EXHIBIT 10.44
AGREEMENT AND PLAN OF MERGER
BETWEEN
PROCEPT, INC.
PROCEPT ACQUISITION CORP.
AND
PACIFIC PHARMACEUTICALS, INC.
_____________________________
Dated as of December 10, 1998
_____________________________
EXHIBIT 10.44
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of December 10, 1998 (this
"Agreement") is among Procept, Inc. ("Procept"), a Delaware corporation,
Procept Acquisition Corp. ("PAC"), a Delaware corporation, and Pacific
Pharmaceuticals, Inc. ("Pacific"), a Delaware corporation. The parties wish
to effect the acquisition of Pacific by Procept through a merger of PAC into
Pacific on the terms and conditions hereof. This Agreement is intended to be
a "plan of reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, in consideration of the mutual representations,
warranties and covenants contained herein, the parties hereto agree as
follows:
SECTION 1 - THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"), PAC shall be merged with and into Pacific (the
"Merger"). The Merger shall occur at the Effective Time (as defined herein).
Following the Merger, Pacific shall continue as the surviving corporation
(the "Surviving Corporation") and the separate corporate existence of PAC
shall cease.
1.2 EFFECTIVE TIME. As soon as practicable after satisfaction or
waiver of all conditions to the Merger, the parties shall cause a Certificate
of Merger to be filed in accordance with Section 252 of the DGCL (the "Merger
Certificate") and shall take all such further actions as may be required by
law to make the Merger effective. The Merger shall be effective at such time
as the Merger Certificate is filed, as appropriate, with the Secretary of
State with the State of Delaware in accordance with the DGCL or at such later
time as is specified in such documents (the "Effective Time"). Immediately
prior to the filing of the Merger Certificate, a closing (the "Closing") will
be held at the offices of Xxxxxx & Dodge LLP, Xxx Xxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx (or such other place as the parties may agree) for the purpose
of confirming satisfaction or waiver of all conditions to the Merger.
Subject to satisfaction or waiver of each of the conditions specified in
Sections 5, 6 and 7 hereof, the Closing shall take place within three
business days after the last to occur of:
(a) the day the Merger is approved by the stockholders of
Pacific pursuant to Section 5.11; or
(b) the day the issuance of the Merger Consideration (as
defined below) is approved by the stockholders of Procept pursuant to Section
5.12;
or on such other date as the parties may agree, but not later than June 30,
1999. The date on which the Closing occurs is referred to herein as the
"Closing Date".
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259, 260 and 261 of the DGCL.
2
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Pacific, in each case as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation and
Bylaws of the Surviving Corporation immediately after the Effective Time,
until duly amended in accordance with applicable law.
1.5 DIRECTORS AND OFFICERS. The directors and officers of PAC
immediately prior to the Effective Time shall be the directors and officers
of the Surviving Corporation immediately after the Effective Time, each such
officer and director to hold office in accordance with their respective
terms.
1.6 CONVERSION OF STOCK.
(a) For purposes of this Agreement, "Merger Consideration"
means 2,755,000 shares of common stock, $0.01 par value per share, of Procept
("Procept Common Stock") reduced by the number of shares of Procept Common
Stock which would be issued but for the terms of Section 262 of the DGCL in
respect of Dissenting Shares (as defined in Section 1.8).
(b) At the Effective Time, by virtue of the Merger and
without any action on the part of Procept or Pacific:
(i) All shares of Common Stock of Pacific,
$0.02 par value per share (the "Pacific Common Stock") and all shares of
Preferred Stock of Pacific, $25 par value per share, (the "Pacific Preferred
Stock" collectively, with the Pacific Common Stock the "Pacific Stock")
outstanding immediately prior to the Effective Time, other than Dissenting
Shares (as defined in Section 1.8), shall be converted into and become the
right to receive, (subject to the payment of cash for fractional shares as
provided in Section 1.10) shares of Procept Common Stock in accordance with
Section 1.6(c).
(ii) All options and warrants to purchase
Pacific Stock outstanding immediately prior to the Effective Time, shall be
exercisable for that number of shares of Procept Common Stock which such
option or warrant holder would have been entitled to receive if the
underlying Pacific Stock had converted in the Merger, at an exercise price
per share equal to the aggregate exercise price of the Pacific option or
warrant exchanged divided by the number of shares of Procept Common Stock
subject to the new option or warrant, and otherwise having the same terms and
conditions as the Pacific option or warrant and otherwise in accordance with
the terms of Section 5.19.
(iii) All shares of Pacific Stock held at the
Effective Time by Pacific as treasury stock or by a subsidiary of Pacific
shall be canceled and no payment shall be made with respect thereto.
(iv) All Dissenting Shares shall be dealt with
in accordance with Section 1.8.
(v) All shares of Common Stock of PAC, $0.01
par value per share, outstanding immediately prior to the Effective Time,
shall be converted into the right to receive the same number of shares of the
Surviving Corporation.
3
(c) The Merger Consideration shall be allocated among the
holders of shares of Pacific Stock outstanding immediately prior to the
Effective Time by allocating to each such holder of Pacific Stock outstanding
at the Effective Time (other than the holders of Dissenting Shares) that
number of shares of Procept Common Stock determined by multiplying the number
of shares of Pacific Common Stock held by each such holder or issuable to a
holder on conversion of Pacific Preferred Stock held by such holder by the
Conversion Factor (as defined below).
(d) "Conversion Factor" means the quotient obtained by
dividing (i) 2,755,000 BY (ii) the number of shares of Pacific Common Stock
either outstanding or issuable on conversion of outstanding shares of Pacific
Preferred Stock immediately prior to the Effective Time. As of the date of
this Agreement, based on the shares of Pacific Common Stock currently
outstanding or issuable (i) on conversion of outstanding Pacific Preferred
Stock and (ii) upon the closing of the Agreement and Plan of Merger between
Pacific and Binary Therapeutics, Inc., the Conversion Factor is 0.11.
(e) The Merger Consideration shall be adjusted in the event
of any change in Procept Common Stock by reason of a stock splits, stock
recapitalizations, combinations or subdivisions of the Common Stock of
Procept, mergers or other exchanges of shares by operation of law or the like
occurring after the date of this Agreement and before the Effective Time,
such that, after the record date therefor the Merger Consideration shall be
equal to the number and class of shares or other securities or property that
would have been received in respect of a share of Procept Common Stock, as
the case may be, if the Effective Time had occurred immediately prior to such
record date.
1.7 CLOSING OF PACIFIC TRANSFER BOOKS. At the Effective Time, the
stock transfer books of Pacific shall be closed and no transfer of Pacific
Stock shall thereafter be made. If, after the Effective Time, certificates
representing shares of Pacific Stock are presented to the Exchange Agent,
they shall be canceled and exchanged for certificates representing Procept
Common Stock.
1.8 PACIFIC DISSENTING SHARES.
(a) Shares of Pacific Stock held by a stockholder who has
properly exercised appraisal rights with respect thereto in accordance with
Section 262 of the DGCL are referred to herein as "Dissenting Shares".
Shares of Pacific Stock that constitute Dissenting Shares shall not be
converted into Merger Consideration and shares of Procept Stock shall not be
issued pursuant to Section 1.6(d) in exchange therefor. From and after the
Effective Time, a stockholder who has properly exercised such appraisal
rights shall no longer retain any rights of a stockholder of Pacific or the
Surviving Corporation, except those provided under the DGCL.
(b) Pacific shall give Procept (i) prompt notice of any
written notices and demands under Section 262 of the DGCL with respect to any
shares of capital stock of Pacific, any withdrawal of any such demands and
any other instruments served pursuant to the DGCL and received by Pacific and
(ii) the right to participate in all negotiations and proceedings with
respect to any demands under Section 262 with respect to any shares of
capital stock of Pacific. Pacific shall cooperate with Procept concerning,
and shall not, except with the prior written
4
consent of Procept, voluntarily make any payment with respect to, or offer to
settle or settle, any such demands.
(c) In the event that a holder of Pacific Stock makes a
demand under Section 262 of the DGCL the Merger Consideration shall be
reduced by the number of shares of Procept Common Stock which would otherwise
have been issued to such holder.
1.9 ISSUANCE OF PROCEPT CERTIFICATES. Prior to the Effective Time,
Procept shall authorize one or more persons to act as Exchange Agent
hereunder (the "Exchange Agent") and shall deposit with or for the account of
the Exchange Agent certificates representing the number of shares or Procept
Common Stock equaling the Merger Consideration and cash in lieu of fractional
shares of Procept Common Stock. As soon as practicable after the Effective
Time, (i) Pacific shall deliver to Procept a list of all record holders of
Pacific Stock immediately prior to the Effective Time (the "Record Holders"),
setting forth each stockholder's name, address and number of shares of
Pacific Stock held prior to the Effective Time and such other information as
may be reasonably requested by the Exchange Agent, certified by the Chief
Executive Officer of Pacific (the "Stockholder List") and (ii) the Exchange
Agent shall be instructed to mail to each Record Holder a form of letter of
transmittal which shall specify instructions for use in effecting the
surrender of Pacific Stock certificates in exchange for Merger Consideration.
Upon the Exchange Agent's receipt of the letter of transmittal and any
certificate held by a stockholder, each stockholder shall be entitled to
receive a certificate representing that number of whole shares of Procept
Common Stock into which the shares of Pacific Stock as set forth on the
Stockholder List shall have been converted pursuant to the provisions of this
Agreement. The shares of Pacific Stock outstanding immediately prior to the
Effective Time (and any certificates representing such shares) shall be
deemed canceled as of the Effective Time. Procept Common Stock into which
Pacific Stock shall be converted in the Merger shall be deemed to have been
issued at the Effective Time. If any Procept Common Stock certificates are
to be issued in a name other than that in which the Pacific Stock was
registered immediately prior to the Effective Time, it shall be a condition
of such issuance that the person requesting such issuance shall deliver to
the Exchange Agent all documents necessary to evidence and effect such
transfer and shall pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of certificates for such shares of Procept
Common Stock in a name other than that of the registered holder of the
certificate or surrendered or establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. None of Procept, PAC
or Pacific shall be liable to any stockholder for shares of stock or any cash
in lieu of fractional interests delivered to a public official pursuant to
applicable escheat or abandoned property laws.
1.10 NO FRACTIONAL SHARES. No certificates representing fractional
shares of Procept Common Stock shall be issued upon the surrender for
exchange of Pacific Stock certificates. No fractional interest shall entitle
the owner to vote or to any rights of a security holder. In lieu of
fractional shares, each stockholder who would otherwise have been entitled to
a fractional share of Procept Common Stock, will receive from Procept at
Closing an amount in cash (without interest) determined by multiplying such
fraction by the fair market value of a share of Procept Common Stock. Such
fair market value shall equal the mean of the daily high and low sales prices
of the Procept Common Stock on the Nasdaq Small Cap Market, as reported by
Nasdaq, averaged over the period of ten (10) trading days ending on the fifth
trading day prior to the Closing Date.
5
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF PAC
Procept and PAC hereby make the following representations and warranties:
2.1 ORGANIZATION AND CORPORATE POWER. PAC is a corporation duly
incorporated, validly existing and in good standing under the laws of
Delaware.
2.2 CORPORATE AUTHORIZATION. PAC has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by the PAC of
this Agreement and the consummation by PAC of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of PAC, enforceable against it in accordance with its terms.
2.3 NON-CONTRAVENTION. The execution, delivery and performance by
PAC of this Agreement and the consummation by PAC of the transactions
contemplated hereby do not and will not contravene or conflict with the
Certificate of Incorporation or By-Laws of PAC.
2.4 NO BUSINESS ACTIVITIES. PAC has not conducted any business
activities unrelated to the transactions contemplated hereby.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF PACIFIC
Except as set forth on the disclosure schedule (the "PACIFIC
DISCLOSURE SCHEDULE") delivered to Procept on the date hereof, (regardless of
whether the PACIFIC DISCLOSURE SCHEDULE is referenced in any particular
subsection of this Section 3), the subsection numbers of which are numbered
to correspond to the subsection numbers of this Agreement to which they refer
(provided that disclosure thereon under any subsection number shall be
disclosure for any section hereof), Pacific represents and warrants to
Procept as set forth below:
3.1 ORGANIZATION AND QUALIFICATION. Pacific and each of its
subsidiaries named on the Pacific Disclosure Schedule pursuant to Section 3.4
below (the "Subsidiaries") is a corporation duly organized, validly existing
and in good standing under the laws of the state or other jurisdiction of its
incorporation and has full corporate power and authority to own, lease and
operate its assets, properties and business and to carry on its business as
now being and as heretofore conducted. Pacific is qualified or is otherwise
authorized to transact business as a foreign corporation in each jurisdiction
(in the United States and outside of the United States) in which the failure
to so qualify would have a material adverse effect on the business or
financial condition of Pacific or its subsidiaries (other than changes that
are the effect of economic factors affecting the economy or the
pharmaceutical industry as a whole) (a "Pacific Material Adverse Effect"),
all of which jurisdictions are identified in Section 3.1 of the PACIFIC
DISCLOSURE SCHEDULE.
3.2 CAPITALIZATION.
3.2.1 OUTSTANDING CAPITAL STOCK. Pacific's authorized capital
stock consists of 100,000,000 shares of Common Stock, $0.02 par value per
share, of which 12,280,017 shares are issued and outstanding as of November
17, 1998, and 2,000,000 shares of Preferred Stock, $25 par value per share,
of which 36,696 shares are issued and outstanding as of November, 1998
6
and convertible into 10,674,499 shares of Pacific Common Stock. Except as
disclosed in Pacific's proxy statement for its annual meeting of stockholders
held on August 13, 1998, Pacific is not aware of any record or beneficial
holder of more than five percent (5%) of the outstanding shares of Pacific
Stock. The outstanding shares of Pacific Stock are duly authorized, validly
issued, fully paid, and nonassessable and have been issued in compliance with
all charter documents of Pacific and all applicable federal and state laws.
Except as set forth in this Section 3.2.1, no other capital stock of Pacific
is authorized or outstanding.
3.2.2 OPTIONS OR OTHER RIGHTS. Except as set forth in the
PACIFIC DISCLOSURE SCHEDULE, (i) no subscription, warrant, option, preemptive
right, convertible security or other right (contingent or otherwise) to
purchase or acquire any shares of capital stock or other security of Pacific
issued by Pacific is authorized or outstanding, (ii) there is no commitment
or offer by Pacific to issue or provide any such subscription, warrant,
option, preemptive right, convertible security or other right or to issue or
distribute to holders of any shares of its capital stock any evidences of
indebtedness or assets of Pacific, (iii) Pacific has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares
of its capital stock or any interest therein or to pay any dividend or make
any other distribution in respect thereof, (iv) there are no restrictions on
the transfer of Pacific's capital stock other than those arising from
securities laws, and (v) there are no voting trusts, proxies or other
agreements, instruments or understandings with respect to outstanding shares
of Pacific's capital stock to which Pacific is a party.
3.3 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. Subject to the
requirement to obtain approval of its stockholders to consummate the Merger
under the DGCL, Pacific has the requisite corporate power and authority to
execute and deliver this Agreement and each agreement, document and
instrument contemplated by this Agreement to which it is a party, to
consummate the transactions contemplated hereby and thereby and to perform
fully its respective obligations hereunder and thereunder. The execution,
delivery and performance of this Agreement and each such other agreement,
document and instrument to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Pacific. This Agreement and each
agreement, document and instrument to which it is a party executed and
delivered pursuant to this Agreement constitutes, or when executed and
delivered will constitute, valid and binding obligations of Pacific,
enforceable in accordance with their terms.
3.4 SUBSIDIARIES AND OTHER AFFILIATES. Except as set forth in the
PACIFIC DISCLOSURE SCHEDULE, Pacific does not have any subsidiary or directly
or indirectly own or have any investment in any of the capital stock of, or
any other interest in, any other person or entity. The PACIFIC DISCLOSURE
SCHEDULE indicates the number of shares of capital stock of each Subsidiary
held by Pacific and the total shares of capital stock outstanding for each
Subsidiary. The PACIFIC DISCLOSURE SCHEDULE also indicates whether any
warrant, option or other right to acquire an equity interest in any
Subsidiary is outstanding. For the purposes of the representations and
warranties in this Section 3 and the covenants set forth in Section 5, Binary
Therapeutics, Inc. shall be deemed to be a Subsidiary, unless the language of
any particular provision clearly indicates a contrary intent.
3.5 CHARTER AND BY-LAWS; BOOKS AND RECORDS. Pacific has heretofore
delivered or made available to Procept true and complete copies of the
Certificate of Incorporation (certified
7
by the Secretary of State or comparable authority of its jurisdiction of
incorporation) and By-laws as in effect on the date hereof for itself and
each of its Subsidiary, and corporate minute books. None of Pacific or any
Subsidiary is in default in the performance, observation or fulfillment of
either its charter or By-laws. The minute books of Pacific and each
Subsidiary contain true and complete records of all meetings and consents in
lieu of meetings of the Board of Directors and of the stockholders prior to
the date hereof, and accurately reflect all transactions referred to in such
minutes and consents in lieu of meetings.
3.6 SEC REPORTS. Pacific has previously delivered to Procept its
(i) Annual Report on Form 10-K for the year ended March 31, 1998 (the
"Pacific 10-K"), as filed with the Securities and Exchange Commission (the
"SEC"), (ii) the proxy statement relating to Pacific's annual meeting of
stockholders held on August 13, 1998 and (iii) all other reports filed by
Pacific with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), since January 1, 1998. As of their respective dates,
such reports complied in all material respects with applicable SEC
requirements and 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. Pacific has timely filed with the SEC all reports
required to be filed under Sections 13, 14 or 15(d) of the Exchange Act since
becoming registered under the Exchange Act.
3.7 FINANCIAL STATEMENTS. The consolidated financial statements
contained in the Pacific 10-K and in Pacific's quarterly report on Form 10-Q
for the quarter ended September 30, 1998 (the "PACIFIC 10-Q") have been
prepared from, and are in accordance with, the books and records of Pacific
and each Subsidiary (required to be so consolidated) and fairly present the
consolidated financial condition, results of operations and cash flows of
Pacific as of the dates and for the periods presented therein, all in
accordance with generally accepted accounting principles applied on a
consistent basis, except as otherwise indicated therein and subject (in the
case of the unaudited financial statements included in the Pacific 10-Q) to
normal year-end and audit adjustments and footnote disclosures, which in the
aggregate are not material.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
PACIFIC DISCLOSURE SCHEDULE at March 31, 1998, Pacific and its Subsidiaries
have no material liabilities of any nature, whether accrued, absolute,
contingent or otherwise (including without limitation, liabilities as
guarantor or otherwise with respect to obligations of others or liabilities
for taxes due or then accrued or to become due), required to be reflected or
disclosed in the balance sheet dated March 31, 1998 (or the notes thereto)
included in the Pacific 10-K (the "PACIFIC BALANCE SHEET") that were not
adequately reflected or reserved against on such balance sheet. Except as
set forth in the PACIFIC DISCLOSURE SCHEDULE, Pacific and its Subsidiaries
have no such liabilities, except as and to the extent (i) adequately
reflected and reserved against in the Pacific Balance Sheet, (ii) adequately
reflected and reserved against in the Pacific unaudited balance sheet dated
September 30, 1998 included in the Pacific 10-Q (the "PACIFIC INTERIM BALANCE
SHEET"), or (iii) incurred since March 31, 1998 in the ordinary course of
business and not material in amount, either individually or in the aggregate.
3.9 NO MATERIAL ADVERSE CHANGE. Since March 31, 1998, there has not
been:
8
(i) any material adverse change in the assets,
liabilities, condition (financial or otherwise), results of operation,
business or prospects of Pacific or its Subsidiaries or any occurrence or
circumstance which reasonably could be expected to result in such a material
adverse change;
(ii) any material change in the method of
operating the business of Pacific or its Subsidiaries, in the manner of
keeping the books, accounts or records of Pacific or its Subsidiaries, or in
any accounting method or practice of Pacific or its Subsidiaries;
(iii) any sale, lease, mortgage, pledge,
encumber, abandonment or disposition of, or agreement to sell, lease,
mortgage, pledge, encumber, abandon or dispose of, any material assets or
properties of Pacific or its Subsidiaries, other than in the usual and
ordinary course of business;
(iv) any material transaction, commitment,
contract or agreement entered into by Pacific or its Subsidiaries, or any
relinquishment or abandonment by Pacific or its Subsidiaries of any material
contract or right, or any modification, waiver, amendment, release, recision,
or termination of any material term, condition or provision of any contract
pertaining to Pacific or its Subsidiaries (other than any satisfaction by
performance in accordance with the terms thereof), other than in the usual
and ordinary course of business;
(v) any adverse relationships or conditions
with employees, suppliers, lenders, customers or governmental agencies that
could reasonably be anticipated to have a Pacific, or its Subsidiaries
Material Adverse Effect on Pacific or its business;
(vi) any acquisition by Pacific or its
Subsidiaries (other than property or interests therein acquired in the
ordinary course of its lending business) of all or any part of the assets,
properties, capital stock or business of any other person or entity;
(vii) any redemption or other acquisition by
Pacific or its Subsidiaries of any of its capital stock or any declaration,
setting aside or payment of any dividend or distribution of any kind with
respect to shares of its capital stock;
(viii) any loan or advance by Pacific or its
Subsidiaries to any stockholder, officers, director or consultant, or any
other loan or advance other than in the ordinary course of business; or
(ix) except as set forth in the PACIFIC
DISCLOSURE SCHEDULE, any new employment or consulting agreement, any increase
in compensation, bonus or other benefits payable or to become payable by
Pacific or its Subsidiaries to any director, officer or employee, other than
regularly scheduled increases consistent with past practice in the ordinary
course of business, or any new grant of severance or termination rights, or
increase in rights or benefits payable under existing severance or
termination policies or agreements, to any director, officer or employee of
Pacific.
3.10 TAX MATTERS.
9
(a) DEFINITION OF TAXES. For the purposes of this
Agreement, "Tax" or, collectively, "Taxes", means any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities in the nature of a tax including taxes based upon
or measured by gross receipts, income, profits, sales, use and occupation,
and value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits. Except as set forth in the
Pacific Disclosure Schedule:
(i) Each of Pacific and its Subsidiaries has
prepared and filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") required to be
filed relating to any and all Taxes concerning or attributable to Pacific or
such Subsidiary or its operations and such Returns are true and correct in
all material respects and have been completed in all material respects in
accordance with applicable law or, with respect to any Taxes payable, an
adequate reserve has been established on the Pacific Interim Balance Sheet.
(ii) Each of Pacific and its Subsidiaries: (A)
has paid or accrued all Taxes set forth on its Returns, and (B) has withheld
and paid (or will pay at the time required) with respect to its employees all
federal and state income taxes, FICA, FUTA and other Taxes required to be
withheld.
(iii) Neither Pacific nor any of its
Subsidiaries is delinquent in any material respect in the payment of any Tax
nor is there any material Tax deficiency outstanding, proposed or assessed
against Pacific or any of its Subsidiaries, nor has Pacific or any Subsidiary
executed any waiver of any statute of limitations on or extending the period
for the assessment or collection of any Tax.
(iv) Other than the audits set forth in the
PACIFIC DISCLOSURE SCHEDULE, no audit or other examination of any Return of
Pacific is currently in progress, nor has Pacific or any Subsidiary been
notified of any request for such an audit or other examination.
(v) Pacific and its Subsidiaries did not have,
as of September 30, 1998, any liabilities, whether asserted or unasserted,
contingent or otherwise, for unpaid federal, state, local and foreign Taxes
which have not been accrued or reserved against in accordance with GAAP on
the Pacific Interim Balance Sheet, and neither Pacific nor any of its
Subsidiaries has incurred any such liabilities since such date except in the
ordinary course of business and consistent with past practices.
(vi) There are (and as of immediately following
the Effective Date there will be) no liens, pledges, charges, claims,
security interests or other encumbrances of any sort ("Liens") of a material
nature on the assets of Pacific or any Subsidiary relating to or attributable
to Taxes, except for Liens for Taxes not yet due and payable or that are
being contested in good faith by appropriate proceedings.
10
(vii) Neither Pacific nor any Subsidiary has
received written or oral notice of any claim relating or attributable to
Taxes that, if adversely determined, would result in any Lien on the assets
of Pacific or any Subsidiary.
(viii) None of Pacific's or its Subsidiaries'
assets are treated as "tax-exempt use property" within the meaning of Section
168(h) of the Code.
(ix) As of the Effective Time, there will not
be any contract, agreement, plan or arrangement, including but not limited to
the provisions of this Agreement, covering any employee or former employee of
Pacific or any of its subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant
to Section 280G of the Code or the limitations in Sections 162 of the Code.
(x) Neither Pacific nor any of its
Subsidiaries has filed any consent agreement under Section 341(f) of the Code
or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by
Pacific or such Subsidiary.
(xi) Neither Pacific nor any of its
Subsidiaries is a party to a tax sharing or allocation agreement nor does
Pacific or any Subsidiary owe any amount under any such agreement.
(xii) Neither Pacific nor any of its
Subsidiaries is or has been at any time during the period specified in
Section 897(c)(1)(A)(ii) of the Code, a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code.
(xiii) Neither Pacific nor any Subsidiary has
agreed to, or is required to, make any adjustments under Section 481(c) of
the Code by reason of a change in accounting method or otherwise.
3.11 COMPLIANCE WITH LAWS.
3.11.1 None of Pacific or any Subsidiary is in violation in any
material respect of any order, judgment, injunction, award or decree, or any
federal, state, local or foreign law, ordinance or regulation or any other
requirement of any governmental or regulatory body, court or arbitrator, and
is in compliance in all material respects with all of the foregoing that are
applicable to it, its business or its assets. None of Pacific or any
Subsidiary has received notice of, and there has not been any citation, fine
or penalty imposed or asserted against any of them for, any such violation or
alleged violation that has not been favorably and fully resolved.
3.11.2 Each of Pacific and the Subsidiaries holds all licenses,
permits, certificates, franchises, orders or approvals of any federal, state,
local or foreign governmental or regulatory body, that are material to the
conduct of such company's business and the uses of its assets (collectively,
"PERMITS") necessary to operate its business as presently conducted. The
PACIFIC DISCLOSURE SCHEDULE contains a true and complete list of all such
permits as of the date hereof. Such Permits are in full force and effect and
the validity and effectiveness of such
11
Permits will not be affected by the transactions contemplated hereby. No
violations are or have been recorded with any governmental or regulatory body
in respect of any Permit, no proceeding is pending or, to the best knowledge
of Pacific, threatened to revoke or limit any Permit, and Pacific knows of no
grounds for any such revocation or limitation.
3.12 CONSENTS; NO BREACH. All consents, permits, authorizations and
approvals from any person or entity that are required pursuant to applicable
law, or agreement or otherwise in connection with the execution, delivery and
performance of this Agreement by Pacific are set forth in Section 3.12 of the
PACIFIC DISCLOSURE SCHEDULE, other than those which the failure to obtain
would not affect the validity of this transaction or materially adversely
affect the business of the Surviving Corporation after the Effective Time.
Subject to any prior approval requirements set forth in Section 3.12 of the
PACIFIC DISCLOSURE SCHEDULE, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
not (i) violate any provision of the Certificate of Incorporation or By-laws
of Pacific or any Subsidiary; (ii) violate, conflict with or result in the
breach of any of the terms or conditions of, result in a material
modification of, or otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both constitute)
a default under, any material instrument, contract or other agreement to
which Pacific or any Subsidiary is a party or to which Pacific or any
Subsidiary or any of their assets or properties is bound or subject; (iii)
violate any statute, law or regulation of any jurisdiction (which violation
would affect the validity of the transaction contemplated hereby or otherwise
would materially adversely affect the business of the Surviving Corporation
after the Effective Time) or any order, judgment, injunction, award or decree
of any court, arbitrator or governmental or regulatory body applicable to or
binding upon Pacific or any Subsidiary or any of their securities,
properties, assets or business; (iv) violate any material Permit; (v) except
with respect to change of control provisions in customer contracts, require
any filing with, notice to, or approval or consent of any foreign, federal,
state, local or other governmental or regulatory body or any other person or
entity; (vi) give rise to any obligation to make any material payment; or
(vii) result in the creation of any Encumbrance on the assets or properties
of Pacific or any Subsidiary, excluding from the foregoing clauses (ii),
(iii), (iv) and (v) any exceptions to the foregoing that, in the aggregate,
would not have a Pacific Material Adverse Effect on the business of Pacific
or on the ability of Pacific to consummate the transactions contemplated
hereby, and the following: (a) the filing of the Merger Certificate with the
Secretary of State of Delaware (b) filings with various state blue sky
authorities, (c) the filing with Nasdaq of an application for listing of the
shares of Pacific Common Stock to be issued in the Merger and (d) the filing
with the SEC of a regitration statement on Form S-4 to register the shares of
Pacific Common Stock to be issued in the Merger.
3.13 ACTIONS AND PROCEEDINGS. Except as set forth on the PACIFIC
DISCLOSURE SCHEDULE, there are no outstanding orders, judgments, injunctions,
awards or decrees of any court, governmental or regulatory body or
arbitration tribunal against or involving Pacific, any of the Subsidiaries or
any of their securities, assets, or properties. There are no actions, suits
or claims or legal, judicial, administrative or arbitral proceedings or
investigations (whether or not the defense thereof or liabilities in respect
thereof are covered by insurance) pending or, to the best knowledge of
Pacific, threatened against or involving Pacific any of the Subsidiaries, or
any of their securities, assets or properties.
12
3.14 CONTRACTS AND OTHER AGREEMENTS. Section 3.14 of the PACIFIC
DISCLOSURE SCHEDULE sets forth a correct and complete list all of the
following currently effective contracts:
(i) written contracts and other agreements
with or for the benefit of any current or former officer, director,
stockholder or employee of Pacific or any Subsidiary or any Subsidiary
involving more than $5,000, (provided in the case of a loan by Pacific or any
Subsidiary to any such person, the PACIFIC DISCLOSURE SCHEDULE shall list all
such loan arrangements, whether or not in writing, involving at least $1,000)
and contracts and other agreements for the payment of fees or other
consideration to any entity in which Pacific or any Subsidiary has an
interest;
(ii) contracts and other agreements with any
labor union or association representing any employee of Pacific or any
Subsidiary or otherwise providing for any form of collective bargaining;
(iii) contracts and other agreements for the
purchase or sale of materials, supplies, equipment, merchandise or services
that contain an escalation, renegotiation or redetermination clause or that
obligate Pacific or any Subsidiary to purchase all or substantially all of
its requirements of a particular product from a supplier, or for periodic
minimum purchases of a particular product from a supplier;
(iv) contracts and other agreements for the
sale of any of the assets or properties of Pacific or any Subsidiary other
than in the ordinary course of business or for the grant to any person of any
options, rights of first refusal, or preferential or similar rights to
purchase any of such assets or properties;
(v) partnership or joint venture agreements;
(vi) contracts with agents or foreign
representatives regarding the sales or marketing of the services or products
of Pacific or any Subsidiary;
(vii) contracts or other agreements under which
Pacific or any Subsidiary agrees to act as surety or guarantor for or to
indemnify any party (other than required indemnification provisions in
customer contracts) or to share the tax liability of any party;
(viii) contracts, options, outstanding purchase
orders and other agreements for the purchase of any material asset, tangible
or intangible;
(ix) contracts and other agreements with
customers, suppliers or other parties for the sharing of fees, the rebating
of charges or other similar arrangements other than such contracts entered
into in the normal course of business;
(x) contracts and other agreements containing
obligations or liabilities of any kind to holders of the securities of
Pacific or of any Subsidiary as such (including, without limitation, an
obligation to register any of such securities under any federal or state
securities laws) and contracts obligating Pacific or any Subsidiary to issue
or repurchase any securities;
13
(xi) contracts and other agreements containing
covenants of Pacific or any Subsidiary not to compete in any line of business
or with any person or entity or covenants of any other person or entity not
to compete with Pacific or any Subsidiary in any line of business;
(xii) contracts and other agreements relating to
the acquisition by Pacific or any Subsidiary of any operating business or the
capital stock of any other person or entity;
(xiii) contracts and other agreements requiring
the payment to any party of a brokerage or sales commission or a finder's or
referral fee;
(xiv) contracts, indentures, mortgages,
promissory notes, debentures loan agreements, guaranties, security
agreements, pledge agreements, and other agreements and instruments relating
to the borrowing or lending of money or securing any such liability;
(xv) any agreement or series of related
agreements requiring aggregate payments by or to Pacific or any Subsidiary of
more than $5,000;
(xvi) contracts under which Pacific or any
Subsidiary will acquire or has acquired ownership of, or license to,
intangible property, including software other than commercially available
end-user licenses; and
(xvii) any other material contract or other
agreement whether or not made in the ordinary course of business.
There have been delivered or made available to Procept true and
complete copies of all of the contracts and other agreements (and all
amendments, waivers or other modifications thereto) set forth in Section 3.14
of the PACIFIC DISCLOSURE SCHEDULE. All of such contracts and other
agreements are valid, subsisting, in full force and effect, binding upon
Pacific or a Subsidiary (as the case may be), and to the best knowledge of
Pacific, binding upon the other parties thereto in accordance with their
terms. Other than defaults which would not, either singly or in the
aggregate, have a Pacific Material Adverse Effect, none of Pacific or any
Subsidiary is not in default under any of such scheduled contracts, nor, to
the best knowledge of Pacific, is any other party to any such contract or
other agreement in default thereunder, nor does any condition exist that
constitutes or with notice or lapse of time or both would constitute a
default thereunder.
3.15 REAL PROPERTY; LEASES. None of Pacific or any Subsidiary does
not own any real property or any buildings or other structures and does not
have any options or any contractual obligations to purchase or acquire any
interest in real property except as set forth in Section 3.15 of the PACIFIC
DISCLOSURE SCHEDULE. Section 3.15 of the PACIFIC DISCLOSURE SCHEDULE sets
forth a correct and complete list of all leases of real property to which
Pacific is a party (collectively, the "LEASES"). True and complete copies of
the leases and all amendments, modifications and supplemental agreements
thereto have been delivered by Pacific to Procept. The Leases are in full
force and effect and to the best knowledge of Pacific, are binding and
enforceable against each of the parties thereto in accordance with their
respective terms. To the best knowledge of Pacific no party to any Lease has
given notice to any other party thereto claiming the existence
14
or occurrence of a breach or default thereunder and there has not occurred
any event or circumstances which constitutes, or with the passage of time or
the giving of notice would constitute, a breach or default thereunder other
than defaults which would not, either singly or in the aggregate, have a
Pacific Material Adverse Effect.
3.16 TANGIBLE PROPERTY. Each of Pacific and the Subsidiaries has
good and marketable title to, free and clear of all Encumbrances, or
otherwise has the unrestricted right to use, each item of equipment,
furniture, leasehold improvements, fixtures, vehicles, structures, any
related capitalized items and other tangible property material to the
business of Pacific or such Subsidiary ("TANGIBLE PROPERTY"). All such
Tangible Property is in good and sufficient operating condition and repair,
ordinary wear and tear excepted, and to the best knowledge of Pacific, none
of Pacific or such Subsidiary has received notice that any of its Tangible
Property is in violation of any existing law or any building, zoning, health,
safety or other ordinance, code or regulation.
3.17 INTELLECTUAL PROPERTY.
(a) To the knowledge of Pacific, each of Pacific and the
Subsidiaries owns, or is licensed to use, or otherwise has the right to use
all patents, trademarks, service marks, trade names, trade secrets, logos,
franchises, and copyrights, and all applications for any of the foregoing,
and all technology, inventions, trade secrets, know-how, computer software
and processes to the extent material to the conduct of its business as now
conducted (collectively, the "PROPRIETARY RIGHTS"). Pacific has previously
delivered to Procept a certified list of all such patents and registered
copyrights and trademarks, and all applications therefor (the "PACIFIC
REGISTERED RIGHTS"). All of the Pacific Registered Rights owned by Pacific or
any Subsidiary, and to the best knowledge of Pacific, all Pacific Registered
Rights licensed to Pacific or any Subsidiary have been registered in, filed
in or issued by the United States Patent and Trademark Office, the United
States Register of Copyrights, or the corresponding offices of other
jurisdictions as identified in Section 3.17 of the PACIFIC DISCLOSURE
SCHEDULE, and have been properly maintained and renewed in accordance with
all applicable provisions of law and administrative regulations in the United
States and in each such other jurisdiction.
(b) To the best knowledge of Pacific, the businesses of
Pacific and the Subsidiaries as currently conducted does not infringe upon
the proprietary rights of others, nor has Pacific or any Subsidiary received
any notice or claim from any third party of such infringement by Pacific or
any Subsidiary . Pacific is not aware of any material unlicensed
infringement by any third party on, or any issued competing claim of right to
use or own any of, the Proprietary Rights of Pacific. To the best knowledge
of Pacific, none of the activities of the employees of Pacific or any
Subsidiary on behalf of Pacific or such Subsidiary violates any agreements or
arrangements that any such employees have with former employers.
3.18 TITLE TO ASSETS; LIENS. Each of Pacific and the Subsidiaries
owns outright, leases or rents, and has good title to all of its material
assets and properties, including, without limitation, all of the assets and
properties reflected on the Pacific Interim Balance Sheet, free and clear of
any Encumbrance, except for (i) assets and properties disposed of in the
ordinary course of business, (ii) Encumbrances securing the claims of
materialmen, carriers, landlords and like persons, all of which are not yet
due and payable, (iii) liens for taxes not yet due and payable or
15
for taxes being contested in good faith by appropriate proceedings, or (iv)
Encumbrances reflected on the Pacific Interim Balance Sheet.
3.19 EMPLOYEE BENEFIT PLANS. Section 3.19 of the PACIFIC DISCLOSURE
SCHEDULE sets forth a correct and complete list of all pension, profit
sharing, retirement, deferred compensation, welfare, insurance, disability,
bonus, vacation pay, severance pay and similar plans, programs or
arrangements, including without limitation all employee benefit plans as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") with respect to which Pacific is the "PLAN
SPONSOR" within the meaning of Section 3(16)(B) of ERISA, or in which Pacific
or any Subsidiary participates (the "PLANS"). None of Pacific or any
Subsidiary has never maintained or contributed to any "MULTIEMPLOYER PLAN" as
defined in Section 4001(a)(3) of ERISA, and none of Pacific or any Subsidiary
has incurred any material liability under Sections 4062, 4063 or 4201 of
ERISA. Each Plan which is intended to be qualified under Section 401(a) or
501(c)(9) of the Internal Revenue Code of 1986, as amended (the "CODE"), has
received a favorable determination letter from the Internal Revenue Service.
Each Plan has been administered in all material respects in accordance with
the terms of such Plan and the provisions of any and all applicable statutes,
orders or governmental rules or regulations, including without limitation
ERISA and the Code. To the knowledge of Pacific, nothing has been done or
omitted to be done with respect to any Plan which is intended to comply with
Section 401(a) of the Code that would adversely affect the qualified status
of such Plan or result in any material liability on the part of Pacific
including, without limitation, under Title I of ERISA or Section 4975 of the
Code (other than an operational violation that could be corrected through the
Internal Revenue Service's Administrative Policy Regarding Self-Correction).
All material reports, returns, notices and documents required to be filed
with respect to all Plans, including without limitation annual reports on
Form 5500, have been timely filed. No "REPORTABLE EVENT" as defined at
Section 4043 of ERISA, other than any such event for which the thirty-day
notice period has been waived, has occurred with respect to any Plan subject
to Title IV of ERISA, and no event has occurred requiring notices to be
provided under Section 4063(a) of ERISA. Except as set forth on the PACIFIC
DISCLOSURE SCHEDULE, all contributions required by law or the terms of any
Plan have been made. With respect to all Plans subject to Title IV of ERISA,
such Plans have no unfunded benefit liabilities and all premium payments to
the Pension Benefit Guaranty Corporation with respect to such Plans have been
made. Except as set forth on the PACIFIC DISCLOSURE SCHEDULE, all
contributions to such Plans subject to Section 412 of the Code required to be
made under the minimum funding requirements of Section 412 of the Code have
been made or accrued. Except as set forth on the PACIFIC DISCLOSURE
SCHEDULE, all claims for welfare benefits incurred by employees of Pacific or
any Subsidiary on or before the Closing are or will be fully covered by
third-party insurance policies or programs. None of the Plans is a defined
benefit pension plan that is subject to Title IV of ERISA, nor has Pacific
ever maintained such a plan. Except for continuation of health coverage to
the extent required under Section 4980B of the Code or as otherwise set forth
in this Agreement, there are no obligations under any Plan providing group
health expense reimbursements benefits after termination of employment.
Complete copies of the following documents with respect to each Plan (as
applicable) have been delivered to Procept: (i) each relevant Plan document
and subsequent amendment thereto; (ii) each trust agreement, group annuity
contract, insurance policy or contract; (iii) each Form 5500 series annual
report with each required schedule and attachment for each of the three (3)
most recent plan years; (iv) the most recent IRS determination letter; and
(v) the most recent summary plan description and each summary of material
modification thereto. For purposes of this
16
Section 3.19, references to Pacific include Pacific and its ERISA Affiliates.
An "ERISA Affiliate" of Pacific means any trade or business (whether or not
incorporated) that together with Pacific would have been deemed a "single
employer" within the meaning of Section 4001(b) of ERISA or Section 414(m) of
the Code at any time within the five-year period ending on the Closing Date.
3.20 EMPLOYEE RELATIONS. Pacific has approximately six full-time
equivalent employees and generally enjoys good employer-employee relations.
The number of employees of each Subsidiary is set forth on the PACIFIC
DISCLOSURE SCHEDULE. None of Pacific's or any Subsidiary's employees are
represented by any labor union. None of Pacific or any Subsidiary is
delinquent in payments to any of its employees or consultants for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed by them to the date hereof or amounts required to be reimbursed to
such employees or consultants. Neither Procept nor Pacific will by reason of
the Merger or anything done prior to the Closing be liable to any Pacific
employees for severance pay or any other payments (other than accrued salary,
vacation or sick pay in accordance with Pacific's normal policies) in the
event any such employees are terminated. Correct and complete information as
to all current directors, officers, employees or consultants of Pacific and
the Subsidiaries including, in each case, name, current job title and annual
rate of compensation has been provided by Pacific to Procept.
3.21 RELATIONSHIPS WITH AFFILIATES. Except as set forth in Section
3.21 of the PACIFIC DISCLOSURE SCHEDULE, to the best knowledge of Pacific, no
officer or director of Pacific or any Subsidiary has directly or indirectly
any interest in, (i) any property or assets of Pacific or any Subsidiary
(except as a stockholder of Pacific), (ii) any competitor or customer of
Pacific or any Subsidiary, (iii) any supplier or lender to Pacific or any
Subsidiary, or (iv) any party to any material contract or agreement with
Pacific or any Subsidiary.
3.22 INSURANCE. Section 3.22 of the PACIFIC DISCLOSURE SCHEDULE
sets forth a correct and complete list of all policies or binders of fire,
liability, product liability, workmen's compensation, vehicular, directors'
and officers' and other insurance held by or on behalf of Pacific and the
Subsidiaries specifying in each case the type and scope of coverage, the
amount of coverage, the premium, the insurer, the expiration date and all
claims made thereunder within the past three years. Such policies and
binders are in full force and effect, are reasonably believed to be adequate
for the businesses engaged in by Pacific and the Subsidiaries, are in
conformity with the requirements of all leases or other agreements to which
Pacific and the Subsidiaries are parties and are valid and enforceable in
accordance with their terms. All premiums due under such policies and
binders have been paid, and none of Pacific or any Subsidiary is in default
with respect to any provision contained in any such policy or binder nor has
Pacific failed to give any notice or present any claim under any such policy
or binder in due and timely fashion. There are no outstanding unpaid claims
under any such policy or binder. None of Pacific or any Subsidiary has
received notice of cancellation or non-renewal of, or any material amendment
to, or any material increase in deductibles or premiums under, any such
policy or binder. Correct and complete copies of certificates of insurance
with respect to all such policies and binders have been provided by Pacific
to Procept.
3.23 BROKERAGE. Other than the brokerage fee disclosed on the
PACIFIC DISCLOSURE SCHEDULE, no broker, finder, agent or similar intermediary
has acted on behalf of Pacific in
17
connection with this Agreement or the transactions contemplated hereby, and
there are no brokerage commissions, finders fees or similar fees or
commissions payable in connection therewith based on any agreement,
arrangement or understanding with, or any action taken by Pacific.
3.24 HAZARDOUS MATERIALS. None of Pacific or any Subsidiary has
generated, used or handled any Hazardous Materials (as defined below), nor
has Pacific treated, stored or disposed of any Hazardous Materials at any
site owned or leased at any time by Pacific or any Subsidiary or shipped any
Hazardous Materials for treatment, storage or disposal at any other site or
facility, except in compliance with all applicable laws. To the knowledge of
Pacific, no other person has generated, used, handled, stored or disposed of
any Hazardous Materials at any site owned or premises leased by Pacific or
any Subsidiary at any time or at any site in which Pacific or any Subsidiary
presently holds a mortgage or similar interest, nor has there been or is
there threatened any release of any Hazardous Materials on or at any such
site or premises. None of Pacific or any Subsidiary presently operates or
leases nor have any of them operated or leased any site on which, underground
storage tanks are or were located and which tanks are the responsibility of
Pacific or such Subsidiary to operate. To the knowledge of Pacific, without
investigation, no lien has been imposed by any governmental agency in
connection with the presence of any Hazardous Materials on any property,
facility, machinery, or equipment operated or leased by Pacific or any
Subsidiary or in which Pacific or any Subsidiary holds any mortgage, lien, or
similar interest. For purposes of this Section 3.24, "HAZARDOUS MATERIALS"
shall mean and include any "HAZARDOUS WASTE" as defined in either the United
States Resource Conservation and Recovery Act, 42 U.S.C. 6901, or regulations
adopted pursuant to said Act, and also any "HAZARDOUS SUBSTANCES" or
"HAZARDOUS MATERIALS" as defined in the United States Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, but
excludes ordinary and customary materials in quantities reasonably required
to be used by Pacific or any Subsidiary in the ordinary course of such
company's business.
3.25 FULL DISCLOSURE. All documents and other papers delivered by
or on behalf of Pacific in connection with this Agreement and the
transactions contemplated hereby are true, complete and authentic. No
representation, warranty or statement of Pacific made in this Agreement or in
any Exhibit or the PACIFIC DISCLOSURE SCHEDULE hereto or in any document,
statement or certificate furnished to Procept pursuant to this Agreement
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements made,
in light of the circumstance under which they were made, not false or
misleading.
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF PROCEPT
Except as set forth on the disclosure schedule (the "PROCEPT
DISCLOSURE SCHEDULE") delivered to Procept on the date hereof, (regardless of
whether the PROCEPT DISCLOSURE SCHEDULE is referenced in any particular
subsection of this Section 4), the subsection numbers of which are numbered
to correspond to the subsection numbers of this Agreement to which they refer
(provided that disclosure thereon under any subsection number shall be
disclosure for any section hereof), Procept represents and warrants to
Procept as set forth below:
18
4.1 ORGANIZATION AND QUALIFICATION. Procept is a corporation duly
organized, validly existing and in good standing under the laws of the state
or other jurisdiction of its incorporation and has full corporate power and
authority to own, lease and operate its assets, properties and business and
to carry on its business as now being and as heretofore conducted. Procept
is qualified or is otherwise authorized to transact business as a foreign
corporation in each jurisdiction (in the United States and outside of the
United States) in which the failure to so qualify would have a material
adverse effect on the business or financial condition of Procept (other than
changes that are the effect of economic factors affecting the economy or the
pharmaceutical industry as a whole) (a "Procept Material Adverse Effect"),
all of which jurisdictions are identified in Section 4.1 of the PROCEPT
DISCLOSURE SCHEDULE.
4.2 CAPITALIZATION.
4.2.1 OUTSTANDING CAPITAL STOCK. Procept's authorized capital
stock consists of 30,000,000 shares of Common Stock, $.01 par value per
share, of which 3,001,832 shares are issued and outstanding as of November 6,
1998, and 1,000,000 shares of Preferred Stock, $.01 par value per share, none
of which shares are issued and outstanding. Except as disclosed in Procept's
proxy statement for its annual meeting of stockholders held on May 18, 1998,
Procept is not aware of any record or beneficial holder of more than five
percent (5%) of the outstanding shares of Procept Stock. The outstanding
shares of Procept Stock are duly authorized, validly issued, fully paid, and
nonassessable and have been issued in compliance with all charter documents
of Procept and all applicable federal and state laws. Except as set forth in
this Section 4.2.1, no other capital stock of Procept is authorized or
outstanding.
4.2.2 OPTIONS OR OTHER RIGHTS. Except as set forth in the
PROCEPT DISCLOSURE SCHEDULE, (i) no subscription, warrant, option, preemptive
right, convertible security or other right (contingent or otherwise) to
purchase or acquire any shares of capital stock or other security of Procept
issued by Procept is authorized or outstanding, (ii) there is no commitment
or offer by Procept to issue or provide any such subscription, warrant,
option, preemptive right, convertible security or other right or to issue or
distribute to holders of any shares of its capital stock any evidences of
indebtedness or assets of Procept, (iii) Procept has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares
of its capital stock or any interest therein or to pay any dividend or make
any other distribution in respect thereof, (iv) there are no restrictions on
the transfer of Procept's capital stock other than those arising from
securities laws, and (v) there are no voting trusts, proxies or other
agreements, instruments or understandings with respect to outstanding shares
of Procept's capital stock to which Procept is a party.
4.3 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. Subject to the
requirement to obtain approval of its stockholders to consummate the Merger
under the DGCL, Procept has the requisite corporate power and authority to
execute and deliver this Agreement and each agreement, document and
instrument contemplated by this Agreement to which it is a party, to
consummate the transactions contemplated hereby and thereby and to perform
fully its respective obligations hereunder and thereunder. The execution,
delivery and performance of this Agreement and each such other agreement,
document and instrument to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Procept. This Agreement and each
19
agreement, document and instrument to which it is a party executed and
delivered pursuant to this Agreement constitutes, or when executed and
delivered will constitute, valid and binding obligations of Procept,
enforceable in accordance with their terms.
4.4 SUBSIDIARIES AND OTHER AFFILIATES. Except as set forth on the
PROCEPT DISCLOSURE SCHEDULE Procept does not have any subsidiary or directly
or indirectly own or have any investment in any of the capital stock of, or
any other interest in, any other person or entity.
4.5 CHARTER AND BY-LAWS; BOOKS AND RECORDS. Procept has heretofore
delivered or made available to Procept true and complete copies of its
Certificate of Incorporation (certified by the Secretary of State or
comparable authority of its jurisdiction of incorporation) and By-laws as in
effect on the date hereof, and corporate minute books. Procept is not in
default in the performance, observation or fulfillment of either its charter
or By-laws. The minute books of Procept contain true and complete records of
all meetings and consents in lieu of meetings of the Board of Directors and
of the stockholders of Procept prior to the date hereof, and accurately
reflect all transactions referred to in such minutes and consents in lieu of
meetings. The stock books of Procept are true, complete and correct. The
general ledgers and books of account of Procept to which Procept and its
representatives have been given access are correct and complete in all
material respects and have been maintained in accordance with good business
practice.
4.6 SEC REPORTS. Procept has previously delivered to Procept its
(i) Annual Report on Form 10-K/A for the year ended December 31, 1997 (the
"Procept 10-K"), as filed with the Securities and Exchange Commission (the
"SEC"), (ii) the proxy statement relating to Procept's annual meeting of
stockholders held on May 18, 1998 and (iii) all other reports filed by
Procept with the SEC under the Exchange, since January 1, 1998. As of their
respective dates, such reports complied in all material respects with
applicable SEC requirements and 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. Procept has timely filed with
the SEC all reports required to be filed under Sections 13, 14 or 15(d) of
the Exchange Act since becoming registered under the Exchange Act.
4.7 FINANCIAL STATEMENTS. The consolidated financial statements
contained in the Procept 10-K and in Procept's quarterly report on Form 10-Q
for the quarter ended September 30, 1998 (the "PROCEPT 10-Q") have been
prepared from, and are in accordance with, the books and records of Procept
and fairly present the consolidated financial condition, results of
operations and cash flows of Procept as of the dates and for the periods
presented therein, all in accordance with generally accepted accounting
principles applied on a consistent basis, except as otherwise indicated
therein and subject (in the case of the unaudited financial statements
included in the Procept 10-Q) to normal year-end and audit adjustments and
footnote disclosures, which in the aggregate are not material.
4.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
PROCEPT DISCLOSURE SCHEDULE at December 31, 1997, Procept had no material
liabilities of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation, liabilities as guarantor or otherwise with
respect to obligations of others or liabilities for taxes due or then accrued
or to become due), required to be reflected or disclosed in the balance sheet
dated December 31, 1997
20
(or the notes thereto) included in the Procept 10-K (the "PROCEPT BALANCE
SHEET") that were not adequately reflected or reserved against on such
balance sheet. Except as set forth in the PROCEPT DISCLOSURE SCHEDULE,
Procept has no such liabilities, except as and to the extent (i) adequately
reflected and reserved against in the Procept Balance Sheet, (ii) adequately
reflected and reserved against in the Procept unaudited balance sheet dated
September 30, 1998 included in the Procept 10-Q (the "PROCEPT INTERIM BALANCE
SHEET"), or (iii) incurred since December 31, 1997 in the ordinary course of
business and not material in amount, either individually or in the aggregate.
4.9 NO MATERIAL ADVERSE CHANGE. Since December 31, 1997, except as
set forth in the PROCEPT DISCLOSURE SCHEDULE, there has not been:
(i) any material adverse change in the assets,
liabilities, condition (financial or otherwise), results of operation,
business or prospects of Procept or any occurrence or circumstance which
reasonably could be expected to result in such a material adverse change;
(ii) any material change in the method of
operating the business of Procept, in the manner of keeping the books,
accounts or records of Procept, or in any accounting method or practice of
Procept;
(iii) any sale, lease, mortgage, pledge,
encumber, abandonment or disposition of, or agreement to sell, lease,
mortgage, pledge, encumber, abandon or dispose of, any material assets or
properties of Procept, other than in the usual and ordinary course of
business;
(iv) any material transaction, commitment,
contract or agreement entered into by Procept, or any relinquishment or
abandonment by Procept of any material contract or right, or any
modification, waiver, amendment, release, recision, or termination of any
material term, condition or provision of any contract pertaining to Procept
(other than any satisfaction by performance in accordance with the terms
thereof), other than in the usual and ordinary course of business;
(v) any adverse relationships or conditions
with employees, suppliers, lenders, customers or governmental agencies that
could reasonably be anticipated to have a Pacific Material Adverse Effect on
Procept or its business;
(vi) any acquisition by Procept (other than
property or interests therein acquired in the ordinary course of its lending
business) of all or any part of the assets, properties, capital stock or
business of any other person or entity;
(vii) any redemption or other acquisition by
Procept of any of its capital stock or any declaration, setting aside or
payment of any dividend or distribution of any kind with respect to shares of
its capital stock;
(viii) any loan or advance by Procept to any
stockholder, officers, director or consultant, or any other loan or advance
other than in the ordinary course of business; or
21
(ix) except as set forth in the PROCEPT
DISCLOSURE SCHEDULE, any new employment or consulting agreement, any increase
in compensation, bonus or other benefits payable or to become payable by
Procept to any director, officer or employee, other than regularly scheduled
increases consistent with past practice in the ordinary course of business,
or any new grant of severance or termination rights, or increase in rights or
benefits payable under existing severance or termination policies or
agreements, to any director, officer or employee of Procept.
4.10 TAX MATTERS.
(a) DEFINITION OF TAXES. For the purposes of this
Agreement, "Tax" or, collectively, "Taxes", means any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities in the nature of a tax including taxes based upon
or measured by gross receipts, income, profits, sales, use and occupation,
and value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in the
Procept Disclosure Schedule:
(i) Procept has prepared and filed all
required federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") required to be filed relating to any and
all Taxes concerning or attributable to Procept or its operations and such
Returns are true and correct in all material respects and have been completed
in all material respects in accordance with applicable law or, with respect
to any Taxes payable, an adequate reserve has been established on the Procept
Interim Balance Sheet.
(ii) Procept: (A) has paid or accrued all Taxes
set forth on its Returns, and (B) has withheld and paid (or will pay at the
time required) with respect to its employees all federal and state income
taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) Procept is not delinquent in any material
respect in the payment of any Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Procept, nor has Procept executed
any waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) Other than the audits set forth in the
Procept Disclosure Schedule, no audit or other examination of any Return of
Procept is currently in progress, nor has Procept been notified of any
request for such an audit or other examination.
(v) Procept did not have, as of September 30,
1998, any liabilities, whether asserted or unasserted, contingent or
otherwise, for unpaid federal, state, local and foreign Taxes which have not
been accrued or reserved against in accordance with GAAP on the Procept
Interim Balance Sheet, and Procept has not incurred any such liabilities
since such date except in the ordinary course of business and consistent with
past practices.
22
(vi) There are (and as of immediately following
the Effective Date there will be) no liens, pledges, charges, claims,
security interests or other encumbrances of any sort ("Liens") of a material
nature on the assets of Procept relating to or attributable to Taxes, except
for Liens for Taxes not yet due and payable or that are being contested in
good faith by appropriate proceedings.
(vii) Procept has not received written or oral
notice of any claim relating or attributable to Taxes that, if adversely
determined, would result in any Lien on the assets of Procept.
(viii) None of Procept's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(ix) As of the Effective Time, there will not
be any contract, agreement, plan or arrangement, including but not limited to
the provisions of this Agreement, covering any employee or former employee of
Procept that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G of the Code
or the limitations in Sections 162 of the Code.
(x) Procept has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by Procept.
(xi) Procept is not a party to a tax sharing or
allocation agreement nor does Procept owe any amount under any such agreement.
(xii) Procept is not nor has been at any time
during the period specified in Section 897(c)(1)(A)(ii) of the Code, a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiii) Procept has agreed to, or is required to,
make any adjustments under Section 481(c) of the Code by reason of a change
in accounting method or otherwise.
4.11 COMPLIANCE WITH LAWS.
4.11.1 Procept is not in violation in any material respect of
any order, judgment, injunction, award or decree, or any federal, state,
local or foreign law, ordinance or regulation or any other requirement of any
governmental or regulatory body, court or arbitrator, and is in compliance in
all material respects with all of the foregoing that are applicable to it,
its business or its assets. Procept has not received notice of, and there
has not been any citation, fine or penalty imposed or asserted against any of
them for, any such violation or alleged violation that has not been favorably
and fully resolved.
4.11.2 Procept holds all licenses, permits, certificates,
franchises, orders or approvals of any federal, state, local or foreign
governmental or regulatory body, that are material to the conduct of
Procept's business and the uses of its assets (collectively, "PERMITS")
necessary to operate its business as presently conducted. The PROCEPT
DISCLOSURE SCHEDULE
23
contains a true and complete list of all such permits as of the date hereof.
Such Permits are in full force and effect and the validity and effectiveness
of such Permits will not be affected by the transactions contemplated hereby.
No violations are or have been recorded with any governmental or regulatory
body in respect of any Permit, no proceeding is pending or, to the best
knowledge of Procept, threatened to revoke or limit any Permit, and Procept
knows of no grounds for any such revocation or limitation.
4.12 CONSENTS; NO BREACH. All consents, permits, authorizations and
approvals from any person or entity that are required pursuant to applicable
law, or agreement or otherwise in connection with the execution, delivery and
performance of this Agreement by Procept are set forth in Section 4.12 of the
PROCEPT DISCLOSURE SCHEDULE, other than those which the failure to obtain
would not affect the validity of this transaction or materially adversely
affect the business of the Surviving Corporation after the Effective Time.
Subject to any prior approval requirements set forth in Section 4.12 of the
PROCEPT DISCLOSURE SCHEDULE, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
not (i) violate any provision of the Certificate of Incorporation or By-laws
of Procept; (ii) violate, conflict with or result in the breach of any of the
terms or conditions of, result in a material modification of, or otherwise
give any other contracting party the right to terminate, or constitute (or
with notice or lapse of time or both constitute) a default under, any
material instrument, contract or other agreement to which Procept is a party
or to which Procept or any of its assets or properties is bound or subject;
(iii) violate any statute, law or regulation of any jurisdiction (which
violation would affect the validity of the transaction contemplated hereby or
otherwise would materially adversely affect the business of the Surviving
Corporation after the Effective Time) or any order, judgment, injunction,
award or decree of any court, arbitrator or governmental or regulatory body
applicable to or binding upon Procept or its securities, properties, assets
or business; (iv) violate any material Permit; (v) except with respect to
change of control provisions in customer contracts, require any filing with,
notice to, or approval or consent of any foreign, federal, state, local or
other governmental or regulatory body or any other person or entity; (vi)
give rise to any obligation to make any material payment; or (vii) result in
the creation of any Encumbrance on the assets or properties of Procept,
excluding from the foregoing clauses (ii), (iii), (iv) and (v) any exceptions
to the foregoing that, in the aggregate, would not have a Pacific Material
Adverse Effect on the business of Procept or on the ability of Procept to
consummate the transactions contemplated hereby, and the following: (a) the
filing of the Merger Certificate with the Secretary of State of Delaware (b)
filings with various state blue sky authorities, (c) the filing with Nasdaq
of an application for listing of the shares of Procept Common Stock to be
issued in the Merger and (d) the filing with the SEC of a registration
statement on Form S-4 to register the shares of Procept Common Stock to be
issued in the Merger.
4.13 ACTIONS AND PROCEEDINGS. Except as set forth on the PROCEPT
DISCLOSURE SCHEDULE, there are no outstanding orders, judgments, injunctions,
awards or decrees of any court, governmental or regulatory body or
arbitration tribunal against or involving Procept or any of its securities,
assets, or properties. There are no actions, suits or claims or legal,
judicial, administrative or arbitral proceedings or investigations (whether
or not the defense thereof or liabilities in respect thereof are covered by
insurance) pending or, to the best knowledge of Procept, threatened against
or involving Procept or any of its securities, assets or properties.
24
4.14 CONTRACTS AND OTHER AGREEMENTS. Section 4.14 of the PROCEPT
DISCLOSURE SCHEDULE sets forth a correct and complete list all of the
following currently effective contracts:
(i) written contracts and other agreements
with or for the benefit of any current or former officer, director,
stockholder or employee of Procept involving more than $5,000, (provided in
the case of a loan by Procept to any such person, the PROCEPT DISCLOSURE
SCHEDULE shall list all such loan arrangements, whether or not in writing,
involving at least $1,000) and contracts and other agreements for the payment
of fees or other consideration to any entity in which Procept has an interest;
(ii) contracts and other agreements with any
labor union or association representing any employee of Procept or otherwise
providing for any form of collective bargaining;
(iii) contracts and other agreements for the
purchase or sale of materials, supplies, equipment, merchandise or services
that contain an escalation, renegotiation or redetermination clause or that
obligate Procept to purchase all or substantially all of its requirements of
a particular product from a supplier, or for periodic minimum purchases of a
particular product from a supplier;
(iv) contracts and other agreements for the
sale of any of the assets or properties of Procept other than in the ordinary
course of business or for the grant to any person of any options, rights of
first refusal, or preferential or similar rights to purchase any of such
assets or properties;
(v) partnership or joint venture agreements;
(vi) contracts with agents or foreign
representatives regarding the sales or marketing of Procept's services or
products;
(vii) contracts or other agreements under which
Procept agrees to act as surety or guarantor for or to indemnify any party
(other than required indemnification provisions in customer contracts) or to
share the tax liability of any party;
(viii) contracts, options, outstanding purchase
orders and other agreements for the purchase of any material asset, tangible
or intangible;
(ix) contracts and other agreements with
customers, suppliers or other parties for the sharing of fees, the rebating
of charges or other similar arrangements other than such contracts entered
into in the normal course of business;
(x) contracts and other agreements containing
obligations or liabilities of any kind to holders of the securities of
Procept as such (including, without limitation, an obligation to register any
of such securities under any federal or state securities laws) and contracts
obligating Procept to issue or repurchase any Procept securities;
25
(xi) contracts and other agreements containing
covenants of Procept not to compete in any line of business or with any
person or entity or covenants of any other person or entity not to compete
with Procept in any line of business;
(xii) contracts and other agreements relating to
the acquisition by Procept of any operating business or the capital stock of
any other person or entity;
(xiii) contracts and other agreements requiring
the payment to any party of a brokerage or sales commission or a finder's or
referral fee;
(xiv) contracts, indentures, mortgages,
promissory notes, debentures loan agreements, guaranties, security
agreements, pledge agreements, and other agreements and instruments relating
to the borrowing or lending of money or securing any such liability;
(xv) any agreement or series of related
agreements requiring aggregate payments by or to Procept of more than $5,000;
(xvi) contracts under which Procept will acquire
or has acquired ownership of, or license to, intangible property, including
software other than commercially available end-user licenses; and
(xvii) any other material contract or other
agreement whether or not made in the ordinary course of business.
There have been delivered or made available to Pacific true and
complete copies of all of the contracts and other agreements (and all
amendments, waivers or other modifications thereto) set forth in Section 4.14
of the PROCEPT DISCLOSURE SCHEDULE. All of such contracts and other
agreements are valid, subsisting, in full force and effect, binding upon
Procept, and to the best knowledge of Procept, binding upon the other parties
thereto in accordance with their terms. Other than defaults which would not,
either singly or in the aggregate, have a Procept Material Adverse Effect,
Procept is not in default under any of such scheduled contracts, nor, to the
best knowledge of Procept, is any other party to any such contract or other
agreement in default thereunder, nor does any condition exist that
constitutes or with notice or lapse of time or both would constitute a
default thereunder.
4.15 REAL PROPERTY; LEASES. Procept does not own any real property
or any buildings or other structures and does not have any options or any
contractual obligations to purchase or acquire any interest in real property
except as set forth in Section 4.15 of the PROCEPT DISCLOSURE SCHEDULE.
Section 4.15 of the PROCEPT DISCLOSURE SCHEDULE sets forth a correct and
complete list of all leases of real property to which Procept is a party
(collectively, the "LEASES"). True and complete copies of the leases and all
amendments, modifications and supplemental agreements thereto have been
delivered by Procept to Procept. The Leases are in full force and effect and
to the best knowledge of Procept, are binding and enforceable against each of
the parties thereto in accordance with their respective terms. To the best
knowledge of Procept no party to any Lease has given notice to any other
party thereto claiming the existence or occurrence of a breach or default
thereunder and there has not occurred any event or circumstances which
constitutes, or with the passage of time or the giving of notice would
constitute, a breach or default thereunder
26
other than defaults which would not, either singly or in the aggregate, have
a Procept Material Adverse Effect.
4.16 TANGIBLE PROPERTY. Procept has good and marketable title to,
free and clear of all Encumbrances, or otherwise has the unrestricted right
to use, each item of equipment, furniture, leasehold improvements, fixtures,
vehicles, structures, any related capitalized items and other tangible
property material to the business of Procept ("TANGIBLE PROPERTY"). All such
Tangible Property is in good and sufficient operating condition and repair,
ordinary wear and tear excepted, and to the best knowledge of Procept,
Procept has not received notice that any of its Tangible Property is in
violation of any existing law or any building, zoning, health, safety or
other ordinance, code or regulation.
4.17 INTELLECTUAL PROPERTY.
(a) To the knowledge of Procept, Procept owns, or is
licensed to use, or otherwise has the right to use all patents, trademarks,
service marks, trade names, trade secrets, logos, franchises, and copyrights,
and all applications for any of the foregoing, and all technology,
inventions, trade secrets, know-how, computer software and processes to the
extent material to the conduct of its business as now conducted
(collectively, the "PROPRIETARY RIGHTS"). Procept has previously delivered
to Procept a certified list of all such patents and registered copyrights and
trademarks, and all applications therefor (the "PROCEPT REGISTERED RIGHTS").
All of the Procept Registered Rights owned by Procept, and to the best
knowledge of Procept, all Procept Registered Rights licensed to Procept, have
been registered in, filed in or issued by the United States Patent and
Trademark Office, the United States Register of Copyrights, or the
corresponding offices of other jurisdictions as identified in Section 4.17 of
the PROCEPT DISCLOSURE SCHEDULE, and have been properly maintained and
renewed in accordance with all applicable provisions of law and
administrative regulations in the United States and in each such other
jurisdiction.
(b) To the best knowledge of Procept, the business of
Procept as currently conducted does not infringe upon the proprietary rights
of others, nor has Procept received any notice or claim from any third party
of such infringement by Procept. Procept is not aware of any material
unlicensed infringement by any third party on, or any issued competing claim
of right to use or own any of, the Proprietary Rights of Procept. To the
best knowledge of Procept, none of the activities of the employees of Procept
on behalf of Procept violates any agreements or arrangements that any such
employees have with former employers.
4.18 TITLE TO ASSETS; LIENS. Procept owns outright, leases or
rents, and has good title to all of its material assets and properties,
including, without limitation, all of the assets and properties reflected on
the Procept Interim Balance Sheet, free and clear of any Encumbrance, except
for (i) assets and properties disposed of in the ordinary course of business
and as disclosed in the PROCEPT DISCLOSURE SCHEDULE, (ii) Encumbrances
securing the claims of materialmen, carriers, landlords and like persons, all
of which are not yet due and payable, (iii) liens for taxes not yet due and
payable or for taxes being contested in good faith by appropriate
proceedings, or (iv) Encumbrances reflected on the Procept Interim Balance
Sheet.
27
4.19 EMPLOYEE BENEFIT PLANS. Section 4.19 of the PROCEPT DISCLOSURE
SCHEDULE sets forth a correct and complete list of all pension, profit
sharing, retirement, deferred compensation, welfare, insurance, disability,
bonus, vacation pay, severance pay and similar plans, programs or
arrangements, including without limitation all employee benefit plans as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") with respect to which Procept is the "PLAN
SPONSOR" within the meaning of Section 3(16)(B) of ERISA, or in which Procept
participates (the "PLANS"). Procept has never maintained or contributed to
any "MULTIEMPLOYER PLAN" as defined in Section 4001(a)(3) of ERISA, and
Procept has not incurred any material liability under Sections 4062, 4063 or
4201 of ERISA. Each Plan which is intended to be qualified under Section
401(a) or 501(c)(9) of the Internal Revenue Code of 1986, as amended (the
"CODE"), has received a favorable determination letter from the Internal
Revenue Service. Each Plan has been administered in all material respects in
accordance with the terms of such Plan and the provisions of any and all
applicable statutes, orders or governmental rules or regulations, including
without limitation ERISA and the Code. To the knowledge of Procept, nothing
has been done or omitted to be done with respect to any Plan which is
intended to comply with Section 401(a) of the Code that would adversely
affect the qualified status of such Plan or result in any material liability
on the part of Procept including, without limitation, under Title I of ERISA
or Section 4975 of the Code (other than an operational violation that could
be corrected through the Internal Revenue Service's Administrative Policy
Regarding Self-Correction). All material reports, returns, notices and
documents required to be filed with respect to all Plans, including without
limitation annual reports on Form 5500, have been timely filed. No
"REPORTABLE EVENT" as defined at Section 4043 of ERISA, other than any such
event for which the thirty-day notice period has been waived, has occurred
with respect to any Plan subject to Title IV of ERISA, and no event has
occurred requiring notices to be provided under Section 4063(a) of ERISA.
Except as set forth on the PROCEPT DISCLOSURE SCHEDULE, all contributions
required by law or the terms of any Plan have been made. With respect to all
Plans subject to Title IV of ERISA, such Plans have no unfunded benefit
liabilities and all premium payments to the Pension Benefit Guaranty
Corporation with respect to such Plans have been made. Except as set forth
on the PROCEPT DISCLOSURE SCHEDULE, all contributions to such Plans subject
to Section 412 of the Code required to be made under the minimum funding
requirements of Section 412 of the Code have been made or accrued. Except as
set forth on the PROCEPT DISCLOSURE SCHEDULE, all claims for welfare benefits
incurred by employees of Procept on or before the Closing are or will be
fully covered by third-party insurance policies or programs. None of the
Plans is a defined benefit pension plan that is subject to Title IV of ERISA,
nor has Procept ever maintained such a plan. Except for continuation of
health coverage to the extent required under Section 4980B of the Code or as
otherwise set forth in this Agreement, there are no obligations under any
Plan providing group health expense reimbursements benefits after termination
of employment. Complete copies of the following documents with respect to
each Plan (as applicable) have been delivered to Procept: (i) each relevant
Plan document and subsequent amendment thereto; (ii) each trust agreement,
group annuity contract, insurance policy or contract; (iii) each Form 5500
series annual report with each required schedule and attachment for each of
the three (3) most recent plan years; (iv) the most recent IRS determination
letter; and (v) the most recent summary plan description and each summary of
material modification thereto. For purposes of this Section 4.19, references
to Procept include Procept and its ERISA Affiliates. An "ERISA Affiliate" of
Procept means any trade or business (whether or not incorporated) that
together with Procept would have been deemed a "single employer" within the
meaning of Section
28
4001(b) of ERISA or Section 414(m) of the Code at any time within the
five-year period ending on the Closing Date.
4.20 EMPLOYEE RELATIONS. Procept has approximately ten full-time
equivalent employees and generally enjoys good employer-employee relations.
None of Procept's employees are represented by any labor union. Procept is
not delinquent in payments to any of its employees or consultants for any
wages, salaries, commissions, bonuses or other direct compensation for any
services performed by them to the date hereof or amounts required to be
reimbursed to such employees or consultants. Neither Pacific nor Procept
will by reason of the Merger or anything done prior to the Closing be liable
to any Procept employees for severance pay or any other payments (other than
accrued salary, vacation or sick pay in accordance with Procept's normal
policies) in the event any such employees are terminated. Correct and
complete information as to all current directors, officers, employees or
consultants of Procept including, in each case, name, current job title and
annual rate of compensation has been provided by Procept to Pacific.
4.21 RELATIONSHIPS WITH AFFILIATES. Except as set forth in Section
4.21 of the PROCEPT DISCLOSURE SCHEDULE, to the knowledge of Procept, no
officer or director of Procept has directly or indirectly any interest in,
(i) any property or assets of Procept (except as a stockholder of Procept),
(ii) any competitor or customer of Procept, (iii) any supplier or lender to
Procept, or (iv) any party to any material contract or agreement with Procept.
4.22 INSURANCE. Section 4.22 of the PROCEPT DISCLOSURE SCHEDULE
sets forth a correct and complete list of all policies or binders of fire,
liability, product liability, workmen's compensation, vehicular, directors'
and officers' and other insurance held by or on behalf of Procept specifying
in each case the type and scope of coverage, the amount of coverage, the
premium, the insurer, the expiration date and all claims made thereunder
within the past three years. Such policies and binders are in full force and
effect, are reasonably believed to be adequate for the businesses engaged in
by Procept, are in conformity with the requirements of all leases or other
agreements to which Procept is a party and are valid and enforceable in
accordance with their terms. All premiums due under such policies and
binders have been paid, and Procept is not in default with respect to any
provision contained in any such policy or binder nor has Procept failed to
give any notice or present any claim under any such policy or binder in due
and timely fashion. There are no outstanding unpaid claims under any such
policy or binder. Procept has not received notice of cancellation or
non-renewal of, or any material amendment to, or any material increase in
deductibles or premiums under, any such policy or binder. Correct and
complete copies of certificates of insurance with respect to all such
policies and binders have been provided by Procept to Pacific.
4.23 BROKERAGE. No broker, finder, agent or similar intermediary
has acted on behalf of Procept in connection with this Agreement or the
transactions contemplated hereby, and there are no brokerage commissions,
finders fees or similar fees or commissions payable in connection therewith
based on any agreement, arrangement or understanding with, or any action
taken by Procept.
29
4.24 HAZARDOUS MATERIALS. Procept has not generated, used or
handled any Hazardous Materials (as defined below), nor has Procept treated,
stored or disposed of any Hazardous Materials at any site owned or leased at
any time by Procept or shipped any Hazardous Materials for treatment, storage
or disposal at any other site or facility, except in compliance with all
applicable laws. To the knowledge of Procept, no other person has generated,
used, handled, stored or disposed of any Hazardous Materials at any site
owned or premises leased by Procept at any time or at any site in which
Procept presently holds a mortgage or similar interest, nor has there been or
is there threatened any release of any Hazardous Materials on or at any such
site or premises. Procept does not presently operate or lease nor has it
operated or leased any site on which, underground storage tanks are or were
located and which tanks are the responsibility of Procept to operate. To the
knowledge of Procept, without investigation, no lien has been imposed by any
governmental agency in connection with the presence of any Hazardous
Materials on any property, facility, machinery, or equipment operated or
leased by Procept or in which Procept holds any mortgage, lien, or similar
interest. For purposes of this Section 2.24, "HAZARDOUS MATERIALS" shall
mean and include any "HAZARDOUS WASTE" as defined in either the United States
Resource Conservation and Recovery Act, 42 U.S.C. 6901, or regulations
adopted pursuant to said Act, and also any "HAZARDOUS SUBSTANCES" or
"HAZARDOUS MATERIALS" as defined in the United States Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, but
excludes ordinary and customary materials in quantities reasonably required
to be used by Procept in the ordinary course of Procept's business.
4.25 FULL DISCLOSURE. All documents and other papers delivered by
or on behalf of Procept in connection with this Agreement and the
transactions contemplated hereby are true, complete and authentic. No
representation, warranty or statement of Procept made in this Agreement or in
any Exhibit or the PROCEPT DISCLOSURE SCHEDULE hereto or in any document,
statement or certificate furnished to Procept pursuant to this Agreement
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements made,
in light of the circumstance under which they were made, not false or
misleading.
SECTION 5 - COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
5.1 CONDUCT OF PACIFIC BUSINESS. Except with the prior written
consent of Procept and except as otherwise contemplated herein, during the
period from the date hereof to the Closing Date, Pacific shall observe the
following covenants:
(a) AFFIRMATIVE COVENANTS PENDING CLOSING. Pacific and its
Subsidiaries will:
(i) PRESERVATION OF PERSONNEL. Use all
reasonable efforts to preserve intact their business organizations and keep
available the services of present employees, in each case in accordance with
past practice, it being understood that termination of employees with poor
performance ratings shall not constitute a violation of this covenant;
30
(ii) INSURANCE. Use all reasonable efforts to
keep in effect casualty, public liability, worker's compensation and other
insurance policies in coverage amounts not less than those in effect at the
date of this Agreement;
(iii) PRESERVATION OF THE BUSINESS; MAINTENANCE
OF PROPERTIES, CONTRACTS. Use all reasonable efforts to preserve their
businesses, advertise, promote and market their services, keep their
properties intact, preserve their goodwill, and maintain all physical
properties in good operating condition;
(iv) INTELLECTUAL PROPERTY RIGHTS. Use all
reasonable efforts to preserve and protect Pacific's Proprietary Rights; and
(v) ORDINARY COURSE OF BUSINESS. Operate
their businesses diligently and solely in the ordinary course.
(b) NEGATIVE COVENANTS PENDING CLOSING. Pacific and its
Subsidiaries will not:
(i) DISPOSITION OF ASSETS. Sell or transfer,
or mortgage, pledge or create or permit to be created any encumbrance on, any
of their assets, other than sales or transfers in the ordinary course of
business and liens existing under arrangements disclosed herein or permitted
under Section 3.18;
(ii) LIABILITIES. Without the consent of
Procept, (A) incur any obligation or liability other than in the ordinary
course of their business (provided that Pacific may incur expenses in
connection with this transaction of up to $100,000), (B) incur any
indebtedness for borrowed money or enter into any contracts or commitments
involving payments by Pacific or a Subsidiary of $5,000 or more, other than
purchase orders or commitments for inventory materials and supplies in the
ordinary course of business;
(iii) COMPENSATION. Without the consent of
Procept, (A) change the compensation or fringe benefits of any officer,
director or employee, or (B) enter into or modify any Plan or any employment,
severance or other agreement with any officer, director or employee of
Pacific or any Subsidiary other than changes required by law to maintain the
tax-qualified status of any Plan or as otherwise required by law;
(iv) CAPITAL STOCK. (A) Grant or accelerate
the exercisability of, any option, warrant or other right to purchase, or to
convert any obligation into, shares of its capital stock, (B) declare or pay
any dividend or other distribution with respect to any shares of its capital
stock or (C) issue any shares of its capital stock, except upon the exercise
of options outstanding on the date hereof or as contemplated by the PACIFIC
DISCLOSURE SCHEDULE;
(v) CHARTER AND BYLAWS. Amend the Charter or
Bylaws of Pacific or any Subsidiary;
(vi) ACQUISITIONS. Make any material
acquisition of property other than in the ordinary course of Pacific's or the
Subsidiaries' business; or
31
(vii) MATERIAL AGREEMENTS. Without the consent
of Procept, enter into or modify any material agreement with any other person
or entity (other than agreements in the ordinary course of its business
involving payments by Pacific of less than $5,000).
5.2 CONDUCT OF PROCEPT BUSINESS. Except with the prior written
consent of Pacific and except as otherwise contemplated herein, during the
period from the date hereof to the Closing Date, Procept shall observe the
following covenants:
(a) AFFIRMATIVE COVENANTS PENDING CLOSING. Procept will:
(i) PRESERVATION OF PERSONNEL. Use all
reasonable efforts to preserve intact their business organizations and keep
available the services of present employees, in each case in accordance with
past practice, it being understood that termination of employees with poor
performance ratings shall not constitute a violation of this covenant;
(ii) INSURANCE. Use all reasonable efforts to
keep in effect casualty, public liability, worker's compensation and other
insurance policies in coverage amounts not less than those in effect at the
date of this Agreement;
(iii) PRESERVATION OF THE BUSINESS; MAINTENANCE
OF PROPERTIES, CONTRACTS. Use all reasonable efforts to preserve their
businesses, advertise, promote and market their services, keep their
properties intact, preserve their goodwill, and maintain all physical
properties in good operating condition;
(iv) INTELLECTUAL PROPERTY RIGHTS. Use all
reasonable efforts to preserve and protect Procept's Proprietary Rights; and
(v) ORDINARY COURSE OF BUSINESS. Operate
their businesses diligently and solely in the ordinary course.
(b) NEGATIVE COVENANTS PENDING CLOSING. Procept will not:
(i) DISPOSITION OF ASSETS. Sell or transfer,
or mortgage, pledge or create or permit to be created any Encumbrance on, any
of their assets, other than sales or transfers in the ordinary course of
business and liens existing under arrangements disclosed herein or of the
type permitted under Section 4.18 and disclosed in the Procept 10-K;
(ii) LIABILITIES. Except as disclosed to
Pacific herein, incur any obligation or liability other than in the ordinary
course of Procept's business;
(iii) COMPENSATION. (A) Change the compensation
or fringe benefits of any officer, director or employee, or (B) enter into or
modify any Plan or any employment, severance or other agreement with any
officer, director or employee of Procept other than changes required by law
to maintain the tax-qualified status of any Plan or as otherwise required by
law; or
32
(iv) CHARTER AND BYLAWS. Amend the Charter or
Bylaws of Procept.
(v) ACQUISITIONS. Make any material
acquisition of property other than in the ordinary course of Procept's
business; or
(vi) MATERIAL AGREEMENTS. Without the consent
of Pacific, enter into or modify any material agreement with any other person
or entity, other than in the ordinary course of its business.
5.3 NASDAQ LISTING. Procept shall take such actions as may be
necessary to cause the shares of Procept Common Stock to be issued hereunder
to be approved for quotation on the Nasdaq Small-Cap Market.
5.4 AGREEMENT NOT TO ENTERTAIN OTHER OFFERS.
(a) In consideration of the efforts and expenses undertaken
by both parties in pursuing the Merger and other valuable consideration, the
receipt and adequacy of which are acknowledged, Procept and Pacific agree
that until the Closing Date or until this Agreement is otherwise terminated
pursuant to Section 9, neither Procept nor Pacific nor any of their
authorized representatives shall:
(i) directly or indirectly, solicit any
proposal relating to the acquisition by another party of all or any portion
of the capital stock of such company or substantially all of the assets of
such company (whether by merger or otherwise);
(ii) directly or indirectly, engage in any
discussions or negotiations with any other party regarding any such
acquisition, or otherwise encourage or facilitate any efforts by any other
party to engage in such an acquisition; or
(iii) sell, transfer or dispose of all or any
portion of the capital stock of such company or substantially all of the
assets of such company (whether by merger or otherwise);
PROVIDED, HOWEVER, that nothing in the foregoing shall restrict either
company from engaging in discussions with potential collaborative partners,
subject to such company disclosing to the other the identity of the party
involved in such discussions and the general nature thereof; and PROVIDED
FURTHER that, notwithstanding the foregoing, each such company and its
authorized representatives may participate in discussions or negotiations
with, provide information to, and consummate a transaction with, a third
party which would otherwise be prohibited by this section, if (A) such
discussions or negotiations had been commenced prior to the date hereof or if
commenced after the date hereof, were not solicited by or on behalf of such
company and (B) such discussions or negotiations were being continued or
initiated after consultation with and based upon written advice of
independent legal counsel which determined in good faith that such action is
necessary for the Board of Directors of the involved company to comply with
its fiduciary duties to its stockholders under applicable law.
33
(b) In the event that either Pacific or Procept breaches its
obligations under Section 5.4 or engages in discussions or negotiations with,
provides information to, or consummates a transaction with a third party,
which activity would have been a breach of Section 5.4 but for the second
proviso of such section, then, unless the Merger subsequently occurs prior to
June 30, 1999, on the earlier of (i) the consummation of any such transaction
with a third party or (ii) June 30, 1999, such company shall pay the other a
termination fee in the amount of $150,000, in immediately available funds to
an account designated by the recipient party. The parties acknowledge and
agree that the provisions for payment of such a termination fee are included
herein in order to induce each party to enter into this Agreement and to
reimburse the non-terminating party for incurring the costs and expenses
related to the contemplated Merger. No more than one termination fee shall
be paid by any party hereunder. The parties hereto agree that any
termination fee that is paid or due hereunder shall be deemed to be
liquidated damages designed to reasonably compensate the recipient party for
the loss incurred by the terminating party's actions.
5.5 CORPORATE EXAMINATIONS AND INVESTIGATIONS. Prior to the
Effective Time, each of Procept and Pacific shall be entitled, through its
employees and representatives, to have such access to the assets, properties,
business, books, records and operations of the other as Procept or Pacific,
as the case may be, shall reasonably request in connection with such party's
investigation of the other with respect to the transaction contemplated
hereby. Any such investigation and examination shall be conducted at
reasonable times and the party being investigated shall cooperate fully
therein. No investigation by a party shall diminish or obviate any of the
representations, warranties, covenants or agreements of any other party
contained in this Agreement, provided that any party having actual knowledge
prior to the date hereof of an inaccuracy in a representation or warranty of
another party must have given notice thereof to such other party prior to the
date hereof to be entitled to make any recovery hereunder for breach of such
representation or warranty. For the purposes of this Agreement, actual
knowledge shall mean the conscious knowledge of the executive officers of a
party who have given substantive attention to this transaction. In order
that each of Procept and Pacific may have full opportunity to make such
investigation, the party being investigated shall furnish the representatives
of the other during such period with all such information and copies of such
documents concerning the affairs of the party being investigated as such
representatives may reasonably request and cause its officers, employees,
consultants, agents, accountants and attorneys to cooperate fully with such
representatives in connection with such investigation.
5.6 EXPENSES. Subject to Section 5.4, if the Merger is not
consummated, each of Pacific and Procept shall bear its respective expenses
incurred in connection with this Agreement and the transactions contemplated
hereby. Pacific represents and warrants that its good faith estimate of the
fees and expenses of its legal counsel, financial advisors and accountants to
be incurred in connection with this transaction are as set forth on the
PACIFIC DISCLOSURE SCHEDULE. If the Merger is consummated, the Surviving
Corporation, as the successor to Pacific, shall be liable for all unpaid
expenses of Pacific.
5.7 AUTHORIZATION FROM OTHERS. Prior to the Closing Date, the
parties shall use all reasonable efforts to obtain all authorizations,
consents and permits required to permit the consummation of the transactions
contemplated by this Agreement, including without limitation all consents
required from third parties who have contractual relationships with Pacific.
34
5.8 CONSUMMATION OF AGREEMENT. Each party shall use all reasonable
efforts to perform and fulfill all conditions and obligations to be performed
and fulfilled by it under this Agreement and to ensure that to the extent within
its control or capable of influence by it, no breach of any of the respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Effective Time, all to the end that the transactions contemplated
by this Agreement shall be fully carried out in a timely fashion.
5.9 FURTHER ASSURANCES. Each of the parties shall execute such
documents, further instruments of transfer and assignment and other papers and
take such further actions as may be reasonably required or desirable to carry
out the provisions hereof and the transactions contemplated hereby.
5.10 SECURITIES LAW MATTERS. Procept shall prepare and file with the
SEC a Registration Statement on Form S-4 (or any other such form required by the
SEC) (the "Registration Statement") covering the shares of Procept Common Stock
comprising the Merger Consideration as soon as practicable following the date
hereof and will use all reasonable efforts to have such Registration Statement
filed within 45 days after the date hereof and declared and maintained
effective, as soon as practicable following such filing. Pacific will cooperate
with Procept in such preparation and, after such Registration Statement is
effective, Procept and Pacific shall facilitate the distribution of the proxy
statement and prospectus (the "Proxy Statement") contained in the Registration
Statement to the stockholders of Procept and the stockholders of Pacific. Prior
to the Effective Time, Procept shall use all reasonable efforts to qualify the
shares of Procept Common Stock to be issued in the Merger under the securities
or "blue sky" laws of every state necessary to offer and issue the Merger
Consideration to the stockholders at the Closing, except any such state with
respect to which counsel for Procept has determined that such qualification is
not required under the securities or "blue sky" laws of such state, and except
that in no event shall Procept be obligated to qualify as a foreign corporation
or to execute a general consent to service of process in any state in which it
has not previously so qualified or has not previously so consented.
5.11 PACIFIC STOCKHOLDER MEETING. Pacific, acting through its Board of
Directors, shall, in accordance with applicable law and its certificate of
incorporation and by laws:
(i) at a special meeting of stockholders of
Pacific and at any adjournment thereof, submit to the stockholders a proposal to
consider and act on this Agreement to obtain such approval required under the
DGCL for the consummation of the transactions contemplated hereby;
(ii) subject to the duties of the Board of
Directors under applicable law as advised in writing by independent legal
counsel, include in the Proxy Statement to be delivered to the stockholders of
Pacific soliciting their approval of the transactions contemplated hereby the
recommendation of its Board of Directors that the stockholders vote in favor of
the adoption of this Agreement; and
(iii) use all reasonable efforts (A) to obtain and
furnish the information required to be included by it in the Proxy Statement,
(B) to cause the Proxy Statement to be mailed to its stockholders at the
earliest practicable time after the effectiveness
35
of the Registration Statement, and (C) to obtain the necessary approvals by
its stockholders of the transactions contemplated hereby.
5.12 PROCEPT STOCKHOLDER MEETING. Procept, acting through its Board of
Directors, shall, in accordance with applicable law and its certificate of
incorporation and bylaws:
(i) at a special meeting of stockholders of
Procept and at any adjournment thereof, submit to the stockholders a proposal to
consider and act on this Agreement to obtain such approval required pursuant to
the Nasdaq Market Rules;
(ii) subject to the duties of the Board of
Directors under applicable law as advised in writing by independent legal
counsel, include in the Proxy Statement to be delivered to the stockholders of
Procept soliciting their approval of this Agreement and the transactions
contemplated hereby the recommendation of its Board of Directors that the
stockholders vote in favor of such transactions; and
(iii) use all reasonable efforts (A) to obtain and
furnish the information required to be included by it in the Proxy Statement,
(B) to cause the Proxy Statement to be mailed to its stockholders at the
earliest practicable time after the effectiveness of the Registration Statement,
and (C) to obtain the necessary approvals by its stockholders of this Agreement,
the Merger and the transactions contemplated hereby.
5.13 PUBLIC ANNOUNCEMENTS AND CONFIDENTIALITY. Any press release or
other information to the press or any third party with respect to this Agreement
or the transactions contemplated hereby shall require the prior approval of
Procept and Pacific, which approval shall not be unreasonably withheld, provided
that a party shall not be prevented from making such disclosure as it shall be
advised by counsel is required by law. Pacific shall also keep confidential and
shall not use in any manner any information or documents obtained from Procept
or its representatives concerning Procept's assets, properties, business and
operations, unless readily ascertainable from public information, already known
or subsequently developed by Pacific independently, received from a third party
not under an obligation to keep such information confidential or otherwise
required by law. If this Agreement terminates prior to the Closing, Procept
shall also keep confidential and shall not use in any manner any information or
documents obtained from Pacific or their representatives unless readily
ascertainable from public information, already known or subsequently developed
by Procept independently, received from a third party not under an obligation to
keep such information confidential or otherwise required by law. If this
Agreement terminates prior to the Closing all copies of any documents obtained
from another party or its representatives will be returned, except that one copy
thereof may be retained by counsel to the party returning such documents in
order to evidence compliance hereunder. The obligations set forth in the
previous three sentences of this Section 4.14 shall survive termination of this
Agreement.
5.14 AFFILIATE LETTERS. Prior to the Closing Date, Pacific shall
identify to Procept all persons who, at the time of the vote of Pacific's
stockholders on the Merger, Pacific believes may be "affiliates" of Pacific
within the meaning of Rule 145 under the Securities Act. Pacific shall use all
reasonable efforts to provide Procept with such information as Procept shall
reasonably request for purposes of making its own determination of persons who
may be deemed
36
to be affiliates of Pacific. Pacific shall use all reasonable efforts to
deliver to Procept prior to the Closing Date a letter from each of the
affiliates specified by Procept in substantially the form exchanged by the
parties (an "Affiliate Letter") and each stockholder who is identified as an
affiliate by Pacific and Procept has delivered, or agrees to deliver to
Procept prior to the Closing Date, an Affiliate Letter. To the extent any
stockholder is so identified as an affiliate, such stockholder agrees to
deliver an Affiliate Letter at or prior to the Closing Date.
5.15 PROCEPT SEC FILINGS. Until the Closing Date, Procept shall
furnish Pacific with a copy of each periodic or current report filed by Procept
under the Exchange Act promptly after filing the same. All filings made by
Procept after the date hereof pursuant to the Exchange Act will be made in a
timely fashion, will comply as to form in all material respects with the
applicable provisions of the Exchange Act and the rules and regulations
thereunder and will 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 are made, not
misleading.
5.16 PACIFIC SEC FILINGS. Until the Closing Date, Pacific shall
furnish Procept with a copy of each periodic or current report filed by Pacific
under the Exchange Act promptly after filing the same. All filings made by
Pacific after the date hereof pursuant to the Exchange Act will be made in a
timely fashion, will comply as to form in all material respects with the
applicable provisions of the Exchange Act and the rules and regulations
thereunder and will 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 are made, not
misleading.
5.17 FAIRNESS OPINIONS. Each of Procept and Pacific shall use all
reasonable efforts to obtain a fairness opinion from the independent financial
advisers named in Sections 6.5 and 6.6 addressed to such company's Board of
Directors stating that the Merger is fair from a financial point of view to such
company and its stockholders.
5.18 STOCK OPTIONS AND WARRANTS.
(a) At the Effective Time, Procept will assume the obligations
of Pacific under the outstanding options to purchase Pacific Common Stock (the
"Pacific Stock Option") set forth on the PACIFIC DISCLOSURE SCHEDULE pursuant to
Section 3 whether vested or unvested, as contemplated by the agreements
representing the Pacific Stock Options. Each such Pacific Stock Option shall be
deemed to constitute an option granted under Procept's 1998 Equity Incentive
Plan, which amended and restated its 1989 Stock Plan (the "Procept Plan") to
acquire, on the same terms and conditions as were applicable under such Pacific
Stock Option prior to the Effective Time to the extent not in violation of the
Procept Plan that number of whole shares of Procept Common Stock equal to the
product of the number of shares of Pacific Common Stock covered by such Pacific
Stock Option immediately prior to the Effective Time multiplied by the
Conversion Factor (the "New Options"), provided that following such assumption
and adjustment, (A) all references in the New Options to Pacific shall (unless
the context otherwise requires) be deemed to be references to Procept and (B)
the exercise price per share of shares of Procept Common Stock under each New
Option shall be equal to the exercise price per share of
37
Pacific Common Stock under such Pacific Stock Option immediately prior to the
Effective Time divided by the Conversion Factor (rounded down to the nearest
cent).
As soon as practicable after the Effective Time, Procept shall deliver to
each holder of an outstanding Pacific Stock Option an appropriate notice setting
forth such holder's rights pursuant to the New Options, and such New Option
shall continue in effect on the same terms and conditions (including
antidilution provisions) of the Pacific Stock Options, except to the extent in
violation of the Procept Plan.
Procept shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Procept Common Stock under the Procept Plan for
delivery pursuant to the terms set forth in this Section 5.18.
Subject to any applicable limitations under the Securities Act, at the
Effective Time, the shares issuable under the New Options shall be subject to an
effective Registration Statement on Form S-8 (or any successor form). Procept
shall use its reasonable best efforts to maintain the effectiveness of such
registration statement (and maintain the current status of the prospectus
relating thereto) for so long as any New Options shall remain outstanding.
(b) At the Effective Time, Procept will assume the obligations
of Pacific with respect to each outstanding warrant to subscribe for and
purchase Pacific Common Stock set forth on the PACIFIC DISCLOSURE SCHEDULE
pursuant to Section 3.2 (collectively, the "Pacific Warrants"). The Pacific
Warrants shall continue to have, and be subject to, the same terms and
conditions as set forth in the applicable warrant agreements and warrant
certificates, as in effect on the date of this Agreement, pursuant to which the
Pacific Warrants were issued (true and correct copies of which have been
delivered to Procept), provided that (i) all references in the Pacific Warrants
to Pacific shall (unless the context otherwise requires) be deemed to be
references to Procept, (ii) each Pacific Warrants shall be exercisable for (X)
that number of whole shares of Procept Common Stock equal to the product of the
number of shares of Pacific Common Stock covered by the Pacific Warrant
immediately prior to the Effective Time multiplied by the Conversion Factor and
(iii) the exercise price per share of shares of Procept Common Stock under each
Pacific Warrant shall be equal to the exercise price per share of Pacific Common
Stock under the Pacific Warrant immediately prior to the Effective Time divided
by the Conversion Factor (rounded down to the nearest cent). Procept shall (A)
reserve for issuance the number of shares of Procept Common Stock and Procept
Warrants that will become issuable upon the exercise of the Pacific Warrants
pursuant to this Section 5.18(b), and (B) promptly after the Effective Time
issue to each holder of an outstanding Pacific Warrant a document evidencing the
assumption by Procept of Pacific's obligations with respect thereto under this
Section 5.18(b). To the extent required by the terms of the Pacific Warrants
and subject to the applicable limitations under the Securities Act, Procept
shall file a Registration Statement on the appropriate form prescribed by the
SEC covering the offering and sale to the holders of the Pacific Warrants of the
shares of Procept Common Stock purchasable upon exercise thereof, (the "Warrants
Shelf"). Procept shall use its reasonable best efforts to file the Warrants
Shelf within 60 days after the Effective Time and to cause the SEC to declare
such registration statement effective and to maintain the effectiveness of the
Warrants Shelf (and maintain the current status of the prospectus included
therein) until all Pacific Warrants have been exercised or have been terminated
in accordance with their terms.
38
5.19 INDEMNIFICATION, DIRECTORS AND OFFICER'S INSURANCE.
(a) The Surviving Corporation's Certificate of Incorporation
and By-Laws contain provisions with respect to indemnification (the
"Indemnification Provisions"), which provisions shall not be amended, repealed
or otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
or before the Effective Time were directors, officers, employees, subject to
Section 5.19(d), or agents of Pacific (the "Pacific Indemnities"), unless such
modification is required by law and provided that (i) a merger of the Surviving
Corporation into Procept or (ii) the liquidation of the Surviving Corporation
shall not be deemed a violation of this Section 5.19.
(b) By virtue of the Merger the Surviving Corporation shall
assume all obligations of Pacific under the Indemnification Provisions,
including such indemnification obligations (i) arising out of or pertaining to
the transactions contemplated by this Agreement or (ii) otherwise with respect
to any acts or omissions occurring at or prior to the Effective Time.
(c) At or prior to the Effective Time, Pacific or Procept shall
purchase or keep in effect directors' and officers' liability insurance coverage
for Pacific's directors and officers in a form reasonably acceptable to Pacific
which shall provide such directors and officers with so-called "tail" or other
coverage sufficient to ensure the Indemnification Provisions in an amount of at
least $5,000,000.
(d) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers or conveys all or substantially
all of its assets to any person or entity, then, and in each such case, proper
provision shall be made so that the successors and assigns assume the
obligations set forth in this Section 5.19.
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF EACH PARTY TO CONSUMMATE THE MERGER
The respective obligations of each party to consummate the Merger shall
be subject to the satisfaction or waiver, at or before the Effective Time, of
each of the following conditions:
6.1 APPROVALS. The holders of Pacific Preferred Stock shall have
approved an amendment to the Certificate of Designation relating to all
outstanding Pacific Preferred Stock in a manner necessary to preclude the Merger
from triggering any obligation of Pacific or Procept to pay a liquidation
preference to the holders of Pacific Preferred Stock, and such amendment to the
holders of Pacific Preferred Stock, and such amendment to the Certificate of
Designation shall have been filed with the Secretary of State of Delaware. All
required approvals of the stockholders of Pacific and Procept and all consents
and approvals referred to in Sections 3.12 and 4.12 of this Agreement, other
than those which, the failure to obtain would not affect the validity of this
transaction or materially adversely affect the business of the Surviving
Corporation after the Effective Time shall have been obtained; PROVIDED,
HOWEVER, that if Procept waives the obtaining of any consent from a contracting
party set forth in Sections 3.12 or 4.12 of
39
the PACIFIC DISCLOSURE SCHEDULE, such consent shall not be a condition to
Pacific's obligation to consummate the Merger.
6.2 ABSENCE OF ORDER. No restraining order or injunction of any court
which prevents consummation of the Merger shall be in effect.
6.3 NASDAQ STOCK EXCHANGE LISTING. The shares of Procept Common Stock
to be issued in the Merger shall have been approved for quotation on the Nasdaq
Small-Cap Market.
6.4 EFFECTIVENESS OF REGISTRATION STATEMENT The Registration
Statement shall have been declared effective by the SEC and there shall not be
any stop order in effect with respect to the Registration Statement.
6.5 PROCEPT FAIRNESS OPINION. The Board of Directors of Procept shall
have received the opinion of Xxxxx Xxxxx & Son Incorporated to the effect that
the merger is fair from a financial point of view to Procept and its
stockholders and such opinion shall not have been withdrawn as of the Closing
Date.
6.6 PACIFIC FAIRNESS OPINION. The Board of Directors of Pacific shall
have received the opinion of Josephthal & Co. Inc. to the effect that the Merger
is fair from a financial point of view to Pacific and its stockholders and such
opinion shall not have been withdrawn as of the Closing Date.
SECTION 7 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
PROCEPT TO CONSUMMATE THE MERGER
The obligation of Procept to consummate the Merger is subject to the
satisfaction or waiver by Procept, at or before the Effective Time, of the
following conditions:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of Pacific contained in this Agreement shall be true and correct
in all material respects on and as of the Effective Time with the same force and
effect as though made on and as of the Effective Time (with such exceptions as
may be permitted under or contemplated by this Agreement, the PACIFIC DISCLOSURE
SCHEDULE). Pacific shall have performed and complied in all material respects
with all covenants and agreements required by this Agreement to be performed or
complied with by them on or prior to the Effective Time. Pacific shall have
delivered to Procept a certificate, dated the Closing Date, to the foregoing
effect, as applicable.
7.2 CERTIFICATE OF SECRETARY OF PACIFIC. Pacific shall have delivered
to Procept a certificate of the Secretary of Pacific dated as of the Closing
Date, certifying as to (i) the Articles of Incorporation and the Bylaws of
Pacific, (ii) the resolutions of the Board of Directors of Pacific authorizing
and approving the execution, delivery and performance by Pacific of this
Agreement and the transactions contemplated hereby and (iii) the resolutions of
the stockholders of Pacific authorizing and approving this Agreement and the
transactions contemplated hereby.
7.3 AFFILIATE LETTERS. Procept shall have received the Affiliate
Letters referred to in Section 5.15.
40
7.4 OPINION OF COUNSEL TO PACIFIC. Procept shall have received an
opinion of Patterson, Belknap, Xxxx and Tyler LLP, counsel to Pacific, dated the
Closing Date and in form and substance reasonably acceptable to Procept.
7.5 MERGER CERTIFICATE. Pacific shall have executed and delivered the
Merger Certificate referred to in Section 1.2.
7.6 BTI MERGER AGREEMENT. The acquisition of Binary Therapeutics,
Inc. ("BTI") by Pacific (the "BTI Merger") shall have been consummated by the
issuance of Pacific Common Stock as contemplated by the Agreement and Plan of
Merger dated as of June 4, 1996, as amended.
7.7 AGREEMENT WITH LENDERS. Each of Xxxxxxx Xxxxxxxxx, the Aries
Trust and the Aries Domestic Fund, L.P. (the "Aries Funds"), as holders of
promissory notes payable by BTI in the aggregate principal amount of $443,000,
(the "Pacific Notes"), shall have entered into an agreement with Pacific and
Procept, to Procept's reasonable satisfaction, providing for the conversion of
all outstanding principal and interest of indebtedness represented by demand
notes issued by BTI to Xxxxxxx Xxxxxxxxx in the aggregate face amount of
$143,000 and by Senior Bridge Notes issued by BTI to the Aries Funds in the
aggregate face amount of $100,000, into shares of Procept Common Stock at the
rate of $5.00 per share, provided (i) such shares of Common Stock shall be
entitled to contractual rights substantially the same as those set forth in
Section 10 of this Agreement and (ii) Procept or Pacific shall have paid each of
Xxxxxxx Xxxxxxxxx and the Aries Funds $100,000 to cancel such indebtedness in
full.
7.8 APPROVALS. Pacific shall have received approval of their
stockholders and all other approvals, clearances and consents from any
governmental entities and other third parties necessary or desirable for the
consummation of the Merger and the Pacific shares shall be free and clear of any
liens or encumbrances.
7.9 DISSENTING SHARES. The Dissenting Shares of Common Stock shall
not exceed five percent (5%) of the shares of the Pacific Common Stock issued
and outstanding or issuable on the Closing Date.
7.10 BANK ACCOUNTS. Pacific shall have delivered to Procept
documentation necessary to change the authorized signatories for Pacific's bank
and brokerage accounts as specified by Procept.
7.11 CERTIFICATES. Pacific shall have furnished Procept with such
certificates of public officials as may be reasonably requested by Procept.
SECTION 8 - CONDITIONS PRECEDENT TO THE OBLIGATION OF PACIFIC TO
CONSUMMATE THE MERGER
The obligation of Pacific to consummate the Merger is subject to the
satisfaction or waiver by them, at or before the Effective Time, of the
following conditions:
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of Procept contained in this Agreement shall be true and correct
in all material respects on and as
41
of the Effective Time with the same force and effect as though made on and as
of the Effective Time (with such exceptions as may be permitted under or
contemplated by this Agreement). Procept shall have performed and complied
in all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time. Procept shall have delivered to Pacific a certificate, dated the
Effective Time, to the foregoing effect.
8.2 CERTIFICATE OF SECRETARY OF PROCEPT. Procept shall have delivered
to Pacific a certificate of the Secretary of Procept dated as of the Closing
Date, certifying as to (i) the Articles of Incorporation and the Bylaws of
Pacific, (ii) the resolutions of the Board of Directors of Procept authorizing
and approving the execution, delivery and performance by Procept of this
Agreement and the transactions contemplated hereby and (iii) the resolutions of
the stockholders of Procept authorizing and approving this Agreement and the
transactions contemplated hereby.
8.3 CERTIFICATE OF SECRETARY OF PAC. PAC shall have delivered to
Pacific a certificate of the Secretary of PAC dated as of the Closing Date,
certifying as to (i) the Certificate of Incorporation and the Bylaws of PAC, as
in effect on and as of the Closing Date and (ii) the resolutions of the Board of
Directors and Stockholder of PAC authorizing and approving the execution,
delivery and performance by PAC of this Agreement and the transactions
contemplated hereby.
8.4 APPROVALS. Procept shall have received approval of their
stockholders and all other approvals, clearances and consents from any
governmental entities and other third parties necessary or desirable for the
consummation of the Merger.
8.5 OPINION OF COUNSEL TO PROCEPT. Pacific shall have received an
opinion of Xxxxxx & Dodge LLP, counsel to Procept, dated the Closing Date and in
form and substance reasonably acceptable to Pacific.
8.6 CERTIFICATES. Procept shall have furnished Pacific with such
certificates of public officials as may be reasonably requested by Pacific.
SECTION 9 - TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time on or
prior to the Closing Date, whether prior to or after approval by Pacific's
stockholders, as follows:
(a) by Pacific or Procept if, without fault of the terminating
party, the Closing Date shall not have occurred on or before June 30, 1999,
which date may be extended by mutual consent of the parties;
(b) by Pacific upon written notice to Procept if any
representation or warranty of Procept made herein was not true and correct in
all material respects when made or Procept has materially breached any covenant
contained herein and has not cured such breach within thirty (30) business days
of receipt of written notice from Pacific or by the Closing Date, whichever
occurs first;
42
(c) by Procept upon written notice to Pacific if any
representation or warranty made herein by Pacific was not true and correct in
all material respects when made or Pacific has materially breached any covenant
contained herein and has not cured such breach within thirty (30) business days
of receipt of written notice from Procept or by the Closing Date, whichever
occurs first;
(d) by any party if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree or ruling shall have become final and nonappealable;
(e) by either Procept or Pacific if the Procept or Pacific
stockholders vote and fail to approve the Merger as required by Delaware law;
(f) by Procept if Pacific's Board of Directors (i) fails to
include in the Proxy Statement its recommendation that Pacific stockholders vote
in favor of the adoption of this Agreement or (ii) withdraws its recommendation
that stockholders vote in favor (other than in connection with exercising
Pacific's rights to terminate this Agreement pursuant to subsection (b) or (d)
of this Section 9.1);
(g) by Pacific if Procept's Board of Directors (i) fails to
include in the Proxy Statement its recommendation that Procept stockholders vote
in favor of the adoption of this Agreement or (ii) withdraws its recommendation
that stockholders vote in favor (other than in connection with exercising
Procept rights to terminate this Agreement pursuant to Subsection (c) or (d) of
this Section 9.1);
(h) at any time with the written consent of Procept and
Pacific.
9.2 EFFECT OF TERMINATION. If this Agreement is terminated as
provided in Section 9.1, this Agreement shall forthwith become void and have no
effect, without further obligation on the part of any party, its directors,
officers or stockholders following the date of such termination, other than the
provisions of this Section 9.2, Section 5.4 relating to a termination fee,
Section 5.6 relating to expenses and Section 5.13 relating to publicity and
confidentiality to the extent provided therein. Nothing contained in Section
9.2 shall eliminate or reduce any party's liability to another party for any
breach of this Agreement occurring before such termination.
SECTION 10 - ADDITIONAL CONTRACTUAL RIGHTS
10.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings, unless the context otherwise requires:
10.1.1 "SECTION 10 RIGHTS" shall mean the rights to receive all
Reset Issuances, Semi-Annual Issuances, Dilution Issuances and Qualified
Offering Issuances and the right to exercise the Liquidation Put and the
Exchange Right, as provided herein.
10.1.2 "CHANGE OF SHARES" shall mean any event that necessitates
an adjustment to the Dilution Value (as defined below) pursuant to Section 10.7
below.
43
10.1.3 The "CLOSING BID PRICE" of any security, for any trading
day (as defined below), shall be the reported per share closing bid price,
regular way, of such security on the relevant Stock Market (as defined below) on
such trading day or, if there were no transactions on such trading day, the
average of the reported closing bid and asked prices, regular way, of such
security on the relevant Stock Market on such trading day.
10.1.4 "DILUTION EVENT" shall mean any event that necessitates an
adjustment to the Dilution Value (as defined below) pursuant to Section 10.6
below.
10.1.5 The "DILUTION VALUE" initially shall be identical to the
Dilution Value in effect immediately following the Effective Time under Article
VI of the Subscription Agreements between Procept and the purchasers in
Procept's 1998 private placement. The Dilution Value is subject to adjustment
pursuant to Sections 10.2, 10.6, 10.7 and 10.15. The Dilution Value immediately
following the Effective Time is currently anticipated to be $3.75.
10.1.6 "FAIR MARKET VALUE" of any asset (including any security)
means the fair market value thereof as mutually determined by Procept and the
financial advisor engaged by Procept in connection with Procept's 1998 private
placement (the "FINANCIAL ADVISOR"). If Procept and the Financial Advisor are
unable to reach agreement on any valuation matter, such valuation shall be
submitted to and determined by a nationally recognized independent investment
bank selected by the Board of Directors of Procept and the Financial Advisor
(or, if such selection cannot be agreed upon promptly, or in any event within
ten days, then such valuation shall be made by a nationally recognized
independent investment banking firm selected by the American Arbitration
Association in New York City in accordance with its rules), the costs of which
valuation shall be paid for by Procept.
10.1.7 The "ISSUANCE BASE AMOUNT" for the Rights Holder, at any
time, means the sum of (i) the number of shares of Procept Common Stock acquired
by the Rights Holder in the Merger in respect of such Rights Holder's shares of
Pacific Preferred Stock (ii) the number of shares of any Reset Issuances (as
defined below) made to such Rights Holder occurring before such time, (iii) the
number of shares of any Semi-Annual Issuances (as defined below) made to such
Rights Holder occurring before such time, (iv) the number of shares of any
Dilution Issuances (as defined below) made to such Rights Holder occurring
before such time and (v) the number of shares of any Qualified Offering
Issuances (as defined below) made to such Rights Holder occurring before such
time (with appropriate adjustments for any Change of Shares and subject to
reduction pursuant to Section 10.10). For any transferee Rights Holder, the
Issuance Base Amount, at any time, shall be the number of shares of Procept
Common Stock related to such Section 10 Rights as were transferred to such
Rights Holder plus the number of shares of any Reset Issuance, Semi-Annual
Issuance, Dilution Issuance and Qualified Offering Issuance made to such Rights
Holder occurring subsequent to such transfer but before such time. The Issuance
Base Amount shall include Dilution Issuances which would have been required but
for the operation of Paragraph 10.6.2(a).
10.1.8 "LIQUIDATION EVENT" shall mean any (i) liquidation,
dissolution or winding up of Procept, whether voluntary or involuntary, (ii)
sale or other disposition of all or substantially all of the assets of Procept
or (iii) any consolidation, merger, combination, reorganization or other
transaction in which Procept is not the surviving entity or shares of
44
Procept Common Stock constituting more than fifty percent (50%) of the voting
power of Procept are exchanged for or changed into stock or securities of
another entity, cash and/or any other property (clause (iii) of this
Subsection being referred to as a "Merger Transaction"). Notwithstanding the
above, any consolidation, merger, combination, reorganization or other
transaction in which Procept is not the surviving entity but the stockholders
of Procept immediately prior to such transaction own in excess of 50% of the
voting power of the corporation surviving such transaction and own such
interest in substantially the same proportions as prior to such transaction,
shall not be considered a Liquidation Event or a Merger Transaction, provided
that the surviving corporation has made appropriate provisions acceptable to
the Financial Advisor to ensure that the Section 10 Rights survive any such
transaction.
10.1.9 "MARKET PRICE" per share of Procept Common Stock shall mean
the average Closing Bid Price (adjusted, where appropriate, for any Change of
Shares) for twenty (20) consecutive trading days, ending with the trading day
immediately prior to the date as of which the Market Price is being determined;
provided, however, that if the prices referred to in the definition of Closing
Bid Price cannot be determined on any trading day, "Market Price" shall mean the
Fair Market Value.
10.1.10 The "POST-DILUTION COMMON QUANTITY" means the quotient of
the Pre-Dilution Common Value (as defined below) divided by the Dilution Value
immediately following the relevant Dilution Event, Reset Event or Qualified
Offering Adjustment Event (as defined below).
10.1.11 The "PRE-DILUTION COMMON VALUE" means the product of the
Issuance Base Amount multiplied by the Dilution Value immediately preceding the
relevant Dilution Event, Reset Event or Qualified Offering Adjustment Event (as
defined below).
10.1.12 "RIGHTS HOLDER" shall mean (i) a holder of Pacific
Preferred Stock immediately prior to the Effective Time who receives shares of
Procept Common Stock on conversion of such shares of Pacific Preferred Stock,
(ii) a holder of BTI indebtedness prior to the effective time who receives
shares of Procept Common Stock pursuant to the debt conversion contemplated by
Section 7.7 hereof or (iii) any Person who succeeds to such Rights Holder's
Section 10 Rights pursuant to Section 10.9.
10.1.13 The "STOCK MARKET" shall mean, with respect to any
security, the principal national securities exchange on which such security is
listed or admitted to trading or, if such security is not listed or admitted to
trading on any national securities exchange, shall mean The Nasdaq National
Market System or The Nasdaq SmallCap Market (collectively, "Nasdaq") or, if such
security is not quoted on Nasdaq, shall mean the OTC Bulletin Board or, if such
security is not quoted on the OTC Bulletin Board, shall mean the
over-the-counter market as furnished by any NASD member firm selected from
time to time by Procept for that purpose.
10.1.14 A "TRADING DAY" shall mean a day on which the Stock
Market is open for the transaction of business.
10.1.15 "TRADING PRICE" shall mean the lower of (i) the average
Closing Bid Price of the Procept Common Stock for the thirty (30) consecutive
trading days immediately preceding
45
the date as of which the Trading Price is being determined (with appropriate
adjustments for any Change of Shares) and (ii) the average Closing Bid Price
of the Procept Common Stock for five (5) consecutive trading days immediately
preceding the date as of which the Trading Price is being determined (with
appropriate adjustments for any Change of Shares).
10.1.16 The "TRANSFER AGENT" shall mean American Stock Transfer &
Trust Company or the duly appointed successor thereto serving as the transfer
agent for the Procept Common Stock.
10.2 RESET.
10.2.1 The Dilution Value in effect immediately prior to April 9,
1999 (the "RESET DATE") shall be adjusted and reset effective as of the Reset
Date if the Market Price of the Procept Common Stock as of the Reset Date (the
"12-MONTH TRADING PRICE") is less than 140% of the then applicable Dilution
Value (a "RESET EVENT"). Upon the occurrence of a Reset Event, the Dilution
Value shall be reduced to be equal to the greater of (A) the 12-Month Trading
Price divided by 1.40, and (B) 25% of the then applicable Dilution Value.
10.2.2 Within fifteen (15) days of the Reset Date, Procept shall
prepare a certificate signed by the Chief Executive Officer or President, and by
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, of Procept setting forth the Dilution Value as of the Reset Date,
showing in reasonable detail the facts upon which such Dilution Value is based,
and such certificate shall forthwith be filed with the Transfer Agent. A notice
stating that the Dilution Value has been adjusted pursuant to this paragraph, or
that no adjustment is necessary, and setting forth the Dilution Value in effect
as of the Reset Date shall be mailed as promptly as practicable after the Reset
Date by Procept to all Rights Holders at their last addresses as they shall
appear in the Transfer Agent's record books.
10.3 RESET ISSUANCE. If there is any change in the Dilution Value as a
result of Subsection 10.2.1, then, on such date, Procept shall issue to the
Rights Holder a number of shares of Procept Common Stock (the "RESET ISSUANCE")
equal to the difference between the Post-Dilution Common Quantity minus the
Issuance Base Amount.
10.4 SEMI-ANNUAL ISSUANCES. On each six month anniversary of the Reset
Date (or the next succeeding business day), Procept shall issue (each a
"SEMI-ANNUAL ISSUANCE") to the Rights Holder a number of shares of Procept
Common Stock equal to 5% of the Issuance Base Amount on the applicable six month
anniversary date.
10.5 DILUTION ISSUANCES. Upon the occurrence of any Dilution Event
after the Effective Time, Procept shall issue (each a "DILUTION ISSUANCE") to
the Rights Holder a number of shares of Procept Common Stock equal to the
difference of the Post-Dilution Common Quantity minus the Issuance Base Amount.
10.6 ANTI-DILUTION ADJUSTMENTS.
10.6.1 Except as otherwise provided in Subsection 10.6.3, in the
event Procept shall, at any time or from time to time after the date hereof,
sell or issue any shares of Procept Common Stock for a consideration per share
less than either (i) the Dilution Value in effect on
46
the date of such sale or issuance or (ii) the Market Price of the Procept
Common Stock as of the date of the sale or issuance (any such sale or
issuance a "DILUTIVE ISSUANCE"), then, and thereafter upon each further
Dilutive Issuance, the Dilution Value in effect immediately prior to such
Dilutive Issuance shall be changed to a price (rounded to the nearest cent)
determined by multiplying the Dilution Value in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of the number
of shares of Procept Common Stock outstanding immediately prior to the
Dilutive Issuance and the number of shares of Procept Common Stock which the
aggregate consideration received (determined as provided in Paragraph
10.6.2(e) below) for the issuance of such additional shares would purchase at
the greater of (x) the Dilution Value in effect on the date of such issuance
or (y) the Market Price of the Procept Common Stock as of such date, and the
denominator of which shall be the number of shares of Procept Common Stock
outstanding immediately after the Dilutive Issuance. Such adjustment shall
be made successively whenever such an issuance is made.
10.6.2 For purposes of Subsection 10.6, the following Paragraphs
(a) to (e) shall also be applicable:
(a) No adjustment of the Dilution Value shall be made unless
such adjustment would require a decrease of at least $.01; provided that any
adjustments which by reason of this Paragraph 10.6.2(a) are not required to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with adjustments so carried
forward, shall require a decrease of at least $.01 in the Dilution Value then in
effect hereunder.
(b) In case of (A) the sale or other issuance by Procept
(including as a component of a unit) of any rights or warrants to subscribe for
or purchase, or any options for the purchase of, Procept Common Stock or any
securities convertible into or exchangeable for Procept Common Stock (such
securities convertible, exercisable or exchangeable into Procept Common Stock
being herein called "CONVERTIBLE SECURITIES"), or (B) the issuance by Procept,
without the receipt by Procept of any consideration therefor, of any rights or
warrants to subscribe for or purchase, or any options for the purchase of,
Procept Common Stock or Convertible Securities, whether or not such rights,
warrants or options, or the right to convert or exchange such Convertible
Securities, are immediately exercisable, and the consideration per share for
which Procept Common Stock is issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum aggregate consideration, as
set forth in the instrument relating thereto, without regard to any antidilution
or similar provisions contained therein for a subsequent adjustment of such
amount, payable to Procept upon the exercise of such rights, warrants or
options, plus the consideration received by Procept for the issuance or sale of
such rights, warrants or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount, as set forth in the instrument
relating thereto, without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of additional
consideration, if any, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number, as set forth in
the instrument relating thereto, without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such amount, of
shares of Procept Common Stock issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such
47
Convertible Securities issuable upon the exercise of such rights, warrants or
options) is less than either the Dilution Value or the Market Price of the
Procept Common Stock as of the date of the issuance or sale of such rights,
warrants or options, then such total maximum number of shares of Procept
Common Stock issuable upon the exercise of sch rights, warrants or options or
upon the conversion or exchange of such Convertible Securities (as of the
date of the issuance or sale of such rights, warrants or options) shall be
deemed to be "Procept Common Stock" for purposes of Subsection 10.6.1 and
shall be deemed to have been sold for an amount equal to such consideration
per share and shall cause an adjustment to be made in accordance with
Subsection 10.6.1.
(c) In case of the sale or other issuance by Procept of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Procept
Common Stock is issuable upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the total amount of consideration
received by Procept for the sale of such Convertible Securities, plus the
minimum aggregate amount, as set forth in the instrument relating thereto,
without regard to any antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, of additional consideration, if any, other
than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number, as set forth in the instrument
relating thereto without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of shares of
Procept Common Stock issuable upon the conversion or exchange of such
Convertible Securities) is less than either the Dilution Value or the Market
Price of the Procept Common Stock as of the date of the sale or other issuance
of such Convertible Securities, then such total maximum number of shares of
Procept Common Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be "Procept Common Stock" for purposes of
Subsection 10.6.1 and shall be deemed to have been sold for an amount equal to
such consideration per share and shall cause an adjustment to be made in
accordance with Subsection 10.6.1.
(d) In case Procept shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in Paragraphs (b) or
(c) of this Subsection 10.6.2 or any other securities of Procept convertible,
exchangeable or exercisable for shares of Procept Common Stock, for any reason
other than an event that would require adjustment to prevent dilution, so that
the consideration per share received by Procept after such modification is less
than either the Dilution Value or the Market Price of the Procept Common Stock
as of the date prior to such modification, then such securities, to the extent
not theretofore exercised, converted or exchanged, shall be deemed to have
expired or terminated immediately prior to the date of such modification and
Procept shall be deemed for purposes of calculating any adjustments pursuant to
this Section 10.6 to have issued such new securities upon such new terms on the
date of modification. Such adjustment shall become effective as of the date upon
which such modification shall take effect. On the expiration or cancellation of
any such right, warrant or option or the termination or cancellation of any such
right to convert or exchange any such Convertible Securities, the Dilution Value
then in effect hereunder shall forthwith be readjusted to such Dilution Value as
would have obtained (A) had the adjustments made upon the issuance or sale of
such rights, warrants, options or Convertible Securities been made upon the
basis of the issuance of only the number of shares of Procept Common Stock
theretofore actually
48
delivered (and the total consideration received therefor) upon the exercise
of such rights, warrants or options or upon the conversion or exchange of
such Convertible Securities and (B) had adjustments been made on the basis of
the Dilution Value as adjusted under clause (A) of this sentence for all
transactions (which would have affected such adjusted Dilution Value) made
after the issuance or sale of such rights, warrants, options or Convertible
Securities.
(e) In case of the sale of any shares of Procept Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Procept Common Stock or Convertible
Securities, the consideration received by Procept therefor shall be deemed to be
the gross sales price therefor without deducting therefrom any expense paid or
incurred by Procept or any underwriting discounts or commissions or concessions
paid or allowed by Procept in connection therewith. In the event that any
securities shall be issued in connection with any other securities of Procept,
together comprising one integral transaction in which no specific consideration
is allocated among the securities, then each of such securities shall be deemed
to have been issued for such consideration as the Board of Directors of Procept
determines in good faith; provided, however that if the Financial Advisor
disagrees with such determination, Procept shall retain, at its own expense, an
independent investment banking firm acceptable to the Financial Advisor for the
purpose of obtaining an appraisal.
10.6.3 Notwithstanding any other provision hereof, no adjustment
to the Dilution Value will be made:
(a) upon the exercise of any of the options outstanding on the
date hereof under Procept's existing stock option plans; or
(b) upon the issuance or exercise of options which may
hereafter be granted with the approval of Procept's Board of Directors, or
exercised, under any employee benefit plan of Procept to officers, directors,
consultants or employees, but only with respect to such options as are
exercisable at prices no lower than the Closing Bid Price (or, if the prices
referenced in the definition of Closing Bid Price cannot be determined, the Fair
Market Value) of the Procept Common Stock as of the date of grant thereof; or
(c) upon exercise of the Placement Options or the Advisory
Options (as defined in Exhibits B and C to the Securities Purchase Agreement
dated as of June 30, 1997 between Procept and certain stock purchasers), upon
the exercise of the Class C Warrants of Procept currently outstanding or
issuable pursuant to the exercise of the Placement and Advisory Options, as set
forth in the PROCEPT DISCLOSURE SCHEDULE pursuant to Section 4.2 or upon the
issuance or the conversion of any Class C Warrants approved in writing by the
Financial Advisor; or
(d) upon the issuance or sale of Procept Common Stock or
Convertible Securities pursuant to the exercise of any rights, options or
warrants to receive, subscribe for or purchase, or any options for the purchase
of, Procept Common Stock or Convertible Securities, whether or not such rights,
warrants or options were outstanding on the Effective Time or were thereafter
issued or sold, provided that an adjustment was either made or not required to
be made
49
in accordance with Subsection 10.6.1 in connection with the issuance or
sale of such securities or any modification of the terms thereof; or
(e) upon the issuance or sale of Procept Common Stock upon
conversion or exchange of any Convertible Securities, provided that any
adjustments required to be made upon the issuance or sale of such Convertible
Securities or any modification of the terms thereof were so made, and whether or
not such Convertible Securities were outstanding on the Effective Time or were
thereafter issued or sold; or
(f) upon the issuance of stock that may hereafter be purchased
or sold with the approval of Procept's Board of Directors, under the 1993
Employee Stock Purchase Plan of Procept to officers, directors, consultants or
employees, but only with respect to such shares as are purchased and/or sold in
accordance with the current plan and at the prices no lower than eighty-five
percent (85%) of the Closing Bid Price (or, if the prices referenced in the
definition of Closing Bid Price cannot be determined, 85% of the Fair Market
Value) of the Procept Common Stock as of the date of purchase and/or sale
thereof;
Paragraph 10.6.2(d) shall nevertheless apply to any modification of the
rights of conversion, exchange or exercise of any of the securities referred to
in this Subsection 10.6.3, except that Paragraph 10.6.2(d) shall not apply to
any modification of the rights of conversion, exchange or exercise of the
securities excepted by Paragraph (c) of this Subsection 10.6.3 that are required
by the original terms of those respective instruments.
10.6.4 As used in this Section 10.6, the term "PROCEPT COMMON
STOCK" shall mean and include Procept's Common Stock authorized at the
Effective Time and shall also include any capital stock of any class of Procept
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution or
winding up of Procept.
10.6.5 Procept from time to time may decrease the Dilution Value
by any amount for any period of time if the period is at least 20 days and if
the decrease is irrevocable during the period. Whenever the Dilution Value is
so decreased, Procept shall mail to the Rights Holders a notice of the decrease
at least 15 days before the date the decreased Dilution Value takes effect, and
such notice shall state the decreased Dilution Value and the period it will be
in effect.
Procept may make such decreases in the Dilution Value, in addition to
those required or allowed by this Section 10, as shall be determined by it, as
evidenced by a resolution of Procept's Board of Directors, to be advisable in
order to avoid or diminish any income tax to holders of Procept Common Stock
resulting from any dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
10.7 CHANGE OF SHARES ADJUSTMENTS. In the event Procept shall, at any
time or from time to time after the date hereof (i) issue any shares of Procept
Common Stock as a stock dividend to the holders of Procept Common Stock or (ii)
subdivide or combine the outstanding shares of Procept Common Stock into a
greater or lesser number of shares (any such issuance,
50
subdivision or combination being herein called a "CHANGE OF SHARES"), then
the Dilution Value shall be changed to a price (rounded to the nearest cent)
determined by multiplying the Dilution Value in effect immediately prior to
such Change of Shares by a fraction, the numerator of which shall be the
number of shares of Procept Common Stock outstanding immediately prior to the
Change of Shares and the denominator of which shall be the number of shares
of Procept Common Stock outstanding immediately following the Change of
Shares.
10.8 LIQUIDATION PUT.
10.8.1 The Rights Holder may require Procept to repurchase with
cash any number (not to exceed such Rights Holder's Issuance Base Amount) of
shares of Procept Common Stock then owned by such Rights Holder for 140% of the
aggregate Dilution Value of such shares; provided, however, in the event of a
Merger Transaction, any repurchase pursuant to this Section 10.8 may be paid in
cash, property (valued as provided in Subsection 10.8.4) and/or securities
(valued as provided in Subsection 10.8.4) of the entity surviving such Merger
Transaction.
10.8.2 The Rights Holder covenants not to exercise the Liquidation
Put unless a Liquidation Event has occurred.
10.8.3 The Rights Holder's Section 10 Rights shall be terminated
to the pro rata extent of any exercise of such Rights Holder's Liquidation Put.
10.8.4 Any securities or other property to be delivered to the
Rights Holder pursuant to this Section 10.8 shall be valued as follows:
(a) Securities not subject to an investment letter or other
similar restriction on free marketability:
(i) If actively traded on the Stock Market, the
value shall be deemed to be the Market Price of such securities as of the third
day prior to the date of valuation.
(ii) If not actively traded on the Stock Market,
the value shall be the Fair Market Value of such securities.
(b) For securities for which there is an active public market
but which are subject to an investment letter or other restrictions on free
marketability, the value shall be the Fair Market Value thereof, determined by
discounting appropriately the Market Price thereof.
(c) For all other securities, the value shall be the Fair
Market Value thereof.
10.9 TRANSFER OF RIGHTS UNDER THIS SECTION 10. A Rights Holder's
Section 10 Rights are not transferable until after April 9, 1999. The Rights
Holder's Section 10 Rights are not transferable unless the transferee will be
both the record and beneficial owner of the related Procept Common Stock and
executes and delivers to Procept a counterpart to this Section 10 agreeing to be
bound by the obligations of the Rights Holder hereunder. Any such transferee
must provide his or her name and address, which name and address must be that of
the beneficial owner, to Procept. Any transfer of Procept Common Stock and
related Section 10 Rights must
51
be performed in accordance with applicable securities laws and regulations,
and the transferor must provide Procept with an opinion of counsel,
satisfactory to Procept, to that effect. Furthermore, no transfer of Section
10 Rights may be made relating to fewer shares of Procept Common Stock than
the quotient of $25,000 divided by the Dilution Value. ANY PURPORTED
TRANSFER OF SECTION 10 RIGHTS NOT IN COMPLIANCE WITH THIS SECTION 10.9 SHALL
BE NULL AND VOID AND THE RIGHTS HOLDER SHALL FORFEIT ALL SECTION 10 RIGHTS
RELATED TO SUCH TRANSFERRED PROCEPT COMMON STOCK. Upon, and to the extent
of, any transfer of Procept Common Stock without the related Section 10
Rights, such related Section 10 Rights shall terminate.
10.10 ADJUSTMENTS TO ISSUANCE BASE AMOUNT. Upon the termination of any
of the Rights Holder's Section 10 Rights, such Rights Holder's Issuance Base
Amount shall be proportionally reduced.
10.11 NOTICES.
10.11.1 After each adjustment of the Dilution Value pursuant
to Sections 10.2, 10.6, 10.7 and 10.15 Procept will promptly prepare a
certificate signed by the Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, of Procept setting forth: (i) the Dilution Value as so adjusted
and (ii) a brief statement of the facts accounting for such adjustment.
Procept will promptly file such certificate with the Transfer Agent and cause
a brief summary thereof to be sent by ordinary first class mail to each
Rights Holder at his or her last address as it shall appear on the Transfer
Agent's record books. No failure to mail such notice nor any defect therein
or in the mailing thereof shall affect the validity of such adjustment. The
affidavit of an officer of the Transfer Agent or the Secretary or an
Assistant Secretary of Procept that such notice has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts therein stated. The
Transfer Agent may rely on the information in the certificate as true and
correct and has no duty nor obligation independently to verify the amounts or
calculations therein set forth.
10.11.2 After any adjustment in the Issuance Base Amount
resulting from (i) any Reset Issuances, Semi-Annual Issuances, Dilution
Issuances or Qualified Offering Issuance (ii) any Change in Shares or (iii) any
termination of Section 10 Rights, Procept will promptly prepare a certificate
signed by the Chief Executive Officer or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of Procept
setting forth: (x) the Issuance Base Amount immediately preceding and
succeeding such adjustment and (y) a brief statement of the facts accounting for
such adjustment. Procept will promptly file such certificate with the Transfer
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to each Rights Holder at his or her last address as it shall appear on the
Transfer Agent's record books. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of such adjustment.
The affidavit of an officer of the Transfer Agent or the Secretary or an
Assistant Secretary of Procept that such notice has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts therein stated. The
Transfer Agent may rely on the information in the certificate as true and
correct and has no duty nor obligation independently to verify the amounts or
calculations therein set forth.
52
10.12 TREASURY STOCK. Any Reset Issuance, Semi-Annual Issuance and
Dilution Issuance shall be made with duly authorized, fully-paid and
non-assessable shares of Procept Common Stock, in accordance with the DGCL, and
shall be drawn from the treasury stock of Procept to the extent available.
10.13 MANDATORY TERMINATION OF SECTION 10 RIGHTS. At any time on or
after the Reset Date, Procept may cause the Rights Holder's Section 10 Rights to
be terminated if the Market Price of the Procept Common Stock shall have
exceeded 300% of the then applicable Dilution Value as of the third business day
prior to the date of notice of termination. No greater than 60 nor fewer than
20 days prior to the date of any such mandatory termination, notice by first
class mail, postage prepaid, shall be given to the Rights Holders, addressed to
such Rights Holders at their last addresses as they shall appear in the Transfer
Agent's record books. Each such notice shall specify the date fixed for
termination. Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given by Procept on the date deposited
in the mail, whether or not the Rights Holder receives such notice; and failure
properly to give such notice by mail, or any defect in such notice, to any
Rights Holders shall not affect the validity of the proceedings for the
termination of any other Rights Holders' Section 10 Rights.
10.14 WAIVER OF SECTION 10 RIGHTS. With the written consent of Procept
and the stockholders holding at least a majority of the issued and outstanding
Procept Common Stock subject to Section 10 Rights or subject to Article VI
Rights (as defined below), any provision of this Section 10 may be waived
(either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely) or
amended. Upon the effectuation of each such waiver or amendment, Procept shall
promptly give written notice thereof to the Rights Holders, if any, who have not
previously received notice thereof or consented thereto in writing. "Article VI
Rights" are rights under a Subscription Agreement between a holder of Procept
Common Stock (or such holder's predecessor in interest) and Procept granting
rights referred to therein as "Article VI Rights", which rights are
substantially the same as the Section 10 Rights
10.15 OPTIONAL EXCHANGE/RESET.
10.15.1 Upon the receipt of requisite approvals, if any, from the
stockholders of Procept, the shares of Procept Common Stock acquired hereunder
may be exchanged (the "EXCHANGE RIGHT"), at the option of each Rights Holder,
upon the completion of a Qualified Offering (as defined below) into Qualified
Offering Securities (as defined below). Upon exchange of their shares of
Procept Common Stock, up to the Issuance Base Amount, the exchanging Rights
Holders shall receive an amount of Qualified Offering Securities equal to the
quotient of (i) the Issuance Base Amount being exchanged multiplied by the
Dilution Value at the time of the Qualified Offering, divided by (ii) the
Qualified Offering Securities Price (as defined below) multiplied by .75 (the
"EXCHANGE PRICE"); provided, however, that in the event that the Exchange Price
divided by the Underlying Procept Common Stock Amount (as defined below) is less
than the greater of (a) $2.50 and (b) 50% of the average closing bid price of
the Procept Common Stock for the twenty trading days immediately preceding the
date of such exchange (the "FLOOR PRICE"), then the Exchange Price shall equal
the Floor Price multiplied by the Underlying Procept Common Stock Amount.
53
As used herein the following terms shall have the following meanings:
(a) "UNDERLYING PROCEPT COMMON STOCK AMOUNT" shall equal the
number of shares of Procept Common Stock and Procept Common Stock underlying
Convertible Securities included as part of each Qualified Offering Security but
shall not include Procept Common Stock underlying warrants or options to
purchase Procept Common Stock or to purchase a Convertible Security, whether or
not such warrant or option contains a right to exercise such warrant or option
by the delivery of shares deemed purchased thereunder, including, without
limitation, by a cashless exercise.
(b) "QUALIFIED OFFERING SECURITY" and "QUALIFIED OFFERING
SECURITIES" shall mean the security or securities (whether they are Procept
Common Stock, Convertible Securities, units of Procept Common Stock and/or
Convertible Securities (as defined below) and warrants or other similar rights)
issued or sold in the Qualified Offering (including any contractual rights
granted to investors in connection with the Qualified Offering).
(c) "QUALIFIED OFFERING" shall mean the sale or series of sales
of equity securities of Procept next occurring after the Effective Time of this
Offering, including, without limitation, Procept Common Stock, warrants, units
of Procept Common Stock and warrants, other securities exchangeable, convertible
or exercisable for Procept Common Stock, alone or in units, whether in a public
offering or private placement, raising gross proceeds in excess of $2,500,000;
excluding, however, at Procept's option, a firm commitment underwritten public
offering.
(d) "QUALIFIED OFFERING SECURITIES PRICE" shall mean the
selling price to investors for each Qualified Offering Security.
(e) "CONVERTIBLE SECURITY" and "CONVERTIBLE SECURITIES" shall
mean any security convertible into or exchangeable for a share or shares of
Procept Common Stock without the payment of any additional consideration in such
conversion or exchange other than the delivery of such security, but shall not
include a warrant or option to purchase Procept Common Stock or to purchase a
Convertible Security, whether or not such warrant or option contains a right to
exercise such warrant or option by the delivery of shares deemed purchased
thereunder, including, without limitation, by a cashless exercise.
10.15.2 Upon and to the extent of any exchange into Qualified
Offering securities as set forth in Section 10.15.1 above, the Section 10 Rights
related to the exchanged Procept Common Stock shall terminate.
10.15.3 Upon the receipt of requisite approvals, if any, from the
stockholders of Procept, holders who elect not to exchange their Procept Common
Stock upon a Qualified Offering for Qualified Offering Securities, shall have
the Dilution Value with respect to their Section 10 Rights adjusted (a
"QUALIFIED OFFERING ADJUSTMENT EVENT") to equal the Exchange Price and shall
receive an additional number of shares (the "QUALIFIED OFFERING ISSUANCE") of
Procept Common Stock equal to the difference between (i) the quotient of (a) the
Issuance Base Amount multiplied by the Dilution Value in effect prior to the
date of adjustment divided by (b) the (x) Exchange Price divided by (y) the
Underlying Procept Common Stock Amount, and (ii)
54
the Issuance Base Amount prior to the date of adjustment; provided, however,
that no adjustment shall be made if it would result in an increase in the
Dilution Value. Holders receiving Qualified Offering Issuance shall have
Section 10 Rights with respect to such shares.
SECTION 11 - MISCELLANEOUS
11.1 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given when so delivered in
person, by overnight courier, by facsimile transmission (with receipt confirmed
by telephone or by automatic transmission report) or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), as follows:
(i) if to Procept, to:
Procept, Inc.
000 Xxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxx Xxx
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Xxxxxx & Dodge LLP
Xxx Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
(ii) if to Pacific, to:
Pacific Pharmaceuticals, Inc.
0000 Xxxx Xxxxx Xxxx, Xxxxx X
Xxx Xxxxx, XX 00000
Attention: H. Xxxxxxxx Xxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Patterson, Belknap, Xxxx & Xxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxx X. Xxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
55
Any party may by notice given in accordance with this Section 11.1 to the other
parties designate another address or person for receipt of notices hereunder.
11.2 AMENDMENT. Except as provided in Section 10.14, this Agreement
may not be amended except by an instrument signed by each party hereto.
11.3 WAIVER. At any time prior to the Effective Time, any party hereto
may, (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto or (b) waive compliance with any of the
agreements of any other party or any conditions to its own obligations, in each
case only to the extent such obligations, agreements and conditions are intended
for its benefit; provided that any such extension or waiver shall be binding
upon a party only if such extension or waiver is set forth in a writing executed
by such party. After the Effective Time, such extension or waiver may be made
in accordance with Section 10.
11.4 ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties with respect to the Merger and related transactions, and
supersedes all prior agreements, written or oral, with respect thereto,
including but not limited to the Letter of Intent dated November 4, 1998.
11.5 GOVERNING LAW. This Agreement is governed by the laws of the
State of Delaware without regard to its conflict of law provisions.
11.6 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns. The Rights Holders are intended to be, and shall be, third
party beneficiaries of Section 10 hereof. This Agreement is not assignable
without the prior written consent of the other parties hereto, provided that the
Section 10 Rights are assignable as set forth in Section 10.9.
11.7 VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
11.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
11.9 EXHIBITS AND DISCLOSURE SCHEDULES. The Exhibits and Disclosure
Schedules are a part of this Agreement as if fully set forth herein.
56
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first stated above.
PROCEPT, INC.
By /s/ Xxxx X. Xxx
----------------------------------------
Name: Xxxx X. Xxx
Title: President and CEO
PACIFIC PHARMACEUTICALS, INC.
By /s/ H. Xxxxxxxx Xxxx
----------------------------------------
Name: H. Xxxxxxxx Xxxx, M. D.
Title: Chairman, President and CEO
PROCEPT ACQUISITION CORP.
By /s/ Xxxx X. Xxx
----------------------------------------
Name: Xxxx X. Xxx
Title: President and CEO
57
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 1 - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.3 Effects of the Merger. . . . . . . . . . . . . . . . . . . . . . . . .2
1.4 Certificate of Incorporation and Bylaws. . . . . . . . . . . . . . . .3
1.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . .3
1.6 Conversion of Stock. . . . . . . . . . . . . . . . . . . . . . . . . .3
1.7 Closing of Pacific Transfer Books. . . . . . . . . . . . . . . . . . .4
1.8 Pacific Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . .4
1.9 Issuance of Procept Certificates . . . . . . . . . . . . . . . . . . .5
1.10 No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF PAC. . . . . . . . . . . . . . . . .6
2.1 Organization and Corporate Power . . . . . . . . . . . . . . . . . . .6
2.2 Corporate Authorization. . . . . . . . . . . . . . . . . . . . . . . .6
2.3 Non-Contravention. . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.4 No Business Activities.. . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF PACIFIC. . . . . . . . . . . . . . .6
3.1 Organization and Qualification.. . . . . . . . . . . . . . . . . . . .6
3.2 Capitalization.. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.3 Authority to Execute and Perform Agreements. . . . . . . . . . . . . .7
3.4 Subsidiaries and Other Affiliates. . . . . . . . . . . . . . . . . . .7
3.5 Charter and By-laws; Books and Records.. . . . . . . . . . . . . . . .7
3.6 SEC Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.7 Financial Statements.. . . . . . . . . . . . . . . . . . . . . . . . .8
3.8 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . .8
3.9 No Material Adverse Change.. . . . . . . . . . . . . . . . . . . . . .8
3.10 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.11 Compliance with Laws.. . . . . . . . . . . . . . . . . . . . . . . . 11
3.12 Consents; No Breach. . . . . . . . . . . . . . . . . . . . . . . . . 12
3.13 Actions and Proceedings. . . . . . . . . . . . . . . . . . . . . . . 12
-i-
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.14 Contracts and Other Agreements.. . . . . . . . . . . . . . . . . . . 13
3.15 Real Property; Leases. . . . . . . . . . . . . . . . . . . . . . . . 14
3.16 Tangible Property. . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.17 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . 15
3.18 Title to Assets; Liens.. . . . . . . . . . . . . . . . . . . . . . . 15
3.19 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . . 16
3.20 Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.21 Relationships with Affiliates. . . . . . . . . . . . . . . . . . . . 17
3.22 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.23 Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.24 Hazardous Materials. . . . . . . . . . . . . . . . . . . . . . . . . 18
3.25 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF PROCEPT. . . . . . . . . . . . . . 18
4.1 Organization and Qualification.. . . . . . . . . . . . . . . . . . . 19
4.2 Capitalization.. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.3 Authority to Execute and Perform Agreements. . . . . . . . . . . . . 19
4.4 Subsidiaries and Other Affiliates. . . . . . . . . . . . . . . . . . 20
4.5 Charter and By-laws; Books and Records.. . . . . . . . . . . . . . . 20
4.6 SEC Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7 Financial Statements.. . . . . . . . . . . . . . . . . . . . . . . . 20
4.8 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . 20
4.9 No Material Adverse Change.. . . . . . . . . . . . . . . . . . . . . 21
4.10 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.11 Compliance with Laws.. . . . . . . . . . . . . . . . . . . . . . . . 23
4.12 Consents; No Breach. . . . . . . . . . . . . . . . . . . . . . . . . 24
4.13 Actions and Proceedings. . . . . . . . . . . . . . . . . . . . . . . 24
4.14 Contracts and Other Agreements.. . . . . . . . . . . . . . . . . . . 25
4.15 Real Property; Leases. . . . . . . . . . . . . . . . . . . . . . . . 26
4.16 Tangible Property. . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.17 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . 27
-ii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
4.18 Title to Assets; Liens.. . . . . . . . . . . . . . . . . . . . . . . 27
4.19 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . . 28
4.20 Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.21 Relationships with Affiliates. . . . . . . . . . . . . . . . . . . . 29
4.22 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.23 Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.24 Hazardous Materials. . . . . . . . . . . . . . . . . . . . . . . . . 30
4.25 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5 - COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 30
5.1 Conduct of Pacific Business. . . . . . . . . . . . . . . . . . . . . 30
5.2 Conduct of Procept Business. . . . . . . . . . . . . . . . . . . . . 32
5.3 Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.4 Agreement not to Entertain other Offers. . . . . . . . . . . . . . . 33
5.5 Corporate Examinations and Investigations. . . . . . . . . . . . . . 34
5.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.7 Authorization from Others. . . . . . . . . . . . . . . . . . . . . . 34
5.8 Consummation of Agreement. . . . . . . . . . . . . . . . . . . . . . 35
5.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.10 Securities Law Matters . . . . . . . . . . . . . . . . . . . . . . . 35
5.11 Pacific Stockholder Meeting. . . . . . . . . . . . . . . . . . . . . 35
5.12 Procept Stockholder Meeting. . . . . . . . . . . . . . . . . . . . . 36
5.13 Public Announcements and Confidentiality . . . . . . . . . . . . . . 36
5.14 Affiliate Letters. . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.15 Procept SEC Filings. . . . . . . . . . . . . . . . . . . . . . . . . 37
5.16 Pacific SEC Filings. . . . . . . . . . . . . . . . . . . . . . . . . 37
5.17 Fairness Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.18 Stock Options and Warrants . . . . . . . . . . . . . . . . . . . . . 37
5.19 Indemnification, Directors and Officer's Insurance . . . . . . . . . 39
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH
PARTY TO CONSUMMATE THE MERGER . . . . . . . . . . . . . . . . . . . 39
-iii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
6.1 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2 Absence of Order.. . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.3 Nasdaq Stock Exchange Listing. . . . . . . . . . . . . . . . . . . . 40
6.4 Effectiveness of Registration Statement. . . . . . . . . . . . . . . 40
6.5 Procept Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 40
6.6 Pacific Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7 - CONDITIONS PRECEDENT TO THE OBLIGATION OF PROCEPT
TO CONSUMMATE THE MERGER . . . . . . . . . . . . . . . . . . . . . . 40
7.1 Representations, Warranties and Covenants. . . . . . . . . . . . . . 40
7.2 Certificate of Secretary of Pacific. . . . . . . . . . . . . . . . . 40
7.3 Affiliate Letters. . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.4 Opinion of Counsel to Pacific. . . . . . . . . . . . . . . . . . . . 41
7.5 Merger Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.6 BTI Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . 41
7.7 Agreement with Lenders . . . . . . . . . . . . . . . . . . . . . . . 41
7.8 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.9 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.10 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.11 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8 - CONDITIONS PRECEDENT TO THE OBLIGATION OF PACIFIC
TO CONSUMMATE THE MERGER . . . . . . . . . . . . . . . . . . . . . . 41
8.1 Representations, Warranties and Covenants. . . . . . . . . . . . . . 41
8.2 Certificate of Secretary of Procept. . . . . . . . . . . . . . . . . 42
8.3 Certificate of Secretary of PAC. . . . . . . . . . . . . . . . . . . 42
8.4 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Opinion of Counsel to Procept. . . . . . . . . . . . . . . . . . . . 42
8.6 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 9 - TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . . . 42
9.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 10 - ADDITIONAL CONTRACTUAL RIGHTS. . . . . . . . . . . . . . . . . . . . 43
-iv-
TABLE OF CONTENTS
(CONTINUED)
PAGE
10.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.2 Reset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.3 Reset Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.4 Semi-Annual Issuances. . . . . . . . . . . . . . . . . . . . . . . . 46
10.5 Dilution Issuances . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.6 Anti-Dilution Adjustments. . . . . . . . . . . . . . . . . . . . . . 46
10.7 Change of Shares Adjustments.. . . . . . . . . . . . . . . . . . . . 50
10.8 Liquidation Put. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.9 Transfer of Rights Under This Section 10.. . . . . . . . . . . . . . 51
10.11 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.12 Treasury Stock.. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.13 Mandatory Termination of Section 10 Rights.. . . . . . . . . . . . . 53
10.14 Waiver of Section 10 Rights. . . . . . . . . . . . . . . . . . . . . 53
10.15 Optional Exchange/Reset. . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11 - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
11.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
11.2 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.6 Binding Effect; No Assignment. . . . . . . . . . . . . . . . . . . . 56
11.7 Variations in Pronouns . . . . . . . . . . . . . . . . . . . . . . . 56
11.8 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.9 Exhibits and Disclosure Schedules. . . . . . . . . . . . . . . . . . 56
-v-
DISCLOSURE SCHEDULES (Delivered concurrently; Not attached hereto)
Pacific Disclosure Schedule
Procept Disclosure Schedule
-vi-
