult with
Buyer in connection therewith.
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Section 5.10 Buyer Proxy Statement. Unless the Board of Directors of Buyer
in the good faith exercise of its fiduciary duties determines not to recommend
the Merger and this Agreement to its stockholders (or to withdraw such
recommendation), Buyer, acting through its Board of Directors, shall, in
accordance with applicable law:
(i) after consultation with Seller and its legal counsel, diligently
prepare and file with the SEC as soon as reasonably practicable after the
date of this Agreement (but in no event later than 30 days after the date
hereof), a preliminary proxy or information statement relating to the
Merger and this Agreement and use commercially reasonable efforts (x) to
obtain and furnish the information required to be included by the SEC in
the Buyer Proxy Statement (as hereinafter defined) and, after consultation
with Seller and its counsel, to respond promptly to any comments made by
the SEC with respect to the preliminary proxy or information statement and
cause a definitive proxy or information statement, including any amendment
or supplement thereto (the "Buyer Proxy Statement") to be mailed to its
stockholders, provided that no amendment or supplement to the Buyer Proxy
Statement will be made by Buyer without consultation with Seller and its
counsel and (y) to obtain the necessary approvals of the Merger and this
Agreement by its stockholders;
(ii) prepare the preliminary proxy statement and prepare and revise
the Buyer Proxy Statement so that at the date mailed to Buyer's
stockholders and at the time of the meeting of Buyer's stockholders to be
held in connection with the Merger, the Buyer Proxy Statement will (x) not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order that the
statements made therein, in light of the circumstances under which they
are made, not misleading (except that Buyer shall not be responsible under
this clause (ii) with respect to statements made therein based on
information supplied by Seller expressly for inclusion in the Buyer Proxy
Statement), and (y) comply in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder; and
(iii) make at the Buyer's Stockholder's Meeting, and include in the
Proxy Statement, the recommendation of the Board that stockholders of
Buyer vote in favor of the approval of the Merger and the authorization
and adoption of this Agreement.
Section 5.11 Seller Information Statement.
(a) Seller shall afford Buyer and its legal counsel a reasonable
opportunity to review and comment on any solicitation materials, including
solicitation of action by written consent, that Seller distributes to its
stockholders in connection with the Merger, which shall be diligently prepared
and distributed to Seller's stockholders as soon as reasonably practicable after
the date of this Agreement and, at such date, such solicitation materials will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order that the
statements made therein, in light of the circumstances under which they are
made, not misleading (except that Seller shall not be responsible under this
Section 5.11(a) with respect to statements made therein based on information
supplied by Buyer expressly for inclusion in such solicitation materials). To
the greatest extent practicable, information required to be disclosed in both
the Buyer Proxy Statement and any such solicitation materials shall be disclosed
in an identical manner.
(b) Seller shall furnish to Buyer, and revise, written information
concerning itself expressly for inclusion in the Buyer Proxy Statement,
including without limitation by reviewing and commenting (with
25
respect to information concerning Seller) on drafts of the Buyer Proxy Statement
and the preliminary proxy statement to be prepared pursuant to Section 5.10.
Seller shall inform Buyer of any change regarding such information so that such
Seller-furnished information will not, at both the date mailed to Buyer
stockholders and at the time of the meeting of Buyer stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated in Seller furnished
information or necessary in order to make the statements made in
Seller-furnished information, in light of the circumstances under which they are
made, not misleading.
Section 5.12 Tax Treatment. Each party hereto shall use all reasonable
efforts to cause the Merger to qualify and shall not take, and shall use all
reasonable efforts to prevent any affiliate of such party from taking, any
actions which could prevent the Merger from qualifying as a reorganization under
the provisions of Section 368(a) of the Code.
Section 5.13 Form S-8. With respect to the Seller Option Plan, Buyer shall
take all corporate action necessary or appropriate to, as soon as practicable
after the Effective Time, file a registration statement on Form S-8 (or any
successor or other appropriate form) with respect to the shares of Buyer Common
Stock which will be subject to options outstanding under such plan as of the
Closing to the extent such registration statement is required under applicable
law in order for such shares of Buyer Common Stock to be sold without
restriction, and Buyer shall use reasonable efforts to maintain the
effectiveness of such registration statements (and maintain the current status
of the prospectuses contained therein) for so long as such options under such
plan remain outstanding.
Section 5.14 Reservation of Buyer Common Stock. Buyer shall reserve from
its authorized but unissued shares of Buyer Common Stock that number of shares
of Buyer Common Stock issuable upon exercise of the Seller Stock Options assumed
by Buyer.
Section 5.15 Consolidation of Operations. Buyer and Seller shall cooperate
with one another with a view toward consolidating the operations of Buyer and
Seller at Seller's principal executive offices and eliminating duplicative
staffing and overhead as soon as reasonably possible.
Section 5.16 Consolidation of Board of Directors. Buyer will utilize good
faith efforts to decrease the membership of the Board of Directors of Buyer to a
total of seven (7) members by the first anniversary of the date of this
Agreement. It is agreed and understood that this Section 5.16 shall not require
(i) Buyer to amend its organizational documents or (ii) Buyer's directors to
take any actions inconsistent with their fiduciary duties.
Section 5.17 Incentive Bonus Payments. Buyer and Seller agree that the
incentive bonus payments to be made to Xxxxxx X. Xxxxxxxx, pursuant to Section
4.e. of the Xxxxxxxx Employment Agreement attached as Exhibit A hereto, and to
each of Xxxxx X. Xxxxxxxx, Xxxxxxx Xxxxx, Xxxxxxxx X. Xxxx, Xxxx Xxxxxxxxxxx,
Xxxxxxxxxxx Xxxxxxx, Xxxx Xxxx and Xxxxxx Xxxxxxx, pursuant to Section 4.d. of
the employment agreements to be entered into with such individuals in the form
of Exhibit B hereto, shall be determined for each of the above-named individuals
by Buyer's Compensation Committee, shall be paid in either cash or equity as
determined by such Compensation Committee, shall be in the following aggregate
amounts and shall be paid upon the achievement of each of the following
milestones (which are set forth in the aforementioned agreements): (a) $150,000
upon the successful completion of Phase II studies for any compound under
development in Discovery's portfolio (each a "Portfolio Compound"); (b) $500,000
upon the successful completion of Phase II studies for any Portfolio Compound;
and (c) $1,000,000 upon receipt of marketing approval in the United States for
any Portfolio Compound. The aforementioned bonuses shall be paid only once for
each of the milestones.
26
ARTICLE 6
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Effective Time of each of the following
conditions, any and all of which may be waived in whole or in part by Seller,
Buyer or Acquisition Subsidiary, as the case may be, to the extent permitted by
applicable law:
(a) Stockholder Approval. This Agreement shall have been approved by
the requisite vote of the stockholders of Seller, Buyer and Acquisition
Subsidiary;
(b) Statutes. No statute, rule, order, decree or regulation shall
have been enacted or promulgated by any Governmental Entity which prohibits the
consummation of the Merger;
(c) Injunctions. There shall be no order or injunction of a court or
other governmental authority of competent jurisdiction in effect precluding,
restraining, enjoining or prohibiting consummation of the Merger;
(d) Tax Opinions. Buyer shall have received from Xxxxxxx, Xxxxxxxx &
Kotel, P.C., counsel to Buyer, a written opinion dated as of the Closing Date to
the effect that the Merger, when effected in accordance with this Agreement,
will qualify as a reorganization under Section 368(a) of the Code; Seller shall
have received from Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, counsel to Seller, a written
opinion dated as of the Closing Date to the effect that the Merger, when
effected in accordance with this Agreement, will qualify as a reorganization
under Section 368(a) of the Code;
(e) Xxxxxxxx Employment Agreement. Xxxxxx X. Xxxxxxxx shall have
entered into an employment agreement with Buyer, in the form attached as Exhibit
A hereto;
(f) Key Executive Employment Agreements. Buyer and each of Xxxxx X.
Xxxxxxxx, Xxxxxxx Xxxxx, Xxxxxxxx X. Xxxx, Xxxx Xxxxxxxxxxx, Xxxxxxxxxxx
Xxxxxxx, Xxxx Xxxx and Xxxxxx Xxxxxxx shall have entered into employment
agreements as mutually agreed to by Buyer and Seller, substantially in the form
attached as Exhibit B hereto (the "Key Executive Employment Agreements");
(g) Exchange Agreement. Buyer shall have entered into the Exchange
Agreement with JJDC.
(h) Board of Directors. On the Effective Date, the Board of
Directors of Buyer shall consist of Xxxxxx X. Xxxxxxxx, Xxxxx Xxxxxx, Xxx Xxxx,
Xxxxxxx XxXxxx, Xxxxx Xxxxx, Xxxxxx Xxxxxx, Xxxxxxx Xxxxx, Xxxx Xxxxxx, Xxxxxx
Xxxxxxxxxx, and Xxxxxxx Xxxxxxx.
(i) No Litigation. After the date hereof, there shall not be
threatened, or instituted and continuing, any action, suit or proceeding against
Seller, Buyer or Acquisition Subsidiary, by any Governmental Entity or any other
person directly or indirectly relating to the Merger or any other transactions
contemplated by this Agreement which individually or in the aggregate could
reasonably be expected to have a Seller Material Adverse Effect or Buyer
Material Adverse Effect.
Section 6.2 Additional Conditions to Obligations of Seller. The obligation
of Seller to effect the Merger is also subject to the fulfillment of the
following conditions:
27
(a) Representations and Warranties. The representations and
warranties of Buyer and Acquisition Subsidiary contained in this Agreement shall
be true and correct on the date hereof and shall also be true and correct on and
as of the Effective Time, with the same force and effect as if made on and as of
the Effective Time, unless the failure of such representations and warranties to
be true and correct could not reasonably be expected to cause, individually or
in the aggregate, a Buyer Material Adverse Effect (as applied to such dates);
(b) Agreements, Conditions and Covenants. Buyer and Acquisition Subsidiary shall
have performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or complied
with by them on or before the Effective Time;
(c) Certificate of Chairman of the Board. Seller shall have received
a certificate of the Chairman of the Board of Directors of Buyer to the effect
that each of the conditions specified in clauses (a) and (b) of this Section 6.2
have been satisfied;
(d) Stock Option Agreements. In addition to the Stock Options
assumed by Buyer under Section 2.4, Buyer shall have granted stock options
pursuant to Buyer Stock Option Plan in the forms of option agreements attached
hereto as Exhibit C, Exhibit D and Exhibit E, to certain of Seller's employees
as set forth on Schedule 6.2(d), for an aggregate of 338,500, 175,000 and
160,000 shares of Common Stock, respectively.
(e) Opinion. Seller shall have received an opinion dated as of the
Closing Date from Xxxxxxx, Xxxxxxxx & Kotel P.C., counsel to Buyer and
Acquisition Subsidiary, covering the matters set forth in Schedule 6.2(e).
(f) Registration Rights Agreement. Buyer shall have entered into a
Registration Rights Agreement with JJDC and The Scripps Research Institute,
substantially in the form attached hereto as Exhibit F.
Section 6.3 Additional Conditions to Obligations of Buyer and Acquisition
Subsidiary. The obligations of Buyer and Acquisition Subsidiary to effect the
Merger are also subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of Seller contained in this Agreement shall be true and correct on
the date hereof and shall also be true and correct on and as of the Effective
Time, with the same force and effect as if made on and as of the Effective Time,
unless the failure of such representations and warranties to be true and correct
as of such dates could not reasonably be expected to cause, individually or in
the aggregate, a Seller Material Adverse Effect (as applied to such dates);
(b) Agreements, Conditions and Covenants. Seller shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time;
(c) Officer's Certificate. Buyer shall have received a certificate
of the Chief Executive Officer of Seller to the effect that each of the
conditions specified in clauses (a) and (b) of this Section 6.3. have been
satisfied.
(d) Investment Agreement. Each holder of Common Shares shall have
executed and delivered to Buyer the form of Investment Agreement attached as
Exhibit G hereto.
28
(e) Opinion. Buyer shall have received an opinion dated as of the
Closing Date from Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, counsel to Seller, covering
the matters set forth in Schedule 6.3(e).
(f) Dissenting Common Shares. The aggregate number of Common Shares
held by Dissenting Stockholders shall not be equal to or exceed five percent
(5%) of the outstanding Common Shares immediately prior to the Effective Time.
(g) Contractual Lock-up Agreements. Each common stockholder and
optionholder of Seller shall have entered into an agreement with Buyer
substantially in the form of Exhibit H attached hereto.
(h) Buyer Stock Option Plan. The 1998 stock option plan of Buyer
(the "1998 Stock Option Plan") in the form attached as Exhibit I hereto, shall
have been approved by the requisite vote of the stockholders of Buyer.
(i) Termination Agreement. Seller shall enter into a letter
agreement terminating the Co-Sale Agreement dated as of October 28, 1996 by and
between Seller and the stockholders listed on Schedule A thereto.
ARTICLE 7
TERMINATION
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the terms of
this Agreement by the stockholders of Buyer or Seller:
(a) by mutual written consent of the Boards of Directors of Buyer
and Seller;
(b) by either Buyer or Seller if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting consummation of the Merger and
such order, decree or ruling or other action shall have become final and
nonappealable;
(c) by either Buyer or Seller, if the Merger shall not have been
consummated by [July 15], 1998; provided, however, that the right to terminate
this Agreement pursuant to this Section 7.1(c) shall not be available to any
party whose failure (or the failure of the affiliates of which) to perform any
of its obligations under this Agreement has been the cause of, or resulted in,
the failure of the Merger to occur on or before such date; provided, further,
that for this purpose, Buyer and Seller shall not be deemed to be affiliates of
each other; directors, officers and employees of Seller shall be deemed to act
only on behalf of such Seller; and directors, officers and employees of Buyer or
Acquisition Subsidiary shall be deemed to act only on behalf of Buyer and/or
Acquisition Subsidiary; and provided further that an individual holding
positions on the boards of both Seller, on the one hand, and Buyer or
Acquisition Subsidiary, on the other hand, shall be deemed to act only on behalf
of Buyer and/or Acquisition Subsidiary unless such interpretation would be
manifestly unreasonable;
(d) by Buyer or Acquisition Subsidiary, in the event of a breach by
Seller of any representation, warranty, covenant or other agreement contained in
this Agreement which cannot be or has not been cured within thirty (30) days
after the giving of written notice to Seller and which, individually or in the
aggregate, has had or could reasonably be expected to have, a Seller Material
Adverse Effect; or
29
(e) by Seller, in the event of a breach by Buyer or Acquisition
Subsidiary of any of their respective representations, warranties, covenants or
other agreements contained in this Agreement, which cannot be or has not been
cured within thirty (30) days after the giving of written notice to Buyer or
Acquisition Subsidiary, and which, individually or in the aggregate, has had or
could reasonably be expected to have, a Buyer Material Adverse Effect.
Section 7.2 Effect of Termination. In the event of a termination of this
Agreement by either Seller or Buyer as provided in Section 7.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of Buyer, Acquisition Subsidiary or Seller or their respective officers or
directors, except with respect to Sections 3.16, 4.16, 5.2, this Section 7.2 and
Article 8; provided, however, that nothing herein shall relieve any party of
liability for any breach this Agreement.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Fees and Expenses. All fees and expenses incurred in
connection with the Merger, this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
Section 8.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of Seller or Buyer
contemplated hereby, by written agreement of the parties hereto, at any time
prior to the Closing Date with respect to any of the terms contained herein;
provided, however, that after the approval of this Agreement by the stockholders
of Seller or Buyer, no such amendment, modification or supplement shall reduce
the amount or change the form of the consideration to be received by Seller
stockholders in the Merger.
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
Section 8.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given upon receipt, and shall be given to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
30
(a) if to Buyer or Acquisition Subsidiary, to:
Discovery Laboratories, Inc.
000 Xxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
with copies to:
Xxxxxxx, Xxxxxxxx & Kotel, P.C.
Tower Forty-Nine
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxxxx, Esq.
(b) if to Seller, to:
Acute Therapeutics, Inc.
0000 Xxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxx, Ph. D.
with copies to:
Xxxxxxx, Phleger & Xxxxxxxx LLP
0000 Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
Section 8.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation". As used in this Agreement, the term "affiliate(s)" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act. As used in this Agreement,
a "subsidiary" of any entity shall mean
31
all corporations or other entities in which such entity owns a majority of the
issued and outstanding capital stock or equity or similar interests.
Section 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement and the Confidentiality Agreement (including the
documents and the instruments referred to herein and therein): (a) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) other than the provisions of Section 5.8 hereof, nothing expressed or
implied in this Agreement is intended or will be construed to confer upon or
give to any person, firm or corporation other than the parties hereto any rights
or remedies under or by reason of this Agreement or any transaction contemplated
hereby.
Section 8.8 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
Section 8.9 Governing Law. This Agreement and the legal relations between
the parties hereto will be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to the choice of law principles
thereof.
Section 8.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Acquisition Subsidiary may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to Buyer or to any direct or indirect wholly owned subsidiary of
Buyer. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
32
IN WITNESS WHEREOF, Buyer, Acquisition Subsidiary and Seller have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
Buyer
By: /s/ Xxxxx X. Xxx
----------------------------------------
Name: Xxxxx X. Xxx, M.D.
--------------------------------------
Title: Chief Executive Officer
-------------------------------------
Acquisition Subsidiary
By: /s/ Xxxxx X. Xxx
----------------------------------------
Name: Xxxxx X. Xxx, M.D.
--------------------------------------
Title: President
-------------------------------------
Seller
By: /s/ Xxxxxx X. Xxxxxxxx
----------------------------------------
Name: Xxxxxx X. Xxxxxxxx, Ph.D.
--------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
33
EXHIBIT A
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
[_________ __], 1998 by and between Discovery Laboratories, Inc., a Delaware
corporation (the "Company"), and Xxxxxx Xxxxxxxx, Ph.D. (the "Executive").
WHEREAS, the Company and Executive desire that Executive be employed
by the Company and that the terms and conditions of such employment be defined;
NOW, THEREFORE, in consideration of the employment of Executive by
the Company, the Company and Executive agree as follows:
1. Term of the Agreement. The Company shall employ Executive and
Executive shall accept employment for a period of four (4) years commencing on
[__________ __], 1998 (the "Commencement Date") and continuing until [__________
__], 2002, subject, however, to prior termination as hereinafter provided in
Section 5 (the "Employment Period").
2. Executive's Duties and Obligations.
a. Duties. Executive shall serve as President and Chief
Executive Officer of the Company. Executive shall be responsible for overall
management of the Company and all operating managers of the Company shall report
to Executive. Executive shall at all times report to, and shall be subject to
the policies established by, the Company's Board of Directors (the "Board") or
any Executive Committee thereof. The Company agrees that, at all times during
the Employment Period, it will nominate Executive for election to the Board of
Directors of the Company. Executive shall immediately resign from any Board
position held by him at the expiration or termination of the Employment Period.
b. Location of Employment. Executive's principal place of
business shall be at the Company's offices to be located within thirty (30)
miles of Doylestown, Pennsylvania. Such office shall serve as the Company's
principal executive office.
c. Proprietary Information and Inventions Agreement. Upon
commencement of employment with the Company, Executive shall execute the
Company's standard form of Intellectual Property and Confidential Information
Agreement (the "Confidentiality Agreement") a copy of which is attached to this
Agreement as Exhibit A.
3. Devotion of Time to Company's Business
a. Full-Time Efforts. During his employment with the Company,
Executive shall devote substantially all of his business time, attention and
efforts to the high quality performance of his duties to the Company.
2
b. No Other Employment. During his employment with the
Company, Executive shall not, whether directly or indirectly, render any
services of a commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of the Company's Executive Committee or Board of Directors.
Notwithstanding the foregoing provisions of this Section 3.b., Executive may
perform services in connection with charitable or civic activities to the extent
such participation does not materially interfere with the performance of
Executive's duties for the Company.
c. Non-Competition. During the Employment Period and for
eighteen (18) months after its termination, Executive shall not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any other individual or
representative capacity compete with the Company's business of developing or
commercializing pulmonary surfactants, Vitamin D analogs or any other category
of compounds which forms the basis of the Company's products or products under
development (a "Competing Business"), or (ii) directly or indirectly solicit
employees of the Company. Notwithstanding the provisions of this Section 3.c.,
nothing herein shall prohibit Executive from (i) holding less than one percent
(1%) of the outstanding capital stock of a publicly held corporation engaged in
a Competing Business; (ii) serving on one or more Boards of Directors of
for-profit or non-profit corporations so long as, in the aggregate, such
commitments do not interfere with the performance of Executive's duties for the
Company and such corporations are not engaged in any Competing Business; or
(iii) after his employment with the Company terminates for any reason, being
employed by a multi-division corporation that engages in a Competing Business so
long as Executive works in a division of such corporation which is not primarily
engaged in a Competing Business and Executive has no responsibilities for the
direct supervision of, and will not in the ordinary course of discharging his
responsibilities become involved in the analysis of proprietary data or
marketing strategies relating to, any Competing Business.
3
4. Compensation and Benefits.
a. Initial Bonus. The Company shall pay to Executive an
initial sign-on bonus of One Hundred Thousand Dollars ($100,000) upon the
execution of this Agreement.
b. Base Compensation. During the first year of the Employment
Period, the Company shall pay to Executive, payable in accordance with the
Company's standard payroll policy, base annual compensation of Two Hundred
Thirty Six Thousand Two Hundred Fifty Dollars ($236,250), less all required
withholdings. Such base salary shall be increased annually during the Employment
Period by a minimum of five percent (5%) per year.
c. Bonuses. During the Employment Period, Executive shall be
entitled to a minimum year-end bonus equal to twenty percent (20%) of his base
compensation for each year and, at the discretion of the Compensation Committee
of the Board of Directors of the Company, any additional bonus that may be
awarded him.
d. Benefits. During the Employment Period, Executive will be
entitled to all such family health and medical benefits and disability insurance
as are provided to officers of the Company generally. In addition, the Company
will provide to Executive (i) term life insurance on behalf of Executive's
beneficiaries in the amount of Two Million Dollars ($2,000,000) for the term of
this Agreement, and (ii) long-term disability insurance, subject to a combined
premium cap of Fifteen Thousand Dollars ($15,000) per year.
e. Incentive Bonus. Executive shall be eligible for incentive
bonuses as follows:
(i) Fifty Thousand Dollars ($50,000) upon the execution
of each partnering or similar arrangement involving Surfaxin having a Value (as
hereinafter defined) to the Company in excess of Ten Million Dollars
($10,000,000). For purposes of this Agreement, "Value" shall mean the total
payments, including without limitation, contingent payments prior to or at
receipt of marketing approval for the compound under development in the
Company's portfolio (each a "Portfolio
4
Compound") involved in the relevant agreement, to be paid to Discovery from
corporate partnering transactions or from any other transactions for the
development, clinical testing, regulatory approval, manufacturing and/or
marketing of a Portfolio Compound, including without limitation upfront fees,
milestone payments, research and development and other contractual commitments.
(ii) In amounts to be determined by the Company's
Compensation Committee, to be paid in either cash or equity, upon the
achievement of each of the following milestones (which bonuses shall be paid
only once for each of the milestones): (a) the successful completion of Phase II
studies for any Portfolio Compound; (b) the successful completion of Phase III
studies of any Portfolio Compound; and (c) receipt of marketing approval in the
United States for any Portfolio Compound.
f. Stock Options. The Board of Directors of the Company has
granted to Executive, on the date hereof, incentive stock options to purchase:
(i) 115,090 shares of Common Stock, $0.001 par value of the Company (the "Common
Stock"), pursuant to the terms of the Notice of Grant attached hereto as Exhibit
B, (ii) 59,500 shares of Common Stock, subject to acceleration at such time as
the market capitalization of the Company exceeds $75 million, pursuant to the
terms of the Notice of Grant attached hereto as Exhibit C, and (iii) 54,240
shares of Common Stock, subject to acceleration upon consummation of a corporate
partnering deal having a total Value of at least $20 million, pursuant to the
terms of the Notice of Grant attached hereto as Exhibit D.
5. Termination of Employment.
a. Termination for Cause. The Company may terminate
Executive's employment at any time for "Cause," as herein defined. For the
purposes of this Agreement, "Cause" shall mean (i) breach of any contractual
obligations relating to noncompetition, assignment of inventions, protection of
intellectual property or confidentiality, (ii) gross negligence or willful
misconduct relating to the performance of employment responsibility or (iii) the
commission of any felony or any other crime involving moral turpitude.
5
b. Termination without Cause. If Executive's employment is
terminated by the Company without Cause, the following provisions shall apply:
(i) Executive shall be entitled to any unpaid
compensation accrued through the last day of Executive's employment;
(ii) Executive shall be entitled to receive severance
payments equal to his base compensation for an eighteen (18) month period, not
subject to setoff by the Company, but subject to the execution by the Executive
of a Release, substantially in the form attached hereto as Exhibit E, with
respect to all employment-related matters. Such severance shall be payable in
six (6) equal installments, with the first installment payable on the date of
receipt of the foregoing release and the subsequent installments payable at
three (3) month intervals thereafter.
c. Death or Disability. This Agreement shall terminate if
Executive dies or is mentally or physically "Disabled" as herein defined. For
the purposes of this Agreement, "Disabled" shall mean a mental or physical
condition that renders Executive incapable of performing his duties and
obligations under this Agreement for three (3) or more consecutive months or for
a total of six (6) months during any twelve (12) consecutive months; provided,
that during such period the Company shall give Executive at least thirty (30)
days' written notice that it considers the time period for disability to be
running. If this Agreement is terminated under this Section 5.c., Executive or
his estate shall be entitled to any unpaid compensation accrued through the last
day of Executive's employment but shall not be entitled to any severance
benefits.
d. Lock-up Period. Executive shall not directly or indirectly,
sell, offer, contract to sell, transfer the economic risk of ownership, make any
short sale, pledge or otherwise dispose of any shares of Common Stock issued or
issuable upon the exercise of options, or any securities convertible into or
exchangeable or exercisable for such options, granted to Executive for a
one-year lock-up period following any termination of Executive's employment by
(i) the Company for Cause or (ii) Executive to the extent such termination
constitutes a breach of this Agreement.
6
6. Miscellaneous.
a. Governing Law. This Agreement shall be interpreted,
construed, governed and enforced according to the laws of the Commonwealth of
Pennsylvania as applied to agreements among Pennsylvania residents entered into
and to be performed entirely within Pennsylvania without regards to the
application of choice of law rules.
b. Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in writing and signed by the
parties hereto.
c. Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
construed, if possible, so as to be enforceable under applicable law, else, such
provision shall be excluded from this Agreement and the balance of the Agreement
shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
d. Successors and Assigns. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Company. Executive shall not be entitled
to assign any of his rights or obligations under this Agreement.
e. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery, on the date of scheduled delivery by a nationally recognized overnight
service or two (2) days after deposit in the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the other party at
the address shown below such party's signature, or at such other address or
addresses as either party shall designate to the other in accordance with this
Section 6.e.
f. Entire Agreement. This Agreement, including the exhibits
attached hereto, constitutes the entire agreement between the parties with
respect to the employment of Executive. The Employment Agreement by and between
Executive and Acute Therapeutics, Inc., dated
7
October 1, 1996, is hereby terminated and shall be of no further force or effect
and that he shall have no further rights under said agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date set forth above.
DISCOVERY LABORATORIES, INC.
------------------------------------------
By: Xxxxx X. Xxxxxx
Its: Director (on behalf of the Board
of Directors)
Address: 000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
EXECUTIVE:
-----------------------------------------
Xxxxxx Xxxxxxxx, Ph.D.
Address: 0000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
ACUTE THERAPEUTICS, INC. (for purposes of
Section 6.f. only)
------------------------------------------
By: Xxxxxx X. Xxxxxxxx, Ph.D.
Its: President and Chief Executive Officer
Address: 0000 Xxxxxx Xxxx
Xxxxxxxxxx, XX 00000
8
EXHIBIT B
FORM OF EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
[_________ __,] 1998 by and between Discovery Laboratories, Inc., a Delaware
corporation (the "Company"), and ________________ (the "Executive").
WHEREAS, the Company and Executive desire that Executive be employed
by the Company and that the terms and conditions of such employment be defined;
NOW, THEREFORE, in consideration of the employment of Executive by
the Company, the Company and Executive agree as follows:
1. Term of the Agreement. The Company shall employ Executive and
Executive shall accept employment for a period of three (3) years commencing on
[_________ __,] 1998 (the "Commencement Date") and continuing until [__________
__,] 2001, subject, however, to prior termination as hereinafter provided in
Section 5 (the "Employment Period").
2. Executive's Duties and Obligations.
a. Duties. Executive shall serve as ______________________.
Executive shall be responsible for _____________________________________.
b. Location of Employment. Executive's principal place of
business shall be at the Company's office to be located within thirty (30) miles
of Doylestown, Pennsylvania.
c. Proprietary Information and Inventions Agreement. Upon
commencement of employment with the Company, Executive shall execute the
Company's standard form of Intellectual Property and Confidential Information
Agreement (the "Confidentiality Agreement") a copy of which is attached to this
Agreement as Exhibit A.
3. Devotion of Time to Company's Business
9
a. Full-Time Efforts. During his employment with the Company,
Executive shall devote substantially all of his business time, attention and
efforts to the high quality performance of his duties to the Company.
b. No Other Employment. During his employment with the
Company, Executive shall not, whether directly or indirectly, render any
services of a commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of the Company's Executive Committee or Board of Directors.
c. Non-Competition During Employment. During the Employment
Period and for eighteen (18) months after its termination, Executive shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any other
individual or representative capacity (i) compete with the Company in the
business of developing or commercializing pulmonary surfactants, Vitamin D
analogs or any other category of compounds which forms the basis of the
Company's products or products under development (a "Competing Business"), or
(ii) directly or indirectly solicit employees of the Company.
4. Compensation and Benefits.
a. Base Compensation. During the term of this Agreement, the
Company shall pay to Executive base annual compensation of _________________
($________), less all required withholdings.
b. Bonuses.
(1) Incentive Bonus. Executive shall be eligible for
incentive bonuses in amounts to be determined by the Company's Compensation
Committee after consultation with the Company's Chief Executive Officer, to be
paid in either cash or equity, upon the achievement of each of the following
milestones (which bonuses shall be paid only once for each of the milestones):
(a) the successful completion of Phase II studies for any compound under
development in the Company's portfolio (each a "Portfolio Compound"); (b) the
successful completion of Phase III studies for any
10
Portfolio Compound; and (c) receipt of marketing approval in the United States
for any Portfolio Compound.
(2) Additional Bonus. Executive shall be eligible for
such year-end bonus, which may be paid in either cash or equity, or both, as is
awarded at the discretion of the Compensation Committee of the Board of
Directors of the Company after consultation with the Company's Chief Executive
Officer.
c. Benefits. During her employment with the Company, the
Company shall provide reasonable medical and disability benefits to Executive.
In addition, the Company will provide to Executive term life insurance on behalf
of Executive's beneficiaries in the amount of Executive's annual salary for the
term of this Agreement.
d. Stock Options. The Board of Directors of the Company has
granted to Executive, on the date hereof, incentive stock options to purchase:
(i) _______ shares of Common Stock, $0.001 par value of the Company (the "Common
Stock"), pursuant to the terms of the Notice of Grant attached hereto as Exhibit
B, (ii) _______ shares of Common Stock, subject to acceleration at such time as
the market capitalization of the Company exceeds $75 million, pursuant to the
terms of the Notice of Grant attached hereto as Exhibit C, and (iii) _______
shares of Common Stock, subject to acceleration upon consummation of a corporate
partnering deal having a total Value (as hereinafter defined) of at least $20
million, pursuant to the terms of the Notice of Grant attached hereto as Exhibit
D. For purposes of this Agreement, "Value" shall mean the total payments,
including without limitation, contingent payments prior to or at receipt of
marketing approval for the Portfolio Compound involved in the relevant
agreement, to be paid to Discovery from corporate partnering transactions of
from any other transactions for the development, clinical testing, regulatory
approval, manufacturing and/or marketing of a Portfolio Compound, including
without limitation upfront fees, milestone payments, research and development
and other contractual commitments.
11
5. Termination of Employment.
a. Termination for Good Cause. The Company may terminate
Executive's employment at any time for "Good Cause," as herein defined. For the
purposes of this Agreement, "Good Cause" includes, but is not limited to, gross
misconduct, gross neglect of duties, acts involving moral turpitude, material
breach by Executive of this Agreement or the Confidentiality Agreement or any
act or omission involving fraud, embezzlement, or misappropriation of any
property or proprietary information of the Company by Executive which is not
cured by Executive within fifteen (15) days after receipt of written notice from
the Company.
b. Termination without Good Cause. If Executive's employment
is terminated by the Company without Good Cause, the following provisions shall
apply:
i) Executive shall be entitled to any unpaid
compensation accrued through the last day of Executive's employment;
ii) Executive shall be entitled to receive severance
payments equal to his base compensation, payable on normal Company payroll
dates, for a ____ month period, subject to setoff for other employment or
consulting income received by Executive.
c. Death or Disability. This Agreement shall terminate if
Executive dies or is mentally or physically "Disabled" as herein defined. For
the purposes of this Agreement, "Disabled" shall mean a mental or physical
condition that renders Executive incapable of performing his duties and
obligations under this Agreement for three (3) or more consecutive months or for
a total of six (6) months during any twelve (12) consecutive months; provided,
that during such period the Company shall give Executive at least thirty (30)
days' written notice that it considers the time period for disability to be
running. If this Agreement is terminated under this Section 5.c., Executive or
his estate shall be entitled to any unpaid compensation accrued through the last
day of Executive's employment but shall not be entitled to any severance
benefits.
12
6. Miscellaneous.
a. Governing Law. This Agreement shall be interpreted,
construed, governed and enforced according to the laws of the Commonwealth of
Pennsylvania as applied to agreements among Pennsylvania residents entered into
and to be performed entirely within Pennsylvania without regards to the
application of choice of law rules.
b. Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in writing and signed by the
parties hereto.
c. Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
construed, if possible, so as to be enforceable under applicable law, else, such
provision shall be excluded from this Agreement and the balance of the Agreement
shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
d. Successors and Assigns. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Company. Executive shall not be entitled
to assign any of his rights or obligations under this Agreement.
e. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery, on the date of scheduled delivery by a nationally recognized overnight
service or two (2) days after deposit in the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the other party at
the address shown below such party's signature, or at such other address or
addresses as either party shall designate to the other in accordance with this
Section 6.e.
f. Entire Agreement. This Agreement, including the exhibits
attached hereto, constitutes the entire agreement between the parties with
respect to the employment of
13
Executive. The Employment Agreement by and between Executive and Acute
Therapeutics, Inc., dated _______________, is hereby terminated and shall be of
no further force or effect.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
14
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
DISCOVERY LABORATORIES, INC.
--------------------------------------------
By: Xxxxxx Xxxxxxxx, Ph.D.
Its: President
Address: 0000 Xxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
EXECUTIVE:
--------------------------------------------
Address:
ACUTE THERAPEUTICS, INC.
(for purposes of Section 6.f. only)
--------------------------------------------
By: Xxxxxx Xxxxxxxx, Ph.D.
Its: President
Address: 0000 Xxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
15
EXHIBIT C
DISCOVERY LABORATORIES, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock, par value $0.001 per share, of Discovery
Laboratories, Inc. (the "Corporation"):
Optionee: ____________________________
Grant Date: [Closing Date of the Merger]
Exercise Price: $[FMV as of the closing of the Merger]
Number of Option Shares: ____________ shares
Expiration Date: [Tenth anniversary of the closing of the Merger]
Type of Option: [Incentive Stock Option - Subject to $100,000 Limit]
Date Exercisable: [Date of the closing of the Merger], subject to
vesting as described below.
Vesting Schedule: The Option Shares shall initially be unvested and
subject to repurchase by the Corporation, at the Exercise Price paid
per share. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall lapse with respect to,
one-third of the Option Shares on each of the first, second and
third anniversaries of _______________, 1998, (the "Closing Date"),
the date of closing under the Agreement and Plan of Merger dated
March ____, 1998 among the Corporation, ATI Acquisition Corp. and
Acute Therapeutics, Inc. However, in the event that Optionee's
Service is terminated by the Corporation prior to the third
anniversary of the Closing Date for any reason other than Cause, as
defined in the Employment Agreement, or a breach by Optionee of the
Employment Agreement, vesting of the Option Shares shall accelerate
so that the Corporation's repurchase right shall lapse with respect
to, and Optionee shall acquire a vested interest in, all of the
Option Shares as of the effective date of such termination. In no
event shall any additional Option Shares vest after Optionee's
termination of Service.
Optionee understands and agrees to be bound by the terms of the
Option as set forth in the Stock Option Agreement attached hereto as Exhibit A.
Optionee understands and agrees that
the Option is granted subject to and in accordance with the terms of the
Corporations's 1998 Stock Incentive Plan (the "Plan") attached hereto as Exhibit
B.
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION
SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO A REPURCHASE
RIGHT EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHT
SHALL BE SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION
EXERCISE.
No Employment or Service Contract. Nothing in this Notice shall
confer upon Optionee any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any parent or subsidiary employing or retaining Optionee) or of
Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service in accordance with applicable law or the Employment
Agreement.
Definitions. All capitalized terms used and not otherwise defined in
this Notice shall have the meaning assigned to them in this Notice or in the
Stock Option Agreement.
DATED: ________________, 1998
DISCOVERY LABORATORIES, INC.
By:_________________________________________
Title
_________________________________________
OPTIONEE
Address: ________________________________
________________________________
ATTACHMENTS:
Exhibit A - Stock Option Agreement
Exhibit B - 1998 Stock Incentive Plan
2.
EXHIBIT A
DISCOVERY LABORATORIES, INC.
STOCK OPTION AGREEMENT
RECITALS
A. Optionee is to render valuable services to the Corporation, and this
Agreement is executed in connection with the Corporation's grant of an option to
Optionee under the Plan, as provided in the Employment Agreement dated as of ,
1998 between the Corporation and Optionee (the "Employment Agreement").
B. All capitalized terms used and not otherwise defined in this Agreement
shall have the meaning assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5, 6 or 16.
3. Limited Transferability. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may, in connection
with Optionee's estate plan, be assigned in whole or in part during Optionee's
lifetime to one or more members of Optionee's immediate family or to a trust
established for the exclusive benefit of one or more such family members. The
assigned portion shall be exercisable only by the person or persons who acquire
a proprietary interest in the option pursuant to such assignment. The terms
applicable to the assigned portion shall be the same as those in effect for this
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
4. Exercisability/Vesting.
(a) This option shall be immediately exercisable for any or all of
the Option Shares, whether or not the Option Shares are vested in accordance
with the Vesting Schedule and shall remain so exercisable until the Expiration
Date or sooner termination of the option term under Paragraph 5, 6 or 16.
(b) Optionee shall, in accordance with the Vesting Schedule, vest in
the Option Shares in one or more installments over his or her period of Service.
Vesting in the Option Shares may be accelerated pursuant to the provisions of
Paragraph 5 or 6. In no event, however, shall any additional Option Shares vest
following Optionee's cessation of Service.
3.
5. Cessation of Service. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any reason
(other than as specified in any of paragraphs (ii) through (vii) below)
while this option is outstanding, then this option shall remain
exercisable until the earlier of (A) the expiration of the three (3)-month
period measured from the date of such cessation of Service or (B) the
Expiration Date.
(ii) Should Optionee die while this option is outstanding,
then the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will or
in accordance with the laws of descent and distribution shall have the
right to exercise this Option. Such right shall lapse and this option
shall cease to be outstanding upon the earlier of (A) the expiration of
the twelve (12)-month period measured from the date of Optionee's death or
(B) the Expiration Date.
(iii) Should Optionee cease Service by reason of Disability
while this option is outstanding, then this option shall remain
exercisable until the earlier of (A) the expiration of the twelve
(12)-month period measured from the date of such cessation of Service or
(B) the Expiration Date.
(iv) Should Optionee's Service be terminated by the
Corporation prior to the third anniversary of the Closing Date for any
reason other than Cause or a breach by Optionee of the Employment
Agreement, vesting of the Option Shares shall accelerate so that the
Corporation's repurchase right shall lapse with respect to, and Optionee
shall acquire a vested interest in, all of the Option Shares as of the
effective date of such termination. In such event, this option shall
remain exercisable until the earlier of (A) the expiration of the twelve
(12)-month period measured from the date of such termination or (B) the
Expiration Date.
(v) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number
of vested option Shares for which the option is exercisable at the time
of, or as a result of, Optionee's cessation of Service. Upon the
expiration of such limited exercise period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be outstanding
for any Option Shares for which the Option has not been exercised. To the
extent Optionee is not vested in the Option Shares at the time of, or as a
result of, Optionee's cessation of Service, this option shall immediately
terminate and cease to be outstanding with respect to those shares.
(vi) Should Optionee's Service be terminated by the
Corporation for Cause or should Optionee terminate his or her Service in
breach of the Employment Agreement, then this option shall terminate
immediately and cease to remain outstanding.
(vii) In the event of a Corporate Transaction, the provisions
of Paragraph 6 shall govern the period for which this option is to remain
exercisable following Optionee's cessation of Service and shall supersede
any provisions to the contrary in this paragraph.
6. Corporate Transaction.
4.
a. In the event of any Corporate Transaction, the Option
Shares at the time subject to this option but not otherwise vested shall
automatically vest in full so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares as fully-vested shares and may be exercised for any or all of
those vested shares. However, the Option Shares shall not vest on such an
accelerated basis if and to the extent: (i) this option is assumed by the
successor corporation (or parent thereof) in the Corporate Transaction and the
Corporation's repurchase rights with respect to the unvested Option Shares are
assigned to such successor corporation (or parent thereof) or (ii) this option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested Option Shares at the time of
the Corporate Transaction (the excess of the Fair Market Value of those Option
Shares over the Exercise Price payable for such shares) and provides for
subsequent payout in accordance with the same Vesting Schedule applicable to
those unvested Option Shares as set forth in the Grant Notice.
b. Immediately following the Corporate Transaction, this
option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with the
Corporate Transaction.
c. If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
d. Should there occur an Involuntary Termination of Optionee's
Service within eighteen (18) months following a Corporate Transaction in which
this option is assumed or replaced and the Corporation's repurchase rights with
respect to the unvested Option Shares are assigned, all the Option Shares at the
time subject to this option but not otherwise vested shall automatically vest,
and the Corporation's repurchase rights with respect to those Option Shares
shall terminate, so that this option shall immediately become exercisable for
all those Option Shares as fully-vested shares of Common Stock and may be
exercised for any or all of those vested Option Shares at any time prior to the
earlier of (i) the Expiration Date or (ii) the expiration of the one (l)-year
period measured from the date of such Involuntary Termination.
e. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. Manner of Exercising Option.
5.
a. In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(1) To the extent the option is exercised for vested
Option Shares, deliver to the Secretary of the Corporation an executed
notice of exercise in substantially the form of Exhibit I to this
Agreement (the "Exercise Notice") in which there is specified the number
of Option Shares which are to be purchased under the exercised option. To
the extent the option is exercised for unvested Option Shares, deliver to
the Corporation an executed Purchase Agreement.
(2) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(a) cash or check made payable to the Corporation;
or
(b) a promissory note payable to the Corporation,
but only to the extent approved by the Plan Administrator in
accordance with Paragraph 13; or
(c) in shares of Common Stock held by Optionee (or
any other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(d) to the extent the option is exercised for
vested Option Shares, through a special sale and remittance
procedure pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
written instructions (a) to a Corporation-designated brokerage firm
to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate Exercise
Price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld
by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Exercise Notice (or Purchase
Agreement) delivered to the Corporation in connection with the
option exercise.
(3) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
6.
(4) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it to
comply with the applicable requirements of Federal and state securities
laws.
(5) Make appropriate arrangements with the Corporation
for the satisfaction of all Federal, state and local income and employment
tax withholding requirements applicable to the option exercise.
b. As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto. To the extent any such Option
Shares are unvested, the certificates for those Option Shares shall be endorsed
with an appropriate legend evidencing the Corporation's repurchase rights and
may be held in escrow with the Corporation until such shares vest.
c. In no event may this option be exercised for any fractional
shares.
10. Compliance with Laws and Regulations.
a. The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange or inter-dealer quotation system on
which the Common Stock may be listed for trading at the time of such exercise
and issuance.
b. The inability of the Corporation to obtain approval from
any regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the non-issuance
or sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
11. Successors and Assigns. Except to the extent otherwise provided
in Paragraphs 3 and 5, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
12. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation, attn: Secretary, at 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000, or any other address provided in writing to Optionee. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated below Optionee's signature line
on the Grant Notice. All notices shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
13. Financing. The Corporation may, in its absolute discretion and
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a promissory note. The terms of any
such promissory note (including the interest rate, the requirements for
collateral and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion.
14. Construction. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All
7.
decisions of the Plan Administrator or the Board with respect to any question or
issue arising under the Plan or this Agreement shall be conclusive and binding
on all persons having an interest in this option.
15. Governing Law. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania without resort to that State's conflict-of-laws rules.
16. Stockholder Approval.
a. The grant of this option is subject to approval of the Plan
by the Corporation's stockholders within twelve (12) months after the adoption
of the Plan by the Board. Notwithstanding any provision of this Agreement to the
contrary, this option may not be exercised in whole or in part until such
stockholder approval is obtained. In the event that such stockholder approval is
not obtained, then this option shall terminate in its entirety and Optionee
shall have no further rights to acquire any Option Shares hereunder.
b. If the Option Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
stockholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares, unless stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of the Plan.
17. Additional Terms Applicable to an Incentive Option. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason
other than death or Permanent Disability or (ii) more than twelve (12) months
after the date Optionee ceases to be an Employee by reason of Permanent
Disability.
(b) This option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years thereafter in which
the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b)
would not be contravened, but such deferral shall in all events end immediately
prior to the effective date of a Corporate Transaction in which this option is
not to be assumed, whereupon the option shall become immediately exercisable as
a Non-Statutory Option for the deferred portion of the Option Shares.
(c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this
8.
option, then the foregoing limitations on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which such
options are granted.
18. Market Stand-Off. In connection with any public offering of the
Corporation's securities, the Plan Administrator may require that Optionee be
subject to a lock-up for such period following the public offering as may be
required by the underwriter or underwriters of such public offering. During such
period, Optionee agrees not to directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to
individuals who agree to be similarly bound) any Option Shares during such
period without the prior written consent of such underwriter or underwriters.
9.
APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
B. Board shall mean the Corporation's Board of Directors.
C. Cause shall have the meaning assigned to such term in the Employment
Agreement.
D. Closing Date shall mean ____________, 1998, the date of closing of the
Merger.
E. Code shall mean the Internal Revenue Code of 1986, as amended.
F. Common Stock shall mean the Corporation's common stock.
G. Corporate Transaction shall mean either of the following
stockholder-approved transactions (other than the Merger) to which the
Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
H. Corporation shall mean Discovery Laboratories, Inc., a Delaware
corporation.
I. Disability shall have the meaning assigned to such term in the
Employment Agreement. Disability shall be deemed to constitute Permanent
Disability in the event that such Disability is expected to result in death or
has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
J. Employee shall mean an individual who is in the employ of the
Corporation, subject to the control and direction of the employer entity as to
both the work to be performed and the manner and method of performance.
K. Employment Agreement shall have the meaning ascribed to such term set
forth in recital A to this Stock Option Agreement.
L. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
M. Exercise Price shall mean the exercise price per share as specified in
the Grant Notice.
N. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.
10.
O. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market or Nasdaq SmallCap Market, then the Fair Market
Value shall be the closing selling price per share of Common Stock
on the date in question, as the price is reported by the National
Association of Securities Dealers on such market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Board to be the primary market for the
Common Stock, as such price is officially quoted in the composite
tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market or SmallCap
Market, then the Fair Market Value shall be determined by the Board
after taking into account such factors as the Board shall deem
appropriate.
X. Xxxxx Date shall mean the date of grant of the option as specified in
the Grant Notice.
X. Xxxxx Notice shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
R. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
S. Involuntary Termination shall mean the termination of Optionee's
Service, during the term of the Employment Agreement or any successor Employment
Agreement which occurs by reason of:
(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than Cause, or
(ii) Optionee's voluntary resignation following (A) a change
in Optionee's position with the Corporation (or Parent or Subsidiary
employing Optionee) which materially reduces Optionee's level of
responsibility, (B) a reduction in Optionee's level of compensation
(including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more
than fifteen percent (15%) or (C) a relocation of Optionee's place
of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected by the Corporation
without Optionee's consent.
11.
T. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
U. Merger shall mean the merger of the Corporation and Acute Therapeutics,
Inc. ("ATI") pursuant to the Agreement and Plan of Merger dated as of March 5,
1998 among the Corporation, ATI Acquisition Corp. and ATI.
V. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
W. Option Shares shall mean the number of shares of Common Stock subject
to the option.
X. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.
Y. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
Z. Plan shall mean the Corporation's 1998 Stock Incentive Plan.
AA. Plan Administrator shall mean either the Board or a committee
appointed by the Board, to the extent the committee is at the time responsible
for the administration of the Plan.
BB. Purchase Agreement shall mean the stock purchase agreement (in form
and substance satisfactory to the Corporation) which must be executed at the
time the option is exercised for unvested Option Shares and which will
accordingly (i) grant the Corporation the right to repurchase, at the Exercise
Price, any and all of those Option Shares in which Optionee is not otherwise
vested at the time of his or her cessation of Service and (ii) preclude the
sale, transfer or other disposition of any of the Option Shares purchased under
such agreement while those Option Shares remain subject to the repurchase right.
CC. Service shall mean the provision of services to the Corporation
pursuant to the Employment Agreement or otherwise as an Employee or non-employee
member of the Board of Directors of, or a consultant or independent advisor to,
the Corporation (or any Parent or Subsidiary).
DD. Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.
EE. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
FF. Vesting Schedule shall mean the vesting schedule specified in the
Grant Notice, as such vesting schedule is subject to acceleration in the event
of an Involuntary Termination or Corporate Transaction.
12.
EXHIBIT D
DISCOVERY LABORATORIES, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock, par value $0.001 per share, of Discovery
Laboratories, Inc. (the "Corporation"):
Optionee: ______________________________________
Exercise Price: $[FMV as of the closing of the Merger]
Number of Option Shares: _____________ shares
Expiration Date: [Tenth anniversary of the closing of the Merger]
Type of Option: [Incentive Stock Option - subject to $100,000 limit]
Date Exercisable: [Date of the closing of the Merger], subject to
vesting as described below.
Vesting Schedule: The Option Shares shall initially be unvested and
subject to repurchase by the Corporation at the Exercise Price paid
per share. The Corporation's repurchase right shall lapse with
respect to, and Optionee shall vest in, all of the Option Shares in
the event that the market capitalization of the Corporation
(determined by multiplying the average of the Fair Market Value per
share of the Common Stock for each of 30 consecutive trading days by
the average of the number of shares of Common Stock outstanding on
each such day) exceeds $75 million. In no event shall any additional
Option Shares vest after Optionee's cessation of service.
Optionee understands and agrees to be bound by the terms of the
Option as set forth in the Stock Option Agreement attached hereto as Exhibit A.
Optionee understands and agrees that the Option is granted subject to and in
accordance with the terms of the Corporations's 1998 Stock Incentive Plan (the
"Plan") attached hereto as Exhibit B.
No Employment or Service Contract. Nothing in this Notice shall
confer upon Optionee any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any parent or subsidiary employing or retaining Optionee) or of
Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service in accordance with applicable law or the Employment
Agreement.
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION
SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO A REPURCHASE
RIGHT EXERCISABLE BY THE
CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHT SHALL BE SPECIFIED IN A
STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION,
EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
Definitions. All capitalized terms used and not otherwise defined in
this Notice shall have the meaning assigned to them in this Notice or in the
Stock Option Agreement.
DATED:____________, 1998
DISCOVERY LABORATORIES, INC.
By:_________________________________________
Title:______________________________________
____________________________________________
OPTIONEE
Address: ________________________________
________________________________
Attachments:
Exhibit A - Stock Option Agreement
Exhibit B - 1998 Stock Incentive Plan
EXHIBIT A
DISCOVERY LABORATORIES, INC.
STOCK OPTION AGREEMENT
RECITALS
A. Optionee is to render valuable services to the Corporation, and this
Agreement is executed in connection with the Corporation's grant of an option to
Optionee under the Plan, as provided in the Employment Agreement dated as of ,
1998 between the Corporation and Optionee (the "Employment Agreement").
B. All capitalized terms used and not otherwise defined in this Agreement
shall have the meaning assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5, 6 or 17.
3. Limited Transferability. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may, in connection
with Optionee's estate plan, be assigned in whole or in part during Optionee's
lifetime to one or more members of Optionee's immediate family or to a trust
established for the exclusive benefit of one or more such family members. The
assigned portion shall be exercisable only by the person or persons who acquire
a proprietary interest in the option pursuant to such assignment. The terms
applicable to the assigned portion shall be the same as those in effect for this
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
4. Exercisability/Vesting.
(a) This option shall be immediately exercisable for any or all of
the Option Shares, whether or not the Option Shares are vested in accordance
with the Vesting Schedule and shall remain so exercisable until the Expiration
Date or sooner termination of the option term under Paragraph 5, 6 or 17.
(b) Optionee shall, in accordance with the Vesting Schedule, vest in
the Option Shares in one or more installments over his or her period of Service.
Vesting in the Option Shares may be accelerated pursuant to the provisions of
Paragraph 6. In no event, however, shall any additional Option Shares vest
following Optionee's cessation of Service.
5. Cessation of Service. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any reason
(other than as specified in any of paragraphs (ii) through (v) below)
while this option is outstanding, then this option shall remain
exercisable until the earlier of (A) the expiration of the three (3)-month
period measured from the date of such cessation of Service or (B) the
Expiration Date.
(ii) Should Optionee die while this option is outstanding,
then the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will or
in accordance with the laws of descent and distribution shall have the
right to exercise this Option. Such right shall lapse and this option
shall cease to be outstanding upon the earlier of (A) the expiration of
the twelve (12)-month period measured from the date of Optionee's death or
(B) the Expiration Date.
(iii) Should Optionee cease Service by reason of Disability
while this option is outstanding, then this option shall remain
exercisable until the earlier of (A) the expiration of the twelve
(12)-month period measured from the date of such cessation of Service or
(B) the Expiration Date.
(iv) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number
of vested option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such limited
exercise period or (if earlier) upon the Expiration Date, this option
shall terminate and cease to be outstanding for any Option Shares for
which the Option has not been exercised. To the extent Optionee is not
vested in the Option Shares at the time of Optionee's cessation of
Service, this option shall immediately terminate and cease to be
outstanding with respect to those shares.
(v) Should Optionee's Service be terminated by the Corporation
for Cause or by Optionee in breach of the Employment Agreement, then this
option shall terminate immediately and cease to remain outstanding.
6. Corporate Transaction.
a. In the event of any Corporate Transaction, the Option
Shares at the time subject to this option but not otherwise vested shall
automatically vest in full so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares as fully-vested shares and may be exercised for any or all of
those vested shares. However, the Option Shares shall not vest on such an
accelerated basis if and to the extent: (i) this option is assumed by the
successor corporation (or parent thereof) in the Corporate Transaction and the
Corporation's repurchase rights with respect to the unvested Option Shares are
assigned to such successor corporation (or parent thereof) or (ii) this option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested Option Shares at the time of
the Corporate Transaction (the excess of the Fair Market Value of those Option
Shares over the Exercise Price payable for such shares) and provides for
subsequent payout in accordance with the same Vesting Schedule applicable to
those unvested Option Shares as set forth in the Grant Notice.
b. Immediately following the Corporate Transaction, this
option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with the
Corporate Transaction.
c. If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
d. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. Manner of Exercising Option.
a. In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(1) To the extent the option is exercised for vested
Option Shares, deliver to the Secretary of the Corporation an executed
notice of exercise in substantially the form of Exhibit I to this
Agreement (the "Exercise Notice") in which there is specified the number
of Option Shares which are to be purchased under the exercised option. To
the extent the option is exercised for unvested Option Shares, deliver to
the Corporation an executed Purchase Agreement.
(2) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(a) cash or check made payable to the Corporation;
or
(b) a promissory note payable to the Corporation,
but only to the extent approved by the Plan Administrator in
accordance with Paragraph 13; or
(c) in shares of Common Stock held by Optionee (or
any other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(d) to the extent the option is exercised for
vested Option Shares, through a special sale and remittance
procedure pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
written instructions (a) to a Corporation-designated brokerage firm
to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate Exercise
Price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld
by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Exercise Notice (or Purchase
Agreement) delivered to the Corporation in connection with the
option exercise.
(3) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
(4) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it to
comply with the applicable requirements of Federal and state securities
laws.
(5) Make appropriate arrangements with the Corporation
for the satisfaction of all Federal, state and local income and employment
tax withholding requirements applicable to the option exercise.
b. As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto. To the extent any such Option
Shares are unvested, the certificates for those Option Shares shall be endorsed
with an appropriate legend evidencing the Corporation's repurchase rights and
may be held in escrow with the Corporation until such shares vest.
c. In no event may this option be exercised for any fractional
shares.
10. Compliance with Laws and Regulations.
a. The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange or inter-dealer quotation system on
which the Common Stock may be listed for trading at the time of such exercise
and issuance.
b. The inability of the Corporation to obtain approval from
any regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the non-issuance
or sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
11. Successors and Assigns. Except to the extent otherwise provided
in Paragraphs 3 and 5, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
12. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation, attn: Secretary, at 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000, or any other address provided in writing to Optionee. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated below Optionee's signature line
on the
Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
13. Financing. The Corporation may, in its absolute discretion and
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a promissory note. The terms of any
such promissory note (including the interest rate, the requirements for
collateral and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion.
14. Construction. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator or the
Board with respect to any question or issue arising under the Plan or this
Agreement shall be conclusive and binding on all persons having an interest in
this option.
15. Governing Law. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania without resort to that State's conflict-of-laws rules.
16. Stockholder Approval.
a. The grant of this option is subject to approval of the Plan
by the Corporation's stockholders within twelve (12) months after the adoption
of the Plan by the Board. Notwithstanding any provision of this Agreement to the
contrary, this option may not be exercised in whole or in part until such
stockholder approval is obtained. In the event that such stockholder approval is
not obtained, then this option shall terminate in its entirety and Optionee
shall have no further rights to acquire any Option Shares hereunder.
b. If the Option Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
stockholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares, unless stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of the Plan.
17. Additional Terms Applicable to an Incentive Option. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) This option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such
calendar year would, when added to the aggregate value (determined as of the
respective date or dates of grant) of the Common Stock and any other securities
for which one or more other Incentive Options granted to Optionee prior to the
Grant Date (whether under the Plan or any other option plan of the Corporation
or any Parent or Subsidiary) first become exercisable during the same calendar
year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. To the
extent the exercisability of this option is deferred by reason of the foregoing
limitation, the deferred portion shall become exercisable in the first calendar
year or years thereafter in which the One Hundred Thousand Dollar ($100,000)
limitation of this Paragraph 18(b) would not be contravened, but such deferral
shall in all events end immediately prior to the effective date of a Corporate
Transaction in which this option is not to be assumed, whereupon the option
shall become immediately exercisable as a Non-Statutory Option for the deferred
portion of the Option Shares.
(c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
18. Market Stand-Off. In connection with any public offering of the
Corporation's securities, the Plan Administrator may require that Optionee be
subject to a lock-up for such period following the public offering as may be
required by the underwriter or underwriters of such public offering. During such
period, Optionee agrees not to directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to
individuals who agree to be similarly bound) any Option Shares during such
period without the prior written consent of such underwriter or underwriters.
APPENDIX
The following definitions shall be in effect under the Agreement:
.A. Agreement shall mean this Stock Option Agreement.
.B. Board shall mean the Corporation's Board of Directors.
.C. Cause shall have the meaning assigned to such term in the Employment
Agreement.
.D. Closing Date shall mean ____________, 1998, the date of closing of the
Merger.
.E. Code shall mean the Internal Revenue Code of 1986, as amended.
.F. Common Stock shall mean the Corporation's common stock.
.G. Corporate Transaction shall mean either of the following
stockholder-approved transactions (other than the Merger) to which the
Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
.H. Corporation shall mean Discovery Laboratories, Inc., a Delaware
corporation.
.I. Disability shall have the meaning assigned to such term in the
Employment Agreement. Disability shall be deemed to constitute Permanent
Disability in the event that such Disability is expected to result in death or
has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
.J. Employee shall mean an individual who is in the employ of the
Corporation, subject to the control and direction of the employer entity as to
both the work to be performed and the manner and method of performance.
.K. Employment Agreement shall have the meaning ascribed to such term set
forth in recital A to this Stock Option Agreement.
.L. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
.M. Exercise Price shall mean the exercise price per share as specified in
the Grant Notice.
.N. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.
.O. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market or Nasdaq SmallCap Market, then the Fair Market
Value shall be the closing selling price per share of Common Stock
on the date in question, as the price is reported by the National
Association of Securities Dealers on such market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Board to be the primary market for the
Common Stock, as such price is officially quoted in the composite
tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market or SmallCap
Market, then the Fair Market Value shall be determined by the Board
after taking into account such factors as the Board shall deem
appropriate.
.X. Xxxxx Date shall mean the date of grant of the option as specified in
the Grant Notice.
.X. Xxxxx Notice shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
.R. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
.S. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
.T. Merger shall mean the merger of the Corporation and Acute
Therapeutics, Inc. ("ATI") pursuant to the Agreement and Plan of Merger dated as
of March 5, 1998 among the Corporation, ATI Acquisition Corp. and ATI.
.U. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
.V. Option Shares shall mean the number of shares of Common Stock subject
to the option.
.W. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.
.X. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
.Y. Plan shall mean the Corporation's 1998 Stock Incentive Plan.
.Z. Plan Administrator shall mean either the Board or a committee of Board
members, to the extent the committee is at the time responsible for the
administration of the Plan.
.AA. Purchase Agreement shall mean the stock purchase agreement (in form
and substance satisfactory to the Corporation) which must be executed at the
time the option is exercised for unvested Option Shares and which will
accordingly (i) grant the Corporation the right to repurchase, at the Exercise
Price, any and all of those Option Shares in which Optionee is not otherwise
vested at the time of his or her cessation of Service and (ii) preclude the
sale, transfer or other disposition of any of the Option Shares purchased under
such agreement while those Option Shares remain subject to the repurchase right.
.BB. Service shall mean the provision of services to the Corporation
pursuant to the Employment Agreement or otherwise as an Employee or non-employee
member of the Board of Directors of, or a consultant or independent advisor to,
the Corporation (or any Parent or Subsidiary).
.CC. Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.
.DD. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
.EE. Vesting Schedule shall mean the vesting schedule specified in the
Grant Notice, as such vesting schedule is subject to acceleration in the event
of a Corporate Transaction.
EXHIBIT E
DISCOVERY LABORATORIES, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock, par value $0.001 per share, of Discovery
Laboratories, Inc. (the "Corporation"):
Optionee: _______________________
Grant Date: [Closing Date of the Merger]
Exercise Price: $[FMV as of the closing of the Merger]
Number of Option Shares: ____________ shares
Expiration Date: [Tenth anniversary of the closing of the Merger]
Type of Option: [Incentive Stock Option - Subject to $100,000 limit]
Date Exercisable: [Date of the closing of the Merger], subject to
vesting as described below.
Vesting Schedule: The Option Shares shall initially be unvested and
subject to repurchase by the Corporation at the Exercise Price paid
per share. The Corporation's repurchase right shall lapse with
respect to, and Optionee shall vest in, all of the Option Shares in
the event that the Corporation consummates a transaction having a
total Value (as defined in the Stock Option Agreement) of at least
$20 million and involving the development, clinical testing,
regulatory approval, manufacturing and/or marketing of a portfolio
compound of the Corporation jointly with a business entity not
affiliated with the Corporation. In no event shall any additional
Option Shares vest after Optionee's cessation of service.
Optionee understands and agrees to be bound by the terms of the
Option as set forth in the Stock Option Agreement attached hereto as Exhibit A.
Optionee understands and agrees that the Option is granted subject to and in
accordance with the terms of the Corporations's 1998 Stock Incentive Plan (the
"Plan") attached hereto as Exhibit B.
No Employment or Service Contract. Nothing in this Notice shall
confer upon Optionee any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any parent or subsidiary employing or retaining Optionee) or of
Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service in accordance with applicable law or the Employment
Agreement.
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION
SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO A REPURCHASE
RIGHT EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHT
SHALL BE SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION
EXERCISE.
Definitions. All capitalized terms used and not otherwise defined in
this Notice shall have the meaning assigned to them in this Notice or in the
Stock Option Agreement.
DATED: ______________, 1998
DISCOVERY LABORATORIES, INC.
By: ________________________________________
Title: _____________________________________
____________________________________________
OPTIONEE
Address: _______________________________
_______________________________
Attachments:
Exhibit A - Stock Option Agreement
Exhibit B - 1998 Stock Incentive Plan
EXHIBIT A
DISCOVERY LABORATORIES, INC.
STOCK OPTION AGREEMENT
RECITALS
A. Optionee is to render valuable services to the Corporation, and this
Agreement is executed in connection with the Corporation's grant of an option to
Optionee under the Plan, as provided in the Employment Agreement dated as of ,
1998 between the Corporation and Optionee (the "Employment Agreement").
B. All capitalized terms used and not otherwise defined in this Agreement
shall have the meaning assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5, 6 or 17.
3. Limited Transferability. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may, in connection
with Optionee's estate plan, be assigned in whole or in part during Optionee's
lifetime to one or more members of Optionee's immediate family or to a trust
established for the exclusive benefit of one or more such family members. The
assigned portion shall be exercisable only by the person or persons who acquire
a proprietary interest in the option pursuant to such assignment. The terms
applicable to the assigned portion shall be the same as those in effect for this
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
4. Exercisability/Vesting.
(a) This option shall be immediately exercisable for any or all of
the Option Shares, whether or not the Option Shares are vested in accordance
with the Vesting Schedule and shall remain so exercisable until the Expiration
Date or sooner termination of the option term under Paragraph 5, 6 or 17.
(b) Optionee shall, in accordance with the Vesting Schedule, vest in
the Option Shares in one or more installments over his or her period of Service.
Vesting in the Option Shares may be accelerated pursuant to the provisions of
Paragraph 6. In no event, however, shall any additional Option Shares vest
following Optionee's cessation of Service.
5. Cessation of Service. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any reason
(other than as specified in any of paragraphs (ii) through (vii) below)
while this option is outstanding, then this option shall remain
exercisable until the earlier of (A) the expiration of the three (3)-month
period measured from the date of such cessation of Service or (B) the
Expiration Date.
(ii) Should Optionee die while this option is outstanding,
then the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will or
in accordance with the laws of descent and distribution shall have the
right to exercise this Option. Such right shall lapse and this option
shall cease to be outstanding upon the earlier of (A) the expiration of
the twelve (12)-month period measured from the date of Optionee's death or
(B) the Expiration Date.
(iii) Should Optionee cease Service by reason of Disability
while this option is outstanding, then this option shall remain
exercisable until the earlier of (A) the expiration of the twelve
(12)-month period measured from the date of such cessation of Service or
(B) the Expiration Date.
(iv) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number
of vested option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such limited
exercise period or (if earlier) upon the Expiration Date, this option
shall terminate and cease to be outstanding for any Option Shares for
which the Option has not been exercised. To the extent Optionee is not
vested in the Option Shares at the time of Optionee's cessation of
Service, this option shall immediately terminate and cease to be
outstanding with respect to those shares.
(v) Should Optionee's Service be terminated by the Corporation
for Cause or should Optionee terminate his or her Service in breach of the
Employment Agreement, then this option shall terminate immediately and
cease to remain outstanding.
6. Corporate Transaction.
a. In the event of any Corporate Transaction, the Option
Shares at the time subject to this option but not otherwise vested shall
automatically vest in full so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares as fully-vested shares and may be exercised for any or all of
those vested shares. However, the Option Shares shall not vest on such an
accelerated basis if and to the extent: (i) this option is assumed by the
successor corporation (or parent thereof) in the Corporate Transaction and the
Corporation's repurchase rights with respect to the unvested Option Shares are
assigned to such successor corporation (or parent thereof) or (ii) this option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested Option Shares at the time of
the Corporate Transaction (the excess of the Fair Market Value of those Option
Shares over the Exercise Price payable for such shares) and provides for
subsequent payout in accordance with the same Vesting Schedule applicable to
those unvested Option Shares as set forth in the Grant Notice.
b. Immediately following the Corporate Transaction, this
option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with the
Corporate Transaction.
c. If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
d. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. Manner of Exercising Option.
a. In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(1) To the extent the option is exercised for vested
Option Shares, deliver to the Secretary of the Corporation an executed
notice
of exercise in substantially the form of Exhibit I to this Agreement (the
"Exercise Notice") in which there is specified the number of Option Shares
which are to be purchased under the exercised option. To the extent the
option is exercised for unvested Option Shares, deliver to the Corporation
an executed Purchase Agreement.
(2) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(a) cash or check made payable to the Corporation;
or
(b) a promissory note payable to the Corporation,
but only to the extent approved by the Plan Administrator in
accordance with Paragraph 13; or
(c) in shares of Common Stock held by Optionee (or
any other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(d) to the extent the option is exercised for
vested Option Shares, through a special sale and remittance
procedure pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
written instructions (a) to a Corporation-designated brokerage firm
to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate Exercise
Price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld
by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Exercise Notice (or Purchase
Agreement) delivered to the Corporation in connection with the
option exercise.
(3) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other
than Optionee) have the right to exercise this option.
(4) Execute and deliver to the Corporation
such written representations as may be requested by the Corporation in
order for it to comply with the applicable requirements of Federal and
state securities laws.
(5) Make appropriate arrangements with the
Corporation for the satisfaction of all Federal, state and local income
and employment tax withholding requirements applicable to the option
exercise.
b. As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto. To the extent any such Option Shares are
unvested, the certificates for those Option Shares shall be endorsed with an
appropriate legend evidencing the Corporation's repurchase rights and may be
held in escrow with the Corporation until such shares vest.
c. In no event may this option be exercised for any fractional
shares.
10. Compliance with Laws and Regulations.
a. The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange or inter-dealer quotation system on
which the Common Stock may be listed for trading at the time of such exercise
and issuance.
b. The inability of the Corporation to obtain approval from
any regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the non-issuance
or sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
11. Successors and Assigns. Except to the extent otherwise provided
in Paragraphs 3 and 5, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
12. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation, attn: Secretary, at 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000, or any other address provided in writing to Optionee. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated below Optionee's signature line
on the Grant Notice. All notices shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
13. Financing. The Corporation may, in its absolute discretion and
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a promissory note. The terms of any
such promissory note (including the interest rate, the requirements for
collateral and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion.
14. Construction. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator or the
Board with respect to any question or issue arising under the Plan or this
Agreement shall be conclusive and binding on all persons having an interest in
this option.
15. Governing Law. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania without resort to that State's conflict-of-laws rules.
16. Stockholder Approval.
a. The grant of this option is subject to approval of the Plan
by the Corporation's stockholders within twelve (12) months after the adoption
of the Plan by the Board. Notwithstanding any provision of this Agreement to the
contrary, this option may not be exercised in whole or in part until such
stockholder approval is obtained. In the event that such stockholder approval is
not obtained, then this option shall terminate in its entirety and Optionee
shall have no further rights to acquire any Option Shares hereunder.
b. If the Option Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
stockholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares, unless stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of the Plan.
17. Additional Terms Applicable to an Incentive Option. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) This option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years thereafter in which
the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b)
would not be contravened,
but such deferral shall in all events end immediately prior to the effective
date of a Corporate Transaction in which this option is not to be assumed,
whereupon the option shall become immediately exercisable as a Non-Statutory
Option for the deferred portion of the Option Shares.
(c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
18. Market Stand-Off. In connection with any public offering of the
Corporation's securities, the Plan Administrator may require that Optionee be
subject to a lock-up for such period following the public offering as may be
required by the underwriter or underwriters of such public offering. During such
period, Optionee agrees not to directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to
individuals who agree to be similarly bound) any Option Shares during such
period without the prior written consent of such underwriter or underwriters.
APPENDIX
The following definitions shall be in effect under the Agreement:
.A. Agreement shall mean this Stock Option Agreement.
.B. Board shall mean the Corporation's Board of Directors.
.C. Cause shall have the meaning assigned to such term in the Employment
Agreement.
.D. Closing Date shall mean ____________, 1998, the date of closing of the
Merger.
.E. Code shall mean the Internal Revenue Code of 1986, as amended.
.F. Common Stock shall mean the Corporation's common stock.
.G. Corporate Transaction shall mean either of the following
stockholder-approved transactions (other than the Merger) to which the
Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
.H. Corporation shall mean Discovery Laboratories, Inc., a Delaware
corporation.
.I. Disability shall have the meaning assigned to such term in the
Employment Agreement. Disability shall be deemed to constitute Permanent
Disability in the event that such Disability is expected to result in death or
has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
.J. Employee shall mean an individual who is in the employ of the
Corporation, subject to the control and direction of the employer entity as to
both the work to be performed and the manner and method of performance.
.K. Employment Agreement shall have the meaning ascribed to such term set
forth in recital A to this Stock Option Agreement.
.L. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
.M. Exercise Price shall mean the exercise price per share as specified in
the Grant Notice.
.N. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.
.O. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market or Nasdaq SmallCap Market, then the Fair Market
Value shall be the closing selling price per share of Common Stock
on the date in question, as the price is reported by the National
Association of Securities Dealers on such market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Board to be the primary market for the
Common Stock, as such price is officially quoted in the composite
tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market or SmallCap
Market, then the Fair Market Value shall be determined by the Board
after taking into account such factors as the Board shall deem
appropriate.
.X. Xxxxx Date shall mean the date of grant of the option as specified in
the Grant Notice.
.X. Xxxxx Notice shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
.R. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
.S. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
.T. Merger shall mean the merger of the Corporation and Acute
Therapeutics, Inc. ("ATI") pursuant to the Agreement and Plan of Merger dated as
of March 5, 1998 among the Corporation, ATI Acquisition Corp., Inc. and ATI.
.U. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
.V. Option Shares shall mean the number of shares of Common Stock subject
to the option.
.W. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.
.X. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
.Y. Plan shall mean the Corporation's 1998 Stock Incentive Plan.
.Z. Plan Administrator shall mean either the Board or a committee of Board
members, to the extent the committee is at the time responsible for the
administration of the Plan.
.AA. Purchase Agreement shall mean the stock purchase agreement (in form
and substance satisfactory to the Corporation) which must be executed at the
time the option is exercised for unvested Option Shares and which will
accordingly (i) grant the Corporation the right to repurchase, at the Exercise
Price, any and all of those Option Shares in which Optionee is not otherwise
vested at the time of his or her cessation of Service and (ii) preclude the
sale, transfer or other disposition of any of the Option Shares purchased under
such agreement while those Option Shares remain subject to the repurchase right.
.BB. Service shall mean the provision of services to the Corporation
pursuant to the Employment Agreement or otherwise as an Employee or non-employee
member of the Board of Directors of, or a consultant or independent advisor to,
the Corporation (or any Parent or Subsidiary).
.CC. Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.
.DD. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
.EE. Vesting Schedule shall mean the vesting schedule specified in the
Grant Notice, as such vesting schedule is subject to acceleration in the event
of a Corporate Transaction.
.FF. Value shall mean, with respect to any agreement to which the
Corporation is a party, the total payments, including without limitation,
contingent payments prior to or at receipt of marketing approval for the
compound involved in such agreement, including without limitation upfront fees,
milestone payments and research and development and other contractual
commitments.
EXHIBIT F
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the ___ day of
_________, 1998, by and among DISCOVERY LABORATORIES, INC., a Delaware
corporation, (the "Company"), XXXXXXX & XXXXXXX DEVELOPMENT CORPORATION, a New
Jersey Corporation ("J&J") and THE SCRIPPS RESEARCH INSTITUTE, a California
not-for-profit organization ("Scripps") (J&J and Scripps are herein collectively
referred to as the "Stockholders").
RECITALS
WHEREAS, Acute Therapeutics, Inc. ("ATI") and Scripps are parties to
the Scripps Stock Purchase Agreement dated as of October 28, 1996 (the "Scripps
Agreement"), pursuant to which Scripps acquired 40,000 shares of common stock,
$0.001 par value per share of ATI (the "ATI Common Stock");
WHEREAS, J&J, its affiliate, Ortho Pharmaceutical Corporation and
ATI are parties to the Inventory Transfer/Stock Purchase Agreement dated as of
October 28, 1996 (the "Inventory Transfer Agreement"), pursuant to which ATI
issued to J&J 2,200 shares of its Non-Voting Series B Preferred Stock, $0.001
par value per share (the "ATI Series B Preferred Stock") and 40,000 shares of
ATI Common Stock;
WHEREAS, ATI, Scripps and J&J are parties to a Registration Rights
Agreement dated as of October 28, 1996 (the "ATI Registration Rights Agreement")
pursuant to which Scripps and J&J were granted certain registration rights;
WHEREAS, the Company and ATI are parties to an agreement dated March
__, 1998, whereby a newly-formed subsidiary of the Company will merge with and
into ATI and ATI will become a wholly-owned subsidiary of the Company (the
"Merger Agreement");
WHEREAS, pursuant to the Merger Agreement, each of the issued and
outstanding shares of ATI Common Stock shall be automatically converted into
3.91 shares of Common Stock of the Company, $0.001 par value per share ("the
Common Stock");
WHEREAS, the Company and J&J are parties to the Stock Exchange
Agreement of even date herewith pursuant to which J&J will exchange its ATI
Series B Preferred Stock for 2,039 shares of Series C Preferred Stock, $0.001
par value per share, of the Company ("Series C Preferred Stock") and pursuant to
which the Company will issue J&J shares of Common Stock (the "Dividend Shares")
in lieu of the accrued but unpaid dividend accrued through the date of the
Merger on its shares of ATI Series B Preferred Stock (the "Stock Exchange
Agreement");
WHEREAS, the Stockholders and the Company hereby agree that this
Registration Rights Agreement (the "Agreement") shall govern the rights of the
Stockholders to cause the Company to register the shares of Common Stock held by
the Stockholders;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.8 hereof.
(c) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(d) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(e) The term "Registrable Securities" means (i) the Common Stock
issued by the Company pursuant to the Merger Agreement in exchange for the
shares of ATI Common Stock originally issued to Scripps pursuant to the Scripps
Purchase Agreement, (ii) the Common Stock issued by the Company pursuant to the
Merger Agreement in exchange for the shares of ATI Common Stock originally
issued to J&J pursuant to the Inventory Transfer Agreement, (iii) any Common
Stock issued upon conversion or redemption of the Series C Preferred Stock, (iv)
the Dividend Shares and (v) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of the shares referenced in (i)-(iv) above, that
cannot be publicly resold by the holder thereof without registration under the
Act or sold in a single transaction exempt from the registration and prospectus
delivery requirement of the Act pursuant to Rule 144 thereunder, it being
understood, for the purposes of this Agreement, that Registrable Securities
shall cease to be Registrable Securities when (1) a registration statement
covering such Registrable Securities has been declared effective and they have
been disposed of pursuant to such effective registration statement, (2) they are
transferred on the open market pursuant to any available exemption under the
Act, (3) they have been otherwise transferred and the Company has delivered new
certificates or other evidences of ownership for them not subject to any stop
transfer order or other restriction on transfer and not bearing any legend
restricting transfer in the absence of an effective registration or an exemption
from the registration requirements of the Act, (4) they have been sold,
assigned, pledged, hypothecated or otherwise disposed of by the Holder in a
transaction in which the Holder's rights under this Agreement are not assigned
or assignable, or (5) the rights of the Holder under Section 1.2 have terminated
pursuant to Section 1.9.
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are Registrable Securities.
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Company Registration.
(a) If (but without any obligation to do so) the Company proposes to
register (including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration on any form which does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered),
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with Section
2.5, the Company shall cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
(b) Notwithstanding any other provision of this Section 1.2, if the
managing underwriter of an underwritten distribution advises in writing the
Company and the Holders of the Registrable Securities requesting participation
in such registration that in its good faith judgment the number of shares of
Registrable Securities and the other securities requested to be registered under
this Section 1.2 exceeds the number of shares of Registrable Securities and
other securities which can be sold in such offering, then (i) the number of
shares of Registrable Securities and other securities so requested to be
included in the offering shall be reduced to that number of shares which in the
good faith judgment of the managing underwriter can be sold in such offering
(except for shares to be issued by the Company, which shall have priority over
the Registrable Securities), and (ii) such reduced number of shares shall be
allocated among all participating Holders of Registrable Securities and holders
of other securities in proportion, as nearly as practicable, to the respective
number of shares of Registrable Securities and other securities held by such
Holders at the time of filing the registration statement; provided, however,
that a minimum of thirty percent (30%) of the shares to be underwritten shall be
allocated, on a pro rata basis, to the Holders requesting inclusion in such
offering (the "selling stockholders"). For purposes of clause (ii) above
concerning apportionment, for any selling stockholder which is a holder of
Registrable Securities and which is a partnership or corporation, the affiliates
(as defined in the rules and regulations promulgated under the Act), partners,
retired partners and stockholders of such holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling
stockholder", and any pro-rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder", as defined in this sentence.
1.3 Obligations of the Company. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 120-day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Act, permits an offering
on a continuous or delayed basis, and provided further that applicable rules
under the Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment which (I) includes any
prospectus required by Section 10(a)(3) of the Act or (II) reflects facts or
events representing a material or fundamental change in the information set
forth in the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the
registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(h) Notify the participating Holders at any time when a prospectus
relating to any Registrable Securities covered by such registration statement is
required to be delivered under the Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing and promptly
file such amendments and supplements as may be necessary so that, as thereafter
delivered to such Holders of such Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing and use its best
efforts to cause each such amendment and supplement to become effective.
(i) Furnish on the closing date of an underwritten public offering
(i) an opinion, dated such date, of the counsel representing the Company, for
purposes of such registration, in form and substance as is customarily given by
company counsel to the underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters.
1.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.5 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.2 for each Holder (which right may be assigned as provided
in Section 1.8), including (without limitation) all federal and state
registration, filing, qualification fees, printers and accounting fees relating
or apportionable thereto and reasonable fees and disbursements of one counsel
for the participating Holders together, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.6 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.7 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, and each officer, director, employee and
agent thereof against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, or the 1934 Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, and each officer, director, employee and agent thereof as incurred, any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder (severally
and not jointly) will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.7(a), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.7(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
1.10(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.7, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.7.
(d) If the indemnification provided for in this Section 1.7 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section
1.7 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.8 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities, provided: (a) the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement; and (c) such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act.
1.9 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after the fifth anniversary
of the date of this Agreement.
1.10 Reports Under 1934 Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell Registrable
Securities to the public without registration, the Company agrees to:
(a) make and keep available public information, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company nuder the Act and the 1934 Act; and
(c) furnish to a Holder owning any Registrable Securities upon
request (i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), the Act and the 1934 Act (at
any time after the Company has become subject to the reporting requirements of
the 1934 Act), (ii) a copy of the most recent annual or quarterly report of the
company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably required in availing any Holder of
Registrable Securities of any rule or regulation of the SEC which permits the
selling of any such Registrable Securities without registration or pursuant to
such form (at any time after the company has become subject to the reporting
requirements of the 1934 Act).
1.11 Granting of Registration Rights. The Company shall not, without
the prior written consent of the Holders of at least 50.1% of the Registrable
Securities then outstanding, grant any
rights to any persons to register any shares of capital stock or other
securities of the Company that would limit the Holders' proportional rights
under Section 1.2(b). The grant of registration rights to any person that would
entitle such person to participate on a pro rata basis in an offering under
Section 1.2(b) shall not be deemed a limitation to the Holders' proportional
rights under Section 1.2(b), pursuant to this Section 1.11; provided that in no
circumstance will fewer than ten percent (10%) of the shares to be underwritten
pursuant to Section 1.2(b) be allocated to the Holders, regardless of any
subsequent registration rights granted by the Company.
2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
2.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Pennsylvania without regard to its
conflict of laws principles.
2.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
2.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
2.9 Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
2.10 Entire Agreement; Amendment; Waiver; No Further Rights. This
Agreement (including the Exhibits hereto, if any) constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. The Stockholders hereby agree that they have no
further rights under the ATI Registration Rights Agreement.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
DISCOVERY LABORATORIES, INC.
By: _________________________________________
Xxxxxx X. Xxxxxxxx, Ph.D.
President
Address: _________________________________________
_________________________________________
Stockholders:
XXXXXXX & XXXXXXX DEVELOPMENT CORPORATION
By: _________________________________________
Address: _________________________________________
_________________________________________
THE SCRIPPS RESEARCH INSTITUTE
By: _________________________________________
Address: _________________________________________
_________________________________________
EXHIBIT G
INVESTOR AGREEMENT dated as of ___________, 1998 between the
undersigned (the "Securityholder") and Discovery Laboratories, Inc.
("Discovery")
Recitals
Discovery, ATI Acquisition Corp. ("Sub") and Acute Therapeutics,
Inc. ("ATI") have entered into an Agreement and Plan of Merger dated as of March
5, 1998 (the "Merger Agreement") pursuant to which Sub will merge with and into
ATI (the "Merger") on the terms and conditions specified therein. As a result of
the Merger, the Securityholder will receive shares of the Common Stock, par
value $0.001 per share, of Discovery (the "Discovery Stock"), which Discovery
Stock will be received in exchange for shares of the Common Stock, par value
$0.001 per share, of ATI, or upon exercise of options exercisable prior to the
Merger for such shares, owned by the Securityholder. The Securityholder is
entering into this Agreement with Discovery as a material inducement for
Discovery to enter into the Merger Agreement, and the Securityholder understands
that Discovery will rely upon this Agreement in entering into the Merger
Agreement and in consummating the transactions contemplated thereby.
SECTION 1. Representations and Warranties of the Securityholder. The
Securityholder hereby represents and warrants to Discovery and covenants with
Discovery as follows:
a. The Securityholder has received and carefully reviewed a copy of
the [consent solicitation document distributed to ATI
securityholders] in connection with the Merger Agreement (the
"Disclosure Statement") and Discovery's Annual Report on Form 10-KSB
for the year ended December 31, 1997 (including without limitation
the section thereof entitled "Important Considerations Regarding
Forward-Looking Statements"), has been afforded the opportunity to
ask questions of and receive answers from duly authorized officers
or other representatives of Discovery concerning the terms and
conditions of the transactions contemplated by the Merger Agreement
(the "Merger") and has received any additional information regarding
Discovery which the Securityholder has requested.
b. The Securityholder's consent to the Merger was not obtained by
means of any form of general solicitation or general advertising,
and in connection therewith the Securityholder did not: (A) receive
or review any advertisement, article, notice or other communication
published in a newspaper or magazine or similar media or broadcast
over television or radio whether closed circuit, or generally
available; or (B) attend any seminar meeting or industry investor
conference whose attendees were invited by any general solicitation
or general advertising.
c. The Securityholder is an accredited investor within the meaning
of Rule 501 under the Securities Act of 1933, as amended (the
"Securities Act"), and the Securityholder, if an entity, was not
formed for the purpose of receiving the Discovery Stock. The
Securityholder, either by reason of the Securityholder's business or
financial experience or the business or financial experience of the
Securityholder's purchaser representative (within the meaning of
Rule 501 under the Securities Act ), which purchaser representative,
if any, is unaffiliated with and is not compensated by Discovery or
any affiliate of Discovery, directly or indirectly, has the capacity
to protect the Securityholder's interests in connection with the
Merger.
d. The Securityholder recognizes that the acquisition of the
securities to be distributed to the Securityholder in the Merger
(the "Shares") by virtue of the Securityholder's consent to the
Merger involves a high degree of risk in that (i) an investment in
Discovery is highly speculative and (ii) the Securityholder could
sustain the loss of the Securityholder's entire investment.
e. The Securityholder hereby acknowledges that the issuance of the
Discovery Stock to the Securityholder has not been registered under
the Securities Act and is intended to be exempt from the
registration requirements of Section 5 of the Securities Act
pursuant to Sections 4(2) of the Securities Act and Regulation D
promulgated thereunder. The Securityholder agrees that the
Securityholder will not sell or otherwise transfer the Discovery
Stock received by the Securityholder unless (i) such sale or
transfer is registered under the Securities Act or (ii) in the
opinion of counsel reasonably acceptable to Discovery, such sale or
transfer is otherwise exempt from registration under the Securities
Act.
f. The Securityholder understands that Discovery is under no
obligation to register the sale or other transfer of the Discovery
Stock under the Securities Act or, except as provided in Section 3
below, to take any other action necessary in order to make
compliance with an exemption from such registration available.
SECTION 2. Securities Act Legends; Stop Transfer Instructions. The
Securityholder agrees that each certificate representing the Shares shall bear a
legend substantially similar to the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
ABSENT SUCH REGISTRATION UNLESS EVIDENCE SATISFACTORY TO COUNSEL FOR THE
COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE HAS BEEN
DELIVERED TO THE COMPANY.
and that such certificates may also have such additional legends, if any, as may
be required in order to comply with the "blue sky" laws of any jurisdiction. The
Securityholder further agrees to the issuance by Discovery to its transfer agent
of stop transfer instructions with respect to any sale or other transfer of the
Discovery Stock by the Securityholder absent registration under the Securities
Act or the establishment by the Securityholder of an exemption therefrom in
accordance with this Agreement.
3. Rule 144 Undertaking. For so long as and to the extent necessary
to permit the Securityholder to sell the Discovery Stock pursuant to Rule 144
under the Securities Act, Discovery shall use reasonable efforts to file, on a
timely basis, all reports and data required to be filed with the Securities and
Exchange commission by Discovery pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Discovery has filed all
repots required to be so filed by it during the preceding 12 months.
4. Miscellaneous. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement
constitutes the entire agreement among the parties hereto with respect to its
subject matter and supersedes all prior agreements, whether written or oral,
with respect to the subject matter hereof. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York (without
regard to conflicts of law principles). All representations and warranties made
herein by the Securityholder shall survive the execution and delivery of this
Agreement.
SECURITYHOLDER:
_________________________________________
Name:
DISCOVERY LABORATORIES, INC.
By _________________________________________
Name:
Title:
EXHIBIT H
[FORM OF LOCK-UP]
___________, 1998
Discovery Laboratories, Inc.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
This letter agreement is in connection with the Agreement and Plan of
Merger dated as of March 5, 1998 (the "Merger Agreement") by and among Discovery
Laboratories, Inc., a Delaware corporation (the "Company"), ATI Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of the Company
("Acquisition Sub"), and Acute Therapeutics, Inc., a Delaware corporation
("Acute") pursuant to which, subject to the terms and conditions of the Merger
Agreement, the undersigned may receive securities of the Company (the "Merger
Securities").
In consideration of the foregoing and in order to induce you to consummate
the merger of Acquisition Sub with and into Acute pursuant to the Merger
Agreement (the "Merger"), the undersigned hereby irrevocably agrees that it will
not on or before November 25, 1998, directly or indirectly, sell, offer,
contract to sell, transfer the economic risk of ownership in, make any short
sale, pledge or otherwise dispose of any shares of the Company's Common Stock,
or any securities convertible into or exchangeable or exercisable for or any
other rights to purchase or acquire the Company's Common Stock, in each case
which are attributable to the Merger Securities, without the prior written
consent of the Company.
Notwithstanding the foregoing, if the undersigned is an individual, he or
she may transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for the Company's Common Stock, in each case which
are attributable to the Merger Securities, either during his or her lifetime or
on death by will or intestacy to his or her immediate family or to a trust the
beneficiaries of which are exclusively the undersigned and/or a member or
members of his or her immediate family; provided, however, that prior to any
such transfer each transferee shall execute an agreement, satisfactory to the
Company, pursuant to which each transferee shall agree to receive and hold such
shares of Common Stock, or securities convertible into or exchangeable or
exercisable for the Common Stock, subject to the provisions hereof, and there
shall be no further transfer except in accordance with the provisions hereof.
For the purposes of this paragraph, "immediate family" shall mean lineal
descendant, father, mother, brother or sister of the transferor.
The undersigned understands that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of the Company's Common Stock or other securities of the
Company received by the undersigned pursuant to the Merger Agreement except in
compliance with this agreement and further agrees that any stock certificates of
the Company, and any other document evidencing ownership of securities of the
Company, issued to the undersigned
pursuant to the Merger Agreement shall bear restrictive legends prohibiting
transfers except in accordance with the terms of this letter.
This agreement shall be governed by and construed in accordance with the
laws of the State of Delaware as applied to agreements entered into and
performed by Delaware residents and entirely to be performed within Delaware.
Very truly yours,
Dated: _______________ __________________________
Signature
__________________________
Printed Name and Title
EXHIBIT I
DISCOVERY LABORATORIES, INC
1998 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Incentive Plan (the "Plan") is intended to promote
the interests of Discovery Laboratories, Inc., a Delaware corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
The Plan shall serve as the successor to the Corporation's 1995
Stock Option Plan ( the "Predecessor Plan"), and no further option grants shall
be made under the Predecessor Plan after the date on which the Plan is approved
by the Corporation's stockholders (the "Stockholder Approval Date"). All options
outstanding under the Predecessor Plan on the Stockholder Approval Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of Common
Stock directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. Only non-employee members of the Board [who are not 10%
Stockholders] shall be eligible to participate in the Automatic Option Grant
Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
[ ] shares. Such authorized share reserve is comprised of (i) the number
of shares which remain available for issuance, as of the Stockholder Approval
Date, under the Predecessor Plan as last approved by the Corporation's
stockholders, comprised of the shares subject to the outstanding options to be
incorporated into the Plan as of the Stockholder Approval Date and the
additional shares which would otherwise be available for future grant under the
Predecessor Plan (estimated to be 395,800 shares in the aggregate as of March 1,
1998), plus (ii) an additional increase of [ ] shares authorized by
the Board on [ ], 1998, subject to approval by the Corporation's
stockholders at the 1998 Annual Meeting.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than [250,000] shares of Common Stock in the aggregate per calendar year,
beginning with the 1998 calendar year.
C. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase
rights under the Plan shall be added back to the number of shares of Common
Stock reserved for issuance under the Plan and shall accordingly be available
for reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. However, should the exercise price of an option under
the Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an option
or the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance.
D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under this Plan per calendar year, (iii) the number
and/or class of securities for which grants are subsequently to be made under
the Automatic Option Grant Program to new and continuing non-employee Board
members, (iv) the number and/or class of securities and the exercise price per
share in effect under each outstanding option under the Plan and (v) the number
and/or class of securities and price per share in effect under each outstanding
option incorporated into this Plan from the Predecessor Plan. Such adjustments
to the outstanding options are to be effected in a manner which shall preclude
the enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Five and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable written instructions
to (a) a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for
any reason other than death, Disability or Misconduct, then the Optionee
shall have a period of three (3) months following the date of such
cessation of Service during which to exercise each outstanding option held
by such Optionee.
(ii) Should the Optionee's Service terminate by reason
of Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding
option, then the personal representative of his or her estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance shall have a twelve (12)-month
period following the date of the Optionee's death to exercise such option.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service plus any additional Option Shares for
which vesting is, pursuant to the terms of the applicable option
agreement, to accelerate at the time of such cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding with respect
to any and all option shares for which the option is not otherwise at the
time exercisable or in which the Optionee is not otherwise at that time
vested (after taking into account any vesting acceleration provisions tied
to the Optionee's cessation of Service).
(vi) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to remain outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the Optionee
would have vested had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Dollar Limitation. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding option
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof), (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
The determination of option comparability under clause (i) above shall be made
by the Plan Administrator, and its determination shall be final, binding and
conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options upon the occurrence of a Corporate Transaction, whether or
not those options are to be assumed or replaced in the Corporate Transaction.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. Notwithstanding Section III.A. of this Article Two, the Plan
Administrator shall have the discretionary authority, exercisable either at the
time the option is granted or at any time while the option remains outstanding,
to provide for the automatic acceleration of one or more outstanding options
under the Discretionary Option Grant Program upon the occurrence of a Corporate
Transaction, whether or not those options are to be assumed or replaced in the
Corporate Transaction. In addition, the Plan Administrator may provide that one
or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Corporate Transaction shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full, even in the event the options are to be
assumed.
F. The Plan Administrator shall have full power and authority
exercisable, either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program in the
event the Optionee's Service terminates by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those options are assumed
or replaced and do not otherwise accelerate. Any options so accelerated shall
remain exercisable for fully-vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1)-year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may provide that one or more of the Corporation's
outstanding repurchase rights with respect to shares held by the Optionee at the
time of such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
G. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program upon (i) a
Change in Control or (ii) the termination of the Optionee's Service by reason of
an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of such Change in Control. Each option
so accelerated shall remain exercisable for fully-vested shares until the
earlier of (i) the expiration of the option term or (ii) the expiration of the
one (1)-year period measured from the effective date of the Optionee's cessation
of Service. In addition, the Plan Administrator may provide that one or more of
the Corporation's outstanding repurchase rights with respect to shares held by
the Optionee at the time
of such Change in Control or Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights shall
accordingly vest in full.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution therefor new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price payable
for such shares.
(ii) No such option surrender shall be effective unless
it is approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be made
in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by
the Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion thereof)
on the option surrender date and may exercise such rights at any time
prior to the later of (a) five (5) business days after the receipt of the
rejection notice or (b) the last day on which the option is otherwise
exercisable in accordance with the terms of the documents evidencing such
option, but in no event may such rights be exercised more than ten (10)
years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted
limited stock appreciation rights with respect to their outstanding
options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender each
such option to the Corporation, to the extent the option is at the time
exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution from
the Corporation in an amount equal to the excess of (A) the Take-Over
Price of the shares of Common Stock which are at the time vested under
each surrendered option (or surrendered portion thereof) over (B) the
aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the option surrender date.
(iii) Neither the approval of the Plan Administrator nor
the consent of the Board shall be required in connection with such option
surrender and cash distribution.
(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents evidencing
such option.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Five,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
B. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase right remains outstanding, to provide for the automatic
termination of one or more of those outstanding rights and the immediate vesting
of the shares of Common Stock subject to such rights upon the occurrence of a
Corporate Transaction.
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should terminate by
reason of an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of any Corporate Transaction
in which those repurchase rights are assigned to the successor corporation (or
parent thereof).
D. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall
automatically terminate in whole or in part, and the shares of Common Stock
subject to those terminated rights shall immediately vest upon (i) a Change in
Control or (ii) the termination of the Participant's Service by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
X. Xxxxx Dates. Option grants shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Plan Effective Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 20,000 shares of Common Stock, provided that
individual has not previously been a director of or in the employ of the
Corporation or any Parent or Subsidiary .
2. On the date of the 1998 Annual Meeting (the Stockholder
Approval Date) and on the date of each Annual Stockholders Meeting held after
such date, each individual who is to continue to serve as an Eligible Director,
whether or not that individual is standing for re-election to the Board at that
particular Annual Meeting, shall automatically be granted a Non-Statutory Option
to purchase 10,000 shares of Common Stock, provided that with respect to each
Annual Stockholders Meetings held after the 1998 Annual Meeting, such individual
has served as a non-employee Board member for at least six (6) months. There
shall be no limit on the number of such 10,000-share option grants any one
Eligible Director may receive over his or her period of Board service, and
non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall be eligible to receive one or
more such annual option grants over their period of continued Board service.
B. Exercise Price.
1. The exercise price per share shall be equal to sixty
percent (60%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each option grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of four (4) successive
equal annual installments upon the Optionee's completion of each year of Board
service over the four (4)-year
period commencing six (6) months following the option grant date, with the first
such installment to vest eighteen (18) month after the option grant date.
E. Termination of Board Service. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of the Optionee's
death, the personal representative of the Optionee's estate or the person
or persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution) shall
have a twelve (12)-month period following the date of such cessation of
Board service in which to exercise each such option.
(ii) During the twelve (12)-month post-service exercise
period, the option may not be exercised in the aggregate for more than the
number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at the
time subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable
after the expiration of the option term. Upon the expiration of the twelve
(12)-month post-service exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Board service for any reason other than death or Permanent
Disability, terminate and cease to be outstanding to the extent the option
is not otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan
Effective Date. Options may be granted under the Discretionary Option Grant or
Automatic Option Grant Program at any time on or after the Plan Effective Date.
However, no options granted under the Plan may be exercised, and no shares shall
be issued under the Plan, until the Stockholder Approval Date. If the
Stockholder Approval Date does not occur within twelve (12) months after the
Plan Effective Date, then all options previously granted under this Plan shall
terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan.
B. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan on the Stockholder Approval Date which do not otherwise
contain such provisions.
C. The Plan shall terminate upon the earliest of (i) _____________],
2008 (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Programs and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 0000 Xxx) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board does
not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
A-1.
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. Corporation shall mean Discovery Laboratories, Inc., a Delaware
corporation, and its successors.
H. Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under the Plan.
I. Eligible Director shall mean a non-employee Board member [who is not a
10% Stockholder].
J. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
L. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
SmallCap Market or Nasdaq National Market, then the Fair Market Value
shall be deemed equal to the closing selling price per share of Common
Stock on the date in question, as such price is reported on such market or
any successor system. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
M. Hostile Take-Over shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 0000 Xxx) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities
A-2.
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to accept.
N. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
O. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change
in Optionee's position with the Corporation (or Parent or Subsidiary
employing Optionee) which materially reduces Optionee's duties and
responsibilities or the level of management to which Optionee reports, (B)
a reduction in Optionee's level of compensation (including base salary,
fringe benefits and target bonus under any corporate performance-based
bonus or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of Optionee's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is
effected by the Corporation without Optionee's consent.
P. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
R. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
T. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
A-3.
U. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
V. Permanent Disability or Permanently Disabled shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
W. Plan shall mean the Corporation's 1998 Stock Incentive Plan, as set
forth in this document.
X. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. Plan Effective Date shall mean [__________________], 1998, the date on
which the Plan was adopted by the Board.
Z. Predecessor Plan shall mean the Corporation's 1995 Stock Option Plan in
effect immediately prior to the Plan Effective Date hereunder.
AA. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
BB. Secondary Committee shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
CC. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
DD. Service shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
A-4.
EE. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
FF. Stockholder Approval Date shall mean the date on which the Plan is
approved by the Corporation's stockholders.
GG. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
HH. Stock Issuance Program shall mean the stock issuance program in effect
under the Plan.
II. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
JJ. Take-Over Price shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
KK. Taxes shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
LL. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-5.