AGREEMENT
AND
PLAN OF REORGANIZATION
AMONG
BIO-TECHNOLOGY GENERAL CORP.,
MYLS ACQUISITION CORP.
AND
MYELOS CORPORATION
February 21, 2001
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TABLE OF CONTENTS
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ARTICLE I The Merger................................................................................1
Section 1.1 The Merger...............................................................1
Section 1.2 Closing; Effective Time..................................................1
Section 1.3 Effect of the Merger.....................................................2
Section 1.4 Certificate of Incorporation; Bylaws.....................................2
Section 1.5 Directors and Officers...................................................2
Section 1.6 Effect on Capital Stock..................................................2
Section 1.7 Surrender of Certificates................................................5
Section 1.8 No Further Ownership Rights in Company Capital Stock.....................7
Section 1.9 Lost, Stolen or Destroyed Certificates...................................8
Section 1.10 Taking of Necessary Action; Further Action...............................8
Section 1.11 Withholding Rights.......................................................8
Section 1.12 Contingent Payments......................................................8
Section 1.13 Limitation on Number of Shares of Parent Common Stock Issued............10
ARTICLE II Representations and Warranties of Company...............................................11
Section 2.1 Organization, Standing and Power........................................11
Section 2.2 Subsidiaries and Other Interests........................................11
Section 2.3 Authority...............................................................11
Section 2.4 Capital Structure.......................................................12
Section 2.5 Financial Statements....................................................13
Section 2.6 Absence of Certain Changes..............................................14
Section 2.7 Absence of Undisclosed Liabilities......................................15
Section 2.8 Litigation..............................................................16
Section 2.9 Restrictions on Business Activities.....................................16
Section 2.10 Intellectual Property...................................................16
Section 2.11 Interested Party Transactions...........................................19
Section 2.12 Minute Books............................................................19
Section 2.13 Material Contracts......................................................19
Section 2.14 Title to Property.......................................................20
Section 2.15 Environmental Matters...................................................21
Section 2.16 Taxes...................................................................22
Section 2.17 Employee Benefit Plans..................................................24
Section 2.18 Employee Matters........................................................26
Section 2.19 Insurance...............................................................26
Section 2.20 Licenses and Permits....................................................27
Section 2.21 Compliance With Laws....................................................27
Section 2.22 Regulatory Compliance...................................................27
Section 2.23 Certain Business Practices..............................................28
Section 2.24 Brokers' and Finders' Fee...............................................29
Section 2.25 Representations Complete................................................29
ARTICLE III Representations and Warranties of Parent and Merger Sub................................29
Section 3.1 Organization, Standing and Power........................................29
Section 3.2 Authority...............................................................29
Section 3.3 SEC Documents; Financial Statements.....................................30
Section 3.4 Capital Structure.......................................................31
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Section 3.5 Litigation..............................................................31
Section 3.6 Absence of Certain Changes..............................................31
Section 3.7 Absence of Undisclosed Liabilities......................................32
Section 3.8 Interim Operations of Merger Sub........................................32
Section 3.9 Representations Complete................................................32
ARTICLE IV Conduct Prior To The Effective Time.....................................................32
Section 4.1 Conduct of Business of Company..........................................32
Section 4.2 No Solicitation.........................................................35
ARTICLE V Additional Agreements....................................................................36
Section 5.1 Preparation of Solicitation Statement...................................36
Section 5.2 Approval of Company Shareholders........................................37
Section 5.3 Sale of Shares Pursuant to Regulation D.................................37
Section 5.4 Access to Information...................................................37
Section 5.5 Confidentiality.........................................................37
Section 5.6 Public Disclosure.......................................................38
Section 5.7 Reasonable Best Efforts.................................................38
Section 5.8 Notice of Certain Events................................................39
Section 5.9 Cancellation of Company Options and Warrants............................40
Section 5.10 Blue Sky Laws...........................................................40
Section 5.11 Nonaccredited Shareholders..............................................41
Section 5.12 Listing of Additional Shares............................................41
Section 5.13 Employees...............................................................41
Section 5.14 Expenses................................................................41
Section 5.15 Registration of Shares of Parent Common Stock Issued in the Merger......41
Section 5.16 Indemnification and Insurance...........................................44
Section 5.17 Conversion of Company Preferred Stock...................................46
ARTICLE VI Conditions to the Merger................................................................46
Section 6.1 Conditions to Obligations of Each Party to Effect the Merger............46
Section 6.2 Additional Conditions to the Obligations of Parent and Merger Sub.......46
Section 6.3 Additional Conditions to Obligations of Company.........................48
ARTICLE VII Termination, Amendment and Waiver......................................................49
Section 7.1 Termination.............................................................49
Section 7.2 Effect of Termination...................................................50
Section 7.3 Amendment...............................................................50
Section 7.4 Extension, Waiver.......................................................50
ARTICLE VIII Escrow and Indemnification............................................................51
Section 8.1 Escrow Fund.............................................................51
Section 8.2 Indemnification.........................................................51
Section 8.3 Escrow Period: Release From Escrow......................................53
Section 8.4 Claims Upon Escrow Fund.................................................53
Section 8.5 Objections to Claims....................................................54
Section 8.6 Claims by Company Indemnitees...........................................54
Section 8.7 Resolution of Conflicts and Arbitration.................................55
Section 8.8 Shareholders' Agent.....................................................55
Section 8.9 Actions of the Shareholders' Agent......................................56
Section 8.10 Third-Party Claims......................................................56
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ARTICLE IX General Provisions......................................................................57
Section 9.1 Notices.................................................................57
Section 9.2 Definitions.............................................................58
Section 9.3 Counterparts............................................................59
Section 9.4 Entire Agreement; Nonassignability; Parties in Interest.................59
Section 9.5 Severability............................................................59
Section 9.6 Remedies Cumulative.....................................................59
Section 9.7 Governing Law...........................................................59
Section 9.8 Waiver of Jury Trial....................................................59
Section 9.9 Rules of Construction...................................................60
Section 9.10 Third Party Beneficiaries...............................................60
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Index of Defined Terms
Defined Term Section
------------ -------
Acquisition Proposal...................................................4.2(a)
Affiliate..............................................................9.2(a)
Agent Certificate......................................................8.6(a)
Agreement............................................................Preamble
Antitrust Law..........................................................5.7(b)
Average Closing Price..............................................1.6(a)(ii)
California Law............................................................1.1
Cash Election.......................................................1.6(a)(1)
Cash Election Number................................................1.6(a)(1)
Cash Election Share.................................................1.6(a)(1)
Cash Merger Consideration..........................................1.6(a)(ii)
Certificate of Merger.....................................................1.1
Certificates...........................................................1.7(c)
Closing...................................................................1.2
Closing Date..............................................................1.2
COBRA.................................................................2.17(e)
Code.................................................................Recitals
Company..............................................................Preamble
Company Agreements........................................................2.3
Company Balance Sheet.....................................................2.7
Company Balance Sheet Date................................................2.6
Company Capital Stock................................................Recitals
Company Common Stock.................................................Recitals
Company Common Stock Outstanding....................................1.6(a)(i)
Company Disclosure Schedule................................................II
Company Employee Plans................................................2.17(a)
Company Indemnified Persons............................................8.2(c)
Company Intellectual Property.........................................2.10(b)
Company Preferred Stock..............................................Recitals
Company Products..................................................2.10(b)(ii)
Company Options........................................................1.6(c)
Company Shareholder....................................................1.6(f)
Company Stock Option Plan.................................................2.4
Company Warrants.......................................................1.6(d)
Confidentiality Agreement.................................................5.5
Contingent Payments...................................................1.12(b)
Contingent Shares.....................................................5.15(a)
Copyrights.......................................................2.10(a)(iii)
Damages................................................................8.2(b)
Delaware Law..............................................................1.1
Dissenting Shareholder.................................................1.6(g)
Dissenting Shares......................................................1.6(g)
Effective Time............................................................1.2
Election............................................................1.6(a)(2)
Environmental Laws.................................................2.15(a)(i)
ERISA.................................................................2.17(a)
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ERISA Affiliate.......................................................2.17(a)
Escrow Agent...........................................................8.1(a)
Escrow Agreement.......................................................6.2(f)
Escrow Cash............................................................1.7(i)
Escrow Claim Certificate..................................................8.4
Escrow Fund............................................................8.1(a)
Escrow Shares..........................................................1.7(i)
Exchange Act..............................................................3.3
Exchange Agent.........................................................1.7(a)
Exchange Fund..........................................................1.7(b)
FDA...................................................................1.12(a)
FDCA..................................................................2.22(a)
Financial Statements...................................................2.5(a)
First Contingent Payment..............................................1.12(a)
Form of Election....................................................1.6(a)(4)
GAAP..................................................................1.12(b)
Governmental Entity.......................................................2.3
Hazardous Materials...............................................2.15(a)(ii)
HIPAA.................................................................2.17(e)
Holder................................................................5.15(a)
Holder Indemnitee.....................................................5.15(e)
HSR Act...................................................................2.3
IND...................................................................2.22(c)
Intellectual Property.................................................2.10(a)
Investor Representation Statement.........................................5.3
IRS...................................................................2.16(m)
Issued Patents.....................................................2.10(a)(i)
knowledge..............................................................9.2(b)
Legal Provisions.........................................................2.21
Liens.....................................................................2.3
material...............................................................9.2(c)
Material Adverse Effect................................................9.2(d)
Merger...............................................................Recitals
Merger Consideration...............................................1.6(a)(ii)
Merger Sub...........................................................Preamble
NASD......................................................................3.2
NDA...................................................................1.12(a)
Parent...............................................................Preamble
Parent Common Stock....................................................1.6(a)
Parent Disclosure Schedule................................................III
Parent Financial Statements...............................................3.3
Parent Indemnified Persons.............................................8.2(b)
Parent Indemnitee.....................................................5.15(f)
Parent Rights.............................................................3.4
Parent Stock Plans........................................................3.4
Parent SEC Documents......................................................3.3
Parent 10-K............................................................8.2(a)
Patents...........................................................2.10(a)(ii)
Patent Applications...............................................2.10(a)(ii)
Per Share Merger Consideration.........................................1.6(a)
Permits..................................................................2.22
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Person.................................................................9.2(e)
Pharmaceutical Product................................................2.22(a)
Proceeding................................................................2.8
Registrable Securities................................................5.15(a)
Registration Statement................................................5.15(a)
Release..........................................................2.15(a)(iii)
SEC.......................................................................3.2
Second Contingent Payment.............................................1.12(b)
Securities Act.........................................................1.6(h)
Shareholders' Agent....................................................8.8(a)
Solicitation Statement.................................................5.1(a)
Stock Election......................................................1.6(a)(2)
Stock Election Number...............................................1.6(a)(2)
Stock Election Share................................................1.6(a)(2)
Stock Exchange Ratio..............................................1.6(a)(iii)
Stock Merger Consideration.........................................1.6(a)(ii)
Subsidiary.............................................................9.2(f)
Surviving Corporation.....................................................1.1
Tax(es)............................................................2.16(a)(i)
Tax Returns.......................................................2.16(a)(ii)
Third Party Intellectual Property.....................................2.10(c)
Trademarks........................................................2.10(a)(iv)
U.S. Person............................................................6.2(h)
Voting Agreement.....................................................Recitals
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of February 21, 2001 by and among Bio-Technology General Corp.,
a Delaware corporation ("Parent"), MYLS Acquisition Corp., a Delaware
corporation ("Merger Sub") and wholly-owned subsidiary of Parent, and Myelos
Corporation, a California corporation ("Company").
RECITALS
A. The Boards of Directors of Company, Parent and Merger Sub believe it is
in the best interests of their respective companies and the shareholders of
their respective companies that Company and Merger Sub combine into a single
company through the statutory merger of Company with and into Merger Sub (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Company Common Stock, no par value per share ("Company Common Stock"), shall be
converted into the right to receive the Merger Consideration (assuming the
conversion of all outstanding shares of Company Preferred Stock, no par value
per share ("Company Preferred Stock" and, together with the Company Common
Stock, the "Company Capital Stock"), into shares of Company Common Stock prior
to the Effective Time) upon the terms and subject to the conditions set forth
herein.
C. Company, Parent and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of the Internal Revenue Code of 1986, as
amended (the "Code"), and to cause the Merger to qualify as a reorganization
under the provisions of Section 368(a) of the Code.
E. Concurrent with the execution of this Agreement and as an inducement to
Parent to enter into this Agreement, certain of the affiliates of Company who
are shareholders, officers or directors have on the date hereof entered into an
agreement (the "Voting Agreement") to vote the shares of Company Common Stock
owned by such Person to approve the Merger and against any competing proposals.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable, consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time and subject to and upon the
terms and conditions of this Agreement, the Certificate of Merger attached
hereto as Exhibit 1.1 (the "Certificate of Merger"), the applicable provisions
of the Delaware General Corporation Law ("Delaware Law") and the applicable
provisions of the California Corporations Code ("California Law"), the Company
shall be merged with and into Merger Sub, the separate corporate existence of
Company shall cease and Merger Sub shall continue as the surviving corporation.
Merger Sub as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
Section 1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable, but
no later than two (2) business days, after the satisfaction or waiver (subject
to applicable law) of each of the conditions set forth in Article VI hereof
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(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of those conditions), or at
such other time as the parties hereto agree (the "Closing Date"). The Closing
shall take place at the offices of Fulbright & Jaworski L.L.P., 666 Fifth
Avenue, New York, NY 10103, or at such other location as the parties hereto
agree. In connection with the Closing, the parties hereto shall cause the Merger
to be consummated by filing the Certificate of Merger with the Secretary of
State of the State of Delaware and the Secretary of State of the State of
California, in accordance with the relevant provisions of Delaware Law and
California Law (the time of such filing being the "Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law and California Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Company and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
Section 1.4 Certificate of Incorporation; Bylaws.
(a) The Certificate of Incorporation of Merger Sub in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with Delaware Law and such Certificate of Incorporation, except that
Article FIRST thereof shall read as follows: "The name of the Corporation is
Myelos Corporation."
(b) The Bylaws of Merger Sub in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until thereafter
amended.
Section 1.5 Directors and Officers. The directors and officers of Merger
Sub immediately prior to the Effective Time shall be the directors and officers
of the Surviving Corporation, until the earlier of their resignation or removal
or their respective successors are duly elected or appointed and qualified, as
the case may be.
Section 1.6 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, Company or the
holders of any of Company's securities:
(a) Conversion of Company Capital Stock. Each share of Company
Common Stock issued and outstanding immediately prior to the Effective
Time (assuming the conversion of all Company Preferred Stock into Company
Common Stock and the exercise of all outstanding Company Options and
Company Warrants prior to the Effective Time) shall be converted and
exchanged into the right to receive an amount (the "Per Share Merger
Consideration") determined by dividing the Merger Consideration by the
Company Common Stock Outstanding, payable in cash or shares of Parent's
Common Stock, $0.01 par value per share (together with the associated
Parent Rights, the "Parent Common Stock"), as set forth in this Section
1.6(a). For purposes of this Agreement:
(i) "Company Common Stock Outstanding" means the total number
of shares of Company Common Stock issued and outstanding at the
Effective Time, assuming the conversion of Company Preferred Stock
into Company Common Stock and the exercise of all outstanding
Company Options and Company Warrants prior to the Effective Time;
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(ii) "Merger Consideration" means $35,000,000, payable as
follows: (A) $14,000,000 shall be payable in aggregate in cash (the
"Cash Merger Consideration"), and (B) $21,000,000 shall be payable
through the issuance of 2,344,692 shares of Parent Common Stock (the
"Stock Merger Consideration"), with the number of shares of Parent
Common Stock to be issued in the Merger determined by dividing
$21,000,000 by $8.9564 (the "Average Closing Price"), representing
the average of the closing prices of Parent Common Stock as reported
on the Nasdaq National Market during the twenty trading days ending
one day prior to the date of this Agreement; and
(iii) "Stock Exchange Ratio" means the ratio determined by
dividing the Per Share Merger Consideration by the Average Closing
Price.
For purposes of clarity, each record holder of Company Common Stock shall
be entitled pursuant to this Section 1.6(a) to make a Cash Election, Stock
Election or any combination thereof, with respect to the Company Common
Stock owned by such record holder, provided that the sum of all Elections
made by such record holder equals 100% of such record holder's Company
Common Stock and that each Election is for a whole number of shares of
Company Common Stock and not a fractional share.
(1) Cash Election. Subject to the provisions of this Section
1.6(a), each record holder of Company Common Stock Outstanding
immediately prior to the Effective Time shall be entitled to elect
to receive the Per Share Merger Consideration in cash (a "Cash
Election") for all or any part of such holder's Company Common Stock
(each, a "Cash Election Share"). Notwithstanding the foregoing, the
aggregate number of shares of Company Common Stock that may be
converted in the Merger into the right to receive Cash Merger
Consideration (rounded down to the nearest whole share, the "Cash
Election Number") shall not exceed the number equal to (A) the
quotient determined by dividing the Cash Merger Consideration by the
Per Share Merger Consideration minus (B) the number of Dissenting
Shares.
(2) Stock Election. Each record holder of Company Common Stock
immediately prior to the Effective Time shall be entitled to elect
to receive the Per Share Merger Consideration in shares of Parent
Common Stock (a "Stock Election" and, together with the Cash
Election, an "Election") for all or any part of such holder's
Company Common Stock (a "Stock Election Share"). The number of
shares of Parent Common Stock to be issued in respect of a Stock
Election is the product determined by multiplying the total number
of Stock Election Shares by the Stock Exchange Ratio.
Notwithstanding the foregoing, the aggregate number of shares of
Company Common Stock that may be converted in the Merger into the
right to receive Stock Merger Consideration shall not exceed the
Company Common Stock Outstanding less the Cash Election Number
(rounded down to the nearest whole share, the "Stock Election
Number").
(3) Proration of Company Common Stock. If the aggregate number
of shares of Company Common Stock in respect of which Cash Elections
have been made exceeds the Cash Election Number, each Cash Election
Share shall be converted into (A) the right to receive an amount in
cash, without interest, equal to the product of (1) the Per Share
Merger Consideration and (2) a fraction (the "Cash Fraction"), the
numerator of which shall be the Cash Election Number and the
denominator of which shall be the total number of Cash Election
Shares, and (B) a number of shares of Parent Common Stock equal to
the product of (1) the Stock Exchange Ratio and (2) a fraction equal
to one
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minus the Cash Fraction. If the aggregate number of shares of
Company Common Stock in respect of which Stock Elections have been
made exceeds the Stock Election Number, each Stock Election Share
shall be converted into (A) the right to receive the number of
shares of Parent Common Stock equal to the product of (1) the Stock
Exchange Ratio and (2) a fraction (the "Stock Fraction"), the
numerator of which shall be the Stock Election Number and the
denominator of which shall be the total number of Stock Election
Shares, and (B) an amount in cash, without interest, equal to the
product of (1) the Per Share Merger Consideration and (2) a fraction
equal to one minus the Stock Fraction. Parent shall make all
computations contemplated by this Section 1.6(a)(3), and all such
computations shall be conclusive and binding on the holders of
Company Common Stock.
(4) Form of Election. Elections shall be made on a form
designed for that purpose (a "Form of Election"). A holder of record
of Company Common Stock who holds such Company Common Stock as
nominee, trustee or in another representative capacity (a "Shares
Representative") may submit multiple Forms of Election; provided
that such Shares Representative certifies that each such Form of
Election covers all the Company Common Stock held by such Shares
Representative for each particular beneficial owner whose Company
Common Stock is covered by such Form of Election. To be effective, a
Form of Election must be properly completed, signed and submitted to
Parent prior to the Effective Time, and if no Form of Election is
submitted to Parent by the Effective Time, such record holder shall
be allocated cash and shares of Parent Common Stock in Parent's
discretion after giving effect to all Forms of Election received by
Parent. Parent shall have the discretion to determine whether Forms
of Election have been properly completed, signed and submitted or
revoked and to disregard immaterial defects in Forms of Election.
The decision of Parent in such matters shall be conclusive and
binding. Parent shall be under no obligation to notify any person of
any defect in a Form of Election submitted to it.
(b) Cancellation of Company Capital Stock Owned by Parent. At the
Effective Time, each share of Company Common Stock and Company Preferred
Stock owned by Parent or any direct or indirect wholly owned subsidiary of
Parent immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Company Stock Options. At the Effective Time, all options to
purchase Company Common Stock then outstanding under the Company Stock
Option Plan ("Company Options") shall be cancelled in accordance with
Section 5.9.
(d) Company Warrants. At the Effective Time, all warrants to
purchase Company Preferred Stock or Company Common Stock then outstanding
("Company Warrants") shall be cancelled in accordance with Section 5.9.
(e) Capital Stock of Merger Sub. Each share of common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time
shall remain outstanding, unchanged by reason of the Merger, as one fully
paid and nonassessable share of common stock of the Surviving Corporation.
Each stock certificate of Merger Sub evidencing ownership of any such
shares shall continue to evidence ownership of such shares of capital
stock of the Surviving Corporation.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof each holder of shares of Company
Common Stock ("Company
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Shareholder") who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock to be received by such holder) shall receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of
(i) such fraction multiplied by (ii) the Average Closing Price. The
fractional share interests of each Company Shareholder shall be
aggregated, so that no Company Shareholder shall receive cash in respect
of fractional share interests in an amount greater than the value of one
full share of Parent Common Stock.
(g) Dissenters' Rights. Notwithstanding any provision of this
Agreement to the contrary, any shares of Company Capital Stock held by a
holder who has demanded and perfected such holder's right for appraisal of
such shares in accordance with California Law and who, as of the Effective
Time, has not effectively withdrawn or lost such right to appraisal
("Dissenting Shares"), if any, shall not be converted into the Merger
Consideration but shall instead be converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to California Law. Company shall give Parent
prompt notice of any demand received by Company to require Company to
purchase shares of Company Capital Stock, and Parent shall have the right
to direct and participate in all negotiations and proceedings with respect
to such demand. Company agrees that, except with the prior written consent
of Parent, or as required under the California Law, it will not
voluntarily make any payment with respect to, or settle or offer to
settle, any such purchase demand. Each holder of Dissenting Shares
("Dissenting Shareholder") who, pursuant to the provisions of California
Law, becomes entitled to payment of the fair value for shares of Company
Capital Stock shall receive payment therefor (but only after the value
therefor shall have been agreed upon or finally determined pursuant to
such provisions). If, after the Effective Time, any Dissenting Shares
shall lose their status as Dissenting Shares, Parent shall issue and
deliver, upon surrender by such shareholder of a certificate or
certificates representing shares of Company Capital Stock, the portion of
the Merger Consideration to which such shareholder would otherwise be
entitled under this Section 1.6 less the portion of the Merger
Consideration allocable to such shareholder that has been deposited in the
Escrow Fund pursuant to Section 1.7(i) and Article VIII hereof.
(h) Certificate Legends. The shares of Parent Common Stock to be
issued pursuant to this Article I shall not have been registered and shall
be characterized as "restricted securities" under the federal securities
laws, and under such laws such shares may be resold without registration
under the Securities Act of 1933, as amended (the "Securities Act"), only
in certain limited circumstances. Each certificate evidencing shares of
Parent Common Stock to be issued pursuant to this Article I shall bear the
following legend, in addition to any legends required by state securities
laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE
SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
Section 1.7 Surrender of Certificates.
(a) Exchange Agent. American Stock Transfer & Trust Company shall
act as exchange agent (the "Exchange Agent") in the Merger.
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(b) Parent to Provide Parent Common Stock and Cash. Promptly after
the Effective Time, Parent shall supply or cause to be supplied to the Exchange
Agent for exchange in accordance with this Article I through such reasonable
procedures as Parent may adopt (i) certificates evidencing the shares of Parent
Common Stock issuable pursuant to Section 1.6(a) in exchange for shares of
Company Capital Stock outstanding immediately prior to the Effective Time, less
the number of shares of Parent Common Stock to be deposited into the Escrow Fund
pursuant to the requirements of Section 1.7(i) and Article VIII and (ii) cash in
an amount sufficient to permit payment of the Cash Merger Consideration and cash
in lieu of fractional shares pursuant to Section 1.6(f) (the "Cash Payment
Funds" and, together with the shares of Parent Common Stock deposited pursuant
to clause (i), the "Exchange Fund"). The Exchange Fund shall not be used for any
purpose except as expressly provided in this Agreement. The Cash Payment Funds
shall be invested by the Exchange Agent as directed by Parent or the Surviving
Corporation pending payment thereof by the Exchange Agent to the holders of
record of shares of Company Common Stock. Earnings from such investment shall be
the sole and exclusive property of Parent and the Surviving Corporation, and no
part of such earnings shall accrue to the benefit of holders of record of shares
of Company Common Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock, whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon receipt of the Certificates by the Exchange Agent, and shall be
in such form and have such other provisions as Parent may reasonably specify),
(ii) such other customary documents as may be required pursuant to such
instructions, and (iii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration (without interest). Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal and other documents, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor (A) the cash portion of the Merger
Consideration, less the pro rata portion of such cash to be deposited in the
Escrow Fund on such holder's behalf pursuant to Section 1.7(i) and Article VIII
(without interest), (B) a certificate representing the number of whole shares of
Parent Common Stock less the number of shares of Parent Common Stock to be
deposited in the Escrow Fund on such holder's behalf pursuant to Section 1.7(i)
and Article VIII hereof, (C) any dividends or other distributions to which such
holder is entitled pursuant to Section 1.7(d), and (D) cash (without interest)
in respect of fractional shares as provided in Section 1.6(f) and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Certificate that, prior to the Effective Time, represented
shares of Company Capital Stock will be deemed from and after the Effective
Time, for all corporate purposes, other than the payment of dividends, to
evidence the ownership of the number of full shares of Parent Common Stock into
which such shares of Company Capital Stock shall have been so converted and the
right to receive the cash portion of the Merger Consideration (without interest)
and an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions with respect to Parent Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest at the time of such surrender, the amount of any such dividends
or other distributions with a record date after the Effective Time theretofore
payable (but for the provisions of this Section 1.7(d)) with respect to such
shares of Parent Common Stock.
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(e) Transfers of Ownership. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of Company Common Stock or Company Preferred Stock
thereafter on the records of the Company. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, or any portion of
the cash portion of the Merger Consideration is to be paid to Person other than
the Person in whose name the Certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that the Certificate
so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the Person requesting such exchange will have paid to Parent
or any agent designated by it any transfer or other taxes required by reason of
the issuance of a certificate for shares of Parent Common Stock in any name
other than that of the registered holder of the Certificate surrendered or
payment of any portion of the Cash Merger Consideration to any Person other than
the registered holder of the Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to Company Shareholders six months after the
Effective Time shall be delivered to Parent, upon demand, and any Company
Shareholders who have not previously complied with this Section 1.7 shall
thereafter look only to Parent for payment of their claim for the Merger
Consideration and any dividends or distributions with respect to Parent Common
Stock.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, Parent, the Surviving Corporation or
any party hereto shall be liable to any Person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Dissenting Shares. The provisions of this Section 1.7 shall also
apply to Dissenting Shares that lose their status as such, except that the
obligations of Parent under this Section 1.7 shall commence on the date of loss
of such status and the holder of such shares shall be entitled to receive in
exchange for such shares the Merger Consideration to which such holder is
entitled pursuant to Section 1.6 hereof.
(i) Escrow. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Article VIII hereof, Parent
shall cause to be distributed to the Escrow Agent out of the Cash Merger
Consideration to be paid at Closing $500,000 in cash (the "Escrow Cash") and a
certificate or certificates representing 55,826 shares of Parent Common Stock to
be issued at the Closing (the "Escrow Shares") (which shall be registered in the
name of the Escrow Agent as nominee for the holders of Certificates canceled
pursuant to this Section 1.7). Such cash and shares shall be beneficially owned
by such holders and such cash and shares shall be held in escrow and shall be
available to compensate Parent for certain damages as provided in Article VIII.
To the extent not used for such purposes, such cash and shares shall be
released, all as provided in Article VIII hereof. Each Company Stockholder shall
contribute a pro rata share of the Escrow Cash and the Escrow Stock, based on
the number of shares of Company Common Stock owned at the Effective Time,
regardless of the type of consideration such Company Stockholder elected to
receive in the Merger pursuant to the Form of Election.
Section 1.8 No Further Ownership Rights in Company Capital Stock. The
Merger Consideration delivered upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof (including any
dividends, distributions or cash paid in lieu of fractional shares) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Capital Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Capital Stock which were outstanding immediately prior to
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the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article I.
Section 1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof such Merger
Consideration (and dividends, distributions and cash in lieu of fractional
shares) as may be required pursuant to Section 1.6; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent, the Surviving Corporation or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
Section 1.10 Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and Company will take all such reasonable and lawful action as may be
necessary or desirable in order to effectuate the Merger in accordance with this
Agreement as promptly as possible. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
Company and Merger Sub, the officers and directors of Company and Merger Sub are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
Section 1.11 Withholding Rights. Each of the Surviving Corporation and
Parent shall be entitled, or shall be entitled to cause the Exchange Agent, to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of shares of Company Common Stock such amounts as
it is required to deduct and withhold with respect to the making of such payment
under the Code, and the rules and regulations promulgated thereunder, or any
provision of state, local or foreign Tax law. To the extent that amounts are so
withheld by the Surviving Corporation, Parent or the Exchange Agent, as the case
may be, such amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in respect
to which such deduction and withholding was made by the Surviving Corporation,
Parent or the Exchange Agent, as the case may be.
Section 1.12 Contingent Payments.
(a) In the event that the (i) Parent publicly announces that it will
file a New Drug Application ("NDA") relating to the use of Prosaptide TX-14(A)
to treat neuropathic pain or neuropathy, (ii) the Surviving Corporation receives
United States Food and Drug Administration ("FDA") minutes stating that the
clinical data possessed by the Surviving Corporation is sufficient for an NDA
filing for the use of Prosaptide TX-14(A) to treat neuropathic pain or
neuropathy without requiring any further testing or (iii) the Surviving
Corporation initiates preparation of an NDA for Prosaptide TX-14(A) for the
treatment of neuropathic pain or neuropathy (the date the earliest of the
foregoing occurs being the "Payment Trigger Date") then Parent shall pay to each
Person who was a holder of Company Common Stock Outstanding an amount per share
of Company Common Stock determined by dividing $30,000,000 (the "First
Contingent Payment") by the Company Common Stock Outstanding at the time such
payment is due. Subject to Section 1.13, at least forty percent (40%) of the
First Contingent Payment shall be paid in shares of Parent Common Stock, and the
remainder shall be paid in cash, shares of Parent Common Stock, or a combination
thereof, as determined by Parent in its sole discretion; provided, however, that
notwithstanding the foregoing, Parent shall issue at least that number of shares
of Parent Common Stock such that, when combined with the Merger Consideration
paid at Closing, at least fifty percent (50%) of
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the aggregate amount was paid in shares of Parent Common Stock (or the Parent
stock issuable pursuant to Section 1.13). The number of shares of Parent Common
Stock to be issued in payment of the First Contingent Payment shall be equal to
the quotient determined by dividing (i) the amount of the First Contingent
Payment to be paid through the issuance of shares of Parent Common Stock by (ii)
the average of the closing prices of Parent Common Stock as reported on the
Nasdaq National Market during the twenty trading days ending on the Payment
Trigger Date. Each Company Shareholder will receive a pro rata portion of the
cash and shares of Parent Common Stock in payment of the First Contingent
Payment based upon such Person's beneficial ownership of Company Common Stock
Outstanding at the Effective Time, subject to the provisions of Section 1.6(h),
which payment shall be made promptly following the Payment Trigger Date. The
Company acknowledges that Parent and the Surviving Corporation shall have the
right at any time to discontinue clinical trials with respect to Prosaptide
TX-14(A).
(b) In the event that the FDA approves the sale of Prosaptide
TX-14(A) for the treatment of neuropathic pain or neuropathy, then Parent shall
pay to each Person who was a holder of Company Common Stock Outstanding an
amount per share of Company Common Stock (the "Second Contingent Payment" and,
together with the First Contingent Payment, the "Contingent Payments")
determined by dividing the Product Net Sales by the Company Common Stock
Outstanding at the time such payment is due. Subject to Section 1.13, at least
fifty percent (50%) of the Second Contingent Payment shall be paid in shares of
Parent Common Stock, and the remainder shall be paid in cash, shares of Parent
Common Stock, or a combination thereof, as determined by Parent in its sole
discretion. The number of shares of Parent Common Stock to be issued in payment
of the Second Contingent Payment shall be equal to the quotient determined by
dividing (i) the amount of the Second Contingent Payment to be paid through the
issuance of shares of Parent Common Stock by (ii) the average of the closing
prices of Parent Common Stock as reported on the Nasdaq National Market during
the twenty trading days ending one day prior to the payment date of the Second
Contingent Payment. Each Company Shareholder will receive a pro rata portion of
the cash and shares of Parent Common Stock in payment of the Second Contingent
Payment based upon such Person's beneficial ownership of Company Common Stock
Outstanding at the Effective Time, subject to the provisions of Section 1.6(h).
For purposes of determining the amount of the Second Contingent Payment, (i)
"Product Net Sales" shall mean fifteen percent (15%) of the Net Sales of
Prosaptide TX-14(A) for the treatment of neuropathic pain or neuropathy for the
earlier to occur of (A) the period beginning on the first day of the
twenty-fifth full month following the date that Prosaptide TX-14(A) was
commercially introduced by Parent in the United States for the treatment of
neuropathic pain or neuropathy (the "Introduction Date") and ending on the last
day of the thirty-sixth full month following the Introduction Date and (B) the
period beginning on the first day of the one hundred and ninth full month
following the Closing Date and ending on the last day of the one hundred
twentieth full month following the Closing Date (the earliest to occur of (A)
and (B) being the "Measurement Period"), and (ii) "Net Sales" shall mean all
accounts receivable arising from the worldwide sale of Prosaptide TX-14(A) for
the treatment of neuropathic pain or neuropathy by the Surviving Corporation (or
by the Surviving Corporation's distributors) to unaffiliated third parties such
as wholesalers, pharmacists and patients (but specifically excluding
distributors, subdistributors, licensees, sublicensees or Persons performing
similar functions) after deducting (i) normal and customary trade, quantity and
cash discounts actually allowed, (ii) chargebacks, (iii) allowances for credits
granted because of rejections, returns or price reductions, (iv) sales taxes and
other governmental charges imposed on sales, and (v) freight and insurance
charges which are separately invoiced, all as determined in accordance with
United States generally accepted accounting principles ("GAAP").
The Surviving Corporation shall, as promptly as practicable after the end
of the Measurement Period, but in no event later than fifty-five (55) days
thereafter, calculate the amount of the Net Sales during the Measurement Period,
and shall deliver to the Shareholders' Agent a written calculation of how the
Net Sales for the Measurement Period was determined. The Shareholders' Agent
shall have twenty-
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five (25) days after delivery to verify such calculation, and the Surviving
Corporation shall cooperate with the Shareholders' Agent to the extent
reasonably practicable to support and document such calculation. In the event
the Shareholders' Agent does not object to such calculation within such 25-day
period, then such calculation shall become final and binding on the parties
hereto, and the Surviving Corporation shall pay the Second Contingent Payment,
in accordance with the preceding paragraph, within ten (10) days after the
earlier to occur of (i) the end of such 25-day period or (ii) Parent's receipt
of a statement from Shareholders' Agent that it has no objection to the
Surviving Corporation's calculation. If the Shareholders' Agent objects to any
such calculation, it shall notify the Surviving Corporation in writing (the
"Objection Statement") prior to the end of such 25-day period, and Parent shall
pay the Second Contingent Payment in the amount initially determined by the
Surviving Corporation, in accordance with the preceding paragraph, within ten
(10) days after the date it receives the Objection Statement. The Surviving
Corporation and the Shareholders' Agent will attempt in good faith to resolve
such dispute, but if they are unable to do so, the parties will submit the
unresolved aspects to Parent's independent accountants to resolve the dispute
and make a determination. The fees and expenses of such accounting firm shall be
shared one-half by the Shareholders together and one-half by the Surviving
Corporation. If the Shareholders' Agent disagrees with the determination of
Parent's independent accountants, the Shareholders' Agent may hire, at the
Shareholders' expense, another "Big Five" accounting firm to review the
determination of Parent's independent accountants; provided, however, that the
Surviving Corporation will bear such expense if the final amount of Net Sales
for the Measurement Period is seven and one-half percent (7.5%) or more higher
than the Net Sales initially proposed by the Surviving Corporation. The
Surviving Corporation and the Shareholders' Agent shall request that Parent's
independent accountants and such accounting firm attempt to agree upon the
proper calculation; if they agree, their determination will be binding; if they
do not agree, the dispute will be submitted to arbitration in accordance with
the procedures set forth in Section 8.7.
(c) All payments of the Contingent Payments shall be made to the
Shareholders' Agent, who shall be responsible for distributing such payments to
Company Shareholders.
(d) Each Company Shareholder's right to receive the First Contingent
Payment and the Second Contingent Payment, if any, is personal to such Company
Shareholder and shall not be sold, transferred, assigned or pledged, in whole or
in part, by such Company Shareholder otherwise than upon death of such Company
Shareholder by will or under applicable laws of descent and distribution.
Section 1.13 Limitation on Number of Shares of Parent Common Stock Issued.
Notwithstanding anything herein to the contrary, in no event shall Parent be
obligated to issue pursuant to Sections 1.6(a), 1.12(a), 1.12(b) and 8.6 more
than 10,962,000 shares of Parent Common Stock, and any amount of the Merger
Consideration, the First Contingent Payment and/or the Second Contingent Payment
that cannot be paid in shares of Parent Common Stock as a result of the
operation of this Section 1.13 shall instead be paid in shares of Parent's
Series B Preferred Stock (the "Series B Preferred Stock") having the
designations, powers, preferences, rights, qualifications, limitations and
restrictions set forth in Exhibit 1.13; provided, however, that (a) Parent will
pay cash in lieu of the issuance of shares of Series B Preferred Stock to the
extent Parent determines in its sole discretion that (i) such payment in cash
will not jeopardize the treatment of the Merger as a reorganization under
Section 368(a) of the Code and (ii) such use of cash will not adversely affect
the Parent's business, operations, financial condition or prospects and (b) if
Parent is required to issue shares of Series B Preferred Stock in payment of the
First Contingent Payment, then Parent will issue shares of an additional series
of its preferred stock in payment of the Second Contingent Payment, which shares
shall be identical in all respects to the Series B Preferred Stock except that
the average closing price will be based on the average closing price determined
pursuant to Section 1.12(b) rather than Section 1.12(a) (the "Series C Preferred
Stock"). The number of shares of Series B Preferred Stock to be issued shall be
determined by dividing that portion of the First Contingent Payment and/or the
Second Contingent Payment that cannot be paid in shares of Parent Common Stock
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by the Series B Preferred Stock Value. The number of shares of Series C
Preferred Stock to be issued shall be determined by dividing that portion of the
Second Contingent that cannot be paid in shares of Parent Common Stock or shares
of Series B Preferred Stock by the Series C Preferred Value. The "Series B
Preferred Stock Value" shall be the fair market value of the Series B Preferred
Stock as agreed to by Parent and the Shareholders' Agent or, if the Parent and
the Shareholders' Agent cannot reach agreement on the Series B Preferred Stock
Value, by an independent investment banking firm chosen by the Shareholders'
Agent from among three proposed by Parent. The "Series C Preferred Stock Value"
shall be the fair market value of the Series C Preferred Stock as agreed to by
Parent and the Shareholders' Agent or, if the Parent and the Shareholders' Agent
cannot reach agreement on the Series C Preferred Stock Value, by an independent
investment banking firm chosen by the Shareholders' Agent from among three
proposed by Parent. The determination of such investment banking firm shall be
final and binding on Parent and Company Shareholders. Parent and Company
Shareholders as a group shall each pay one-half of the fees and expenses of such
investment banking firm.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Sub that the
statements contained in this Article II are true and correct, except as
disclosed in a document of even date herewith and delivered by Company to Parent
referring to the representations and warranties in this Agreement (the "Company
Disclosure Schedule"). The Company Disclosure Schedule will be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article II, and the disclosure in any such numbered and lettered section of
the Company Disclosure Schedule shall qualify only the corresponding subsection
in this Article II (except to the extent disclosure in any numbered and lettered
section of the Company Disclosure Schedule is specifically cross-referenced in
another numbered and lettered section of the Company Disclosure Schedule).
Section 2.1 Organization, Standing and Power. Company is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Company has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership, leasing
or operation of its properties makes such qualification or licensing necessary
(all of which jurisdictions are set forth in Section 2.1 of the Company
Disclosure Schedule), except where the failure to be so qualified and in good
standing would not have a Material Adverse Effect on Company. Company has
delivered to Parent a true and correct copy of the Articles of Incorporation and
Bylaws of Company, each as amended to date. Company is not in violation of any
of the provisions of its Articles of Incorporation or Bylaws.
Section 2.2 Subsidiaries and Other Interests. The Company does not have,
and has never had, any Subsidiaries other than Teklan Corporation, which is
inactive, has never conducted any business and has no material assets or
liabilities. Company does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable for
any equity or similar interest in, any corporation, partnership, joint venture
or other business association or entity.
Section 2.3 Authority. Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Company subject only to the
approval of the Merger by Company's shareholders as contemplated by Section
6.1(a). The affirmative vote of the holders of a majority of the shares of
Company's Common Stock and two-thirds of Company Preferred Stock voting as
separate classes outstanding on the record date established by Company to vote
on the Merger is the
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only vote of the holders of any of Company's Capital Stock necessary under
California Law and the Articles of Incorporation to approve this Agreement and
the transactions contemplated hereby. The Board of Directors of Company has
unanimously (i) approved this Agreement and the Merger, (ii) determined that the
Merger is in the best interests of the shareholders of Company and is on terms
that are fair to such shareholders and (iii) recommended that the shareholders
of Company approve this Agreement and the Merger. This Agreement has been duly
executed and delivered by Company and constitutes the valid and binding
obligation of Company enforceable against Company in accordance with its terms,
except that such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and is subject to general principles of equity. The execution and
delivery of this Agreement by Company does not, and the consummation of the
transactions contemplated hereby will not, assuming compliance with the matters
referred to in the next sentence, require any consent or other action by any
Person under, or conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or result in the triggering
of any payment or other obligation under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under, or result in the creation of any pledge, claim, lien, charge,
encumbrance or security interest of any kind or nature whatsoever (collectively,
"Liens") in or upon any of the properties or assets of Company under, (i) any
provision of the Articles of Incorporation or Bylaws of Company or its
Subsidiary, as amended, or (ii) any mortgage, indenture, lease, contract or
other agreement, obligation, commitment, arrangement, understanding or
instrument to which Company is a party or by which Company or any of its assets
is bound (collectively, "Company Agreements"), or any Legal Provision, Permit,
concession, franchise, license, judgment, order or decree applicable to Company
or any of properties or assets. No consent, approval, order or authorization of,
or registration, declaration or filing with, any supranational, national, state,
municipal, local or foreign government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority (each, a "Governmental
Entity") is required by or with respect to Company or its Subsidiary in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger as provided in Section 1.2; (ii) filings required under
Regulation D of the Securities Act; (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
(iv) such filings as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"); (v) those that may be
required solely by reason of Parent's or Merger Sub's (as opposed to any other
third party's) participation in the transactions contemplated by this Agreement;
and (vi) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Company and would not prevent, or materially alter or delay, any of
the transactions contemplated by this Agreement.
Section 2.4 Capital Structure. The authorized capital stock of Company
consists of 50,000,000 shares of Company Common Stock and 13,312,256 shares of
Company Preferred Stock, of which there are designated 3,070,000 shares of
Series A Preferred Stock, 3,428,573 shares of Series B Preferred Stock,
5,313,683 shares of Series C Preferred Stock and 1,500,000 shares of Series D
Preferred Stock. As of the date hereof, there were issued and outstanding
2,643,974 shares of Company Common Stock, 3,070,000 shares of Series A Preferred
Stock, convertible into 3,684,000 shares of Company Common Stock, 3,428,573
shares of Series B Preferred Stock, convertible into 4,114,285 shares of Company
Common Stock, 5,313,683 shares of Series C Preferred Stock, convertible into
6,376,411 shares of Company Common Stock, and 1,412,500 shares of Series D
Preferred Stock, convertible into 1,695,000 shares of Company Common Stock. All
of the issued and outstanding shares of Company Capital Stock are owned, of
record and beneficially, by the persons in the amounts set forth in Section 2.4
of the Company Disclosure Schedule. Section 2.4 of the Company Disclosure
Schedule hereto sets forth a true and complete list as of the date hereof of all
holders of outstanding Company Options and
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Company Warrants, including the number of shares of Company Common Stock subject
to each such option and warrant, the exercise or vesting schedule, the exercise
price per share and the term of each such option and warrant. No Persons other
than the Company Shareholders and holders of Company Options and Company
Warrants are or will be entitled to receive any payment with respect to the
Company Capital Stock. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of Company are as set forth in its Articles of
Incorporation, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable corporate laws. All outstanding shares of
Company Common Stock and Company Preferred Stock are duly authorized, validly
issued, fully paid and non-assessable and are free of any Liens other than any
those created by or imposed upon the holders thereof, and are not subject to
preemptive rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws of Company or any Company Agreement. As of the date
hereof, (i) Company Warrants to purchase 34,286 shares of Company Common Stock
were outstanding, (ii) 129,346 shares of Common Stock were reserved for issuance
under the 1995 Equity Incentive Plan (the "1995 Stock Option Plan"), all of
which were subject to outstanding options, and (iii) 1,581,828 shares of Common
Stock were reserved for issuance under the 1997 Equity Incentive Plan (together
with the 1995 Stock Option Plan, the "Company Stock Option Plan"), of which
1,214,100 shares were subject to outstanding options and 367,828 shares were
reserved for future option grants. Except for the rights created pursuant to
this Agreement, pursuant to the Company Preferred Stock and the rights disclosed
in the preceding sentence, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which Company is a party or by
which it is bound obligating Company to issue, deliver, sell, repurchase or
redeem or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of Company Capital Stock or obligating Company to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. All shares of
Company Common Stock issuable upon conversion of Company Preferred Stock or upon
exercise of Company Options will be, when issued pursuant to the respective
terms of such Company Preferred Stock and Company Options, duly authorized,
validly issued, fully paid and non-assessable and free of any Liens other than
any those created by or imposed upon the holders thereof, and not subject to
preemptive rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws of Company or any Company Agreement. There are no bonds,
debentures, notes or other indebtedness of Company having the right to vote (or
convertible into securities having the right to vote) on any matters on which
shareholders of Company may vote. There are no other contracts, commitments or
agreements relating to voting, purchase or sale of Company Capital Stock (i)
between or among Company and any of its shareholders and (ii) to Company's
knowledge, between or among any of Company's shareholders, except for the
shareholders delivering the Voting Agreements. All shares of outstanding Company
Common Stock and Company Preferred Stock and rights to acquire Company Capital
Stock were issued in compliance with all applicable federal and state securities
laws.
Section 2.5 Financial Statements. Company has delivered to Parent complete
and correct copies of the audited balance sheet and related statements of income
and cash flows of Company as of and for the years ended December 31, 1998, 1999
and 2000 (collectively, the "Financial Statements"). The Financial Statements
have been derived from the books and records of Company. The Financial
Statements were prepared in accordance with GAAP, applied on a consistent basis
with prior periods, are complete and correct in all material respects and fairly
present the financial condition and results of operations of Company as of the
dates and for the periods indicated. During the period covered by such Financial
Statements Company has conducted no business other than its current business.
All material liabilities and obligations of Company, whether absolute, accrued,
contingent or otherwise, whether direct or indirect, and whether due or to
become due, which existed at the date of such Financial Statements have been
disclosed in the balance sheets included in the Financial Statements or in notes
to the Financial Statements to the extent such liabilities were required, under
GAAP, to be so disclosed. Except as set forth in the notes to the Financial
Statements, the liabilities on the latest balance sheet of Company
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included in the Financial Statements consist solely of accrued obligations and
liabilities incurred by Company in the ordinary course of business to Persons
which are not Affiliates of Company. The statements of operations included in
the Financial Statements do not contain any material items of special or
non-recurring income or other income not earned, or omit any material item of
expense incurred, in each case in the ordinary course of business except as
expressly specified therein. Company has records that accurately and validly
reflect its transactions and accounting controls sufficient to insure that such
transactions are (i) in all material respects executed in accordance with its
management's general or specific authorization and (ii) recorded in conformity
with GAAP. Company maintains and will continue to maintain a standard system of
accounting established and administered in accordance with GAAP.
Section 2.6 Absence of Certain Changes. Since December 31, 2000 (the
"Company Balance Sheet Date"), Company has conducted its business in the
ordinary course consistent with past practice, and there has not been:
(a) any event, occurrence or development which, individually or in
the aggregate, has had or reasonably would be expected to have a Material
Adverse Effect on Company;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of Company Capital Stock, or
any repurchase, redemption or other acquisition by Company or Subsidiary
of any outstanding shares of Company Capital Stock or other equity
securities of, or other ownership interests in, Company;
(c) any amendment of any term of any outstanding security of Company
that would materially increase the obligations of Company under such
security;
(d) any (i) incurrence or assumption by Company of any indebtedness
for borrowed money other than under existing credit facilities (or any
renewals, replacements or extensions that do not increase the aggregate
commitments thereunder) in the ordinary course of business consistent with
past practice or (ii) guarantee, endorsement or other incurrence or
assumption of liability (whether directly, contingently or otherwise) by
Company for the obligations of any other Person, other than in the
ordinary course of business consistent with past practice;
(e) any creation or assumption by Company of any Lien on any asset
of Company other than in the ordinary course of business consistent with
past practice;
(f) any making of any loan, advance or capital contribution to or
investment in any Person by Company other than advances to employees of
Company made in the ordinary course of business consistent with past
practice;
(g) any acquisition or disposition of any assets or business of
Company other than in the ordinary course of business consistent with past
practice;
(h) any agreement, commitment or understanding entered into by
Company outside the ordinary course of business or providing for total
payments by Company in excess of $25,000 in any 12 month period with any
Person, or modified or amended in any material respect the terms of any
such existing agreement;
(i) any revaluing in any material respect any of the assets of
Company, including without limitation writing down the value of any assets
or inventory or writing off notes or accounts receivable, other than in
the ordinary course of business consistent with past practice;
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(j) any material change in any method of accounting or accounting
principles or practice by Company, except for any such change required by
reason of a change in GAAP;
(k) any (i) grant of the right to receive any severance, retention
or termination pay to any current or former director, officer or employee
of Company, (ii) entering into of any employment, deferred compensation or
other similar agreement (or any amendment to any such existing agreement)
with any current or former director, officer or employee of Company, (iii)
increase or acceleration in vesting or benefits payable under any existing
severance or termination pay policies or employment agreements or (iv)
increase or acceleration in vesting or payment of compensation, bonus or
other benefits payable to current or former directors, officers or
employees of Company other than, in the case of clause (iv) only, normal
increases in compensation, bonus or other benefits payable to employees of
Company in the ordinary course of business consistent with past practice
or merit increases in salaries of employees at regularly scheduled times
in customary amounts consistent with past practice;
(l) any material changes in the business policies (including
advertising, investment, marketing, pricing, purchasing, production,
personnel, sales or budgeting) or organization of Company;
(m) any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof to
organize any employees of the Company, which employees were not subject to
a collective bargaining agreement at December 31, 1999, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect
to such employees;
(n) any loss or termination of, or any material adverse change in
relations with, any (a) customer that accounted for more than two percent
(2%) of Company revenues in the years ended December 31, 1999 or 2000, or
is expected to account for more than two percent (2%) of Company revenues
for the year ended December 31, 2001, or (b) supplier that, individually
or in the aggregate, had resulted or may result in a Material Adverse
Effect;
(o) any delay or postponement in the payment of accounts payable and
other liabilities outside the ordinary course of business;
(p) any action which, if it had been taken after the date hereof,
would have required the consent of Parent under Section 4.1 hereof; or
(q) any agreement to take any actions specified in this Section 2.6,
except for this Agreement.
Section 2.7 Absence of Undisclosed Liabilities. Company has no obligations
or liabilities (whether pursuant to contracts or otherwise) of any nature
(matured or unmatured, fixed or contingent) other than (i) those set forth or
adequately provided for in the Balance Sheet for the period ended December 31,
2000 (the "Company Balance Sheet"), (ii) those incurred in the ordinary course
of business and not required to be set forth in the Company Balance Sheet under
GAAP, (iii) those incurred in the ordinary course of business since the Company
Balance Sheet Date and consistent with past practice (none of which is liability
for breach of contract, breach of warranty, tort, infringement claim or lawsuit
or a liability to repay or refund to any Person any amount previously received
by Company) and (iv) those incurred in connection with the execution of this
Agreement. To the knowledge of Company, there are no asserted claims for
indemnification by any Person against Company under any law or agreement or
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pursuant to Company's Articles of Incorporation or Bylaws, and Company is
unaware of any facts or circumstances that might give rise to the assertion of
such a claim against Company thereunder.
Section 2.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation (collectively, "Proceeding")
pending before any Governmental Entity, foreign or domestic, or, to the
knowledge of Company, threatened against or affecting Company or any of its
properties or officers or directors (in their capacities as such). There is no
judgment, decree or order against Company or, to the knowledge of Company, any
of its directors or officers (in their capacities as such). All Proceedings to
which Company is a party (or, to the knowledge of Company, threatened to become
a party) are disclosed in Section 2.8 of the Company Disclosure Schedule. No
Governmental Entity has indicated in writing an intention to conduct any audit,
investigation or other review with respect to Company which investigation or
review, if adversely determined, individually or in the aggregate, would have a
Material Adverse Effect on Company. All Proceedings have been timely reported to
all applicable insurance carriers and no reservation of rights or denial of
coverage has been issued by any such carrier.
Section 2.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Company which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of Company, any acquisition of property
by Company or the conduct of business by Company as currently conducted or as
proposed to be conducted by Company.
Section 2.10 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property" means:
(i) all issued patents, reissued or reexamined patents,
revivals of patents, utility models, certificates of invention,
registrations of patents and extensions thereof, regardless of
country or formal name (collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional and
provisional patent applications, reexamination proceedings,
invention disclosures and records of invention (collectively "Patent
Applications" and, with the Issued Patents, the "Patents");
(iii) all copyrights and copyrightable works, including all
rights of authorship, use, publication, reproduction, distribution,
performance transformation, moral rights and rights of ownership of
copyrightable works, semiconductor topography works and mask works,
and all rights to register and obtain renewals and extensions of
registrations, together with all other interests accruing by reason
of international copyright conventions (collectively, "Copyrights");
(iv) trademarks, registered trademarks, applications for
registration of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names,
registered trade names and applications for registrations of trade
names (collectively, "Trademarks");
(v) all technology, ideas, inventions, designs, proprietary
information, manufacturing and operating specifications, know-how,
formulae, trade secrets, technical data, computer programs,
hardware, software and processes; and
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(vi) all other intangible assets, properties and rights
(whether or not appropriate steps have been taken to protect, under
applicable law, such other intangible assets, properties or rights).
(b) With respect to each item of Intellectual Property incorporated
into any product of Company or otherwise used in the business of Company (except
"off the shelf" or other software widely available through regular commercial
distribution channels at a cost not exceeding $10,000 on standard terms and
conditions, as modified for Company's operations) ("Company Intellectual
Property") Section 2.10 of the Company Disclosure Schedule lists:
(i) all Issued Patents and Patent Applications, all registered
Trademarks and trademark applications and all registered Copyrights,
including the jurisdictions in which each such item of Intellectual
Property has been issued or registered or in which any such
application for such issuance and registration has been filed; and
(ii) the following agreements relating to each of the products
of Company (the "Company Products") or other Company Intellectual
Property: all (A) agreements granting any right to distribute or
sublicense a Company Product, (B) any licenses of Intellectual
Property to or from Company, (C) agreements pursuant to which the
amounts actually paid or payable under firm commitments to or by
Company are $25,000 or more, (D) joint development agreements, (E)
any agreement by which Company grants any ownership right to any
Company Intellectual Property owned by Company, (F) any order
relating to Company Intellectual Property and (G) any option
relating to any Company Intellectual Property.
(c) Section 2.10 of the Company Disclosure Schedule contains an
accurate list of all licenses, sublicenses and other agreements to which Company
is a party and pursuant to which Company is authorized to use, or has acquired,
any Intellectual Property owned by any third party, excluding "off the shelf" or
other software at a cost not exceeding $10,000 and widely available through
regular commercial distribution channels on standard terms and conditions
("Third Party Intellectual Property").
(d) Company owns or possesses adequate licensed or other rights to
use all Intellectual Property necessary in all material respects for the
operation of the business of Company as presently conducted and as currently
proposed to be conducted, free and clear of all Liens other than, in the case of
licensed Intellectual Property, as set forth in the license therefor.
(e) There is no unauthorized use, disclosure, infringement or
misappropriation of any Company Intellectual Property, including any Third Party
Intellectual Property, by any third party, including any employee or former
employee of Company. The Company has not entered into any agreement to indemnify
any other Person against any charge of infringement of any Intellectual
Property. There are no royalties, fees or other payments payable by Company to
any Person by reason of the ownership, use, sale or disposition of Intellectual
Property.
(f) Company is not in breach of any license, sublicense or other
agreement relating to the Company Intellectual Property or Third Party
Intellectual Property Rights. Neither the execution, delivery or performance of
this Agreement or any ancillary agreement contemplated hereby nor the
consummation of the Merger or any of the transactions contemplated by this
Agreement will contravene, conflict with or result in an infringement on
Parent's right to own or use any Company Intellectual Property, including any
Third Party Intellectual Property.
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(g) All Patents, registered Trademarks, registered service marks and
registered Copyrights held by Company are valid and subsisting. All maintenance
and annual fees have been fully paid and all fees paid during prosecution and
after issuance of any patent comprising or relating to such item have been paid
in the correct entity status amounts. Company is not infringing,
misappropriating or making unlawful use of, and has not received any notice or
other communication (in writing or otherwise) of any actual, alleged, possible
or potential infringement, misappropriation or unlawful use of, any proprietary
asset owned or used by any third party. There is no Proceeding pending or, to
the knowledge of Company, threatened nor has any claim or demand been made,
which challenges the legality, validity, enforceability or ownership of any item
of Company Intellectual Property or Third Party Intellectual Property or alleges
a claim of infringement of any Patents, Trademarks, service marks, Copyrights or
violation of any trade secret or other proprietary right of any third party.
Company has not brought a Proceeding alleging infringement of Company
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(h) All current and former officers and employees of Company have
executed and delivered to Company an agreement (containing no exceptions or
exclusions from the scope of its coverage) regarding the protection of
proprietary information and the assignment to Company of any Intellectual
Property arising from services performed for Company by such Persons, the form
of which has been supplied to Parent. All current and former consultants and
independent contractors to Company involved in the development, modification,
marketing and servicing of Company Products and/or Company Intellectual Property
have executed and delivered to Company an agreement in the form provided to
Parent (containing no exceptions or exclusions from the scope of its coverage)
regarding the protection of proprietary information and the assignment to
Company of any Intellectual Property arising from services performed for Company
by such Persons. To Company's knowledge, no employee or independent contractor
of Company is in violation of any term of any patent disclosure agreement or
employment contract or any other contract or agreement relating to the
relationship of any such employee or independent contractor with Company. No
current or former officer, director, shareholder, employee, consultant or
independent contractor has any right, claim or interest in or with respect to
any Company Intellectual Property.
(i) Company has taken all commercially reasonable and customary
measures and precautions necessary to protect and maintain the confidentiality
of all Company Intellectual Property (except such Company Intellectual Property
whose value would be unimpaired by public disclosure) and otherwise to maintain
and protect the full value of all Intellectual Property it owns or uses. All
use, disclosure or appropriation of Intellectual Property not otherwise
protected by patents, patent applications or copyright ("Confidential
Information") owned by Company by or to a third party has been pursuant to the
terms of a written agreement between Company and such third party. All use,
disclosure or appropriation of Confidential Information not owned by Company has
been pursuant to the terms of a written agreement between Company and the owner
of such Confidential Information, or is otherwise lawful.
(j) No product liability claims have been communicated in writing to
or, to Company's knowledge, threatened against Company.
(k) Company is not subject to any Proceeding or outstanding decree,
order, judgment or stipulation restricting in any manner the use, transfer or
licensing thereof by Company, or which may affect the validity, use or
enforceability of such Company Intellectual Property. Company is not subject to
any agreement which. restricts in any material respect the use, transfer or
licensing by Company of the Company Intellectual Property or Company Products.
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Section 2.11 Interested Party Transactions. Company is not indebted to any
director, officer, employee or agent of Company (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such Person is indebted to Company. There have been no transactions since
December 31, 1998 which would require disclosure if Company were subject to
disclosure under Item 404 of Regulation S-K under the Securities Act.
Section 2.12 Minute Books. The minute books of Company and its Subsidiary
made available to Parent contain a complete and accurate summary of all meetings
of directors and shareholders or actions by written consent since the time of
incorporation of Company and the Subsidiary, and reflect all transactions
referred to in such minutes accurately in all material respects.
Section 2.13 Material Contracts.
(a) Section 2.13 of the Company Disclosure Schedule sets forth a
complete list of all currently effective written or oral:
(i) employment contracts, arrangements or policies of Company
which may not be immediately terminated without penalty (or any
augmentation or acceleration of benefits);
(ii) leases, sales contracts and other agreements with respect
to any property, real or personal, of Company, except for leases of
personal property involving, on an annual basis, less than $25,000
individually and $50,000 in the aggregate;
(iii) contracts or commitments for capital expenditures or
acquisitions in excess of $25,000 on an annual basis for one project
or series of related projects;
(iv) agreements, contracts, indentures or other instruments
relating to the borrowing of money, or the guarantee of any
obligation (third party or otherwise) for the borrowing of money
(excluding routine checking account overdraft agreements);
(v) contracts or agreements providing for any covenant not to
compete by Company or otherwise restricting in any way Company's
engaging in any business activity (including a description of the
businesses to which the covenant not to compete applies);
(vi) contracts or agreements relating to consultancies,
professional retentions, agency, sales or distributorship
arrangements pertaining to Company or its products or activities
involving total payments within any 12 month period in excess of
$25,000 and which are not terminable on 30 days' notice without
penalty;
(vii) contracts, agreements or commitments requiring Company
to indemnify or hold harmless any Person;
(viii) all contracts with any customer or supplier involving
total payments within any 12 month period in excess of $25,000 and
which are not terminable on 30 days' notice without penalty;
(ix) any written agreement (or group of related agreements)
for the acquisition of services, supplies, equipment, inventory,
fixtures or other property involving more than $50,000;
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(x) any agreement providing for the purchase from a supplier
of all or substantially all of the requirements of Company of a
particular product or service;
(xi) any agreement, contract, arrangement or understanding
with any Affiliate, licensee or Company Shareholder;
(xii) any license or agreement granting or restricting the
right of Company to use any Intellectual Property;
(xiii) any partnership, joint venture and similar agreements
involving a sharing of profits or expenses;
(xiv) any guaranty or suretyship, indemnification or
contribution agreement or performance bond; and
(xv) contracts, agreements, arrangements or commitments, other
than the foregoing, which could reasonably be considered material to
Company's business
True, correct and complete copies of each agreement listed in Sections
2.10(b)(ii) and 2.13 of the Company Disclosure Schedule have been delivered to
Parent.
(b) With respect to each Company Agreement (whether or not so
listed): (i) the agreement is legal, valid, binding and enforceable and in full
force and effect with respect to Company, and to Company's knowledge is legal,
valid, binding, enforceable and in full force and effect with respect to each
other party thereto, in either case subject to the effect of bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and except as the availability of equitable remedies
may be limited by general principles of equity; (ii) the agreement will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing, subject to the effect of bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and except as the availability of equitable remedies may be limited by
general principles of equity; (iii) Company has performed all the obligations
required to be performed by it and is entitled to all benefits thereunder; and
(iv) neither Company nor, to Company's knowledge, any other party is in breach
or default, and no event has occurred which with notice or lapse of time would
constitute a breach or default by Company or, to Company's knowledge, by any
such other party, or permit termination, modification or acceleration, under the
agreement. Company is not a party to any oral contract, agreement or other
arrangement.
Section 2.14 Title to Property. Company has good and marketable title to
all of its properties, interests in properties and assets, real and personal,
reflected in the Company Balance Sheet or acquired after the Company Balance
Sheet Date (except properties, interests in properties and assets sold or
otherwise disposed of since the Company Balance Sheet Date in the ordinary
course of business), or with respect to leased properties and assets, valid
leasehold interests therein, free and clear of all Liens, except (i) the Lien of
current taxes not yet due and payable, (ii) such imperfections of title, Liens
and easements as do not and will not materially detract from or interfere with
the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) Liens
securing debt which is reflected on the Company Balance Sheet. The plants,
property and equipment of Company that are used in the operation of its business
are in all material respects in good operating condition and repair, subject to
normal wear and tear not caused by neglect. All properties used in the
operations of Company are reflected in the Company Balance Sheet to the extent
GAAP require the same to be reflected. All leases of real and personal property
to which Company is a party are in full
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force and effect and are valid, binding and enforceable in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy
laws and other similar laws affecting creditors' rights generally and general
principles of equity, regardless of whether asserted in a proceeding in equity
or at law. True and correct copies of all such leases have been provided to
Parent. Company owns no real property.
Section 2.15 Environmental Matters.
(a) For purposes of this Agreement:
(i) "Environmental Laws" shall mean all applicable U.S.,
state, local and foreign laws, statutes, treaties, rules, codes,
ordinances, regulations, certificates, orders, directives,
interpretations, licenses, permits and other authorizations of any
Governmental Entity and judgments, decrees, injunctions, writs,
orders or like action of any court, arbitrator or other
administrative, judicial or quasi-judicial tribunal or agency of
competent jurisdiction, including any thereof of the European
Community or the European Union, having the force of law and being
applicable to Company, dealing with the protection of health,
welfare or the environment, including, without limitation, flood,
pollution or disaster laws and health and environmental protection
laws and regulations, and all other rules and regulations
promulgated thereunder and any provincial, municipal, water board or
other local statute, law, rule, regulation or ordinance relating to
public or employee health, safety or the environment, including all
laws relating to Releases into air, water, land or groundwater,
relating to the withdrawal or use of groundwater, and relating to
the use, handling, transportation, manufacturing, introduction into
the stream of commerce or disposal of Hazardous Materials,
including, without limitation, the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601, et seq., as amended ("CERCLA"), and the federal
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., as amended ("RCRA").
(ii) "Hazardous Materials" shall mean any material, chemical,
liquid, gas compound, substance, mixture or by-product that is
identified, defined, designated, listed, restricted or otherwise
regulated under Environmental Laws as a "hazardous constituent,"
"hazardous substance," "hazardous material," "hazardous waste,"
"infectious waste," "medical waste," "biomedical waste," "solid
waste", "pollutant" "toxic pollutant" or "contaminant," or any other
formulation or terminology intended to classify or identify
substances, constituents, materials, or wastes by reason of
properties that are deleterious to the environment, natural
resources, worker health and safety, or public health and safety,
including, without limitation, ignitability, corrosivity,
reactivity, carcinogenicity, toxicity and reproductive toxicity.
(iii) "Release" shall mean the spilling, leaking, discharging,
injecting, emitting and/or disposing and placement of a Hazardous
Material in any location that poses a threat thereof.
(b) Company is and has been in compliance in all material respects
with all Environmental Laws relating to the properties or facilities currently
or previously used, leased or occupied by Company at any time. During the period
of ownership or operation by the Company of any of its currently or previously
owned, leased or operated properties, and, to the Company's knowledge, prior to
the period of such ownership or operation, no Hazardous Material has been
treated or disposed of, and there have been no Releases or threatened Releases
of Hazardous Material at, in, on, under or
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affecting such properties or any contiguous site that may or will give rise to
liability of Company under Environmental Laws. To Company's knowledge, no
Company employee or other Person has claimed that Company is liable for alleged
injury or illness resulting from an alleged exposure to a Hazardous Material. No
civil, criminal or administrative Proceeding is pending or, to Company's
knowledge, threatened against Company, with respect to Hazardous Materials or
Environmental Laws, and Company is not aware of any facts or circumstances which
could form the basis for assertion of a claim against Company or which could
form the basis for liability of Company, regarding Hazardous Materials or
regarding actual or potential noncompliance with Environmental Laws. Company has
not received any written notice of, or entered into or assumed by contract,
judicial or administrative settlement, or operation of law any indemnification
obligation, order, settlement or decree relating to: (i) any violation of any
Environmental Laws or the institution or pendency of any Proceeding by any
Governmental Entity or any third party in connection with any alleged violation
of Environmental Laws or any Release of Hazardous Materials, (ii) the response
to or remediation of Hazardous Material at or arising from any of Company's
activities or properties or any other properties or (iii) payment for any
response action relating to or remediation of Hazardous Material at or arising
from any of Company's properties, activities, or any other properties.
Section 2.16 Taxes.
(a) For purposes of in this Agreement:
(i) "Tax" and "Taxes" includes any federal, state, local or
foreign income, gross receipts, capital, franchise, import, goods
and services, value added, sales and use, estimated, alternative
minimum, add-on minimum, sales, use, transfer, registration, excise,
natural resources, severance, stamp, occupation, premium, windfall
profit, environmental, customs, duties, real property, personal
property, capital stock, social security, unemployment, disability,
payroll, license, employee withholding or other tax of any kind
whatsoever, including any interest, penalties or additions to tax or
additional amounts in respect of the foregoing; the foregoing shall
include any transferee or secondary liability for a Tax and any
liability assumed by agreement or arising as a result of being (or
ceasing to be) a member of any Affiliated Group (as defined in
Section 1504 of the Code) or being included (or required to be
included) in any Tax Return relating thereto).
(ii) "Tax Returns" means returns, declarations, reports,
claims for refund, information returns or other documents (including
any related or supporting schedules, statements or information)
filed or required to be filed in connection with the determination,
assessment or collection of any Taxes of any party or the
administration of any laws, regulations or administrative
requirements relating to any Taxes.
(b) Company has properly prepared and timely filed all Tax Returns
relating to any and all Taxes concerning or attributable to Company or its
operations for any period ending on or before the Closing Date and such Tax
Returns are true and correct in all material respects and have been completed in
accordance with applicable Legal Provisions. Company has made available to
Parent copies of all Tax Returns filed for all periods since its inception.
(c) Company has fully and timely paid all Taxes shown to be payable
on such Tax Returns covered by Section 2.16(b).
(d) Company has no liabilities for unpaid Taxes that have not been
accrued for or reserved on the latest balance sheet included in the Financial
Statements, whether asserted or unasserted,
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contingent or otherwise, and Company has no knowledge of any basis for the
assertion of any such liability attributable to Company, its assets or
operations. The cash reserves or accruals for Taxes provided in the books and
records of Company with respect to any period for which Tax Returns have not yet
been filed or for which Taxes are not yet due and owing have been made in
accordance with GAAP and are, or prior to the Effective Time, will be,
sufficient for all unpaid Taxes of Company through and including the Effective
Time. Company has no liability for Taxes of any other Person as a transferee,
successor, by contract or otherwise. Company has not executed any agreements or
waivers extending any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(e) Company is not a party to any Tax-sharing agreement or similar
arrangement with any other party, and Company has not assumed any Tax
obligations of, or with respect to any transaction relating to, any other Person
or agreed to indemnify any other Person with respect to any Tax.
(f) Company's Tax Returns have never been audited by a government or
taxing authority, nor is any such audit in process or pending, and Company has
not been notified of any request for such an audit or other examination. No
claim has been made by a taxing authority in a jurisdiction where Company does
not file Tax Returns such that it is or may be subject to taxation by that
jurisdiction.
(g) Company has never been a member of an affiliated group of
corporations filing a consolidated federal income tax return.
(h) Section 2.16 of the Company Disclosure Schedule sets forth (i)
any Tax exemption, Tax holiday or other Tax sparing arrangement that Company has
in any jurisdiction, including the nature, amount and length of such Tax
exemption, Tax holiday or other Tax-sparing arrangement and (ii) any expatriate
Tax programs or policies affecting Company. Company is in compliance in all
material respects with all terms and conditions required to maintain such Tax
exemption, Tax holiday or other Tax-sparing arrangement or order of any
Governmental Entity and the consummation of the transactions contemplated hereby
will not have any adverse effect on the continuing validity and effectiveness of
any such Tax exemption, Tax holiday or other Tax-sparing arrangement or order.
(i) Company has not filed any consent agreement under Section 341(f)
of the Code or agreed to have Section 341(f)(4) apply to any disposition of
assets owned by Company.
(j) Company has not been at any time a United States Real Property
Holding Corporation within the meaning of Section 897(c)(2) of the Code.
(k) Company is not a party to any contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Company that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 464 or 162(m) of the Code by Company or
the Surviving Corporation as an expense under applicable law.
(l) Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and have duly and timely withheld from employee salaries, wages and
other compensation and have paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws.
(m) Neither Company nor any other Person on behalf of and with
respect to Company has (A) agreed to or is required to make any adjustments
pursuant to Section 481(a) of the Code or any similar provision of state, local
or foreign law by reason of a change in accounting method initiated by Company
or has any knowledge that the Internal Revenue Service ("IRS") has proposed any
such
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adjustment or change in accounting method, or has any application pending with
any taxing authority requesting permission for any changes in accounting methods
that relate to the business or operations of Company, (B) executed or entered
into a closing agreement pursuant to Section 7121 of the Code or any predecessor
provision thereof or any similar provision of state, local or foreign law with
respect to Company, or (C) requested any extension of time within which to file
any Tax Return of Company, which Tax Return has since not been filed.
(n) No property owned by Company is (A) property required to be
treated as being owned by another Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (B)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code or (C) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code.
(o) Company is not subject to any private letter ruling of the IRS
or comparable rulings of other taxing authorities.
(p) Company does not own any interest in any entity that is treated
as a partnership for U.S. federal income Tax purposes or would be treated as a
pass-through, transparent or disregarded entity for any Tax purpose.
(q) Neither Company nor any of its Affiliates has taken or agreed to
take any action or knows of any fact or circumstance that could prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
Section 2.17 Employee Benefit Plans.
(a) Section 2.17 of the Company Disclosure Schedule contains a
complete and accurate list of each plan, program, policy, practice, contract,
agreement or other arrangement providing for employment, compensation,
retirement, deferred compensation, loans, severance, separation, relocation,
repatriation, expatriation, visas, work permits, termination pay, performance
awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom
stock, stock appreciation right, supplemental retirement, fringe benefits,
cafeteria benefits or other benefits whether written or unwritten, including,
without limitation, each "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not subject to ERISA, which is or has been sponsored,
maintained, contributed to or required to be contributed to by Company or any
trade or business (whether or not incorporated) which is or, at any relevant
time, was treated as a single employer with Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code (an