EXHIBIT 10.11
Agreement of Merger and Plan of
Reorganization
between
Access Pharmaceuticals, Inc.
and
Access Holdings, Inc.
and
Tacora Corporation
dated May 23, 1997
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
AGREEMENT dated as of May 23, 1997, among ACCESS
Pharmaceuticals, Inc., a Delaware corporation
("Parent"), ACCESS Holdings, Inc., a Delaware
corporation and direct wholly-owned subsidiary of the
Parent ("Acquirer"), and Tacora Corporation, a
Delaware corporation ("Target").
WHEREAS, the Boards of Directors of each of Parent,
Acquirer, and Target believe that the merger of
Acquirer into Target (the "Merger") would be
advantageous and beneficial to their respective
corporations and stockholders;
WHEREAS, this Agreement is intended to be and is
adopted as a plan of reorganization within the meaning
of paragraph 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code");
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter set forth, the
parties hereto agree that Acquirer shall be merged
into Target upon the terms and subject to the
conditions set forth in this Agreement.
1. The Merger.
1.1. Closing and Effective Date of Merger. Subject
to the closing conditions in paragraphs 7 and 8, at a closing
to be held at the offices of Parent on June 4, 1997 at
10:00 a.m., or on such date and at such time prior to
the termination date referred to in paragraph 13 as may be
agreed to by the parties (the "Closing Date"), Target
and Acquirer shall cause to be definitively executed
and delivered to one another the Certificate of Merger
substantially in the form attached hereto as Exhibit
A (the "Certificate of Merger") and shall cause such
document to be filed with the Secretary of State of
Delaware, in order to cause the Merger contemplated by
this Agreement to become effective under the laws of
the State of Delaware. The Merger shall become
effective on the date and at the time of the filing of
the Certificate of Merger with the Secretary of State
of Delaware (the "Effective Date"). References herein
to the "Surviving Corporation" shall mean Target on
and after the Effective Date.
1.2. Terms and Conditions of Merger. Upon the
Effective Date, pursuant to the Certificate of Merger
and this Agreement,
(a) Acquirer shall be merged with and into Target
and the separate existence of Acquirer shall cease;
(b) Target shall continue as the Surviving
Corporation organized under the laws of the state of
Delaware, the authorized capital stock of which shall
be one thousand (1,000) shares of common stock, par
value $.01 per share;
(c) the Certificate of Incorporation of the
Surviving Corporation shall be the Certificate of
Incorporation of Acquirer in effect immediately prior
to the Effective Date;
(d) all of the issued and outstanding shares of the
capital stock of Target shall be deemed canceled,
without further act by any person, and shall not
represent any share of the capital stock of the
Surviving Corporation, all of such shares of the
capital stock of Target, together with the interests
of certain holders of Target options, warrants and
other rights to acquire capital stock of Target
("Claims"), being automatically converted (subject to
statutory dissenters' rights of appraisal) into rights
("Rights") to receive shares of the common stock
(subject to adjustments for any recapitalizations of
Parent), $.04 par value per share, of Parent (the
"Parent Common Stock") all as provided, and according
to the priorities set forth, in paragraphs 2.1 and 2.2, with
the certificates representing such shares of the
capital stock of Target thereupon representing such
Rights to receive such shares of Parent Common Stock
(subject to statutory dissenters' rights of
appraisal), such Rights shall not be transferable
except by will or the laws of descent and distribution
without the prior written consent of Parent and Parent
shall be entitled to rely on the stock and other
records of Target as of immediately before the
Effective Date in determining any Target Stockholder
or other third party entitled to receive any Rights or
distributions thereon pursuant to this Agreement and
shall not be liable to any person for any payments or
distributions made in reliance on such records;
(e) The capital stock of Acquirer shall remain
outstanding as the capital stock of Surviving
Corporation, all of which shall be owned by Parent as
of the Effective Date;
(f) the By-Laws of the Surviving Corporation shall
be the By-Laws of Acquirer in effect immediately prior
to the Effective Date;
(g) all of the estate, properties, rights,
privileges, powers and franchises of Target and
Acquirer and all of their property, real, personal and
mixed, and all debts and obligations of any kind of
Target or Acquirer shall vest in the Surviving
Corporation, without further act or deed; and
(h) the directors and officers of the Surviving
Corporation as of the Effective Date shall be those
specified in the Certificate of Merger.
2. Conversion of Shares, Payments, etc.
2.1. Conversion of Shares. As provided in paragraph 1.2(d),
upon the Effective Date, the issued and outstanding
shares of the capital stock of Target and all Claims
shall be automatically converted, without further act
by any person, into Rights to acquire shares of the
Parent Common Stock in accordance with the following
provisions of this paragraph 2.1, and the earn-out payments
specified in paragraph 2.2:
(a) Conversion; Exchange Rate. Each share of the
capital stock of Target which is issued and
outstanding at the Effective Date and each Claim
shall, at the Effective Date, be converted (subject to
statutory dissenters' rights of appraisal) without any
further act by any person, into the right to receive
such number of shares of Parent Common Stock as
determined in accordance with paragraph 2.2 and the priorities
set forth therein.
(b) Procedures. Each of the former Target
Stockholders shall, from and after the Effective Date
and upon surrender to Parent at its main office
located in Dallas, Texas of the certificate or
certificates formerly representing all of the shares
of the capital stock of Target held by the former
Target Stockholder, receive in exchange therefor the
right to receive the number of shares of Parent Common
Stock as determined in accordance with paragraph 2.2 and the
priorities set forth therein. The aggregate amount of
such shares of Parent Common Stock exchanged pursuant
to this paragraph 2, shall hereinafter be referred to as the
"Exchanged Shares." All certificates representing the
Exchanged Shares shall bear federal securities law and
other applicable securities law restrictive legends.
(c) Fractional Shares. No fractional shares of, and
no scrip or fractional share certificates for Parent
Common Stock will be issued or delivered pursuant to
this Agreement, and no right to vote or receive any
dividend or other distribution or any other right of
a stockholder shall attach to any fractional interest
in Parent Common Stock to which any former Target
Stockholder would otherwise be entitled. In lieu
thereof, there shall be paid to each former Target
Stockholder who would otherwise have been entitled to
a fractional share of Parent Common Stock pursuant to
paragraph 2.1(a) and (b), a cash payment in respect of such
fractional interest determined by valuing Parent
Common Stock at its unweighted average closing price
on the OTC Bulletin Board for the five (5) trading
days before the Effective Date.
(d) Rights After Effective Date and Until Surrender,
etc. No former Target Stockholder shall be entitled
to exercise any rights with respect to Target after
the Effective Date (except prosecution of statutory
dissenters' rights of appraisal). Each former Target
Stockholder entitled to receive Exchanged Shares
hereunder shall be entitled to receive dividends and
other distributions on or in respect of each Exchanged
Share to which he or she is entitled, from and after
the Effective Date and the date on which such Exchange
Shares become vested, and to vote such shares, but
will not be entitled to receive the certificate
therefor until the surrender and exchange provided for
in paragraph 2.1 (b) is completed.
(e) Exercise of Options, Warrants and Conversion of
Notes. On or before the Effective Date, all
outstanding stock options, warrants, Claims and other
rights to purchase or acquire capital stock of the
Target shall be exercised or exchanged as provided in
paragraph 7.9 hereof, and all outstanding Convertible
Promissory Notes of Target and other securities
exchangeable for or convertible into capital stock of
the Target shall be exchanged and/or converted into
capital stock of the Target. For all purposes of this
Agreement, the shares of the capital stock of Target
issued upon exercise or in exchange for such
outstanding stock options, warrants and other rights
or upon conversion of such Convertible Promissory
Notes and other securities exchangeable for or
convertible into the capital stock of Target shall be
deemed to be shares of the capital stock of Target for
purposes of this Agreement and the recipients thereof
shall be deemed to be Target Stockholders.
2.2. Consideration
As consideration for the Merger, the Target
Stockholders, holders of Claims and other persons or
entities entitled hereunder to receive shares of
Parent Common Stock (subject to payments made to
creditors as set forth in this paragraph2.2) shall be issued
shares of Parent Common Stock, if any, in the amounts
and according to the priorities set forth in this
paragraph 2.2:
(a) Effective Date Amounts. Upon the Effective
Date, such number of shares of Parent Common Stock as
shall equal $100,000 divided by the average of the
closing prices of the Parent Common Stock on the OTC
Bulletin Board for each of the five trading days prior
to the Effective Date plus such number of shares of
Parent Common Stock as shall equal $500,000 divided by
the share price of the Parent Common Stock as
determined in accordance with paragraph 2.2(d).
(b) Milestone Amounts. On the achievement, as
determined by a majority of the members of the
Development Committee (as defined below), of each of
the following milestones (each a "Milestone" and
together the "Milestones"), such number of Unvested
Parent Common Shares as have an aggregate value, as
determined pursuant to paragraphs 2.2(c) and 2.2(d) as of the
date on which the Milestone shall have been achieved
and payable in accordance with the terms of paragraph 2.2(b)
and 2.2(c), equal to the value of the Milestone as set
forth below shall be released in accordance with the
provisions of paragraphs 2.2(b) and 2.2(c) as of the Closing
Date, at the end of the fiscal quarter of Parent
during which the Milestone shall have been achieved;
provided, however, that the Milestone must have been
achieved prior to the date that is the last day of the
thirtieth (30th) month after the Commencement Date for
such Milestone as determined by reference to the
following table, provided that if, in the
determination of the Development Committee, work on or
towards a Milestone is ceased or materially affected
by reason of strikes, riots, war, invasion, acts of
God, fire, explosion, floods, acts of civil or
military government agencies or instrumentalities
(except for delays in or the refusal to grant
approvals or clearances for drugs, products or devices
by the United States Food and Drug Administration or
any similar or successor United States government
agency (the "FDA") or by any non-United States
government agency having similar functions or a
similar mandate as the FDA or delays in or the refusal
to grant or award patents or patent allowances by the
United States Patent and Trademark Office or any
successor United States government agency (the "PTO")
or by any non-United States government agency having
similar functions or a similar mandate as the PTO) and
other similar contingencies beyond the reasonable
control of Parent or any of the Target Stockholders,
the date for achievement of such Milestone shall be
extended to such date that the Development Committee
shall select (the "Milestone Deadline Date");
provided, further, that if at the date such shares
vest there shall have been delivered to the
Representative any Notice of Indemnification pursuant
to paragraph 14.2(b), then all such shares of Parent Common
Stock shall be held by Parent pending resolution of
any claims for indemnification in such Notice(s) of
Indemnification:
Commencement
Value Payable Date (in calendar)
in Parent days after the
Milestone Common Stock Closing Date
----------------------------------------- ------------ ------------
1. EORTC approval to initiate human studies with
Cisplatin or other polymer platinates based on animal
efficacy and toxicity achieving the EORTC's
predetermined parameters. $ 3 million 45
2. Completion of Phase I/II study with Cisplatin and
agreement by the technology development committee to
proceed to Phase III or Phase II B Studies. $ 2 million 45
3. Commercial alliance for Cisplatin development. $1 million 45
4. Commencing process of commercialization of one
additional Tacora oncology compound and EORTC or IND
approval of Phase I studies. $500,000 90
5. Loaded particle with triggered pore stable in
plasma with positive efficacy in an animal model with
agreement to proceed to development. $1 million 90
6. Filing of an IND for a product being developed
under the Mayo/▇▇▇▇▇▇▇▇▇ technology license. $1 million 90
7. Acceptance for publication of "Landmark"
manuscript in Nature, Science or a journal of similar
stature including the Journal of Controlled Release. $250,000 0
8. Successful formulation of antigen/adjuvant with
in vivo proof of principal of incremental efficacy. $500,000 90
9. Completion of commercial alliance with an
antigen/adjuvant to commence development. $500,000 45
10. U.S. notice of allowance of Cisplatin patent
covering product development. $350,000 0
11. European Patent Office Notice of Allowance of
Cisplatin patent covering product development. $150,000 0
12. U.S. notice of allowance of pore-forming protein
patent or new Tacora core patent. $350,000 0
13. European Patent Office Notice of Allowance of
pore-forming protein patent or new Tacora patent. $150,000 0
14. Commercial agreement to develop an ultrasound
triggered release condensed particle therapeutic
system. $500,000 90
15. Commercial agreement to develop a product in an
additional field of use. $500,000 0
Upon EORTC approval to initiate human studies with
Cisplatin or other polymer platinates, Milestone 1,
the Milestone payment will be calculated based on such
approval date and the Parent Common Stock issuable
will be held in escrow by Parent pending successful
completion of the scale-up, production and stability
testing of the final formulation and completion for
the formal toxicology studies to enable commencement
of Phase 1 clinical testing.
(c) Milestone Payment Priorities. (i) The Parties
anticipate that Target's unaudited balance sheet as of
the Closing Date will reveal total liabilities of
approximately $1,455,000. Such liabilities shall
become liabilities of the Surviving Corporation after
the Closing Date. Parent shall contribute to the
capital of the Surviving Corporation and the Surviving
Corporation shall be obligated to pay the first
$250,000 of such liabilities (to creditors on a pro
rata basis) within thirty (30) days after the Closing
without any offset against Milestones that are
otherwise due to the Target Stockholders and holders
of Claims hereunder. Any liabilities of the Surviving
Corporation in excess of $250,000 shall first be
offset dollar for dollar against Parent Common Stock
otherwise due to Target Stockholders and holders of
Claims (or creditors) under the next Milestone(s) to
come due; provided however that shares of Parent
Common Stock issued under paragraph 2.2(a) shall be used to pay
any such liabilities in excess of such $250,000.
Unless one or more creditors of Target agrees in
writing to subordinate its position to other
creditors, the Surviving Corporation shall be entitled
to pay all creditors of Target on a pro rata basis or
in such order of priority as determined by Parent in
its sole discretion, based upon the amount then due
and owing to such creditors.
(ii) At such time as all outstanding liabilities to
creditors of Target are satisfied (other than
liabilities to creditors as set forth in
paragraphs 2.2(c)(iii), (iv) and (v) below), the Parent Common
Stock issued for the next Milestone(s) achieved will
be used to settle Target's outstanding loan to Medical
Innovation Partners which is estimated at the Closing
Date to be $365,500. Medical Innovation Partners will
be entitled to receive a number of shares which equals
the amount of such debt divided by the Parent's
current share price; provided, however, that the
Milestone payment in Parent Common Stock will be
calculated in accordance with paragraphs 2.2(d).
(iii) Proceeds from the next Milestone(s) achieved
will be used to satisfy, pro rata, Target's
outstanding obligations relating to the ▇▇▇▇▇ ▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ settlement agreements, executed
copies of which have been delivered to Parent.
Target's obligations under such settlement agreements
are estimated to be $78,269 for ▇▇▇▇▇ ▇▇▇▇▇▇ and
$180,000 for ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇. These amounts are
subject to adjustment for any subsequent payments made
under such settlement agreements. The Milestone
payment in Parent Common Stock shall be calculated in
accordance with paragraph 2.2(d).
(iv) After satisfaction of all obligations to
creditors set forth in paragraphs 2.2(c)(i)-(iii) set forth
above, proceeds from the next Milestone(s) achieved
shall be payable as follows:
(x) to ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ as per the employment
settlement agreement dated as of February 1, 1997
between Target and ▇▇. ▇▇▇▇▇▇ as follows:
(A) 1% of any Milestone achieved;
(B) 1% of any Milestone achieved within the
timetable for Milestones set forth on Schedule 2.2
hereto; and
(C) 1% of any Milestone achieved within the thirty
(30) month time period for achievement thereof under
this Agreement if and to the extent employed full-time
by Parent, with a proportionate reduction in such
percentage if ▇▇▇▇▇▇ is then employed less than full
time by Parent.
The parties agree that ▇▇. ▇▇▇▇▇▇ shall be entitled to
receive an amount of Parent Common Stock equal to the
1% commissions described in (A), (B), and (C) above at
the fair market value of the Parent Common Stock at
the time of the achievement of any such Milestones.
These commissions shall accrue and will be paid out
subordinate to and after the priority payments
described in paragraphs 2.2(c) (i-iii) to ▇▇. ▇▇▇▇▇▇ upon the
achievement, if at all, of sufficient Milestones to
make such payments in addition to any subsequent
commissions earned and payable as a result of the
ongoing achievement of Milestones. These commissions
shall be deductions from any such Milestone payments
to Target Stockholders.
(y) to ▇▇▇▇▇▇▇ & Associates, Inc. ("▇▇▇▇▇▇▇") as per
the letter agreement between Target and ▇▇▇▇▇▇▇, dated
October 30, 1995 commissions on total consideration
paid by Parent under this paragraph 2.2 including any payments
made to satisfy outstanding liabilities, payments to
trade creditors, outstanding loans, and other payments
made to Target creditors under this paragraph 2.2, such
commissions to be calculated as follows:
5% of the first $2,000,000;
4% of amounts over $2,000,000 and up to $4,000,000;
3% of amounts over $4,000,000 and up to $6,000,000;
2% of amounts over $6,000,000 and up to $8,000,000;
1% of amounts over $8,000,000.
The parties agree that ▇▇▇▇▇▇▇ shall be entitled to
receive an amount of Parent Common Stock equal in
value to the amount calculated from the table above at
the fair market value of the Parent Common Stock at
the time of any payments made on behalf of Target
described in paragraph (y) above. These commissions
shall accrue and shall be paid out subordinate to and
after such priority payments described in paragraphs 2.2(c) (i-
iii) above. These accrued commissions shall be paid
out upon achievement, if at all, of sufficient
Milestones to make such payments in addition to any
subsequent commissions earned and payable as a result
of the ongoing achievement of Milestones. These
commissions shall be deductions from any such
Milestone payments to Target Stockholders and holders
of Claims.
(v) The actual, direct out-of-pocket costs and
expenses incurred by Target representative with
observation rights on the Parent's Board of Directors,
the Development Committee members appointed by the
Target Shareholders and the Representatives incurred
in carrying out their responsibilities under this
Merger Agreement shall be treated as general
creditors' claims and shall be paid, if at all, only
in shares of Parent Common Stock issued under paragraph 2.2(a)
based on the fair market value of Parent Common Stock
payable as Milestones are met; provided that Parent
shall not be required to make any payments over and
above any amounts that would be otherwise due with
respect to the achievement of Milestones.
(vi) Proceeds from the next Milestone(s) will be
used to satisfy the liquidation preference of Target's
Preferred Shareholders and applicable Claim holders
(i.e., those Claim holders who voluntarily waived and
released their claim to receive Target Preferred Stock
in exchange for treatment hereunder equivalent to a
Target Preferred Shareholder) of $1.00 per share
(representing up to an aggregate of $5,922,832)
pursuant to the liquidation preference provisions of
Target's Series A Preferred Stock contained in
Target's Certificate of Incorporation. At such time
as such liquidation preference has been satisfied,
thereafter, Target Preferred and Common shareholders
and any other persons entitled to receive
consideration equivalent to that of a Common
Shareholder (i.e., those Claim holders who voluntarily
waived and released their rights under Target's
outstanding options and warrants) will participate on
a pro rata basis in all future Milestone(s) payments
as calculated in accordance with paragraph 2.2(d).
(d) For purposes of this paragraph 2.2, the number of Common
Parent Shares which will become vested and shall be
released to the Target Stockholders on the achievement
of a Milestone shall be calculated by averaging the
closing price of the Parent Common Stock for each of
the five (5) trading days preceding the day on which
the Milestone was achieved divided into the value
attributed to the Milestone; provided, however, in
order to provide a floor and ceiling on the number of
shares of Parent Common Stock to be issued, in no
event will the closing price of Parent Common Stock
used in such calculation be at prices below the floor
share price or above the ceiling share price as
determined by the following schedule:
Time of Milestone Achievement Floor Share Price
Ceiling Share Price
Effective Date thru and including month 6 2.50 3.50
Beginning of month 7 thru and including month 12 3.50 5.00
Beginning of month 13 thru and including month 18 4.50 6.00
Beginning of month 19 thru and including month 30 5.50 6.50
;provided, further, that in the event of any
reorganization, recapitalization or reclassification
of the capital stock of Parent, or if at any time or
from time to time after the date of this Agreement
Parent shall subdivide or recapitalize its outstanding
shares of capital stock, or if at any time after the
date of this Agreement Parent shall declare a dividend
or make any other distribution upon any class or
series of capital stock of Parent payable in Parent
Common Stock or securities convertible into Parent
Common Stock, the Floor Share Prices and the Ceiling
Share Prices set forth above shall be adjusted
proportionately to reflect such reorganization,
recapitalization or reclassification, such subdivision
or the payment of such stock dividend, as applicable.
(e) Cash Payment for Achievement of Milestones Prior
to Closing. Up to $400,000 of any revenues of Target
received as a result of ongoing business activities of
Target prior to the Closing Date may be used by Target
to satisfy any outstanding liabilities as set forth on
Target's current unaudited balance sheet a copy of
which is attached to Schedule 3.7; provided, however,
that an amount equal to the total amount of any such
payments shall be deducted from the stated value of
the appropriate Milestone relating to any such
revenues.
(f) Research and Development Commitment. Parent
will commit at least $320,000, to be used as set forth
on Exhibit B attached hereto, to achieve the
Milestones. In addition, Parent will use commercially
reasonable efforts to support achievement of the
Development Plan, whether through the Surviving
Corporation or any third party licensee or alliance
partner involved with the Technology, towards
achieving the Milestones. As used herein,
"Technology" means the Surviving Corporation's
intellectual property, know-how, trade secrets and
other technology. The Development Committee will
monitor and oversee research and development
activities towards achieving the Milestones pursuant
to the Product Development Plan. The Development
Committee shall meet no less often than every three
(3) months in order to monitor progress towards
meeting the approved Product Development Plan. Parent
will ensure that the Target Stockholder
representatives on the Development Committee receive
copies of all relevant correspondence to and from any
governmental agency concerning the Technology as well
as all relevant correspondence to and from any third
party concerning the licensing, research, development
or use of the Technology. Parent will ensure that the
Surviving Corporation diligently and in good faith
files, prosecutes and maintains any and all patents
and patent applications concerning any Technology.
(g) Parent Covenant to Maintain Technology. From
and after the date of this Agreement to the Milestone
Deadline Date, Parent shall not transfer, assign or
sell any of the Technology; provided that the sole
remedy of the Target, the Target Stockholders and all
Claim holders for a breach of this covenant by Parent
shall be that all then remaining Milestones to which,
in the determination of the Development Committee, the
transferred, assigned or sold Technology relates will
be deemed to be accomplished as of the date of such
transfer, assignment or sale and payment on any such
Milestone as determined pursuant to paragraphs 2.2(c) and (d)
shall be made within ten (10) business days after such
date.
(h) Establishment of Development Committee;
Meetings. The Development Committee shall be created
within one (1) month after the Effective Date and
shall be comprised of two (2) representatives
appointed by the Parent and two (2) representatives
appointed by a majority of the Target Stockholders.
The party appointing a representative to the
Development Committee shall have the sole right to
remove and replace such individual. All decisions of
the Development Committee shall be made by the
affirmative vote of at least three (3) committee
members in the exercise of good faith to benefit the
interests of the Surviving Corporation and the optimum
use of the Technology. Within three (3) months of the
Effective Date, the Development Committee shall
prepare and approve a Product Development Plan,
establishing the means for accomplishing the
Milestones. All matters submitted to the Development
Committee shall be decided upon at the time of the
meeting of the Development Committee or within thirty
(30) days thereafter. Such decision shall take into
consideration such goals as adhering to ethical
standards for the research-based pharmaceutical
industry, the use of commercially reasonable efforts
to develop the Technology, and obtaining patent
protection and other governmental approvals concerning
the Technology. In the event that a decision cannot
be reached by the Development Committee within the
time period set forth above, the President of the
Parent shall meet with the appointed observer of the
Board of Directors of Parent of the Target
Stockholders and during such meeting each of the
President and such representatives shall in good faith
attempt to reach a decision on the matter. If the
President and the representatives are unable to reach
a decision on the matter, the matter shall be referred
to arbitration in accordance with paragraph 2.2(i) herein.
(i) Dispute Resolution.
(i) Disputes Covered by Arbitration. The Parent or
a majority of the Target Stockholders may seek to
resolve any dispute among the Development Committee
members and/or any dispute concerning any Milestone,
as the case may be, by initiating an Alternative
Dispute Resolution ("ADR") in which the complaining
and defending parties each select an independent third
party with demonstrated expertise in the
pharmaceutical industry (each a "Neutral") as provided
herein.
(ii) Selection of Neutrals. An ADR shall be
initiated by a party by sending written notice thereof
to the other party, which notice shall state the
issues to be resolved and such party's selection of a
Neutral. Within ten (10) business days after receipt
of such notice, the other party will, by sending
written notice to the initiating party, add issues to
be resolved, if any, and reveal such party's selection
of its Neutral. Within fifteen (15) days after the
date of the original ADR notice, the two Neutrals
shall together select a third.
(iii) ADR Hearing. The Neutrals shall hold a
hearing to resolve the issues within thirty (30)
business days after selection. The location of the
hearing shall be mutually agreed upon or, if the
parties are unable to agree, at Dallas, Texas. Each
party may be represented by counsel. Prior to the
hearing, the parties shall be entitled to engage in
discovery under procedures of the Federal Rules of
Civil Procedure; provided, however, that a party may
not submit more than one hundred (100) written
interrogatories or take more than four (4)
depositions. There shall not be, and the Neutrals
shall not permit, any discovery within five (5) days
of the hearing. The Neutrals shall have sole
discretion regarding the admissibility of evidence
under the Federal Rules of Civil Procedure and conduct
of the hearing. At least three (3) business days
prior to the hearing, each party shall submit to the
other party and the Neutral a copy of all exhibits on
which such party intends to rely at the hearing, a
pre-hearing brief (up to 30 pages) and a proposed
disposition of the dispute (up to 5 pages). The
proposed disposition shall be limited to proposed
rulings and remedies on each issue, and shall contain
no argument on or analysis of the facts or issues;
provided, however, that the parties will not present
proposed monetary remedies. Within five (5) business
days after close of the hearing, each party may submit
a post-hearing brief (up to 10 pages) to the Neutrals.
(iv) ADR Ruling; Fees and Expenses. The Neutrals
shall render a disposition on the proposed rulings as
expeditiously as possible after the hearing, but not
later than fifteen (15) business days after the
conclusion of the hearing. The Neutrals shall rule on
each issue and a decision of a majority of the
Neutrals shall control, but in all events, the
majority of Neutrals shall adopt in its entirety the
proposed ruling of one of the parties on each issue.
In the circumstances where the Neutrals rule for a
party on a claim in the form of a claim for monetary
damages, the parties will then submit a proposed
remedy within ten (10) days of notice of the ruling.
The proposed remedy may be accompanied by a brief in
support of the remedy not to exceed five (5) pages.
A majority of the Neutrals will rule on and adopt one
of the proposed remedies within ten (10) days of their
submission. The Neutrals' disposition shall be final.
A judgment on the Neutrals' disposition may be entered
in any court having jurisdiction over the parties.
The reasonable fees and expenses of the Neutrals shall
be borne equally by the parties or as they otherwise
agree.
(v) AAA Rules. Except as otherwise provided in this
Section 2.2(h), the Commercial Arbitration Rules of
the American Arbitration Association shall be used in
connection with the ADR.
(vi) Waiver. A party shall not be prohibited from
bringing a claim for resolution under this Section
2.2(i) on the grounds that the claim could have been
brought during an earlier proceeding under this
Section.
2.3. Target Representation Rights. A majority of
the Target Stockholders together will have the right
to appoint one person who will have observation rights
on the Parent Board of Directors meetings for three
years from the Effective Date. A majority of the
Target Stockholders who may appoint such a person
shall have the right to remove and replace such person
at any time and from time to time during such three
year period.
3. Representations and Warranties of Target. Target
hereby represents and warrants to Parent and Acquirer
as follows. For purposes of this Agreement, the term
"Knowledge" in relation to Target means the actual
knowledge, after reasonable inquiry, of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ or ▇. ▇. ▇▇▇▇▇▇▇▇▇.
3.1. Incorporation; Authority. Target is a
corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to
own or lease and operate its properties and to carry
on its business as now conducted in all material
respects. Target has made available to Parent
complete and correct copies of its Certificate of
Incorporation and By-Laws and all amendments thereto.
3.2. Corporate Power, Binding Effect. Subject to
the Target Stockholders' approval, Target has all
requisite corporate power and authority to enter into
this Agreement and the Certificate of Merger, and to
perform all of its agreements and obligations under
this Agreement and the Certificate of Merger in
accordance with their terms. This Agreement has been
duly authorized by Target's Board of Directors, has
been duly executed and delivered by Target and
constitutes the legal, valid and binding obligation of
Target, enforceable against Target in accordance with
its terms, subject only, in respect of the
consummation of the Merger, to requisite approval by
the Target Stockholders, and except that (i) such
enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and
(ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court
before which a proceeding therefor may be brought
(collectively, the "Enforcement Exceptions"). Upon
execution and delivery by Target of the Certificate of
Merger on the Closing Date, the Certificate of Merger
will have been duly authorized, executed and delivered
by, and constitute the legal, valid and binding
obligations of, Target subject to the Enforcement
Exceptions. Neither the execution, delivery or
performance by Target of this Agreement nor of the
Certificate of Merger in accordance with their
respective terms will result in any violation of or
default or creation of any lien under, or the
acceleration or vesting or modification of any right
or obligation under, or in any conflict with, Target's
Certificate of Incorporation or by-laws or of any
agreement, instrument, judgment, decree, order,
statute, rule or regulation binding on or applicable
to Target, except where any of the foregoing would not
have a material adverse effect on the business, assets
or financial condition of Target.
3.3. Subsidiaries. Target does not have any
subsidiaries and does not own or hold of record and/or
beneficially any shares of any class in the capital
stock of any corporation. Target does not own any
legal and/or beneficial interests in any partnerships,
business trusts or joint ventures or in any other
unincorporated business enterprise.
3.4. Qualification. Target is duly qualified and in
good standing as a foreign corporation in each
jurisdiction in which the character of the properties
owned or leased or the nature of the activities
conducted by it makes such qualification necessary.
3.5. Capitalization. The authorized capital of
Target consists of 20,000,000 shares of Target Common
Stock, 461,269 shares of which are issued and
outstanding on the date hereof and 6,000,000 shares of
Target Preferred Stock 1,810,000 shares of which are
issued and outstanding on the date hereof. All such
outstanding shares of Target Common Stock and Target
Preferred Stock are owned of record by the Target
Stockholders and the Target Preferred Stockholders as
set forth on Schedule 3.5 hereto and are validly
issued, fully paid and non-assessable. Schedule 3.5
hereto sets forth a list of all holders of Claims
together with the amount of Target Preferred Stock or
Target Common Stock to which such Claim holder would
have otherwise been entitled to if such Claim holder
had not waived and released his or its rights to
Target Preferred or Common Stock. Except as set forth
in Schedule 3.5, Target is neither a party to nor is
bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any
character calling for Target to issue, deliver or
sell, or cause to be issued, delivered or sold any
shares of Target Common Stock or Target Preferred
Stock or any other equity security of Target or any
securities convertible into, exchangeable for or
representing the right to subscribe for, purchase or
otherwise receive any shares of Target Common Stock or
Target Preferred Stock or any other equity security of
Target or obligating Target to grant, extend or enter
into any such subscriptions, options, warrants, calls,
commitments or agreements. As of the date hereof
there are no outstanding contractual obligations of
the Target to repurchase, redeem or otherwise acquire
any shares of capital stock of the Target.
3.6. Lawful Issuance. All of the outstanding shares
of Target Common Stock and Target Preferred Stock were
issued pursuant to exemptions from registration under
the Securities Act of 1933, as amended (the
"Securities Act") and applicable state and other
securities laws, and all rules and regulations
thereunder. There exists no valid right to rescind
any purchase thereof from or issuance thereof by
Target. No class of securities of Target is required
to be registered under any provision of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
3.7. Financial Statements. Attached as Schedule 3.7
hereto, are copies of (i) the audited balance sheet of
Target as of December 31, 1995, (the "Audited Balance
Sheet"), and the related audited statements of income
and stockholders' equity and changes in financial
position of Target for the fiscal years ended December
31, 1994 and 1995 accompanied by a report and opinion
thereon of KPMG Peat Marwick and (ii) the unaudited
balance sheet of Target for the quarter ended June 30,
1996, and related unaudited statements of income for
such quarter and an unaudited balance sheet and
statement of income for the fiscal year ended December
31, 1996. Additionally, Target hereby agrees to
provide Parent with unaudited quarterly updates of its
balance sheet and related statement of income for such
quarters after December 31, 1996, and up to and
including the date of execution and delivery of this
Agreement and thereafter up to and including the
Closing Date. The Audited Balance Sheet and each
other such balance sheet fairly presents the financial
condition of Target in all material respects as of its
date; and each of such statements of income and
stockholders' equity and changes in financial position
and statements of operations fairly presents the
results of operations, stockholders' equity and
changes in financial position of Target for the period
covered thereby.
3.8. Absence of Certain Changes. Except as set
forth on Schedule 3.8, since the date of the Audited
Balance Sheet, there has not been: (i) any change in
the business of Target or in its relationships with
suppliers other than changes which were both in the
ordinary course of business and have not had a
material adverse effect on the business, assets or
financial condition of Target; (ii) any acquisition or
disposition by Target of any material amount of assets
or properties other than in the ordinary course of
business; (iii) any damage, destruction or loss,
whether or not covered by insurance, materially and
adversely affecting, either in any case or in the
aggregate, the business of Target; (iv) any
declaration, setting aside or payment of any dividend
or any other distributions in respect of any class of
the capital stock of Target; (v) any issuance of any
shares of any class of the capital stock of Target or
any direct or indirect redemption, purchase or other
acquisition of any shares of any class of the capital
stock of Target; (vi) any increase in the
compensation, pension or other benefits payable or to
become payable by Target to any of its officers or
employees, or any bonus payments or arrangements made
to or with any of them; (vii) any entry by Target into
any transaction other than in the ordinary course of
business; (viii) any incurrence by Target of any
material obligations or liabilities, whether absolute,
accrued, contingent or otherwise (including, without
limitation, liabilities as guarantor or otherwise with
respect to obligations of others), other than
obligations and liabilities incurred in the ordinary
course of business; (ix) any mortgage, pledge, lien,
lease, security interest or other charge or
encumbrance on any of the assets, tangible or
intangible, of Target, other than those arising by
operation of law which do not materially impair the
operation of Target's business; (x) any change in
accounting principles, practices or methods used by
Target; or (xi) any discharge or satisfaction by
Target of any lien or encumbrance or payment by Target
of any obligation or liability (fixed or contingent)
other than (A) current liabilities included in the
Audited Balance Sheet and (B) current liabilities
incurred since the date of the Audited Balance Sheet
in the ordinary course of business.
3.9. Title to Property, Leases, etc. Except as set
forth in Schedule 3.9(a) hereto, Target has good and
marketable title to all of its tangible properties and
assets, including, without limitation, all those
reflected in the Audited Balance Sheet (except for
properties or assets sold or otherwise disposed of in
the ordinary course of business since the date of the
Audited Balance Sheet), all free and clear of all
liens, pledges, charges, security interests,
mortgages, encumbrances or title retention agreements
of any kind or nature. All such properties and assets
are "as-is." Schedule 3.9(b) hereto sets forth a
complete and correct list of all capital assets and
real properties of Target having a book or fair market
value in excess of $10,000. Schedule 3.9(c) hereto
sets forth a complete and correct description of all
leases of real property under which Target is lessor
or lessee and all other leases having a remaining term
of more than twelve (12) months or an aggregate
remaining rental obligation of more than $10,000 to
which Target is a party, whether as lessor or lessee.
Complete and correct copies of all such leases have
been delivered to Parent. Each such lease is valid
and subsisting and no event or condition exists which
constitutes, or after notice or lapse of time or both
would constitute, a default thereunder.
3.10. Indebtedness. Except for Indebtedness (as
defined in paragraph 16) reflected or reserved against in the
Audited Balance Sheet and Indebtedness incurred in the
ordinary course of business after the date of the
Audited Balance Sheet, Target has no material
Indebtedness outstanding at the date hereof. Except
as set forth on Schedule 3.10, Target is not in
default with respect to any outstanding Indebtedness
or any instrument relating thereto and no such
Indebtedness or any instrument or agreement relating
thereto purports to limit the issuance of any
securities by Target or the operation of the business
of Target. Complete and correct copies of all
instruments (including all amendments, supplements,
waivers and consents) relating to any Indebtedness of
Target have been made available to Parent.
3.11. Absence of Undisclosed Liabilities. Except to
the extent reflected or reserved against in the
Audited Balance Sheet or incurred in the ordinary
course of business after the date of the Audited
Balance Sheet or described in any Schedule hereto,
Target has no liabilities or obligations of any
nature, whether accrued, absolute, contingent or
otherwise (including, without limitation, liabilities
as guarantor or otherwise with respect to obligations
of others) and whether due or to become due,
including, without limitation, any liabilities for
taxes due or to become due, which would have a
material adverse effect on the business, assets or
financial condition of Target, taken as a whole, or
would be required by generally accepted accounting
principles to be reflected on a balance sheet of
Target.
3.12. Taxes and Tax Returns.
(a) All material Taxes of any nature whatsoever due
and payable by Target prior to the execution hereof
and all Tax Returns required to be filed prior to such
date have been properly computed in all material
respects, duly and timely filed (taking into
consideration extensions of time to file) and fully
paid and discharged. There are no outstanding
agreements or waivers extending the statutory period
of limitations applicable to any Tax or Tax Return for
any period. Target has paid all material Taxes which
have become due pursuant to Tax Returns and has paid
all installments of estimated Taxes due. All material
Taxes and other material assessments and levies which
it is required by law to withhold or to collect have
been duly withheld and collected, and have been paid
over to the proper governmental authorities to the
extent due and payable. All material Taxes not yet
due and payable have been properly accrued on the
financial statements of it. Subsequent to the date
hereof and prior to the Closing Date hereunder, all
Tax Returns shall be timely and accurately filed, and
any material Tax payable as shown thereby shall be
paid, as required by applicable law. Target has not
requested nor been granted an extension of the time
for filing any Tax Return to a date later than the
Closing Date. There are no determined material tax
deficiencies or proposed tax assessments (or to the
best of its knowledge and belief, the prospects for
the same) against it. Target has not incurred any
material liability for penalties, assessments or
interest under any federal, state, local or foreign
tax laws. Target has withheld and paid all material
Taxes required to have been withheld and paid by it in
connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party.
(b) There are no liens for Taxes (other than current
Taxes not yet due and payable) on Target's assets.
There is no audit, action, suit, or taxing authority
proceeding now in progress, pending or to its
Knowledge threatened against it or with respect to any
Tax of it, and no claim has ever been made by a taxing
authority in a jurisdiction where it does not pay Tax
or file Tax Returns that it is or may be subject to
Taxes assessed by that jurisdiction.
(c) Target has not been a member of any affiliated
group (as defined in Section 1504 of the Code) or
filed or been included in a combined, consolidated,
aggregate, or unitary income Tax Return. It has never
been and is not now a party to or bound by any Tax
indemnification, Tax allocation, or Tax sharing
agreement or other contractual obligation pursuant to
which it is or may at any time in the future be
obligated to indemnify any other person or entity with
respect to Taxes.
(d) Target is not a party to any agreement,
contract, arrangement, or plan that has resulted, or
could result by reason of the transactions
contemplated hereby, separately or in the aggregate,
in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code.
(e) Target has provided the other party with true
and complete copies of all Tax Returns filed with
respect to it for taxable periods ending after
December 31, 1990, and all examination reports and
statements of deficiencies assessed against or agreed
to be paid by it with respect to such taxable periods.
3.13. Litigation, etc. No action, suit, proceeding
or investigation (whether conducted by any judicial or
regulatory body or other person) is pending or, to the
Knowledge of Target, threatened against Target (nor is
there any basis therefor to the Knowledge of Target)
which questions the validity of this Agreement or any
action taken or to be taken pursuant hereto or which
might reasonably be expected, either in any case or in
the aggregate, to materially adversely affect the
business, assets, or financial condition of Target or
materially impair the right or the ability of Target
to carry on its business substantially as now
conducted.
3.14. Safety, Zoning and Environmental Matters.
Neither the offices or properties in or on which
Target carries on its business nor the activities
carried on therein are in violation of any zoning,
health or safety law or regulation, including, without
limitation, the Occupational Safety and Health Act of
1970, as amended, except where a violation would not
have a material adverse effect on the business, assets
or financial condition of the Target. To Target's
Knowledge:
(a) Target is not in violation of any judgment,
decree, order, law, license, rule or regulation
purporting to regulate environmental matters,
including without limitation, those arising under the
Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986
("▇▇▇▇"), the Federal Clean Water Act, the Federal
Clean Air Act, the Toxic Substances Control Act, or
any state or local statute, regulation, ordinance,
order or decree relating to health, safety or the
environment (hereinafter "Environmental Laws"), which
violation would have a material adverse effect on the
business, assets, or financial condition of Target;
(b) Target has not received notice from any third
party including without limitation any federal, state
or local governmental authority, (i) that Target or
any predecessor in interest has been identified by the
United States Environmental Protection Agency ("EPA")
as a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities
List, 40 C.F.R. Part ▇▇▇ ▇▇▇▇▇▇▇▇ ▇ (1986); (ii) that
any hazardous waste as defined by 42 U.S.C. paragraph 6903(5),
any hazardous substances as defined by 42 U.S.C.
paragraph 9601(14), any pollutant or contaminant as defined by
42 U.S.C. paragraph 9601(33) and any toxic substance, oil or
hazardous materials or other chemicals or substances
regulated by any Environmental Laws ("Hazardous
Substances") which Target has generated, transported
or disposed of has been found at any site at which a
federal, state or local agency or other third party
has conducted or has ordered that Target conduct a
remedial investigation, removal or other response
action pursuant to any Environmental Law; or (iii)
that Target is or shall be a named party to any claim,
action, cause of action, complaint (contingent or
otherwise) legal or administrative proceeding arising
out of any third party's incurrence of costs,
expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Substances;
(c) except where any of the following would not have
a material adverse effect on the business, assets, or
financial condition of Target, (i) no portion of the
property of Target has been used for the handling,
manufacturing, processing, storage or disposal of
Hazardous Substances except in accordance with
applicable Environmental Laws; and no underground tank
or other underground storage receptacle for Hazardous
Substances is located on such properties; (ii) in the
course of any activities conducted by Target no
Hazardous Substances have been generated or are being
used on such properties except in accordance with
applicable Environmental Laws; (iii) there have been
no releases (i.e. any past or present releasing,
spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing
or dumping) or threatened releases of Hazardous
Substances on, upon, into or from the properties of
Target, which releases would have a material adverse
effect on the value of such properties or adjacent
properties or the environment; (iv) there have been no
releases on, upon, from or into any real property in
the vicinity of the real properties of Target which,
through soil or groundwater contamination, have come
to be located on, and which would have a material
adverse effect on the value of, the properties of
Target; and (v) in addition, any Hazardous Substances
that have been generated on the properties of Target,
have been transported in accordance with applicable
Environmental Laws; and
(d) none of the properties of Target are currently
subject to any applicable environmental cleanup
responsibility law or environmental restrictive
transfer law or regulation by virtue of the
transactions set forth herein and contemplated hereby.
3.15. Labor Relations. Target is in compliance in
all material respects with all federal and state laws
respecting employment and employment practices, terms
and conditions of employment, wages and hours and
nondiscrimination in employment, and is not engaged in
any unfair labor practice. There is no charge pending
or, to the knowledge of Target, threatened against
Target alleging unlawful discrimination in employment
practices before any court or agency and there is no
charge of or proceeding with regard to any unfair
labor practice against Target pending before the
National Labor Relations Board. There is no labor
strike, dispute, slow-down or work stoppage actually
pending or to the knowledge of Target threatened
against or involving Target. No representation
question exists respecting any of the employees of
Target. No grievance or arbitration proceeding
arising out of or under any collective bargaining
agreement is pending against Target and no claim
therefor has been asserted. None of the employees of
Target is covered by any collective bargaining
agreement, and no collective bargaining agreement is
currently being negotiated by Target. Except as
described on Schedule 3.15 hereto, Target has not
experienced any work stoppage or other material labor
difficulty during the last five years.
3.16. Contracts. Except for contracts, agreements,
or other arrangements that have been fully performed
and with respect to which Target has no further
obligations or liabilities and except as listed in
Schedule 3.16, Target is not a party to or otherwise
bound by any agreement, instrument, or commitment that
is material to its financial condition, operations,
business or assets, and Target is not a party to or
otherwise bound by any agreement, instrument, or
commitment that may materially and adversely affect
its ability to consummate the transactions
contemplated hereby, including without limitation any:
(a) agreement for the purchase, sale, lease, or
license by or from it of assets, products, or services
requiring total payments by or to it in excess of
$10,000 in any instance, or entered into other than in
the ordinary course of the operation of its business;
(b) agreement or other commitment pursuant to which
it has agreed to indemnify or hold harmless any other
Person, including without limitation, for any
liabilities, penalties, losses, damages, or costs, or
expenses related thereto, arising out of or in
connection with any presence, use, generation,
treatment, storage, transportation, recycling,
disposal, or release of any Hazardous Substances;
(c) (i) employment agreement, (ii) consulting
agreement, or (iii) agreement providing for severance
payments or other additional rights or benefits
(whether or not optional) in the event of the sale or
other change in control of it;
(d) agreement with any current or former affiliate,
stockholder, officer or director of it or with any
Person in which, to Target's Knowledge, any such
affiliate of it has an interest;
Target has delivered or made available to Parent
correct and complete copies (or written summaries of
the material terms of oral agreements or
understandings) of each agreement, instrument, and
commitment listed in Schedule 3.16 hereto, each as
amended to date. Each such agreement, instrument, and
commitment is a valid, binding and enforceable
obligation of Target, and, to the Knowledge of Target,
of the other party or parties thereto, subject as to
enforcement to the Enforcement Exceptions, and is in
full force and effect. Neither Target nor, to its
Knowledge, any other party thereto, is in breach of or
noncompliance with any term of any such agreement,
instrument, or commitment (nor to the Knowledge of
Target is there any reasonable basis for any of the
foregoing), except where any such breach or non-
compliance would not have a material adverse effect on
the business, assets, or financial condition of the
Target. No agreement, instrument, or commitment
listed in Schedule 3.16 hereto, includes or
incorporates any provision, the effect of which could
reasonably be expected to enlarge or accelerate any of
the obligations of Target or to give additional rights
to any other party thereto, or to terminate, lapse, or
in any other way be affected, by reason of the
transactions contemplated by this Agreement.
3.17. Intellectual Property. Schedule 3.17 contains
an accurate and complete list of all patents, patent
applications, trademarks, tradenames, service marks,
logos, copyrights, and licenses known to be used in or
necessary to Target's business as now being conducted
(collectively, and together with any technology, know-
how, trade secrets, processes, formulas and techniques
used in or necessary to its business, the
"Intellectual Property"). Target owns, or is licensed
or believes to otherwise have the full unrestricted
right to use, all Intellectual Property used in or
necessary to its business, and no other intellectual
property rights, privileges, licenses, contracts, or
other instruments, or evidences of interests are
believed necessary to the conduct of its business as
currently conducted, with only such exceptions as have
no material adverse effect on its business condition
(financial or otherwise), or its prospects.
In any instance where Target's rights to Intellectual
Property arise under a license or similar agreement,
this is indicated in Schedule 3.17 and such rights are
licensed exclusively to it, except as indicated in
Schedule 3.17. Except as indicated in Schedule 3.17,
it has no knowledge of any obligation to compensate
any other Person for the use of any Intellectual
Property. Schedule 3.17 lists every instance in which
it has granted to any other person any license or
other right to use in any manner any of the
Intellectual Property, whether or not requiring the
payment of royalties (other than commercial licenses
of software entered into in the ordinary course of
business). No other person has an interest in or
right or license to use any of its Intellectual
Property. To the best of Target's knowledge, none of
its Intellectual Property (except patent applications)
is being infringed by others, or is subject to any
outstanding order, decree, judgment, or stipulation.
Except as set forth in Schedule 3.17, no litigation
(or other proceedings in or before any court or other
governmental, adjudicatory, arbitral, or
administrative body) relating to its Intellectual
Property is pending, or to the best of its knowledge,
threatened, nor, to the best of its knowledge, is
there any basis for any such litigation or proceeding.
No litigation (or other proceedings in or before any
court or other governmental, adjudicatory, arbitral,
or administrative body) charging Target with
infringement of any patent, trademark, copyright, or
other proprietary right is pending, or to the best of
Target's knowledge, threatened, nor, to the best of
Target's knowledge, is there any basis for any such
litigation or proceeding. Target maintains reasonable
security measures for the preservation of the secrecy
and proprietary nature of such of its Intellectual
Property as constitutes trade secrets.
3.18 Insurance. Schedule 3.18 lists the policies of
theft, fire, liability (including products liability),
worker's compensation, life, property and casualty,
directors' and officers', and other insurance owned or
held by it. Such policies of insurance are maintained
with financially sound and reputable insurance
companies, funds, or underwriters, are of the kinds
and cover such risks, and are in such amounts and with
such deductibles and exclusions, as are consistent
with prudent business practice. All such policies are
in full force and effect, are sufficient for
compliance in all material respects by it with all
requirements of law and of all agreements to which it
is a party, and provide that they will remain in full
force and effect through the respective dates set
forth in Schedule 3.18 and will not terminate or lapse
or otherwise be affected in any way by reason of the
Merger or the other transactions contemplated hereby.
3.19. Governmental Consent, Non-Contravention, etc.
Except as described in Schedule 3.19, Target holds no
licenses, permits or other authorizations issued by
any governmental agency to Target related to its
properties or business. No consent, approval or
authorization of or registration, designation,
declaration or filing with any governmental authority,
federal or other, on the part of Target, is required
in connection with the Merger or the consummation of
any other transaction contemplated hereby, except for
the filing of the Certificate of Merger with the
Secretary of State of Delaware. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby will not violate (i)
any provision of the charter or by-laws of Target, or
(ii) any order, judgment, injunction, award or decree
of any court or state or federal governmental or
regulatory body applicable to Target.
3.20. Employee Benefit Plans. Target does not
maintain or have any obligation to make contributions
to, any employee benefit plan (an "ERISA Plan") within
the meaning of Section 3(3) of the United States
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or, except as set forth on Schedule
3.20 hereto, any other retirement, profit sharing,
stock option, stock bonus or employee benefit plan (a
"Non-ERISA Plan"). Target has heretofore delivered to
Parent true, correct and complete copies of each Non-
ERISA Plan. All such Non-ERISA Plans have been
maintained and operated in all material respects in
accordance with all federal, state and local laws
applicable to such plans, and the terms and conditions
of the respective plan documents.
3.21. Potential Conflicts of Interest. Except as
set forth on Schedule 3.21, no officer or director of
Target (i) owns, directly or indirectly, any interest
in (excepting not more than 1% stock holdings for
investment purposes in securities of publicly held and
traded companies) or is an officer, director, employee
or consultant of any Person which is a lessor, lessee,
customer or supplier of Target; (ii) owns, directly or
indirectly, in whole or in part, any tangible or
intangible property which Target is using or the use
of which is necessary for the business of Target; or
(iii) has any cause of action or other claim
whatsoever against, or owes any amount to, Target,
except for claims in the ordinary course of business,
such as for accrued vacation pay, accrued benefits
under employee benefit plans and similar matters and
agreements.
3.22. Brokers. Except as set forth on Schedule
3.22, no finder, broker, agent or other intermediary
has been retained or utilized by, or has acted for or
on behalf of, Target in connection with the
negotiation or consummation of the transactions
contemplated hereby.
3.23. Compliance with Other Instruments, Laws, etc.
Target has complied in all material respects with, and
is in compliance in all material respects with, (i)
all laws, statutes, governmental regulations and all
judicial or administrative tribunal orders, judgments,
writs, injunctions, decrees or similar commands
applicable to its business, (ii) all unwaived terms
and provisions of all contracts, agreements and
indentures to which Target is a party, or by which
Target or any of its properties is subject, and (iii)
its charter and by-laws, each as amended to date,
except where any such failure to comply would not have
a material adverse effect on the business, assets or
financial condition of Target. Except as described on
Schedule 3.23, Target does not have or need any
licenses, permits or other authorizations from
governmental authorities for the conduct of its
business or in connection with the ownership or use of
its properties, except where the failure to have any
such license, permit or other authorization would not
have a material adverse effect on the business, assets
or financial condition of the Target.
3.24. Minute Books. The minute books of Target
made available to Acquirer for inspection accurately
record therein all actions taken by Target's Board of
Directors and shareholders.
3.25. Absence of Registration Obligations. Target
has no obligation, contingent or otherwise, by reason
of any agreement to register any of its securities
under the Securities Act.
3.26. Ownership of Parent Common Stock. As of the
date hereof the Target (i) does not beneficially own,
directly or indirectly, and (ii) is not a party to any
agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of,
in each case, shares of capital stock of Parent, which
in the aggregate represent 5% or more of the
outstanding shares of capital stock of Parent entitled
to vote generally in the election of directors.
3.27. Full Disclosure. To the best of its Knowledge
and belief, no representations or warranties of Target
herein or in the Schedules hereto are materially
misleading.
4. Representations and Warranties of Parent and
Acquirer. Parent and Acquirer represent and warrant
to Target (for the benefit of Target prior to the
Effective Date and for the benefit of Target
Stockholders after the Effective Date) as follows.
For purposes of this Agreement, the term "Knowledge"
in relation to Parent or Acquirer means the actual
knowledge, after reasonable inquiry, of ▇▇▇▇▇ ▇. ▇▇▇▇
or ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇.
4.1. Organization and Standing of Parent and
Acquirer. Each of Parent and Acquirer is a
corporation duly organized, validly existing and in
corporate good standing under the laws of the State of
Delaware, and has all requisite corporate power and
authority to own or lease and operate its properties
and to carry on its business as now conducted. Each
of Parent and Acquirer has delivered to Target
complete and correct copies of its Certificate of
Incorporation and By-Laws and all amendments thereto.
Parent is duly qualified and in good standing as a
foreign corporation in each jurisdiction, if any, in
which the character of the properties owned or leased
or the nature of the activities conducted by it makes
such qualification necessary.
4.2. Corporate Power, Binding Effect. Each of
Parent and Acquirer has all requisite corporate power
and authority to enter into this Agreement and the
Registration Rights Agreement among the Parent and
each of the Target Stockholders substantially in the
Form of Exhibit C attached hereto (the "Registration
Rights Agreement") and to perform all of its
agreements and obligations under this Agreement and
the Registration Rights Agreement in accordance with
their respective terms. Acquirer has all requisite
power and authority to enter into the Certificate of
Merger and to perform all of its obligations under the
Certificate of Merger. This Agreement and the
Registration Rights Agreement have been duly
authorized by each of Parent's and Acquirer's Board of
Directors, has been duly executed and delivered by
Parent and Acquirer and constitutes the legal, valid
and binding obligations of Parent and Acquirer,
enforceable against Parent and Acquirer in accordance
with its terms. Neither the execution, delivery or
performance by either Parent or Acquirer of this
Agreement or the Certificate of Merger or the
Registration Rights Agreement, as applicable, in
accordance with their respective terms will result in
any violation of or default or creation of any lien
under, or the acceleration or vesting or modification
of any right or obligation under, or in any conflict
with, either Parent's or Acquirer's Certificate of
Incorporation or by-laws or of any agreement,
instrument, judgment, decree, order, statute, rule or
regulation binding on or applicable to Parent or
Acquirer, except where any of the foregoing would not
have a material adverse effect on the business, assets
or financial condition of Parent or Acquirer.
4.3. Capitalization. The authorized capital of
Acquirer consists of 1000 shares of common stock, par
value $.001 per share, all of which shares have been
issued to and are owned by Parent as of the date
hereof. The authorized capital of Parent consists of
60,000,000 shares of Parent Common Stock, 31,391,324
shares of which are issued and outstanding on the date
hereof and 10,000,000 shares of preferred stock, none
of which shares are issued and outstanding as of the
date hereof. All of such outstanding shares are
validly issued and outstanding, fully paid and
nonassessable. All shares of Parent Common Stock to
be issued to Target Stockholders under this Agreement
(including under paragraph 2.1 and paragraph paragraph 2.2) will,
when issued, be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in the Parent
Reports (as defined below), Parent is neither a party
to nor is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of
any character calling for Parent to issue, deliver or
sell, or cause to be issued, delivered or sold any
shares of any equity security of Parent or any
securities convertible into, exchangeable for or
representing the right to subscribe for, purchase or
otherwise receive any shares of any equity security of
Parent or obligating Parent to grant, extend or enter
into any such subscriptions, options, warrants, calls,
commitments or agreements.
4.4. Reports and Financial Statements. Parent has
previously furnished to Target complete and accurate
copies, as amended or supplemented, of its (i) Annual
Reports on Form 10-K for the fiscal years ended 1995
and 1996, together with all exhibits thereto, as filed
with the Securities and Exchange Commission (the
"Commission"), (ii) proxy statement relating to the
Annual Meeting of Stockholders to be held on May 29,
1997, (iii) Quarterly Reports on Form 10-Q, together
with all exhibits thereto, as filed with the
Commission since December 31, 1996 and (iv) other
reports filed by Parent with the Commission since
December 31, 1996 (such reports and other filings,
together with any amendments or supplements thereto,
are collectively referred to herein as the "Parent
Reports"). As of their respective dates, the Parent
Reports did not contain any untrue statement of a
material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances
under which they were made, not misleading. The
audited financial statements and unaudited interim
financial statements of Parent included in the Parent
Reports (i) comply as to form in all material respects
with applicable accounting requirements and the
published rules and regulations of the Commission with
respect thereto, (ii) have been prepared in accordance
with generally accepted accounting principles applied
on a consistent basis throughout the periods covered
thereby (except in the case of quarterly financial
statements, as permitted by Form 10-Q under the
Exchange Act), (iii) fairly present the financial
condition, results of operations and cash flows of
Parent as of the respective dates thereof and for the
periods referred to therein, and (iv) are consistent
with the books and records of Parent. Since December
31, 1996, there has been no material adverse change in
the business, assets or financial condition of Parent.
4.5. Government Consents, etc. No consent, approval
or authorization of or registration, designation,
declaration or filing with any governmental authority,
federal or other, on the part of it is required in
connection with the Merger or the consummation of any
other transaction contemplated hereby, except for the
filing of the Certificate of Merger with the Secretary
of State of Delaware. The execution and delivery of
this Agreement and the consummation of the
transactions contemplated hereby will not violate (i)
any provision of the charter and by-laws of Parent or
Acquirer, or (ii) any order, judgment, injunction,
award or decreed of any court or state or federal
governmental or regulatory body applicable to Parent
or Acquirer.
4.6. Brokers. Neither Parent nor Acquirer has
retained, utilized or been represented by any broker
or finder in connection with the negotiation or
consummation of this Agreement or the transactions
contemplated hereby.
4.7. Full Disclosure. To the best of its knowledge
and belief, no representations or warranties of Parent
or Acquirer herein or in the Schedules hereto are
materially misleading.
5. Conduct of Target Business Prior to Effective
Date.
Target covenants and agrees that, from and after the
date of this Agreement and until the Effective Date,
except as otherwise provided herein or specifically
consented to or approved by Parent in writing:
5.1. Full Access. Target shall afford to Parent and
Acquirer and their authorized representatives full
access during normal business hours and with
reasonable advance notice to all properties, books,
records, contracts and documents of Target and a full
opportunity to make such investigations as they shall
reasonably desire to make of Target, and the Target
shall furnish or cause to be furnished to Parent and
Acquirer and their authorized representatives all such
information with respect to the affairs and businesses
of Target as Parent or Acquirer may reasonably
request.
5.2. Carry on in Regular Course. Target shall use
commercially reasonable efforts to preserve all of its
accounting and business records, corporate records,
trade secrets and proprietary information and other
Intellectual Property for the benefit of the Surviving
Corporation.
5.3. No Dividends, Issuances, Repurchases, etc.
Target shall not declare or pay any dividends (whether
in cash, shares of stock or otherwise) on, or make any
other distribution in respect of, any shares of its
capital stock, or, except as set forth on Schedule
5.3, issue, purchase, redeem or acquire for value any
shares of its capital stock, or issue any options,
warrants or other rights to acquire shares of its
capital stock or securities exchangeable for or
convertible into shares of its capital stock, except
for the issuance of shares of capital stock of Target
upon the exercise of options or warrants outstanding
on the date hereof or upon the conversion of
convertible promissory notes outstanding on the date
hereof as provided in paragraph 2.1(e) and paragraph 7.9 of this
Agreement.
5.4. No General Increases. Target shall not grant
any increases in the rates of pay to its employees,
consultants or officers nor by means of any bonus,
insurance, pension or stock option or other benefit
plan or other contract or commitment increase in any
amount the benefits or compensation of any such
person, including without limitation, by adding or
increasing any benefits payable or contingent upon the
Merger.
5.5. Contracts and Commitments. Target shall not
enter into any contract or commitment or engage in any
transaction not in the usual and ordinary course of
business and consistent with its normal business
practices, including without limitation, any contract
or commitment relating to Target's Intellectual
Property.
5.6. Sale of Capital Assets. Target shall not (i)
sell, lease as lessor, license as licensor, or
otherwise dispose of any capital asset with a market
value in excess of $10,000, or of capital assets of
market value aggregating with respect to Target taken
as a whole in excess of $10,000, (ii) sell, lease as
lessor, license as licensor, or otherwise dispose of
any asset other than in the ordinary course of
business; provided, that Target shall not license any
of Target's Intellectual Property, (iii) borrow money,
(iv) incur or pay any material liability other than in
the ordinary course of business, or (v) guarantee or
otherwise incur any material liability with respect to
the obligation of any other Person.
5.7. Preservation of Organization. Target shall use
commercially reasonable efforts to preserve for Parent
and Acquirer the present relationships with suppliers
and others having business relations with Target.
Target shall not amend its Certificate of
Incorporation or by-laws. Target shall not merge or
consolidate with any other corporation, or acquire any
stock of, or, except in the ordinary course of
business, acquire any assets or property of any other
business entity whatsoever.
5.8. No Default. Target shall not do any act or
omit to do any act, or permit any act or omission to
act, which will cause a material breach of any
contract, commitment or obligation of Target, except
where any of the foregoing would not have a material
adverse effect on the business, assets or financial
condition of Target.
5.9. Compliance with Laws. Target shall duly
comply with all laws, regulations and orders
applicable with respect to its business, except where
any of the foregoing would not have a material adverse
effect on the business, assets or financial condition
of Target.
5.10. Advice of Change. Target shall promptly
advise Parent in writing of any development or change
in circumstance (including any litigation to which it
may become a party or of which it may gain Knowledge)
that does or could reasonably be expected to (i) call
into question the validity of this Agreement or any
action taken or to be taken pursuant hereto, (ii)
adversely affect the ability of the parties to
consummate the transactions contemplated hereby, or
(iii) have any material adverse effect on the
business, financial condition, or assets of Target.
5.11. Stockholders Meeting; No Shopping, etc.
Target shall call a special meeting of the Target
Stockholders to consider and vote upon the approval of
this Agreement and the Merger and the other
transactions contemplated hereby. Target shall
recommend to its stockholders the approval of this
Agreement and the Merger and the other transactions
contemplated hereby and shall use its best efforts to
solicit and obtain the requisite vote of approval and
Target shall not solicit from any person or otherwise
encourage or support any person in making any offers,
inquiries or proposals relating to the acquisition of
any securities or assets of Target or any merger with
Target and will not supply to any person any
non-public information concerning Target for any such
purpose or with any such likely effect.
5.12. Consents of Third Parties. Target shall use
commercially reasonable efforts to secure, before the
Closing Date, the consent, in form and substance
satisfactory to Parent and Parent's counsel, to the
consummation of the transactions contemplated by this
Agreement, by each party to any contract, commitment
or obligation of Target, in each case under which such
consent is required.
5.13. Satisfaction of Conditions Precedent. Target
shall use commercially reasonable efforts to cause the
satisfaction of the conditions precedent contained in
paragraphs 7 and 8 hereof.
6. Conduct of Parent Business Prior to Effective
Date.
Parent covenants and agrees that, from and after the
date of this Agreement and until the Effective Date,
except as otherwise provided herein or specifically
consented to or approved by Target in writing:
6.1. Compliance with Laws. Parent shall duly comply
with all laws, regulations and orders applicable with
respect to its business, except where any of the
foregoing would not have a material adverse effect on
the business, assets or financial condition of Parent.
6.2. Advice of Change. Parent shall promptly advise
Target in writing of any development or change in
circumstance (including any litigation to which it may
become a party or of which it may gain Knowledge) that
does or could reasonably be expected to (i) call into
question the validity of this Agreement or any action
taken or to be taken pursuant hereto, (ii) adversely
affect the ability of the parties to consummate the
transactions contemplated hereby, or (iii) have any
material adverse effect on the business or financial
condition of Parent.
6.3. Satisfaction of Conditions Precedent. Parent
shall use its best efforts to cause the satisfaction
of the conditions precedent contained in paragraphs 7 and 8
hereof.
7. Conditions Precedent to Parent's and Acquirer's
Obligations. Notwithstanding the provisions of paragraphs 1
and 2, Parent and Acquirer shall be obligated to
perform the acts contemplated for performance by them
under paragraphs 1 and 2 only if each of the following
conditions is satisfied at or prior to the Closing
Date, unless any such condition is waived by Parent
and Acquirer:
7.1. Accuracy of Representations and Warranties by
Target. The representations and warranties of Target
set forth in paragraph 3 of this Agreement (including any
schedules thereto) shall be true and correct in all
material respects as of the Closing Date with the same
force and effect as though made again at and as of the
Closing Date, except for changes permitted or required
by this Agreement.
7.2. Compliance by Target. Target shall have
performed and complied in all material respects with
all covenants and agreements contained in this
Agreement required to be performed or complied with by
it on or before the Closing Date.
7.3. Approval by Stockholders; Delivery of Agreement
of Merger. The Target Stockholders shall have
authorized and approved this Agreement and the Merger
contemplated hereby as required by applicable law and
the Certificate of Incorporation and By-laws of Target
and Target shall have duly executed and delivered or
caused to be duly executed and delivered the
Certificate of Merger and the Related Agreements.
7.4. No Restraining Order. No restraining order or
injunction or other order issued by any court of
competent jurisdiction, or other legal restraint or
prohibition shall prevent the consummation of the
Merger or other transactions contemplated by this
Agreement, and no petition or request for any such
injunction or other order shall be pending.
7.5. No Material Change. There shall not have been
any material adverse change in the business or assets
of Target.
7.6. Officers' Certificates. Target shall have
executed and delivered to Acquirer and Parent at and
as of the Closing (i) a certificate, duly executed by
Target's President or any Vice President, in form and
substance satisfactory to Parent and Parent's counsel,
certifying that each of the conditions specified in
this paragraph 7 have been satisfied and (ii) a certificate in
the form of Exhibit D attached hereto.
7.7. Resignations of Directors and Officers. All of
the directors and officers of Target that Parent or
the Acquirer have requested resign their positions
shall have resigned their positions with Target on or
prior to the Closing Date, and prior thereto shall
have executed such appropriate documents with respect
to the transfer or establishment of bank accounts,
signing authority, etc., as Parent shall have
requested.
7.8. Opinion of Target's Counsel. Target shall have
delivered to Parent and Acquirer an opinion of ▇▇▇▇▇▇▇
Coie, counsel to Target, dated the Closing Date, such
opinion to contain customary exceptions, limitations
and assumptions, to be based in part on customary
certificates of public officials and Target officers,
and to be in form and substance reasonably
satisfactory to Parent and substantially in the form
of Exhibit E attached hereto.
7.9. Exercise and Exchange of Stock Options;
Conversion of Convertible Promissory Notes; Release of
Claims. Each outstanding stock option, warrant, Claim
and other right to acquire the capital stock of Target
shall have been exercised, waived or released and/or
Target shall have entered into an agreement,
satisfactory in form and substance to Parent and its
counsel, with each person holding outstanding stock
options, warrants, Claims and other rights to purchase
shares of the capital stock of Target. Target's Stock
Plan shall have been terminated as of the Closing Date
and shall be of no further force or effect.
7.10. Liabilities of Target. Other than (i)
accounts payable of not more than $700,000; (ii) loans
payable of not more than $363,500 (including all
principal amounts and accrued interest as of the
Closing Date and interest due and payable within
thirty (30) days after the Closing Date); and (iii)
capital lease obligations on the capital equipment of
Target, there shall be no other liabilities shown on
the unaudited balance sheet of Target dated the
Closing Date, such unaudited balance sheet fairly
presenting the financial condition of Target as of
such date in all material respects and being
acceptable to Parent (the "Target Closing Balance
Sheet").
7.11. Tax Opinion. The delivery by ▇▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇ LLP to Parent and Acquirer of an opinion, in
form and substance reasonably acceptable to Parent and
Acquirer, that the Merger is a tax free reorganization
under Section 368(a) of the Code.
7.12. Consents. All consents required to be secured
by Target pursuant to paragraph 5.12 shall have been secured on
or prior to the Closing Date.
7.13. Facility Lease. The Facility Lease by and
between Target and ▇▇▇▇▇ ▇▇▇▇▇ shall have been
terminated and Target shall have no further
obligations under any lease.
7.14. Lock-Up Agreement. Medical Innovation Fund II
shall have executed and delivered to Parent a Lock-Up
Agreement substantially in the form of Exhibit F
attached hereto.
7.15. Employment Agreements. All of the employment
and consulting agreements to which Target is a party
or to or by which Target is bound (including the
agreements with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇) shall
have been resolved upon terms and conditions
acceptable to Parent.
7.16. Proceedings and Documents Satisfactory. All
proceedings in connection with the Merger contemplated
by this Agreement and the other transactions
contemplated hereby and all certificates and documents
delivered to Parent or Acquirer pursuant to this paragraph 7 or
otherwise reasonably requested by Parent or Acquirer
shall be executed and delivered by Target and shall be
reasonably satisfactory to Parent, Acquirer and their
counsel.
7.17. Private Placement. The issuance of the Parent
Common Stock to the Target Stockholders and all
holders of Claims shall qualify as a private placement
under Regulation D of the Securities Act and shall be
exempt from registration under the Federal Securities
laws and all state and other securities laws.
7.18. Settlements With Certain Creditors. Target
shall have executed settlement and release agreements
with each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, Medical Innovation Partners (and
its affiliates), ▇▇▇▇▇ ▇▇▇▇▇ and any other creditor
reasonably requested by Parent in form and substance
satisfactory to Parent providing for the full and
final settlement of any claims of such parties against
Target and releasing Target from any liabilities
incurred prior to the execution of such agreements.
8. Conditions Precedent to Target's Obligations.
Notwithstanding the provisions of paragraphs 1 and 2, Target
and Target Stockholders shall be obligated to perform
the acts contemplated for performance by them under
paragraphs 1 and 2 only if each of the following conditions is
satisfied at or prior to the Closing Date, unless any
such condition is waived by Target:
8.1. Accuracy of Representations and Warranties by
Parent and Acquirer. The representations and
warranties of Parent and Acquirer set forth in paragraph 4 of
this Agreement shall be true and correct in all
material respects as of the Closing Date with the same
force and effect as though made again at and as of the
Closing Date, except for changes permitted or required
by this Agreement.
8.2. Compliance by Parent and Acquirer. Parent and
Acquirer shall have performed and complied in all
material respects with all of the covenants and
agreements required to be performed or complied with
by them by the Closing Date.
8.3. No Restraining Order. No restraining order or
injunction or other order issued by any court of
competent jurisdiction, or other legal restraint or
prohibition shall prevent the Merger or other
transactions contemplated by this Agreement, and no
petition or request for any such injunction or other
order shall be pending.
8.4. Parent Certificates. Parent shall have
delivered to Target (i) a certificate of its President
or one of its Vice Presidents dated the Closing Date,
in form and substance satisfactory to Target and
Target's counsel, certifying that the conditions set
forth in each of paragraphs 8.1, 8.2, and 8.3 have been
satisfied, and (ii) a certificate in the form attached
hereto as Exhibit G.
8.5. Other Documents. Acquirer shall have duly
executed and delivered the Certificate of Merger.
Parent shall have duly executed and delivered the
Related Agreements.
8.6. Opinion of Parent's Counsel. Parent shall have
delivered to Target an opinion of ▇▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇ LLP., counsel for Parent and Acquirer, dated the
Closing Date, such opinion to contain customary
exceptions, limitations and assumptions and to be
based in part on customary certificates of public
officials and Parent officers, and to be in form and
substance reasonably satisfactory to Target and
substantially similar to Exhibit H attached hereto.
8.7. Assumption of Guaranty. Parent shall indemnify
and hold harmless Medical Innovation Partners and/or
Medical Innovation Fund II from all claims,
liabilities and costs arising from a claim by the
lessor for payment of any amount owing under the
guarantee of either with respect to the equipment
leases of Target set forth on Schedule 8.7 hereto.
The aggregate amounts owing under such leases is
approximately $294,000.
9. Confidential Information; No Publicity. Any and
all non-public information disclosed by Parent and
Acquirer to Target or by Target to Parent or Acquirer
as a result of the negotiations leading to the
execution of this Agreement, or in furtherance hereof,
shall remain confidential and be subject to the
Confidentiality Agreement dated March 21, 1996 between
Parent and Target. If the consummation of the
transactions contemplated by this Agreement does not
take place for any reason, each of Parent and Acquirer
on the one hand and Target on the other will return
promptly all documents containing non-public
information relating to the other side.
10. Securities Laws Matters. Target agrees to
cooperate with Parent and Acquirer in qualifying the
issue of Parent Common Stock to the Target
Stockholders under paragraph 4(2) and/or Regulation D of the
Commission under the Securities Act and in complying
with all state and other securities laws in respect
thereto. Neither Target nor any of its agents is or
shall be authorized to act on Parent's or Acquirer's
behalf with respect to any aspect of the transactions
contemplated by this Agreement or make any
solicitations of or representations to any of the
Target Stockholders on Parent's or Acquirer's behalf.
Neither this Agreement nor any other by Parent or
Acquirer shall be deemed an offer with respect to
Parent Common Stock.
11. Survival and Materiality of Representations.
Each of the representations and warranties made by the
parties hereto shall survive the Closing Date and
Effective Date and consummation of the transactions
contemplated hereby. Notwithstanding the foregoing,
the representations and warranties of the parties
hereto shall expire and have no further force or
effect on the date that is eighteen (18) months after
the Effective Date or following any final arbitration
award or determination without appeal regarding the
Milestones pursuant to paragraph 2.2(i) hereto with respect to
any claim made within such eighteen (18) month period.
Any claims made under or with respect to such
representations and warranties on or before the date
that is eighteen (18) months or such later date after
the Effective Date shall survive until, and only for
purposes of, resolution of such claims.
12. Tax Consequences to the Parties. Parent and
Acquirer, on the one hand, and Target, on the other,
understand and agree that neither Parent and Acquirer,
on the one hand, nor Target, on the other, are making
any representation or warranty as to the tax
consequences of this Agreement and the events and
actions contemplated hereby. Nonetheless, all parties
hereto agree to report the transactions contemplated
hereby on their respective federal income tax returns
as a tax-free reorganization under paragraph 368(a) of the Code
and to take no action inconsistent with such
characterization.
13. Termination; Liabilities Consequent Thereon.
This Agreement, the Related Agreements and (if
executed) the Certificate of Merger may be terminated
and the Merger contemplated hereby abandoned at any
time prior to the Effective Date (whether before or
after approval of the Merger by the Target
Stockholders or by Parent as sole stockholder of
Acquirer) only as follows:
(a) by Parent or Acquirer, upon notice to Target if
(i) Target shall be in material breach of its
obligations hereunder and shall not have cured such
breach within a period of ten (10) days after written
notice from Parent or Acquirer or (ii) if the
conditions set forth in paragraph 7 shall not have been
satisfied, or waived by Parent, on or prior to June 4,
1997 or (iii) a material adverse change in any
representation or warranty made by Target herein or
(iv) any material adverse change in the business or
operations of the Target; or
(b) by Target, upon notice to Parent, if (i) Parent
or Acquirer shall be in material breach of its
obligations hereunder and shall not have cured such
breach within a period of ten (10) days after written
notice from Target or (ii) if the conditions set forth
in paragraph 8 shall not have been satisfied, or waived by
Target, on or prior to June 4, 1997 or (iii) a
material adverse change in any representation or
warranty made by Parent or Acquirer herein or (iv) any
material adverse change in the business or operations
of Parent; or
(c) at any time by mutual agreement of the Boards of
Directors of Parent and Target.
If this Agreement is terminated by Target other than
pursuant to paragraph 13(b) or paragraph 13(c), then the Target shall
pay Parent a break up fee of $250,000. If this
Agreement is terminated by Parent and Acquirer other
than pursuant to paragraph 13(a) or paragraph 13(c), then Parent shall
pay Target a break up fee of $150,000 in addition to
the $100,000 nonrefundable advance previously made to
Target.
14. Indemnification.
14.1. By Target's Stockholders.
(a) If the Closing occurs, the Target Stockholders
and all Claim holders, jointly and severally (the
"Indemnifying Parties"), agree to indemnify and hold
Parent and Acquirer and their respective directors,
officers, employees, shareholders and affiliates (the
"Indemnified Parties") harmless from and with respect
to all Damages related to or arising out of (i) any
failure or any breach of any representation or
warranty of Target, (ii) any failure to perform any
covenant, obligation, undertaking or agreement of
Target or any Target Stockholder contained in this
Agreement (including any Schedules hereto); provided,
however, that the obligation of any Target Stockholder
or Claim holder under this pargraph 14.1(a) shall not exceed
an amount equal to the fair market value (as of the
date of payment) of Parent Common Stock which is
represented by the sum of the fair market value (as of
the date of payment) of the following categories of
Parent Common Stock held by Target Stockholders (x)
Parent Common Stock which has not become vested and
paid pursuant to the terms of Sections 2.1 and 2.2
herein or, (y) Parent Common Stock which has become
vested and paid but as of the time of any claim have
not been registered by Parent pursuant to the
Registration Rights Agreement, or (z) Parent Common
Stock which has become vested but as of the time of
any claim remains subject to the Lock-Up Agreement;
provided, that no shares of Parent Common Stock shall
be counted more than once in connection with such
calculation. Any liquidated claim of indemnity
hereunder shall be payable by the Indemnifying Parties
solely in kind in Parent Common Stock from the
categories set forth in the preceding sentence.
Parent Common Stock shall be applied to any such
liquidated claim based on its fair market value (as of
the date of payment) in order of priority from
category (y) first, then category (z) after all the
Parent Common Stock in category (y) has been applied,
and finally to category (x) after all Parent Common
Stock in categories (y) and (z) has been applied.
(b) The adoption of this Agreement and the approval
of the Merger by the Target Stockholders shall
constitute approval by the Target Stockholders of all
of the arrangements relating hereto and thereto,
including without limitation, (i) the appointment of
the Representatives (as hereinafter defined) and (ii)
the authority of the Representatives to defend and/or
settle any claims for which the Target Stockholders
may be required to indemnify the Indemnified Parties
pursuant to this paragraph 14. All decisions and actions by
the Representatives shall be binding upon all Target
Stockholders and no Target Stockholder shall have the
right to object, dissent, protest or otherwise contest
the same.
(c) The Parent, Acquirer and/or their agents have
completed a due diligence investigation of the
Target's assets, contracts and business for their own
purposes to determine the Parent's and Acquirer's
willingness to enter into the transactions
contemplated by this Agreement. The representations,
warranties or indemnification obligations of Target
and its shareholders shall not be deemed waived or
otherwise limited in any manner by any such
investigation; provided, however, if the Parent or
Acquirer gains any specific actual knowledge of a
specific breach of any of the Target's representations
or warranties (and not a mere awareness of a set of
circumstances which later manifests itself as a
breach) prior to the Closing, which specific actual
knowledge is able to be demonstrated by written
evidence that was delivered to the Chief Executive
Officer or Chief Financial Officer of Parent prior to
the Effective Date, Parent and Acquirer shall be
deemed to have waived such breach if Parent and
Acquirer proceed to close the transactions
contemplated hereby. Notwithstanding the foregoing,
no knowledge of any person may be imputed to either
the Chief Executive Officer or Chief Financial
Officer.
14.2. Method of Asserting Claims.
(a) All claims for indemnification by an Indemnified
Party pursuant to this paragraph 14 shall be made in accordance
with the provisions of this Agreement.
(b) The Indemnified Parties shall give prompt
written notification to the Representatives of the
commencement or threatened commencement of any action,
suit or proceeding (and the facts constituting the
basis therefor) or any other basis for which
indemnification pursuant to this paragraph 14 may be sought (an
"Indemnification Notice"). In the event of any such
claim for indemnification hereunder, the notice shall
specify, if known, the amount or an estimate of the
amount of the liability arising therefrom.
(c) Within thirty (30) days after delivery of such
notification, the Representatives may, upon written
notice thereof to the Indemnified Parties, assume
control of the defense of any action, suit or
proceeding brought by any person other than the
Indemnified Parties with counsel reasonably
satisfactory to the Indemnified Parties. If the
Representatives do not so assume control of such
defense, the Indemnified Parties shall control such
defense. The party not controlling such defense may
participate therein at its own expense; provided that
if the Representatives assume control of such defense
and the counsel selected by the Representatives
concludes that such counsel has a conflict of interest
due to the existence of conflicting or different
defenses available to the Indemnifying Parties and the
Indemnified Parties with respect to such action, suit
or proceeding, the reasonable fees and expenses of one
firm of separate counsel for all Indemnified Parties
shall be paid by the Indemnifying Parties. The party
controlling such defense shall keep the other party
advised of the status of such action, suit or
proceeding and the defense thereof and shall consider
in good faith recommendations made by the other party
with respect thereto. The Indemnified Parties shall
not agree to any settlement of such action, suit or
proceeding without the prior written consent of the
Representatives, which shall not be unreasonably
withheld. The Representatives shall not agree to any
settlement of such action, suit or proceeding without
the prior written consent of the Indemnified Parties,
which shall not be unreasonably withheld.
14.3. Appointment of Representatives.
(a) Target, Target Stockholders and the Claim
holders appoint F. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ (the "Representatives" and each a
"Representative") to represent the Target Stockholders
and the Claim holders for the purposes specified in
this Agreement (including acting as a purchaser
representative under Regulation D of the Securities
Act if necessary).
(b) The Representatives shall not be liable for any
error of judgment, or any action taken, suffered or
omitted to be taken hereunder except in the case of
bad faith, nor shall they be liable for the default or
misconduct of any employee, agent or attorney
appointed by them who shall have been selected with
reasonable care. The Representatives may consult with
counsel of their own choice and shall have full and
complete authorization and protection for any action
taken or suffered by them hereunder in good faith or
in accordance with the opinion of such counsel.
(c) The Representatives (or any successor
Representatives hereunder) may at any time resign and
be discharged of the duties imposed hereunder by
giving at least fifteen (15) days' prior notice to the
Target Stockholders and Claim holders, in which event,
or upon the death or legal disability of any
Representative, the Target Stockholders shall appoint
a successor Representative by written consent of the
holders of a majority of the capital stock of Target
at the Effective Date ("Pro Rata Shares").
(d) All actions of the Representatives under this
paragraph 14 may be taken by either Representative individually
or both Representatives jointly, except that each
Representative agrees not to take any action singly
unless it is impracticable under the circumstances to
first consult with the other Representative.
15. Expenses. All expenses incurred by Target or
any Target Stockholder in connection with the
preparation and execution of this Agreement and the
other agreements contemplated hereby and the
consummation of the transactions contemplated hereby
and thereby, including any expenses of finders,
brokers, attorneys or the like, including any fees or
expenses of ▇▇▇▇▇▇▇, shall be borne by Target or the
Target Stockholders, as the case may be, and shall be
paid in accordance with the payment priorities set
forth in Section 2.2(c). All expenses incurred by
Parent or Acquirer shall be borne by Parent.
16. Certain Definitions.
As used herein the following terms not otherwise
defined have the following respective meanings:
"Indebtedness" (a) All indebtedness for borrowed
money, whether current or long-term, or secured or
unsecured, (b) all indebtedness of the deferred
purchase price of property or services represented by
a note or security agreement, (c) all indebtedness
created or arising under any conditional sale or other
title retention agreement (even though the rights and
remedies of the seller or lender under such agreement
in the event of default may be limited to repossession
or sale of such property), (d) all indebtedness
secured by a purchase money mortgage or other lien to
secure all or part to the purchase price of property
subject to such mortgage or lien, (e) all obligations
under leases that have been or must be, in accordance
with GAAP, recorded as capital leases in respect of
which it is liable as lessee, (f) any liability in
respect of banker's acceptances or letters of credit,
and (g) all indebtedness of Target, the Target
Stockholders or any other Person that is guaranteed by
Target or that Target has agreed (contingently or
otherwise) to purchase or otherwise acquire or in
respect of which Target has otherwise assured a
creditor against loss.
"Person": means any natural person, entity, or
association, including without limitation any
corporation, partnership, limited liability company,
government (or agency or subdivision thereof), trust,
joint venture, or proprietorship.
"Related Agreements": means the Escrow Agreement, the
License Agreements, the Lock-Up Agreement and the
Target Stockholder Representation Certificates.
"Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations of the
Commission thereunder, all as the same shall be in
effect from time to time.
"Tax": Any federal, state, local, or foreign
income, gross receipts, franchise, estimated,
alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium,
windfall profit, environmental, customs, duties, real
property, personal property, capital stock,
intangibles, social security, unemployment,
disability, payroll, license, employee, or other tax
or levy, of any kind whatsoever, including any
interest, penalties, or additions to tax in respect of
the foregoing.
"Tax Return": Any return, declaration, report,
claim for refund, information return, or other
document (including any related or supporting
estimates, elections, schedules, statements, or
information) filed or required to be filed in
connection with the determination, assessment, or
collection of any Tax or the administration of any
laws, regulations, or administrative requirements
relating to any Tax.
17. Miscellaneous Provisions.
17.1. Amendments. This Agreement may be amended in
any manner and at any time prior to the submission of
this Agreement to the Target Stockholders and, after
such submission, may be amended to extend the Closing
Date and termination date referred to in paragraph 13 or to
make other amendments which, in the opinion of the
respective counsel for Parent and Target, do not
substantially alter the terms hereof, by written
instrument stating that it is an amendment of this
Agreement executed by Parent, Acquirer and Target and
approved by the Boards of Directors of Acquirer and
Target.
17.2. Notices and Representatives. Any notice
expressly provided for under this Agreement shall be
in writing, shall be given either manually or by
written telecommunication, fax or mail, and shall be
deemed sufficiently given when received by the party
to be notified at its address set forth below or if
and when mailed by registered mail, postage prepaid,
addressed to such party at such address. Any party
and any representative designated below may, by notice
to the others, change its address for receiving such
notices.
Address for notices to Parent and Acquirer:
ACCESS Pharmaceuticals, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇, President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ III, Esq.
▇▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Address for notices to Target, Target Stockholders
and any Claim holder:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Medical Innovation Partners
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇, Coie
One Bellevue Center
Suite 1800
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
17.3. Assignment and Benefits of Agreement. This
Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective
successors, but may not be assigned by any of the
foregoing without the written consent of the others.
Except as aforesaid, nothing in this Agreement,
express or implied, is intended to confer upon any
person other than the parties hereto and Target
Stockholders and their said successors and assigns,
any rights under or by reason of this Agreement.
17.4. Governing Law. This Agreement shall be
construed and enforced in accordance with, and rights
of the parties shall be governed by, the internal laws
of the State of Delaware (without reference to
principles of conflicts or choice of law that would
cause the application of the internal laws of any
other jurisdiction).
17.5. SUBMISSION TO JURISDICTION; WAIVERS. PARENT
AND EACH OF THE TARGET STOCKHOLDERS (BY APPROVAL OF
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY), FOR ITSELF AND ON BEHALF OF ITS SUCCESSORS,
ASSIGNS AND TRANSFEREES, HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR FOR
RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NONEXCLUSIVE GENERAL JURISDICTION OF
THE COURTS OF THE STATES OF TEXAS AND WASHINGTON, THE
COURTS OF THE UNITED STATES OF AMERICA FOR THE
DISTRICTS OF TEXAS AND WASHINGTON, AND APPELLATE
COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY
BE BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY
SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT
SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY
THEREOF BY REGISTERED OR CERTIFIED NAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID,
AT ITS ADDRESS AS PROVIDED IN PARAGRAPH 17.2 HEREOF OR AT SUCH
OTHER ADDRESS AS IT SHALL HAVE NOTIFIED EACH OF THE
OTHER PARTIES HERETO IN THE MANNER PROVIDED IN PARAGRAPH 17.2
HEREOF;
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE
RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW; AND
(v) WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY
COUNTERCLAIM THEREIN.
17.6. Counterparts. This Agreement may be executed
by the parties in separate counterparts, each of which
when so executed and delivered shall be an original,
but all such counterparts shall together constitute
but one and the same instrument.
17.7. Section Headings. All enumerated subdivisions
of this Agreement are herein referred to as "pargraph." The
headings of sections or subsections are for reference
only and shall not limit or control the meaning
thereof.
17.8. Public Statements or Releases. The parties
hereto each agree that no party to this Agreement
shall make, issue or release any public announcement,
statement or acknowledgment of the existence of, or
reveal the status of, the transactions provided for
herein, without first obtaining the consent of the
other parties hereto. Nothing contained in this paragraph 17.8
shall prevent any party from making such public
announcements as such party may consider necessary in
order to satisfy such party's legal or contractual
obligations.
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as an instrument under seal as
of the date and year first above written.
PARENT:
ACCESS Pharmaceuticals, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
---------------------
President & Chief Executive Officer
ACQUIRER:
ACCESS Holdings, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
---------------------
President & Chief Executive Officer
TARGET:
Tacora Corporation
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇▇
-----------------------
Title: Chairman
TARGET STOCKHOLDERS
Medical Innovation Fund II
By: /s/ ▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇
-------------------------
Title: General PArtner of its General Partner
Acknowledged and Agreed for the purpose of being bound
by any terms of this Agreement relating to the
agreements, obligations and covenants of the
Representatives:
/s/ ▇. ▇. ▇▇▇▇▇▇▇▇▇
-------------------
F. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
EXHIBITS
A - Certificate of Merger
B - Research and Development Commitment
C - Registration Rights Agreement
D - Officers' Certificate and Secretary's Certificate - Tacora
E - Form of ▇▇▇▇▇▇▇ Coie Opinion
F - Lock-up Agreement
G - Officer's Certificate and Secretary's Certificate - Parent and Holdings
H - Form of ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ Opinion
