<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 6, 1998
SYNBIOTICS CORPORATION
(Exact name of registrant as specified in its charter)
Commission file number 0-11303
California 95-3737816
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
11011 Via Frontera
San Diego, California 92127
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 451-3771
================================================================================
<PAGE>
Item 5. Other Events
------------
On March 6, 1998 the Company acquired by merger Prisma Acquisition Corp.
("Prisma"), a privately-held company located in Rome, NY, which develops,
manufactures and markets instruments and reagents used by veterinarians to
measure blood chemistry information at the point-of-care. The consideration paid
to the stockholders of Prisma was a $1,000,000 convertible note, 458,000 newly
issued and unregistered shares of the Company's common stock and the issuance of
options to purchase 157,000 shares of the Company's common stock in replacement
of Prisma's outstanding stock options. The 458,000 shares and 157,000 stock
options numbers were calculated by dividing $2,000,000 by $3.25, which was the
average closing price of Synbiotics' common stock for the thirty trading days
prior to March 6, 1998.
The convertible note (which was issued to only one of Prisma's stockholders) is
due March 5, 1999, bears interest at the rate of 5% per year and is unsecured.
The note is convertible at any time, at the option of the Company, into a number
of unregistered shares of the Company's common stock equal to the outstanding
principal and accrued interest divided by the average closing price of the
Company's common stock for the thirty trading days immediately prior to the
conversion. The note is subordinate to the Company's notes payable to Banque
Paribas, which were issued in conjunction with the July, 1997 acquisition of the
veterinary diagnostics business of Rhone-Merieux, S.A.S.
All of the assets acquired by the Company were used and will continue to be used
to operate the instrument and reagent business activities described above.
Item 7. Financial Statements and Exhibits
---------------------------------
a) Financial statements of business as acquired
--------------------------------------------
Not applicable.
b) Pro forma financial information
-------------------------------
Not applicable.
c) Exhibits
--------
2.1 Agreement and Plan of Reorganization By and Among the
Registrant, Prisma Acquisition Corp. and the Stockholders and an
Optionholder of Prisma Acquisition Corp., dated as of February
27, 1998.
2.2 Agreement of Merger By and Between Prisma Acquisition Corp. and
the Registrant, dated as of March 6, 1998.
99.1 Note Purchase Agreement By and Between the Registrant and
BioQuest Venture Leasing Partnership, L.P., dated as of March 6,
1998.
99.2 Convertible Promissory Note By the Registrant to BioQuest
Venture Leasing Partnership, L.P., dated March 6, 1998.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SYNBIOTICS CORPORATION
Date: March 23, 1998 /s/ Michael K. Green
-----------------------------
Michael K. Green
Vice President of Finance and
Chief Financial Officer
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO
FORM 8-K
UNDER
SECURITIES EXCHANGE ACT OF 1934
SYNBIOTICS CORPORATION
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
2.1 Agreement and Plan of Reorganization By and Among the Registrant,
Prisma Acquisition Corp. and the Stockholders and an Optionholder
of Prisma Acquisition Corp., dated as of February 27, 1998.
Index of Schedules to Exhibit 2.1 (1)
---------------------------------
Schedule Description
-------- -----------
2.2(a) Stockholder List
2.2(b) Option List
2.3 Subsidiaries
2.4 Governmental and Third Party Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.9 Restrictions
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(a) Intellectual Property
2.11(b) Intellectual Property Licenses
2.11(c) Intellectual Property Problems
2.12 Agreements, Contracts and Commitments
2.13 Interested Party Transactions
2.15 Litigation
2.16 Insurance
2.18 Relationships
2.19 Trade Secrets
2.21 Brokers/Finders Fees; Expenses of Transaction
2.22 Permits and Licenses
2.23(b) Employee Benefit Plans and Employee Agreements
2.23(f)(i) Effect of Transaction
2.23(g) Employment Penalties
2.23(h) Labor
4.2 Governmental and Third Party Consents
4.6 Litigation
5.1(m) Severance Agreements
7.3(c) Third Party Consents Required of the Company
2.2 Agreement of Merger By and Between Prisma Acquisition Corp. and the
Registrant, dated as of March 6, 1998.
99.1 Note Purchase Agreement By and Between the Registrant and BioQuest
Venture Leasing Partnership, L.P., dated as of March 6, 1998.
99.2 Convertible Promissory Note By the Registrant to BioQuest Venture
Leasing Partnership, L.P., dated March 6, 1998.
_________
(1) The schedules listed have been omitted from this filing. The Company will
provide to the Commission any schedules requested to be provided by the
Commission
<PAGE>
Exhibit 2.1
-----------
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SYNBIOTICS CORPORATION
PRISMA ACQUISITION CORP.
AND
THE STOCKHOLDERS AND AN OPTIONHOLDER OF PRISMA ACQUISITION CORP.
Dated as of February 27, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER...................................................... 1
1.1 The Merger...................................................... 1
----------
1.2 Effective Time.................................................. 2
--------------
1.3 Effect of the Merger............................................ 2
--------------------
1.4 Articles of Incorporation; Bylaws............................... 2
---------------------------------
1.5 Directors and Officers.......................................... 2
----------------------
1.6 Consideration to Be Issued; Effect on Common Stock.............. 2
--------------------------------------------------
1.7 Cancellation of Company Common Stock Owned by Acquiror or
---------------------------------------------------------
Company......................................................... 4
-------
1.8 Adjustments to Merger Consideration............................. 4
-----------------------------------
1.9 Definitions of "Merger Consideration"........................... 4
-------------------------------------
1.10 Surrender of Certificates....................................... 5
-------------------------
1.11 No Further Ownership Rights in Company Common Stock............. 6
---------------------------------------------------
1.12 Lost, Stolen or Destroyed Certificates.......................... 6
--------------------------------------
1.13 Tax Consequences................................................ 6
----------------
1.14 Exemption from Registration..................................... 7
---------------------------
1.15 Taking of Necessary Action; Further Action...................... 7
------------------------------------------
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND COMPANY
STOCKHOLDERS........................................................... 7
2.1 Organization of the Company..................................... 7
---------------------------
2.2 Company Capital Structure....................................... 7
-------------------------
2.3 Subsidiaries.................................................... 8
------------
2.4 Authority....................................................... 8
---------
2.5 Company Financial Statements.................................... 9
----------------------------
2.6 No Undisclosed Liabilities...................................... 9
--------------------------
2.7 No Changes...................................................... 9
----------
2.8 Tax and Other Returns and Reports............................... 11
---------------------------------
2.9 Restrictions on Business Activities............................. 12
-----------------------------------
2.10 Title to Properties; Absence of Liens and Encumbrances.......... 13
------------------------------------------------------
2.11 Intellectual Property........................................... 13
---------------------
2.12 Agreements, Contracts and Commitments........................... 14
-------------------------------------
2.13 Interested Party Transactions................................... 16
-----------------------------
2.14 Compliance with Laws............................................ 16
--------------------
2.15 Litigation...................................................... 16
----------
2.16 Insurance....................................................... 16
---------
2.17 Minute Books.................................................... 17
------------
2.18 Relationships With Suppliers and Licensors...................... 17
------------------------------------------
2.19 Trade Secrets................................................... 17
-------------
i
<PAGE>
2.20 Environmental Matters........................................... 17
---------------------
2.21 Brokers' and Finders' Fees: Third Party Expenses................ 18
------------------------------------------------
2.22 Permits and Licenses............................................ 18
--------------------
2.23 Employee Matters and Benefit Plans.............................. 19
----------------------------------
2.24 Employees....................................................... 21
---------
2.25 Accounts Payable................................................ 21
----------------
2.26 Representation Complete......................................... 22
-----------------------
ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANY STOCKHOLDERS........ 22
3.1 Ownership of Company Common Stock............................... 22
---------------------------------
3.2 Authority....................................................... 22
---------
3.3 Investment in Acquiror Common................................... 23
-----------------------------
3.4 Government Consents............................................. 24
-------------------
3.5 Finder's Fees................................................... 24
-------------
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR..................... 24
4.1 Organization, Standing and Power................................ 24
--------------------------------
4.2 Authority....................................................... 25
---------
4.3 Capital Structure............................................... 25
-----------------
4.4 SEC Documents; Acquiror Financial Statements.................... 25
--------------------------------------------
4.5 No Material Adverse Change...................................... 26
--------------------------
4.6 Litigation...................................................... 26
----------
4.7 Compliance with Laws............................................ 26
--------------------
4.8 Environmental Matters........................................... 26
---------------------
4.9 Brokers' and Finders' Fees: Third Party Expenses............... 27
-------------------------------------------------
4.10 Representations Complete........................................ 27
------------------------
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME............................. 27
5.1 Conduct of Business of the Company.............................. 27
----------------------------------
5.2 No Solicitation................................................. 29
---------------
ARTICLE VI ADDITIONAL AGREEMENTS.......................................... 30
6.1 Sale of Shares; Stockholder Matters............................. 30
-----------------------------------
6.2 Access to Information........................................... 31
---------------------
6.3 Confidentiality................................................. 31
---------------
6.4 Intellectual Property........................................... 32
---------------------
6.5 Expenses........................................................ 32
--------
6.6 Public Disclosure............................................... 32
-----------------
6.7 Consents........................................................ 32
--------
6.8 Reasonable Efforts.............................................. 32
------------------
6.9 Notification of Certain Matters................................. 33
-------------------------------
6.10 Certain Benefit Plans........................................... 33
---------------------
6.11 Additional Documents and Further Assurances..................... 33
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ii
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6.12 Nasdaq National Market Listing.................................. 33
------------------------------
6.13 Company Option Agreements....................................... 34
-------------------------
6.14 Form S-8........................................................ 34
--------
6.15 Escrow Agreement................................................ 34
----------------
6.16 License Agreement............................................... 34
-----------------
ARTICLE VII CONDITIONS TO THE MERGER...................................... 34
7.1 Conditions to Obligations of the Company and Acquiror to Effect
---------------------------------------------------------------
the Merger...................................................... 34
----------
7.2 Additional Conditions to Obligations of the Company............. 35
---------------------------------------------------
7.3 Additional Conditions to the Obligations of Acquiror............ 35
----------------------------------------------------
ARTICLE VIII ESCROW AND INDEMNIFICATION................................... 37
8.1 Escrow Fund..................................................... 37
-----------
8.2 Indemnification by Company Stockholders......................... 37
---------------------------------------
8.3 Damage Deductible............................................... 39
-----------------
8.4 Indemnification by Acquiror..................................... 39
---------------------------
8.5 Escrow Period................................................... 39
-------------
8.6 Claims upon Escrow Fund......................................... 39
-----------------------
8.7 Objections to Claims............................................ 39
--------------------
8.8 Resolution of Conflicts: Arbitration........................... 40
-------------------------------------
8.9 Stockholders' Agent............................................. 40
-------------------
8.10 Actions of the Stockholders' Agent.............................. 41
----------------------------------
8.11 Third-Party Claims.............................................. 41
------------------
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.............................. 42
9.1 Termination..................................................... 42
-----------
9.2 Effect of Termination........................................... 43
---------------------
9.3 Amendment....................................................... 43
---------
9.4 Extension; Waiver............................................... 43
-----------------
ARTICLE X GENERAL PROVISIONS.............................................. 43
10.1 Survival of Representations, Warranties and Agreements.......... 43
------------------------------------------------------
10.2 Notices......................................................... 43
-------
10.3 Interpretation.................................................. 45
--------------
10.4 Counterparts.................................................... 45
------------
10.5 Entire Agreement: Assignment.................................... 45
----------------------------
10.6 Severability.................................................... 45
------------
10.7 Other Remedies.................................................. 45
--------------
10.8 Governing Law................................................... 45
-------------
10.9 Rules of Construction........................................... 46
---------------------
10.10 Specific Performance............................................ 46
--------------------
10.11 Stockholder Action.............................................. 46
------------------
10.12 Expenses........................................................ 46
--------
iii
<PAGE>
INDEX OF EXHIBITS
Exhibit Description
- ------- -----------
Exhibit A Form of Escrow Agreement
Exhibit B Form of Legal Opinion of Acquiror's Counsel
Exhibit C Form of Legal Opinion of Company's Counsel
Exhibit D Form of Human License Agreement
Exhibit E Form of Non-Competition Agreement
iv
<PAGE>
INDEX OF SCHEDULES
Schedule Description
- -------- -----------
2.2(a) Stockholder List
2.2(b) Option List
2.3 Subsidiaries
2.4 Governmental and Third Party Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.9 Restrictions
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(a) Intellectual Property
2.11(b) Intellectual Property Licenses
2.11(c) Intellectual Property Problems
2.12 Agreements, Contracts and Commitments
2.13 Interested Party Transactions
2.15 Litigation
2.16 Insurance
2.18 Relationships
2.19 Trade Secrets
2.21 Brokers/Finders Fees; Expenses of Transaction
2.22 Permits and Licenses
2.23(b) Employee Benefit Plans and Employee Agreements
2.23(f)(i) Effect of Transaction
2.23(g) Employment Penalties
2.23(h) Labor
4.2 Governmental and Third Party Consents
4.6 Litigation
5.1(m) Severance Agreements
7.3(c) Third Party Consents Required of the Company
v
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of February 27, 1998 among Synbiotics Corporation, a
California corporation ("Acquiror"), Prisma Acquisition Corp., a Delaware
corporation (the "Company") and each of the stockholders of the Company listed
on Schedule 2.2(a) hereto and Robert A. Behrens (each, including Mr. Behrens, a
"Company Stockholder" and collectively, the "Company Stockholders").
RECITALS
A. The Boards of Directors of each of the Company and Acquiror
believe it is in the best interests of each company and their respective
shareholders that Acquiror and Company combine into a single company through the
statutory merger of Company with and into Acquiror (the "Merger") and, in
furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding shares
of common stock of the Company ("Company Common Stock") and all outstanding
options to acquire shares of Company Common Stock shall be converted into the
right to receive shares of voting Common Stock of Acquiror ("Acquiror Common
Stock") and options to acquire Acquiror Common Stock.
C. A portion of the shares of Acquiror Common Stock otherwise
issuable by Acquiror in connection with the Merger shall be placed in escrow by
Acquiror, the release of which amount shall be contingent upon certain events
and conditions, all as set forth in Article VIII hereof.
D. The Company, Acquiror and the Company Stockholders desire to make
certain representations and warranties and other agreements in connection with
the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2)
----------
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California Corporations Code ("California Law") and
the Delaware General Corporate Law ("Delaware Law"), the Company shall be merged
with and into the Acquiror, the separate corporate existence of Company shall
cease and the Acquiror shall continue as the surviving corporation. Acquiror as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
<PAGE>
1.2 Effective Time. Unless this Agreement is earlier terminated
--------------
pursuant to Section 9.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than five (5) business days,
following satisfaction or waiver of the conditions set forth in Article VII, at
the offices of Brobeck, Phleger & Harrison LLP, 550 West "C" Street, Suite 1200,
San Diego, California, unless another place or time is agreed to by Acquiror and
the Company. The date upon which the Closing actually occurs is herein referred
to as the "Closing Date." On the Closing Date, the parties hereto shall cause
the Merger to be consummated by filing appropriate officers' certificates and/or
an Agreement of Merger (or like instrument) with the Secretary of State of the
State of California and the Secretary of State of the State of Delaware (the
"Merger Agreement"), in accordance with the relevant provisions of applicable
law (the time of such filing with the Secretary of State of the State of
California, as ultimately confirmed by such official, or such later time as may
be set forth in this Agreement, being referred to herein as the "Effective
Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
--------------------
Merger shall be as provided in the applicable provisions of Delaware Law and
California Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company shall become the debts, liabilities
and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
---------------------------------
(a) At the Effective Time, the Articles of Incorporation of
Acquiror, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law and such Articles of Incorporation.
(b) The Bylaws of Acquiror, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The directors of Acquiror immediately
----------------------
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Acquiror
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 Consideration to Be Issued; Effect on Common Stock. By virtue of
--------------------------------------------------
the Merger and without any action on the part of Acquiror, Company or the
Company Stockholders:
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<PAGE>
(a) Conversion of Company Common Stock.
----------------------------------
(i) At the Effective Time, the holders of shares of Company
Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares to be cancelled pursuant to Section 1.7) shall
be entitled to receive in the aggregate such number of shares of
Acquiror Common Stock (the "Merger Shares") as is equal to (i) the
Merger Consideration (as defined in Section 1.9 below) less (ii) all
Assumed Option Shares (as defined below).
(ii) At the Closing, the holders of shares of Company Common
Stock outstanding at the Effective Time shall be entitled to receive
in the aggregate such number of shares of Acquiror Common Stock (the
"Initial Shares") as is equal to (i) the Merger Shares less (ii) the
Escrow Shares (as defined in Article VIII). The Escrow Shares shall
at the Closing be deposited with the Escrow Agent pursuant to Article
VIII and shall be held and disposed of in accordance with the terms
hereof and of the Escrow Agreement.
(iii) For purposes of determining the pro rata allocation of the
Initial Shares among the holders of Company Common Stock outstanding
at the Effective Time, the numerator shall be the number of shares of
Company Common Stock held by such holder at the Effective Time and the
denominator shall be the aggregate number of shares of Company Common
Stock issued and outstanding at the Effective Time less the shares to
be cancelled pursuant to Section 1.7.
(iv) No fraction of a share of Acquiror Common Stock will be
issued under this Section 1.6(a), but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a
fraction of a share of Acquiror Common Stock (after aggregating all
fractional shares of Acquiror Common Stock to be received by such
holder) shall receive from Acquiror an amount of cash (rounded to the
nearest whole cent) equal to the product of (i) such fraction,
multiplied by (ii) the mean average closing sales price of a share of
Acquiror Common Stock for the thirty (30) most recent trading days
that Acquiror Common Stock has traded ending on the trading day
immediately prior to the Effective Time, as reported on the Nasdaq
National Market (the "Closing Price").
(b) Conversion of Company Options. At the Effective Time, all options
-----------------------------
to purchase Company Common Stock then outstanding ("Company Options") shall be
assumed by Acquiror in accordance with this Section 1.6(b). At the Effective
Time, all Company Options granted and outstanding immediately prior to the
Effective Time shall be converted and exchanged for options to purchase such
number of shares of Acquiror Common Stock (the "Assumed Options") as is equal to
(A) the number of shares of Company Common Stock for which the unexercised
portion of all such Company Options would be exercisable multiplied by (B) the
Merger Consideration per share of Company Common Stock calculated on a Fully
Diluted Basis as of the Effective Time (with any fraction resulting from such
multiplication to be rounded down to the nearest whole number) (the "Assumed
Option Shares"). The exercise price per share of each
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<PAGE>
such Assumed Option Share shall be equal to (C) the exercise price of such
Assumed Option immediately prior to the Effective Time divided by (D) the Merger
Consideration per share of Company Common Stock calculated on a Fully Diluted
Basis as of the Effective Time (with any fraction resulting from such
multiplication to be rounded down to the nearest whole number). The term "Fully
Diluted Basis" as used in this Agreement shall mean (E) the number of shares of
Company Common Stock issued and outstanding as of the Effective Time (after
giving effect to the provisions of Section 1.7 below) plus (F) the number of
shares of Company Common Stock issuable pursuant to Company Options.
(i) For purposes of determining the pro rata allocation of the
Assumed Option Shares among the holders of Company Options outstanding
at the Effective Time, the numerator for each such option holder shall
be the number of shares of Company Common Stock for which the
unexercised portion of the Company Options owned by said holder were
exercisable immediately prior to the Effective Time and the
denominator shall be the aggregate number of shares of Company Common
Stock for which all Company Options issued and outstanding immediately
prior to the Effective Time were exercisable.
(ii) Robert A. Behrens, in his capacity as a holder of Company
Options assumed by the Acquiror as contemplated by this Section
1.6(b), shall be considered a "Company Stockholder" for purposes of
this Agreement.
1.7 Cancellation of Company Common Stock Owned by Acquiror or Company. At
-----------------------------------------------------------------
the Effective Time, all shares of Company Common Stock that are owned by Company
as treasury stock, each share of Company Common Stock owned by Acquiror or any
direct or indirect wholly owned subsidiary of Acquiror or of Company immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof.
1.8 Adjustments to Merger Consideration. The Merger Consideration shall
-----------------------------------
be adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Common Stock or Company Common Stock), reorganization, recapitalization
or other like change with respect to Acquiror Common Stock or Company Common
Stock occurring after the date hereof and prior to the Effective Time.
1.9 Definitions of "Merger Consideration". The maximum number of shares
-------------------------------------
of Acquiror Common Stock to be issued (including Acquiror Common Stock to be
reserved for issuance upon exercise of Company Options assumed by Acquiror in
the Merger) shall be equal to that number of shares of Acquiror Common Stock
obtained by dividing $2,000,000 by the mean average of the closing sales price
for a share of Acquiror Common Stock as quoted on the Nasdaq National Market for
the thirty (30) trading days immediately preceding and ending on the trading day
that is one (1) calendar day prior to the Closing Date (the "Merger
Consideration"). No other adjustment shall be made in the number of shares of
Acquiror Common Stock issued in the Merger as a result of (x) any increase or
decrease in the market price of Acquiror Common Stock prior to the Effective
Time not otherwise required by the immediately preceding sentence, or (y) any
cash proceeds received by Company from the date hereof to the Closing Date
pursuant to the exercise of
-4-
<PAGE>
Company Options.
1.10 Surrender of Certificates.
-------------------------
(a) Exchange Agent. ChaseMellon Shareholder Services, LLC shall act
--------------
as exchange agent (the "Exchange Agent") in the Merger.
(b) Acquiror to Provide Common Stock and Cash. Promptly after the
-----------------------------------------
Effective Time, Acquiror shall make available to the Exchange Agent for exchange
in accordance with this Article I, through such reasonable procedures as
Acquiror may adopt, (i) the Merger Shares and (ii) cash in an amount sufficient
to permit payment of cash in lieu of fractional shares pursuant to Section
1.6(a)(iv).
(c) Exchange Procedures. Promptly after the Effective Time, the
-------------------
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock, whose
shares were converted into the right to receive shares of Acquiror Common Stock
(and cash in lieu of fractional shares) pursuant to Section 1.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Acquiror may reasonably specify, and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Acquiror Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Acquiror, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing the number of whole
shares of Acquiror Common Stock less the number of shares of Acquiror Common
Stock to be deposited in the "Escrow Fund" on such holder's behalf pursuant to
Article VIII hereof and payment in lieu of fractional shares which such holder
has the right to receive pursuant to Section 1.6(a)(iv), and the Certificate so
surrendered shall forthwith be cancelled. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares of
Company Common Stock will be deemed from and after the Effective Time, for all
corporate purposes, to evidence the ownership of the number of full shares of
Acquiror Common Stock into which such shares of Company Common Stock shall have
been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6(a)(iv). As
soon as practicable after the Effective Time, and subject to and in accordance
with the provisions of Article VIII hereof, Acquiror shall cause to be
distributed to the Escrow Agent (as defined in Article VIII hereof) a
certificate or certificates representing ten percent (10%) of the Merger Shares
which shall be registered in the name of the Escrow Agent as nominee for the
holders of Certificates cancelled pursuant to this Section 1.10. Such shares
shall be beneficially owned by such holders and shall be held in escrow and
shall be available to compensate Acquiror for certain damages as provided in
Article VIII. To the extent not used for such purpose, such shares shall be
released, all as provided in Article VIII hereof.
(d) Transfers of Ownership. If any certificate for shares of Acquiror
----------------------
Common Stock is to
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<PAGE>
be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the Certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Acquiror or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for shares of Acquiror
Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Acquiror or any
agent designated by it that such tax has been paid or is not payable.
(e) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.10, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to any person for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
1.11 No Further Ownership Rights in Company Common Stock. All shares of
---------------------------------------------------
Acquiror Common Stock issued in the Merger in accordance with the terms hereof
(including any cash paid in lieu of fractional shares) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Article I.
1.12 Lost, Stolen or Destroyed Certificates. In the event any Certificates
--------------------------------------
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereto, such cash and shares of Acquiror Common Stock, if any, as may be
required pursuant to Section 1.6; provided, however, that Acquiror may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Acquiror or the Exchange Agent with respect to the Certificates alleged
to have been lost, stolen or destroyed.
1.13 Tax Consequences. It is intended by the Company that the Merger shall
----------------
constitute a reorganization within the meaning of Section 368 of the Internal
Revenue Code (the "Code"). Acquiror makes no representation that the
transaction will in fact constitute a reorganization. If it does not, the
Company Stockholders shall have no claim against Acquiror in respect thereof.
1.14 Exemption from Registration. The shares of Acquiror Common Stock to
---------------------------
be issued in connection with the Merger will be issued in a transaction exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), by reason of Section 4(2) thereof.
1.15 Taking of Necessary Action; Further Action. If, at any time after the
------------------------------------------
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises
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<PAGE>
of the Company, the officers and directors of the Company are fully authorized
in the name of their respective corporations or otherwise to take, and will
take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND COMPANY STOCKHOLDERS
The Company and BioQuest Venture Leasing Partnership, L.P. ("BioQuest"),
jointly and severally (with respect to all liability unpaid by the Company
Stockholders other than Bioquest), hereby represent and warrant to Acquiror, and
each of the Company Stockholders (except BioQuest), severally, hereby represents
and warrants to Acquiror/11/, subject to such exceptions as are specifically
disclosed in the Disclosure Letter supplied by the Company to Acquiror (the
"Company Schedules") and dated as of the date hereof, as follows:
2.1 Organization of the Company. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own, operate and lease its
properties and to carry on its business as now being conducted. The Company is
duly qualified or licensed to conduct its business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have, or would reasonably be expected to have, a material adverse effect
on the business assets (including intangible assets), financial condition,
results of operations, liabilities or prospects of the Company (hereinafter
referred to as a "Material Adverse Effect"). The Company has delivered a true
and correct copy of the Company's Certificate of Incorporation and Bylaws, each
as amended to date, to Acquiror.
2.2 Company Capital Structure.
-------------------------
(a) The authorized capital stock of the Company consists solely of
3,000 shares of Company Common Stock. As of the date hereof, there are 1,200
shares of Company Common Stock outstanding. The Company Common Stock is held of
record by the persons, with the addresses of record and in the amounts set forth
on Schedule 2.2(a). All outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of the Company or any agreement to which the Company is a party or by which it
is bound.
(b) The Company has reserved 246 shares of Company Common Stock for
issuance upon exercise of 246 Company Options. Schedule 2.2(b) sets forth for
each outstanding Company Option, the name of the holder of such option, the
domicile address of such holder, the number of shares of Company Common Stock
subject to such option, the exercise price of such option and the vesting
schedule for such option, including the extent vested to date and whether the
exercisability of such option will be accelerated
______________
For clarification: each Company Stockholder is liable for his, her or
its pro rata amount of any liability under this Agreement, and in
addition the Company and BioQuest are jointly liable with them (to
such extent) and with each other for the entire amount of all
liability under this Agreement.
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<PAGE>
and become exercisable by reason of the transactions contemplated by this
Agreement. Except for the Company Options described in Schedule 2.2(b), there
are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. The holders of
Company Options have been given any required notice prior to the Merger, and
subject to the issuance of the Merger Shares and the Assumed Options, all such
rights will be terminated at or prior to the Effective Time. As a result of the
Merger, Acquiror will be the record and sole beneficial owner of all capital
stock of the Company and rights to acquire or receive such capital stock.
2.3 Subsidiaries. The Company has no subsidiaries, partners or joint
------------
venturers.
2.4 Authority. The Company has all requisite corporate power and
---------
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The vote required of the Company Stockholders to duly
approve the Merger and this Agreement is a majority of all outstanding capital
stock entitled to vote. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company. The Company's
Board of Directors has unanimously approved the Merger, the Merger Agreement and
this Agreement. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, and (b) as
limited by laws relating to availability of specific performance, injunctive
relief or other equitable remedies. Except as set forth on Schedule 2.4, the
execution and delivery and performance of this Agreement by the Company does
not, and as of the Effective Time, will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "Conflict") (i)
any provision of the Certificate of Incorporation or Bylaws of the Company or
(ii) any mortgage, indenture, lease, license, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or its
properties or assets. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party (so as not to trigger any Conflict) is required by or with respect
to the Company in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for (i) the
filing of the Merger Agreement with the Delaware Secretary of State and the
California Secretary of State and (ii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 2.4.
2.5 Company Financial Statements.
----------------------------
-8-
<PAGE>
(a) Schedule 2.5 sets forth (i) the Company's audited balance sheet as
of November 30, 1997 (the "Balance Sheet"), and the related audited statements
of operations and cash flows for the period from inception to such date, and
(ii) the Company's unaudited balance sheet as of December 31, 1997 and the
related unaudited statements of operations and cash flows for the one-month
period then ended (collectively, the "Company Financials"). The Balance Sheet
and related audited statements of operation and cash flows for the period from
inception to November 30, 1997 are correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a basis consistent throughout the periods indicated and
consistent with each other. The Company Financials present fairly the assets,
liabilities and operating results of the Company as of the dates and during the
periods indicated therein, subject to normal year-end adjustments, which
adjustments will not be material in amount or significance.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, the
--------------------------
Company does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), which individually or in the
aggregate would have a Material Adverse Effect on the Company and has not been
reflected in the Company Financials.
2.7 No Changes. Except as set forth in Schedule 2.7 or with respect to
----------
agreements or transactions with Acquiror, since the date of the Balance Sheet,
there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on the date of the Balance Sheet and consistent with past
practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $10,000;
(d) destruction of, damage to or loss of any material assets, business
or customer of the Company (whether or not by covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) revaluation by the Company of any of its assets;
(g) declaration, setting aside of payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any Company
Common Stock;
(h) sale, lease, license-out or other disposition of any of the assets
or properties of the
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<PAGE>
Company, except sales of inventory in the ordinary course of business;
(i) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(j) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(k) waiver or release of any right or claim of the Company, including
any write-off or other compromise of any account receivable of the Company;
(l) commencement or notice or threat of commencement of any lawsuit or
proceeding against or investigation of the Company or its affairs;
(m) notice of any claim of ownership by a third party of Company
Intellectual Property Rights (as defined in Section 2.11 below) or notice of
infringement by the Company of any third party's intellectual property rights;
(n) issuance or sale by the Company of any of its shares of Company
Common Stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities;
(o) change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed Company Intellectual Property Rights to the Company;
(p) event or condition of any character that has or could be
reasonably expected to have a Material Adverse Effect on the Company; or
(q) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (p) (other than negotiations with Acquiror and its representatives
regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
---------------------------------
(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, 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, exercise 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
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<PAGE>
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 Schedule 2.8:
----------------------
(1) The Company has prepared and filed all required federal,
state, local and foreign returns, estimates, information statements and reports
("Returns") relating to any and all Taxes concerning or attributable to the
Company or its operations and such Returns are true and correct and have been
completed in accordance with applicable law.
(2) The Company: (A) has paid or accrued all Taxes it is required
to pay or accrue and (B) has withheld with respect to its employees all federal
and state income Taxes, FICA, FUTA and other Taxes required to be withheld.
(3) The Company has not been delinquent in the payment of any Tax
nor is there any Tax deficiency outstanding, proposed or assessed against the
Company, nor has the Company executed any waiver of any statute of limitations
on or extending the period for the assessment or collection of any Tax.
(4) No audit or other examination of any Return of the Company is
currently in progress, nor has the Company been notified of any request for such
an audit or other examination.
(5) The Company does not have any liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved against
in accordance with GAAP on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Company has no knowledge of any basis of the
assertion of any such liability attributable to the Company, its assets or
operations.
(6) The Company has provided to Acquiror copies of all the
Company's federal and state income and all state sales and use Tax Returns for
all periods since the date of the Company's incorporation.
(7) There are (and as of immediately following the Closing there
will be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of the Company relating to or
attributable to Taxes.
(8) Management of the Company has no knowledge of any basis for
the assertion against the Company of any claim relating or attributable to Taxes
which, if adversely determined, would result in any Lien on the assets of the
Company.
(9) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Internal Revenue Code of
1986, as amended (the "Code").
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<PAGE>
(10) The Company has no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to Section 280G or 162 of the Code.
(11) The Company 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 the Company.
(12) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(13) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(14) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
2.9 Restrictions on Business Activities. Except as set forth on Schedule
-----------------------------------
2.9, there is no agreement (noncompete or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company. Without limiting the foregoing, except as set forth on Schedule
2.9, the Company has not entered into any agreement under which the Company is
restricted from selling, licensing or otherwise distributing any of its products
to any class of customers, in any geographic area, during any period of time or
in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
(a) Except as set forth in Schedule 2.10(a), the Company owns no real
property, nor has it ever owned any real property. Schedule 2.10(a) sets forth
a list of all real property currently, or at any time in the past, leased by the
Company, the name of the lessor, the date of the lease and each amendment
thereto and, with respect to any current lease, the aggregate annual rental
and/or other fees payable under any such lease. All such current leases are in
full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the Company
Financials or in Schedule 2.10(b) and except for liens for Taxes not yet due and
payable and such imperfections of title and
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<PAGE>
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
2.11 Intellectual Property.
---------------------
(a) Except as set forth in Schedule 2.11(a), the Company owns, or is
licensed or otherwise possesses legally enforceable rights to use, all patents,
trade secrets, trademarks, trade names, service marks, copyrights, and any
applications therefor, and tangible or intangible proprietary information or
material that are used in the business of the Company as currently conducted or
as proposed to be conducted by the Company (the "Company Intellectual Property
Rights").
(b) Schedule 2.11(b) sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners. Schedule 2.11(b) sets forth a complete list of
all licenses, sublicenses and other agreements as to which the Company is a
party and pursuant to which the Company or any other person is authorized to use
any Company Intellectual Property Right or trade secret of the Company, and
includes the identity of all parties thereto, a description of the nature and
subject matter thereof, the applicable royalty or other fees and the term
thereof. The execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will neither cause the
Company to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement. Except
as set forth in Schedule 2.11(a) or 2.11(b), the Company is the sole and
exclusive owner or licensee of, with all right, title and interest in and to
(free and clear of any liens or encumbrances), the Company Intellectual Property
Rights, and has sole and exclusive rights (and is not contractually obligated to
pay any compensation to any third party in respect thereof) to the use thereof
or the material covered thereby in connection with the services or products in
respect to which the Company Intellectual Property Rights are being used. The
Company has delivered a copy of each of the documents listed on Schedule 2.11(a)
and Schedule 2.11(b) to Acquiror.
(c) Except as set forth in Schedule 2.11(c), no claims with respect to
the Company's Intellectual Property Rights have been asserted or are, to the
Company's knowledge of management of the Company, threatened by any person, nor
to the knowledge of management of the Company, are there any valid grounds for
any bona fide claims, (i) to the effect that the manufacture, sale, licensing or
use of any of the products of the Company infringes on any copyright, patent,
trademark, service mark, trade secret or other proprietary right, (ii) against
the use by the Company of any trademarks, service marks, trade names, trade
secrets, copyrights, maskworks, patents, technology, know-how or applications
used in the Company's business as currently conducted or as proposed to be
conducted by the Company, or (iii) challenging the ownership or the right to
use, as the case may be, by the Company, validity or effectiveness of any of the
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<PAGE>
Company Intellectual Property Rights. All registered patents, trademarks,
service marks and copyrights held by the Company are valid and subsisting. To
the best of the knowledge of management of the Company, the Company has not
infringed, and the business of the Company as currently conducted or as proposed
to be conducted does not infringe, any copyright, patent, trademark, service
mark, trade secret or other proprietary right of any third party. There is no
material unauthorized use, infringement or misappropriation of any of the
Company Intellectual Property Rights by any third party, including any employee
or former employee of the Company. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the licensing
thereof by the Company. Each employee, consultant or contractor of the Company
has executed a proprietary information and confidentiality agreement
substantially in the Company's standard forms, copies of all of which the
Company has delivered to Acquiror.
2.12 Agreements, Contracts and Commitments. Except as set forth on
-------------------------------------
Schedule 2.12, the Company does not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements.
(ii) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or arrangements;
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to the Company.
(v) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any agreement, contract or commitment under which it has
limited or restricted its right to compete with any person in any respect;
(viii) any agreement of indemnification or guaranty;
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person;
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<PAGE>
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000;
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other arrangements or instruments relating to the
borrowing of money or extension of credit, including guaranties referred to in
clause (viii) hereof;
(xiii) any purchase order or contract for the purchase of raw
materials involving $10,000 or more;
(xiv) any distribution, joint marketing or development
agreement;
(xv) any assignment, license or other agreement with respect
to any form of intangible property, or,
(xvi) any other agreement, contract or commitment that involves
$10,000 or more or is not cancelable without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events that would
constitute a breach, violation or default with the lapse of time, giving of
notice, or both, all of which are noted in Schedule 2.12, the Company has not
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment required to be set forth on Schedule 2.12, Schedule
2.11(a) or Schedule 2.11(b) (any such agreement, contract or commitment, a
"Contract"). Each Contract is in full force and effect and, except as otherwise
disclosed in Schedule 2.12, is not subject to any default thereunder of which
the Company has knowledge by any party obligated to the Company pursuant
thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule 2.13,
-----------------------------
no officer, director or stockholder of the Company (nor any ancestor, sibling,
descendant or spouse of any of such persons, or any trust, partnership or
corporation in which any of such persons has or has had an interest), has or has
had, directly or indirectly, (i) an economic interest in any entity which
furnished or sold, or furnishes or sells, services or products that the Company
furnishes or sells or proposes to furnish or sell, (ii) an economic interest in
any entity that purchases from or sells or furnishes to, the Company, any goods
or services or (iii) a beneficial interest in any contract or agreement set
forth in Schedule 2.12, Schedule 2.11(a) or Schedule 2.11(b); provided, that
ownership of no more than one percent (1%) of the outstanding voting stock of a
publicly traded corporation shall not be deemed an "economic interest in any
entity" for purposes of this Section 2.13.
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<PAGE>
2.14 Compliance with Laws. The Company has complied in all material
--------------------
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no action,
----------
suit or proceeding of any nature pending or threatened against the Company, its
properties or any of its officers or directors, in their respective capacities
as such. Except as set forth in Schedule 2.15, to the best of the knowledge of
management of the Company, there is no investigation pending or threatened
against the Company, its properties or any of its officers or directors by or
before any governmental entity. Schedule 2.15 sets forth, to the extent known,
with respect to any pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages, claims or other remedy requested. No governmental entity
has at any time challenged or questioned the legal right of the Company to
conduct its business in the present manner or style thereof.
2.16 Insurance. The Company maintains valid and enforceable insurance
---------
policies (which term shall also include any fidelity bonds) covering the assets,
business, equipment, properties and operations of the Company, and such
insurance policies, which are identified in Schedule 2.16, contain provisions
which are reasonable and customary in the Company's industry, and there is no
claim by the Company pending under any of such policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies. A
copy of each insurance policy identified in Schedule 2.16 has been delivered to
Acquiror. All premiums due and payable under all such policies have been paid
and the Company is otherwise in material compliance with the terms of such
policies (or other policies providing substantially similar insurance coverage).
The Company has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of the Company made available to
------------
counsel for Acquiror are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and stockholders or actions by written consent since the time of incorporation
of the Company. The Company is in full compliance with all of the terms and
provisions of its Certificate of Incorporation and Bylaws.
2.18 Relationships With Suppliers and Licensors. Except as set forth in
------------------------------------------
Schedule 2.18, no current supplier to the Company has notified it of an
intention to terminate or substantially alter its existing business relationship
with the Company nor has any licensor under a license agreement with the Company
notified the Company of an intention to terminate, non-renew or substantially
alter the Company's rights under such license.
2.19 Trade Secrets. The Company has taken reasonable security measures to
-------------
protect the confidentiality of its trade secrets. Except as set forth on
Schedule 2.19, all current and past employees or consultants of the Company,
who, either alone or in concert with others, developed, invented, discovered,
derived, programmed or designed such trade secrets, or who have or had access to
information disclosing
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<PAGE>
such trade secrets, have entered into confidentiality and non-disclosure
agreements with the Company (the "Trade Secret Agreements"). Any exception which
has been taken to the Trade Secrets Agreements (for example an employee or
consultant excluding a prior invention) is described in Schedule 2.19, including
the exception taken and the employee taking such exception. To the knowledge of
the Company, neither the Company, nor its employees or its consultants have (i)
caused any of the Company's trade secrets to become part of the public knowledge
or literature, or (ii) permitted any such trade secrets to be used, divulged or
appropriated.
2.20 Environmental Matters.
---------------------
(a) To the knowledge of the management of the Company, the Company is
not in violation of any Federal, state or local Environmental Law (as defined
below), which violation could reasonably be expected to result in a material
liability to the Company or its properties and assets. Neither the Company nor,
to the knowledge of the management of the Company, any third party has used,
released, discharged, generated, manufactured, produced, stored, or disposed of
in, on, under or about its owned or leased property or other assets, or
transported thereto or therefrom, any Hazardous Materials (as defined below) in
a manner that could reasonably be expected to subject the Company to a material
liability under any Environmental Law; there are no underground tanks, whether
operative or temporarily or permanently closed, located on its owned or leased
property or other assets; there are no polychlorinated biphenyls ("PCBs") or
items containing PCBs used, stored or present at, on or, to the knowledge of the
management of the Company, near the Company's owned or leased property or
assets; and there is or has been no condition, circumstance, action, activity or
event that could reasonably be expected to form the basis of any violation of,
or material liability to the Company under, any local, state or Federal
Environmental Law.
(b) There is no proceeding, investigation or inquiry by any local,
state or Federal governmental authority or any non-governmental third party with
respect to the presence or release of such Hazardous Materials in, on, from or
to the Company's owned or leased property and, to the knowledge of the Company,
no such proceedings are threatened or contemplated by any such governmental
authorities or non-governmental third parties.
(c) For purposes of this Agreement, (i) "Environmental Law" means the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Sections 9601 et seq.) ("CERCLA"); the Federal Clean Water
-- ---
Act (33 U.S.C. Section 1251 et seq.); the Federal Clean Air Act (42 U.S.C.
-- ---
Section 7401); Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S)
136 et seq.); Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.);
-- --- -- ---
Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.) ("RCRA");
-- ---
and Emergency Planning and Community Right to Know Act (42 U.S.C. (S) 11001 et
--
seq.), together with applicable state and local laws of similar substance, and
- ---
(ii) "Hazardous Materials" shall mean substances defined as "hazardous
substances," "hazardous materials," or "toxic substances" in CERCLA, the
Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.) and
-- ---
RCRA; those substances defined as "hazardous waste," "hazardous materials" or
"regulated substances" by RCRA; those substances designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. (S) 1317); those substances regulated as a hazardous chemical
substance or mixture or
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<PAGE>
as an imminently hazardous chemical substance or mixture pursuant to Section 6
or 7 of the Toxic Substances Control Act (15 U.S.C. (S)(S) 2605, 2606); those
substances defined as a pesticide pursuant to Section 136(u) of the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S) 136(u)); those
substances defined as hazardous waste constituents in 40 CFR 260.10,
specifically including Appendix VII and VIII of Subpart D of 40 CFR 261; and
those substances defined by the Atomic Energy Act of 1954, as amended (42 U.S.C.
(S)(S) 3011 et seq., as amended) as a source, special nuclear or by-product
-- ---
material; and in the regulations adopted and publications promulgated pursuant
to said laws.
2.21 Brokers' and Finders' Fees: Third Party Expenses. Except as set forth
------------------------------------------------
on Schedule 2.21, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 2.21 sets forth the principal terms and
conditions of any agreement, written or oral, with respect to such fees.
Schedule 2.21 sets forth the Company's current reasonable estimate of all Third
Party Expenses (as defined in Section 6.5) expected to be incurred by the
Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
2.22 Permits and Licenses. Schedule 2.22 contains a complete and correct
--------------------
copy of (i) each pending application or registration for governmental approval
and each governmental approval held by the Company to import, export, store,
market and/or sell the Company's products, and (ii) the most recent report by or
on behalf of any governmental body involving or relating to any facility
inspection of the Company facilities. Except as set forth in Schedule 2.22, (i)
the Company possesses such governmental approvals from all governmental bodies
necessary to permit the operation of its business in the manner as the same is
currently conducted, and to operate, own or occupy its properties, (ii) there
have been no product recalls, field corrective activity, medical device reports,
warning letters or administrative actions by any governmental body, and (iii) to
the best of the Company's knowledge (aa) there is no administrative action
pending or threatened for the revocation of any such governmental approval and
(bb) assuming the obtaining of the authorizations, consents, approvals and other
actions listed in the Schedule 2.22, no governmental approval by any
governmental body having jurisdiction over the operation of the Company's
businesses, whether in whole or in part, will be revoked, or become ineffective
or subject to revocation, as a consequence of the transactions contemplated by
this Agreement. All such applications, registrations and approvals are
transferable to Acquiror in the Merger.
2.23 Employee Matters and Benefit Plans.
----------------------------------
(a) Definitions. With the exception of the definition of "Affiliate"
-----------
set forth in Section 2.23(a)(i) below (which definition shall apply only to this
Section 2.23), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
---------
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder, except that BioQuest (and any
person or entity that would be deemed an Affiliate solely by virtue of his, her
or
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<PAGE>
its affiliation with BioQuest) shall not be deemed an Affiliate hereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan, program,
---------------------
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or stock-
related awards, fringe benefits or other employee benefits or remuneration of
any kind, whether formal or informal, funded or unfunded and whether or not
legally binding, including without limitation, each "employee benefit plan"
within the meaning of Section 3(3) of ERISA, which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined below), and pursuant to
which the Company or any Affiliate has or may have any material liability
contingent or otherwise;
(iv) "Employee" shall mean any current, former or retired
--------
employee, officer, or director of the Company or of any Affiliate;
(v) "Employee Agreement" shall refer to each management,
------------------
employment, severance, consulting, relocation, repatriation, expiration, visas,
work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
---
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as
------------------
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee Plan
------------
which is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Schedule 2.23(b) contains an accurate and complete list
--------
of each Employee Agreement, together with a schedule of all liabilities, whether
or not accrued, under each Employee Agreement. Neither the Company nor any
Affiliate has any Company Employee Plans, or any plan or commitment, whether
legally binding or not, to establish any new Company Employee Plan or Employee
Agreement, to modify any Employee Agreement (except to the extent required by
law or to conform any such Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Acquiror in writing, or
as required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.
(c) Pension Plans. The Company does not now, nor has it ever,
-------------
maintained, established, sponsored, participated in, or contributed to any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
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<PAGE>
(d) Multiemployer Plans. At no time has the Company contributed to or
-------------------
been requested to contribute to any Multiemployer Plan.
(e) No Post-Employment Obligations. The Company has never
------------------------------
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(f) Effect of Transaction.
---------------------
(i) Except as set forth on Schedule 2.23(f)(i), the execution
of this Agreement and the consummation of the transactions contemplated hereby
will not (either alone or upon the occurrence of any additional or subsequent
events) constitute an event under any Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(ii) No payment or benefit of which will or may be made by the
Company or Acquiror or any of their respective affiliates with respect to any
Employee will be characterized as an "excess parachute payment," within the
meaning of Section 280G(b)(1) of the Code.
(g) Employment Matters. The Company (i) is in compliance in all
------------------
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries, and other payments to Employees; (iii) except
as set forth in Schedule 2.23(g), is not liable for any arrears of wages or any
Taxes or any penalty for failure to comply with any of the foregoing; and (iv)
is not liable for any payment to any trust or other fund or to any governmental
or administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice).
(h) Labor. No work stoppage or labor strike against the Company is
-----
pending or, to the best knowledge of the management of the Company, threatened.
Except as set forth in Schedule 2.23(h), the Company is not involved in or, to
the knowledge of the management of the Company, threatened with, any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
would, individually or in the aggregate, have a Material Adverse Effect on the
Company. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act
which would, individually or in the aggregate, directly or indirectly result in
a liability to the Company. The Company is not presently, nor has it been in
the past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining
-20-
<PAGE>
agreement is being negotiated by the Company.
(i) Vacation Pay. No Employee is or will be entitled to any pay from
------------
the Company (or Acquiror) for unused vacation accrued before the Closing Date.
2.24 Employees. To the best of the knowledge of the management of the
---------
Company, no employees of the Company (i) are in violation of any term of any
employment contract, patent disclosure agreement, non-competition agreement, or
any restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company because of the nature of the business
conducted or presently proposed to be conducted by the Company or to the use of
trade secrets or proprietary information of others and (ii) have given notice to
the Company, nor is the Company otherwise aware, that any such employee intends
to terminate his or her employment with the Company.
2.25 Accounts Payable. On the Closing Date, the aggregate amount of all
----------------
accounts payable of the Company, including all outstanding loans to the Company
by Acquiror, less the total amount of all accounts receivable (net of
appropriate reserves) and cash of the Company will not exceed $500,000.
2.26 Representation Complete. None of the representations or warranties
-----------------------
made by the Company (as modified by the Company Schedules), nor any statement
made in any schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the stockholders of the Company in connection with soliciting their consent
to this Agreement and the Merger, contains or will contain at the Effective Time
any untrue statement of a material fact, or omits or will omit at the Effective
Time to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which made,
not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY STOCKHOLDERS
Each of the Company Stockholders, severally and not jointly, hereby
represents, warrants and covenants to Acquiror as follows:
3.1 Ownership of Company Common Stock. Such Company Stockholder has good
---------------------------------
and marketable title to the shares of Company Common Stock owned by such Company
Stockholder as shown on Schedule 2.2(a), free and clear of any and all adverse
---------------
claims, security interests and encumbrances.
3.2 Authority. Such Company Stockholder has all requisite right to enter
---------
into this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by such Company
Stockholder and, assuming the due and valid execution and delivery of this
Agreement by the other parties hereto, constitutes a legal, valid and binding
obligation of such Company Stockholder enforceable in accordance with its terms,
except (a) as limited by applicable bankruptcy,
-21-
<PAGE>
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, and (b) as limited by laws
relating to availability of specific performance, injunctive relief or other
equitable remedies. The execution and delivery of this Agreement by such Company
Stockholder does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or such Company Stockholder or its properties or
assets.
-22-
<PAGE>
3.3 Investment in Acquiror Common Stock.
-----------------------------------
(a) Suitable Investor. Such Company Stockholder (together with such
-----------------
Company Stockholder's financial and other advisors, if any) has such knowledge
and expertise in financial and business matters that such Company Stockholder is
capable of evaluating the merits and risks of the exchange of such Company
Stockholder's shares of Company Common Stock for shares of Acquiror Common Stock
pursuant to this Agreement and of protecting such Company Stockholder's
interests in connection therewith. Such Company Stockholder has the ability to
bear the economic risk of the investment in Acquiror Common Stock.
(b) Receipt of Information. Such Company Stockholder has reviewed a
----------------------
copy of the SEC Documents, as defined in Section 4.4, and has had an opportunity
to discuss Acquiror's business, management and financial affairs with Acquiror's
management.
(c) Purchase for Own Account. Such Company Stockholder is acquiring
------------------------
shares of Acquiror Common Stock for such Company Stockholder's own account and
not with a view to, or for resale in connection with, any distribution thereof
in violation of applicable law, and such Company Stockholder has no present
intention of selling, granting any participation in, or otherwise distributing
the same in violation of applicable laws. Such Company Stockholder understands
that the shares of Acquiror Common Stock to be received by such Company
Stockholder pursuant to this Agreement have not been registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act that depends upon, among other things, the bona
fide nature of such Company Stockholder's investment intent and the accuracy of
such Company Stockholder's representations, warranties and covenants as
expressed herein. Such Company Stockholder understands that the shares of
Acquiror Common Stock to be received by such Company Stockholder pursuant to
this Agreement are characterized as "restricted securities" under the Securities
Act inasmuch as they are being acquired from Acquiror in a transaction not
involving a public offering and that under such laws and applicable regulations
such shares may be resold without registration under the Securities Act only in
certain limited circumstances. Such Company Stockholder acknowledges that the
shares of Acquiror Common Stock must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration is
available. Acquiror will use its reasonable best efforts to cause a Form S-3
registration statement covering such Acquiror Common Stock to be filed with and
declared effective by the U.S. Securities and Exchange Commission (the "SEC")
within fifteen (15) months of the Effective Time, and to maintain the
effectiveness of such registration statement until any remaining unsold shares
can be sold immediately under Rule 144, and to have all such shares listed on
the Nasdaq National Market. Acquiror will not register the Assumed Option
Shares for 11 months after the Effective Time. Such Company Stockholder is
aware of the provisions of Rule 144 under the Securities Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including the existence of a public market
for the shares, the availability of certain current public information about the
Acquiror, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" (as
provided by Rule 144(f) under the Securities Act) and the number of shares being
sold during any three-month period not exceeding specified limitations.
-23-
<PAGE>
(d) Legends. It is understood that each certificate representing
-------
shares of Acquiror Common Stock received by such Company Stockholder pursuant to
this Agreement shall bear a legend substantially to the following effect (in
addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
3.4 Government Consents. No consent, approval, order or authorization of,
-------------------
or registration, declaration or filing with any Governmental Entity is required
by or with respect to such Company Stockholder in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
3.5 Finder's Fees. Such Company Stockholder has not incurred any
-------------
liability, contingent or otherwise, for brokerage fees, finder's fees, agent's
commissions, financial advisory fees or other similar forms of compensation in
connection with this Agreement or any of the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and the Company
Stockholders, as follows:
4.1 Organization, Standing and Power. Acquiror is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
California. Acquiror has the corporate power to own, operate and lease its
properties and to carry on its business as now being conducted and Acquiror is
duly qualified or licensed to conduct its business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the business, assets (including
intangible assets), financial condition, results of operations, liabilities or
prospects of the Acquiror. Acquiror has delivered a true and correct copy of its
Articles of Incorporation and Bylaws, each as amended to date, to the Company.
4.2 Authority. Acquiror has all requisite corporate power and authority
---------
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Acquiror. This Agreement has been duly executed
and delivered by
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<PAGE>
Acquiror and constitutes the valid and binding obligation of Acquiror,
enforceable in accordance with its terms. The execution and delivery and
performance of this Agreement by Acquiror does not, and as of the Effective
Time, will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of the Articles of Incorporation or Bylaws of
Acquiror or (ii) any mortgage, indenture, lease, license, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or its properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity or any third party (so as not to trigger any Conflict) is required by or
with respect to Acquiror in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Merger Agreement with the Delaware Secretary of State
and the California Secretary of State, and (ii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 4.2.
4.3 Capital Structure.
-----------------
(a) The authorized stock of Acquiror consists solely of 24,800,000
shares of Common Stock, of which 8,184,803 shares were issued and outstanding as
of December 31, 1997.
(b) The shares of Acquiror Common Stock to be issued pursuant to the
Merger, when issued, will be duly authorized, validly issued, fully paid and
nonassessable.
4.4 SEC Documents; Acquiror Financial Statements. Acquiror has furnished
--------------------------------------------
or made available to the Company true and complete copies of all reports or
registration statements filed by it with the SEC under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") for all periods since November 1,
1996, all in the form so filed (all the foregoing being collectively referred to
as the "SEC Documents"). As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC.
4.5 No Material Adverse Change. Since the date of the balance sheet
--------------------------
included in the Acquiror's most recently filed report on Form 10-QSB, Acquiror
has conducted its business in the ordinary course and there has not occurred:
(a) any material adverse change in the financial condition, liabilities, assets
or business of Acquiror; (b) any amendment or change in the Articles of
Incorporation or (except as disclosed to the Company's counsel) Bylaws of
Acquiror; or (c) any damage to, destruction or loss of any assets of Acquiror
(whether or not covered by insurance) that has or may materially and adversely
affect the financial condition or business of Acquiror.
4.6 Litigation. Except as described in the SEC Documents, there is no
----------
action, suit or proceeding of any nature pending or threatened against Acquiror,
its properties or any of its officers or directors, in their
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<PAGE>
respective capacities as such. Except as set forth in Schedule 4.6 or described
in the SEC Documents, there is no investigation pending or threatened against
Acquiror, its properties or any of its officers or directors by or before any
Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of Acquiror to conduct its business in the present
manner or style thereof.
4.7 Compliance with Laws. Acquiror has complied in all material respects
--------------------
with and is not in material violation of any foreign, federal, state or local
statute, law or regulation.
4.8 Environmental Matters.
---------------------
(a) To the knowledge of the management of Acquiror, Acquiror is not in
violation of any Federal, state or local Environmental Law (as defined below),
which violation could reasonably be expected to result in a material liability
to Acquiror or its properties and assets. Neither Acquiror nor, to the
knowledge of the management of the Acquiror, any third party has used, released,
discharged, generated, manufactured, produced, stored, or disposed of in, on,
under or about its owned or leased property or other assets, or transported
thereto or therefrom, any Hazardous Materials in a manner that could reasonably
be expected to subject Acquiror to a material liability under any Environmental
Law; there are no underground tanks, whether operative or temporarily or
permanently closed, located on its owned or leased property or other assets;
there are no PCBs or items containing PCBs used, stored or present at, on or, to
the knowledge of the management of Acquiror, near Acquiror's owned or leased
property or assets; and there is or has been no condition, circumstance, action,
activity or event that could reasonably be expected to form the basis of any
violation of, or material liability to Acquiror under, any local, state or
Federal Environmental Law.
(b) There is no proceeding, investigation or inquiry by any local,
state or Federal governmental authority or any non-governmental third party with
respect to the presence or release of such Hazardous Materials in, on, from or
to Acquiror's owned or leased property and, to the knowledge of Acquiror, no
such proceedings are threatened or contemplated by any such governmental
authorities or non-governmental third parties.
4.9 Brokers' and Finders' Fees: Third Party Expenses. Acquiror has not
-------------------------------------------------
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
4.10 Representations Complete. None of the representations or warranties
------------------------
made by Acquiror (as modified by the Schedules), nor any statement made in any
schedule or certificate furnished by Acquiror pursuant to this Agreement,
contains or will contain at the Effective Time any untrue statement of any
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which made, not misleading.
ARTICLE V
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<PAGE>
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company. The Company covenants and agrees
----------------------------------
to, and the Company Stockholders jointly and severally covenant and agree to
cause the Company to, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement and the
Effective Time, (except to the extent that Acquiror shall otherwise consent in
writing) carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay its debts and
Taxes when due, to pay or perform other obligations when due, and to use all
reasonable efforts consistent with past practice and policies to preserve intact
its present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, licensors, and others having business dealings with it,
all with the goal of preserving unimpaired its goodwill and ongoing businesses
at the Effective Time (but all of which shall not create any post-Closing
obligation on the party of Acquiror). The Company covenants and agrees to, and
the Company Stockholders jointly and severally covenant and agree to cause the
Company to, promptly notify Acquiror of any event or occurrence or emergency not
in the ordinary course of its business. Except as expressly contemplated by
this Agreement, the Company covenants and agrees to, and the Company
Stockholders jointly and severally covenant and agree to cause the Company to
not, without the prior written consent of Acquiror:
(a) enter into any commitment, activity or transaction not in the
ordinary course of business;
(b) except for the license agreement described in Section 6.16,
transfer to any person or entity any ownership or license rights to any Company
Intellectual Property Rights;
(c) except for the license agreement described in Section 6.16, enter
into or amend any agreements pursuant to which any other party is granted
manufacturing, marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Schedules;
(e) commence any litigation or any dispute resolution process;
(f) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Common Stock, or split, combine or reclassify any Company Common Stock or issue
or authorize the issuance of any securities, or repurchase, redeem or otherwise
acquire, directly or indirectly, any shares of Company Common Stock (or options,
warrants or other rights exercisable therefor);
(g) except for the issuance of shares of Company Common Stock upon
exercise or conversion of presently outstanding Company Options, issue, grant,
deliver or sell or authorize or propose the
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issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of Company Common Stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(h) cause or permit any amendments to its Certificate of Incorporation
or Bylaws;
(i) acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(j) fail in any material respect to comply with any laws, ordinances,
regulations or other governmental restrictions applicable to the Company;
(k) except for the license agreement described in Section 6.16, sell,
lease, license or otherwise dispose of any of its properties or assets except in
the ordinary course of business and consistent with past practice;
(l) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others;
(m) grant or agree to grant any severance or termination pay to any
director, officer, employee or consultant, except payments made pursuant to
standard written agreements outstanding on the date hereof (which agreements are
disclosed on Schedule 5.1(m));
(n) adopt or amend any employee benefit plan, program, policy or
arrangement, or enter into any employment contract, extend any employment offer,
pay or agree to pay any special bonus or special remuneration to any director,
employee or consultant, or increase the salaries or wage rates of its employees;
(o) revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business and consistent with past practice;
(p) pay, discharge or satisfy, in an amount in excess of $10,000, in
any one case or $25,000, in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Financial Statements;
(q) make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in
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respect of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(r) enter into any strategic alliance, joint development or joint
marketing arrangement or agreement;
(s) fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith;
(t) waive or commit to waive any rights;
(u) cancel, materially amend or renew any insurance policy other than
in the ordinary course of business;
(v) alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in which
the Company directly or indirectly holds any interest on the date hereof; or
(w) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through (v) above, or any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder.
5.2 No Solicitation. Until the earlier of the Effective Time and the date
---------------
of termination of this Agreement pursuant to the provisions of Section 9.1
hereof, the Company covenants and agrees that it shall not (nor will the Company
permit any of the Company's officers, directors, stockholders, agents,
representatives or affiliates to) and the Company Stockholders jointly and
severally covenant and agree that each of them shall not, directly or
indirectly, take any of the following actions with any party other than Acquiror
and its designees: (a) solicit, initiate, entertain, or encourage any proposals
or offers from, or conduct discussions with or engage in negotiations with, any
person relating to any possible acquisition of the Company (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its capital stock or assets or any equity interest in the
Company; (b) provide information with respect to the Company to any person,
other than Acquiror, relating to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any such person with regard to, any possible
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its capital stock or
assets or any equity interest in the Company; (c) enter into an agreement with
any person, other than Acquiror, providing for the acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its capital stock or assets or any equity
interest in the Company; or (d) make or authorize any statement, recommendation
or solicitation in support of any possible acquisition of the Company (whether
by way of merger, purchase of capital stock, purchase of assets or otherwise),
any material portion of its capital stock or assets or any equity interest in
the Company by any person, other than by Acquiror. The Company shall immediately
cease and cause to be terminated any such contacts or negotiations with third
parties relating to
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any such transaction or proposed transaction. In addition to the foregoing, if
the Company receives prior to the Effective Time or the termination of this
Agreement any offer or proposal relating to any of the above, the Company shall
(and the Company Stockholders covenant and agree that they shall cause the
Company to) immediately notify Acquiror thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be, and such other
information related thereto as Acquiror may reasonably request. Except as
contemplated by this Agreement, disclosure by the Company or any Company
Stockholder of the terms hereof (other than the prohibition of this section)
shall be deemed to be a violation of this Section 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Sale of Shares; Stockholder Matters.
-----------------------------------
(a) Sale of Shares. The parties hereto acknowledge and agree that the
--------------
Merger Consideration issuable to the Company Stockholders shall constitute
"restricted securities" within the meaning of the Securities Act. The
certificates for shares of Acquiror Common Stock to be issued in the Merger or
Assumed Option Shares issued upon the exercise of options assumed in the Merger
shall bear appropriate legends to identify such privately placed shares as being
restricted under the Securities Act and to comply with applicable state
securities laws. It is acknowledged and understood that Acquiror is relying
upon certain written representations made by each Company Stockholder.
(b) Additional Assurances. At the request of Acquiror, the Company
---------------------
Stockholders shall execute and deliver to Acquiror such instruments and do and
perform such acts and things as may be necessary or desirable for complying with
all applicable securities laws and state corporate law.
6.2 Access to Information. Each party shall afford the others and their
---------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, commitments and records, and (b) all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the others may reasonably request,
subject, in the case of Acquiror, to reasonable limits on access to its
technical and other non-public information. No information or knowledge
obtained in any investigation pursuant to this Section 6.2 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions of the parties to consummate the Merger.
6.3 Confidentiality. It is understood that the business of the Acquiror
---------------
and the Company, and all matters related thereto, are of a confidential nature.
Prior to the date hereof, there may have been revealed, and on or after the date
hereof there may be revealed, to Acquiror and its affiliates or representatives,
on the one hand, and to the Company and its affiliates and representatives, on
the other, "Confidential Information"
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(as hereinafter defined) concerning the business of the Acquiror or the business
of the Company. In consideration for and as an inducement to the parties to
execute, deliver and perform this Agreement, each of the parties hereto hereby
agrees that, following the termination of this Agreement or any other failure of
the Merger to be consummated, no party shall divulge or appropriate for their
own use, or for the use of any third party, any Confidential Information of the
other party. As used herein, the term "Confidential Information" means the
following oral or written information relating to each party's business: know-
how, technology, inventions, designs, methodologies, trade secrets, patents,
secret processes and formulae, information relating to the development,
research, testing, manufacturing, marketing, sales, distribution and uses of
products, sources of supplies, budgets and strategic plans, the identity and
special needs of customers, plants and other properties, and any other
information which may give the party who received such Confidential Information
an opportunity to obtain an advantage over its competitors who do not know or
use such information; provided, however, that the term "Confidential
Information" shall not include (i) any such information that, prior to its use
or disclosure by any party hereto, can be shown to have been in the public
domain or generally known or available to customers, suppliers or competitors of
the business of Acquiror or the Company, as the case may be, through no breach
of the provisions of this Section 6.3 or other non-disclosure covenants that
were executed for the benefit of Acquiror or the Company, as the case may be;
(ii) any such information that, prior to its use or disclosure by any party
hereto was rightfully in the receiving party's possession, without violation of
the provisions of this Section 6.3 or other non-disclosure covenants that were
executed for the benefit of Acquiror or the Company, as the case may be; or
(iii) any such information that, prior to its use or disclosure by Acquiror or
the Company, as the case may be, was developed by such party without violation
of the provisions of this Section 6.3 or other non-disclosure covenants that
were executed for the benefit of Acquiror or the Company, as the case may be.
The parties hereto hereby acknowledge and agree that the breach by any of the
parties hereto of the restrictive covenant contained in this Section 6.3 would
cause irreparable injury to the other party and that the remedy at law for any
such breach would be inadequate. As a result, each of the parties hereto hereby
covenant, agree and consent that, in addition to any other available remedy,
temporary and permanent injunctive relief may be granted in any proceeding which
may be brought by any party to this Agreement to enforce the restrictive
covenant set forth above without necessity of proof that any other remedy at law
is inadequate.
6.4 Intellectual Property. Acquiror and the Company each agree that prior
---------------------
to the Merger, any and all intellectual property, including trade secrets,
created or developed by either party shall remain the exclusive property of the
party who created or developed such property, notwithstanding the sharing of
information prior to the Merger.
6.5 Expenses. Whether or not the Merger is consummated, all fees and
--------
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby shall be the obligation
of the respective party incurring such fees and expenses; provided, however,
that at the Closing, the Company Stockholders (other than Acquiror) shall pay
off, or shall pay to Acquiror, an amount equal to all broker and finder fees
incurred by the Company and, to the extent contemplated by Section 10.12, all
fees and expenses payable to any legal advisor, accountant, financial
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advisor or investment bank retained by the Company on its own behalf or on
behalf of such stockholders prior to the Effective Time.
6.6 Public Disclosure. Prior to the Effective Time, no disclosure
-----------------
(whether or not in response to an inquiry) of the subject matter of this
Agreement shall be made by the Company unless approved by Acquiror prior to
release.
6.7 Consents. The Company shall use its best efforts to obtain the
--------
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Company Schedules) so as to preserve all rights of and benefits to the
Acquiror thereunder.
6.8 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use its reasonable efforts to
ensure that its representations and warranties remain true and correct in all
material respects, and to take promptly, or cause to be taken, all actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement, and to cause the conditions to the opposite party's obligations
to be satisfied.
6.9 Notification of Certain Matters.
-------------------------------
(a) The Company shall, and the Company Stockholders jointly and
severally covenant and agree that they shall cause the Company to, give prompt
notice to Acquiror of (i) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which is likely to cause any representation or
warranty of the Company or any Company Stockholder contained in this Agreement
to be untrue or inaccurate at or prior to the Effective Time and (ii) any
failure of the Company or any Company Stockholder to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.9 shall not limit or otherwise affect any remedies available to
Acquiror.
(b) Acquiror hereby covenants and agrees that it shall give prompt
written notice to the Company of (i) the occurrence or non-occurrence of any
event, the occurrence or non- occurrence of which is likely to cause any
representation or warranty of Acquiror contained in this Agreement to be untrue
or inaccurate at or prior to the Effective Time and (ii) any failure of Acquiror
to comply or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any such
notice pursuant to this Section 6.9(b) shall not limit or otherwise affect any
remedies available to the Company or the Company Stockholders.
6.10 Certain Benefit Plans. Acquiror shall take such reasonable actions as
---------------------
are necessary to allow
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eligible employees of the Company who continue as employees of Acquiror (the
"Company Employees") to participate in the benefit programs of Acquiror, or
alternative benefit programs substantially comparable to those applicable to
employees of Acquiror on similar terms, as soon as practicable after the
Effective Time.
6.11 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request of the opposite party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions and contemplated hereby.
6.12 Nasdaq National Market Listing. Acquiror shall cause the Merger
------------------------------
Consideration to be "listed on" (included for quotation in) the Nasdaq National
Market, promptly after the Closing. In addition, Acquiror shall use its
reasonable best efforts to cause a Form S-3 registration statement, covering
only the Acquiror Common Stock that cannot then be sold immediately under Rule
144 of the Securities Act by the holder thereof, to be filed with and declared
effective by the SEC within fifteen (15) months after the Effective Time, and to
maintain the effectiveness of such registration statement until any remaining
unsold shares of Acquiror Common Stock issued hereunder can be sold immediately
by the holder thereof under Rule 144 of the Securities Act.
6.13 Company Option Agreements. At the Effective Time, each outstanding
-------------------------
option to purchase shares of Company Common Stock under the Company Options,
whether vested or unvested, will be assumed by Acquiror in accordance with
Section 1.6(b). Schedule 2.2(b) hereto sets forth a true and complete list as of
the date hereof of all holders of outstanding Company Options, including the
number of shares of Company Common Stock subject to each such option, the
exercise of vesting schedule, the exercise price per share and the term of each
such option. On the Closing Date, the Company shall certify to the Acquiror that
an updated Schedule 2.2(b) hereto current as of such date would be unchanged.
Each such option so assumed by Acquiror under this Agreement shall continue to
have, and be subject to, the same terms and conditions set forth in the
underlying agreements and documents governing the Company Options (the "Option
Agreements"), except that (i) such option will be exercisable for that number of
whole shares of Acquiror Common Stock as set forth in Section 1.6(b) of this
Agreement, and (ii) the per share exercise price for the shares of Acquiror
Common Stock issuable upon exercise of such assumed option will be as set forth
in Section 1.6(b) of this Agreement. A copy of each Option Agreement has been
delivered to Acquiror.
6.14 Form S-8. Acquiror agrees to file, no later than 360 days after the
--------
Closing, a registration statement on Form S-8 covering the shares of Acquiror
Common Stock issuable pursuant to outstanding Company Options assumed by
Acquiror. In conjunction therewith Acquiror may, if it so elects, roll such
options into the Acquiror's 1995 Stock Option/Stock Issuance Plan (the "Plan");
provided, however, that Acquiror shall have no right to roll such options into
the Plan if the rights of the holders of the Company Options assumed by Acquiror
would be adversely effected thereby.
6.15 Escrow Agreement. The Company Stockholders shall cause, on or before
----------------
the Effective Time, the Stockholders' Agent (as defined in Article VIII hereto)
to execute the Escrow Agreement contemplated by Article VIII in the form
attached hereto as Exhibit A ("Escrow Agreement").
---------
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6.16 License Agreement. On or prior to the Closing Date, the Company shall
-----------------
enter into a license agreement with Microlab Systems, Inc., pursuant to which
the Company shall grant Microlab Systems, Inc. a perpetual, royalty-bearing,
worldwide license to utilize the Company's Intellectual Property Rights for the
purpose of manufacturing, selling and distributing products that perform
analytical procedures on human beings. A copy of said license agreement is
annexed hereto as Exhibit D.
---------
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of the Company and Acquiror to Effect the
-------------------------------------------------------------------
Merger. The respective obligations of the Company and Acquiror to effect the
- ------
Merger shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Government Approvals. All approvals of governments and
--------------------
governmental agencies necessary to consummate the transactions hereunder shall
have been received.
(b) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
7.2 Additional Conditions to Obligations of the Company. The obligations
---------------------------------------------------
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Acquiror contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a material adverse
effect on Acquiror; and the Company shall have received a certificate to such
effect signed on behalf of Acquiror by a duly authorized officer of Acquiror.
(b) Agreements and Covenants. Acquiror shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it or prior to the Effective
Time, and the Company shall have received a certificate to such effect signed by
a duly authorized officer of Acquiror.
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(c) Note Purchase Agreement. Acquiror and BioQuest shall have
-----------------------
executed a certain Note Purchase Agreement pursuant to which Acquiror shall
purchase certain shares of Common Stock of the Company owned by BioQuest, and
the transactions contemplated by the Note Purchase Agreement shall have been
consummated.
(d) Legal Opinion. The Company shall have received a legal opinion
-------------
from Brobeck, Phleger & Harrison LLP, counsel to Acquiror, in substantially the
form attached hereto as Exhibit B.
---------
7.3 Additional Conditions to the Obligations of Acquiror. The obligations
----------------------------------------------------
of Acquiror to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Acquiror:
(a) Representation and Warranties. The representations and warranties
-----------------------------
of the Company and of the Company Stockholders contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date,
except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same force
and effect as if made on and as of the Closing Date, except, in all such cases,
for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on the Company or Acquiror; and Acquiror shall have
received a certificate to such effect signed on behalf of the Company by the
chief executive officer and chief financial officer of the Company.
(b) Agreements and Covenants. The Company and the Company
------------------------
Stockholders shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by them on or prior to the Effective Time, and Acquiror shall have received
a certificate to such effect signed by the chief executive officer and chief
financial officer of the Company.
(c) Third Party Consents. Acquiror shall have been furnished with
--------------------
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 7.3(c).
(d) Legal Opinion. Acquiror shall have received a legal opinion from
-------------
Harris, Beach & Wilcox, LLP, legal counsel to the Company, in substantially the
form attached hereto as Exhibit C.
---------
(e) Non-Competition Agreements. Each of Robert Behrens, Rudy
--------------------------
Kanclerz, Denis Hartman and Reid Strickland shall have executed and delivered to
Acquiror, a Non-Competition Agreement in substantially the form of Exhibit E and
---------
all of the Non-Competition Agreements shall be in full force and effect.
(f) Material Adverse Change. There shall not have occurred any
-----------------------
material adverse change in the business, assets (including intangible assets),
liabilities, financial condition or results of operations of the Company since
the date of the Balance Sheet.
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(g) FIRPTA Compliance. The Company shall have delivered to Acquiror a
-----------------
properly executed statement in a form reasonably acceptable to Acquiror for
purposes of satisfying Acquiror's obligations under Treasury Regulations Section
1.145-2(c)(3).
(h) Due Diligence Investigation. Acquiror shall have completed its
---------------------------
due diligence investigation of the Company to Acquiror's satisfaction, provided
that no information or knowledge obtained in such investigation shall affect or
be deemed to modify any representation or warranty of the Company or of the
Company Stockholders contained herein.
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ARTICLE VIII
ESCROW AND INDEMNIFICATION
8.1 Escrow Fund.
-----------
(a) As soon as practicable after the Effective Time, a number of
shares of Acquiror Common Stock equal to 10% of the Merger Shares (the "Escrow
Shares") shall be registered in the name of, and be deposited with, Imperial
Bank (or other institution selected by Acquiror with the reasonable consent of
the Company or of a majority in interest of the Company Stockholders) as escrow
agent (the "Escrow Agent"). In addition, upon any exercise of any Assumed
Company Option before the Escrow Period terminates, 10% of the indicated Assumed
Option Shares shall be registered in the name of, and be deposited with, the
Escrow Agent. Together, such deposit(s) (together with interest and other
income thereon) shall constitute the Escrow Fund and be governed by the terms
set forth herein and in the Escrow Agreement attached hereto as Exhibit A. The
---------
Escrow Fund shall be available as one potential source to compensate Acquiror
pursuant to the indemnification obligations of the Company Stockholders.
(b) In the event that the Company's and the Company Stockholders'
representation and warranty in Section 2.25 is untrue, then before any recovery
against the Escrow Fund and before any other recovery by Acquiror in respect of
such untruth (other than under Section 1.3 of the Note Purchase Agreement
between Acquiror and BioQuest), the Company Stockholders shall, pro rata as
among themselves in relation to the indebtedness owed by the Company to the
respective Company Stockholders at any time after December 1, 1997, satisfy the
liability for such untruth in accordance with the following. To the extent that
the Section 2.25 amount exceeds $500,000 (the "Deficit Amount"), each respective
Company Stockholder shall forgive a portion of any and all indebtedness which
the Company owed to said Company Stockholder at any time after December 1, 1997
in an amount equal to the Company Stockholder's pro rata share of the Deficit
--- ----
Amount, and, if any such indebtedness has already been paid to said Company
Stockholder, said Company Stockholder shall pay such amount to Acquiror in
satisfaction of the foregoing. For purposes of this Section, each Company
Stockholder's pro rata share of the Deficit Amount shall equal a fraction, the
--- ----
numerator of which is equal to all indebtedness owed by the Company to said
Company Stockholder at any time after December 1, 1997, and the denominator of
which is equal to all indebtedness owed by the Company to all Company
Stockholders at any time after December 1, 1997.
8.2 Indemnification by Company Stockholders.
---------------------------------------
(a) The Company Stockholders agree to indemnify, defend and hold
harmless Acquiror and the Surviving Corporation and its officers, directors,
agents and employees (hereinafter referred to individually as an "Indemnified
Person" and collectively as "Indemnified Persons") from and against any and all
losses, costs, damages, liabilities and expenses arising from claims, demands,
actions, causes of action, including, without limitation, reasonable legal fees,
net of any recoveries under existing insurance policies or indemnities from
third parties, and any diminutions in value arising out of any misrepresentation
or breach of or default in connection with any of the representations,
warranties, covenants and agreements given or
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<PAGE>
made by the Company and/or the Company Stockholders in this Agreement, the
Company Schedules or any exhibit or schedule to this Agreement (collectively,
"Damages"). (The obligation under the preceding sentence is several but not
joint as to all Company Stockholders other than BioQuest, but BioQuest is fully,
jointly and severally obliged both for its own several share and for the
respective several shares of the other Company Stockholders.) The Escrow Fund
shall be security for this indemnity/defense obligation subject to the
limitations in this Agreement, but the Indemnified Person's recourse shall not
be limited to the Escrow Fund or to the value of the Escrow Fund, and after the
Escrow Fund is exhausted or unavailable any remaining Damages hereunder are
payable in cash unless the parties otherwise agree; provided that the Company
Stockholders' obligations under this Section 8.2(a) shall not exceed $3,500,000
(plus any amount by which Section 2.25 was untrue) unless such obligations arise
from a knowing misrepresentation, intentional breach of covenant, or other fraud
on the part of the Company or the Company Stockholders, in which case there
shall be no upper limit.
(b) Acquiror and the Company each acknowledge that such Damages, if
any, would relate to unresolved contingencies existing at the Effective Time,
which if resolved at the Effective Time would have led to a reduction in the
total number of shares Acquiror would have agreed to issue in connection with
the Merger. Nothing in this Agreement shall limit the liability (i) of the
Company and/or the Company Stockholders for any breach of any representation,
warranty or covenant if the Merger does not close, or (ii) of any Company
Stockholder in connection with any breach of any such representation, warranty
or covenant if the Merger does close.
(c) All of the fees and other charges of the Escrow Agent for
performance of its duties hereunder shall be the responsibility of, and paid by,
Acquiror. It is understood that the fees and usual charges agreed upon for
services of the Escrow Agent shall be considered compensation for ordinary
services as contemplated by this Agreement. In the event that the conditions of
this Agreement are not promptly fulfilled, or if the Escrow Agent renders any
service not provided for in this Agreement, or if the parties request a
substantial modification of its terms, or if any controversy arises, or if the
Escrow Agent is made a party to, or intervenes in, any litigation pertaining to
this escrow or its subject matter, the Escrow Agent shall be reasonably
compensated for such extraordinary services and reimbursed for all costs,
attorney's fees, and expenses occasioned by such default, delay, controversy or
litigation. Acquiror promises to pay these sums upon demand.
(d) Any amounts payable in cash by the Company Stockholders shall not
be due until the earlier of the first day any of the Merger Shares can be sold
under Rule 144 of the Securities Act or the effective date of a Securities Act
registration statement covering the resale of any of the Merger Shares.
8.3 Damage Deductible. All obligations of the Company Stockholders under
-----------------
Section 8.2(a) are subject to a cumulative $25,000 deductible amount; provided,
that such deductible shall not apply to any obligations arising from the untruth
of Section 2.25.
8.4 Indemnification by Acquiror. Acquiror agrees to indemnify, defend and
---------------------------
hold harmless the Company Stockholders and the Company and its officers,
directors, agents and employees from and against
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<PAGE>
any and all Damages arising out of any misrepresentation or breach of or default
in connection with any of the representations, warranties, covenants and
agreements given or made by Acquiror in this Agreement or any exhibit or
schedule to this Agreement.
8.5 Escrow Period. The Escrow Period shall terminate with respect to all
-------------
of the Escrow Shares at the expiration of eleven (11) months after the Effective
Time, provided, however, that a portion of the Escrow Shares, which are
necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate (as defined in Section 8.6 below) theretofore delivered to the
Escrow Agent prior to termination of the Escrow Period with respect to facts and
circumstances existing prior to expiration of the Escrow Period, shall remain in
the Escrow Fund until such claims have been resolved. Acquiror shall deliver to
the Escrow Agent a certificate specifying the Effective Time. Subject to the
foregoing, all of the Escrow Shares shall be delivered by the Escrow Agent in
accordance with a schedule to be delivered to the Stockholders' Agent, to the
Company Stockholders and any other individual that has contributed shares of
Acquiror Common Stock to the Escrow Fund.
8.6 Claims upon Escrow Fund.
-----------------------
(a) Upon receipt by the Escrow Agent on or before the last day of the
Escrow Period of a certificate signed by any officer of Acquiror (an "Officer's
Certificate") specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid, or
properly accrued or arose, the nature of the misrepresentation, breach of
warranty or covenant, and the claim (if any) to which such item is related, the
Escrow Agent shall, subject to the provisions of Section 8.7 and 8.8 below,
deliver to Acquiror out of the Escrow Fund, as promptly as practicable, Acquiror
Common Stock or other assets held in the Escrow Fund having a value equal to
such Damages.
(b) For the purpose of compensating Acquiror for its Damages pursuant
to this Agreement, the Acquiror Common Stock in the Escrow Fund shall be valued
at the Nasdaq National Market closing sale price the day before the Escrow
Agent's delivery to Acquiror.
8.7 Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agent (defined in Section 8.9 below) and
for a period of twenty (20) days after such delivery to the Escrow Agent, the
Escrow Agent shall make no delivery of Acquiror Common Stock or other property
pursuant to Section 8.6 hereof unless the Escrow Agent shall have received
written authorization from the Stockholders' Agent to make such delivery. After
the expiration of such twenty (20) day period, the Escrow Agent shall make
delivery of the Acquiror Common Stock or other property in the Escrow Fund in
accordance with Section 8.6 hereof, provided that no such payment or delivery
may be made if the Stockholders' Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Acquiror prior to the expiration of such
twenty (20) day period.
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<PAGE>
8.8 Resolution of Conflicts: Arbitration.
-------------------------------------
(a) In case the Stockholders' Agent shall so object in writing to any
claim or claims by Acquiror made in any Officer's Certificate, the Stockholders'
Agent and Acquiror shall attempt in good faith for twenty (20) days to agree
upon the right of the respective parties with respect to each of such claims.
If the Stockholders' Agent and Acquiror should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and shall distribute the Acquiror Common Stock or other
property from the Escrow Fund in accordance with the terms thereof.
(b) If no such agreement can be reached after such twenty (20) days of
good faith negotiation, either Acquiror or Stockholders' Agent may, by written
notice to the other, with a copy to the Escrow Agent, demand arbitration of the
matter unless the amount of the damage or loss is at issue in pending litigation
with a third party, in which event arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration; and in either such
event, the matter shall be settled by arbitration conducted in San Diego,
California in accordance with the commercial arbitration rules of the American
Arbitration Association. The decision of the arbitrator as to the validity and
amount of any claim in such Officer's Certificate shall be binding and
conclusive upon the parties to this Agreement, and notwithstanding anything in
Section 8.8 hereof, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments out of the Escrow Fund in accordance
therewith.
(c) Judgment upon any award rendered by the arbitrator may be entered
in any court having jurisdiction. Each party to an arbitration shall pay its
own expenses (including, without limitation, attorneys' fees and costs), and its
share of the fees of the arbitrator and the administrative fee of the American
Arbitration Association.
8.9 Stockholders' Agent.
-------------------
(a) Robert A. Behrens shall be and hereby is constituted and appointed
as agent and attorney in fact ("Stockholders' Agent") for and on behalf of each
of the Company Stockholders to give and receive notices and communications, to
authorize delivery to Acquiror of the Acquiror Common Stock or other property
from the Escrow Fund in satisfaction of claims by Acquiror, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Stockholders' Agent for the accomplishment of
the foregoing. Such agency may be changed by the holders of a majority in
interest of the Escrow Fund from time to time upon not less than 10 days' prior
written notice to Acquiror. No bond shall be required of the Stockholders'
Agent, and the Stockholders' Agent shall receive no compensation for his
services. Notices or communications to or from the Stockholders' Agent shall
constitute notice to or from each of the Company Stockholders.
(b) The Stockholders' Agent shall not be liable for any act done or
omitted hereunder as Stockholders' Agent while acting in good faith and in the
exercise of reasonable judgment, and any act done
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<PAGE>
or omitted pursuant to the advice of counsel shall be conclusive evidence of
such good faith. The Company Stockholders shall severally indemnify the
Stockholders' Agent and hold him harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Stockholders'
Agent and arising out of or in connection with the acceptance or administration
of his duties hereunder.
8.10 Actions of the Stockholders' Agent. A decision, act, consent or
----------------------------------
instruction of the Stockholders' Agent shall constitute a decision of all
Company Stockholders for whom shares of Acquiror Common Stock otherwise issuable
to them are deposited in the Escrow Fund and shall be final, binding and
conclusive upon each such Company Stockholder, and the Escrow Agent and Acquiror
and arbitrator may rely upon any decision, act, consent or instruction of the
Stockholders' Agent as being the decision, act, consent or instruction of each
and every such Company Stockholder. The Escrow Agent, Acquiror and arbitrator
are hereby relieved from any liability to any person for any acts done by them
in accordance with such decision, act, consent or instruction of the
Stockholders' Agent.
8.11 Third-Party Claims. In the event Acquiror becomes aware of a third-
------------------
party claim which Acquiror believes may result in a demand against the Escrow
Fund, Acquiror shall notify the Stockholders' Agent of such claim, and the
Stockholders' Agent and the Company Stockholders for whom shares of Acquiror
Common Stock otherwise issuable to them are deposited in the Escrow Fund shall
be entitled, at their expense, to participate in any defense of such claim.
Acquiror shall have the right in its sole discretion to settle any such claim. A
copy of all written settlement offers made by any third party shall be forwarded
to the Stockholders' Agent. In the event that the Stockholders' Agent has
consented to any such settlement, the Stockholders' Agent shall have no power or
authority to object under Section 8.7 or any other provision of this Article
VIII to the amount of any claim by Acquiror against the Escrow Fund for
indemnity with respect to such settlement. In the event that the Stockholders'
Agent has not consented to any such settlement, the amount of any claim by
Acquiror against the Escrow Fund for indemnity with respect to such settlement
shall be determined in accordance with Section 8.6, Section 8.7 and Section 8.8
of this Article VIII, provided, however, that the claim by Acquiror shall not
exceed the settlement amount with said third party plus unreimbursed defense
fees and costs. In the event that the Stockholders' Agent advises Acquiror in
writing to accept the third party's written settlement offer but Acquiror
decides not to, then (if such offer required nothing of Acquiror other than the
payment of money) Acquiror's claim for indemnification under this Article VIII
shall be limited to the settlement amount stated in such offer plus unreimbursed
defense fees and costs incurred by Acquiror on or before the date the
Stockholders' Agent advised acceptance.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this Agreement
-----------
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual written consent of the Company and Acquiror;
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<PAGE>
(b) by Acquiror or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Pacific Standard Time) on February 27, 1998 (provided
that the right to terminate this Agreement under this clause 9.1(b)(i) shall not
be available to any party whose willful failure to fulfill any obligation
hereunder has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date); (ii) there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger; or (iii) there shall be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any governmental
entity that would make consummation of the Merger illegal;
(c) by Acquiror if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any governmental entity, which would: (i) prohibit Acquiror's or
the Company's ownership or operation of all or any portion of the business of
the Company or (ii) compel Acquiror or the Company to dispose of or hold
separate all or a portion of the business or assets of the Company or Acquiror
as a result of the Merger;
(d) by Acquiror if it is not in material breach of its obligations
under this Agreement and there has been a material breach of representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and/or any of the Company Stockholders and (i) such breach has not been
cured within five (5) business days after written notice to the Company
(provided that, no cure period shall be required for a breach which by its
nature cannot be cured), and (ii) as a result of such breach the conditions set
forth in Section 7.3(a) or 7.3(b), as the case may be, would not then be
satisfied;
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Acquiror and (i) such breach has not been cured within five (5) business days
after written notice to Acquiror (provided that, no cure period shall be
required for a breach which by its nature cannot be cured), and (ii) as a result
of such breach the conditions set forth in Section 7.2(a) or 7.2(b), as the case
may be, would not then be satisfied.
When action is taken to terminate this Agreement pursuant to this Section
9.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
9.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 9.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Acquiror or the Company, or
their respective officers, directors or stockholders, or the Company
Stockholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination; and provided further, that the
provisions of Sections 6.3 and 6.4 and Article VIII of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
9.3 Amendment. In compliance with applicable law, this Agreement may be
---------
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
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<PAGE>
9.4 Extension; Waiver. At any time prior to the Effective Time, Acquiror,
-----------------
on the one hand, and the Company, on the other, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations of
the other party hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations, Warranties and Agreements. All
------------------------------------------------------
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and shall (except to the extent that longer survival
is necessary to effectuate the intent of such provisions) terminate on December
30, 1999.
10.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgement of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Acquiror, to:
Synbiotics Corporation
11011 Via Frontera
San Diego, California 92127
Attention: Kenneth M. Cohen
Facsimile No: (619) 451-5719
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street
Suite 1300
San Diego, California 92101
Attention: Hayden J. Trubitt, Esq.
Facsimile: (619) 234-3848
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<PAGE>
(b) if to the Company, to:
Prisma Acquisition Corp.
1721 Black River Road
Rome, New York 13440
Attention: Robert A. Behrens
Facsimile No: (808) 481-2827
with a copy to:
Harris Beach & Wilcox, LLP
130 East Main Street
Rochester, New York 14604
Attention: David A. Lovenheim, Esq.
Facsimile No: (716) 232-6925
(c) if to the Escrow Agent:
Imperial Bank
695 Town Center Drive, Suite 200
Costa Mesa, CA 92626
Attention: Jude Watters
Facsimile No.: (714) 540-3941
10.3 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties, it being understood that all parties need not sign the same
counterpart.
10.5 Entire Agreement: Assignment. This Agreement, the Schedules and
----------------------------
Exhibits hereto, and the documents and instruments and other agreements
referenced herein among the parties hereto: (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof; (b) are not intended to confer upon
any other person any rights or remedies hereunder; and (c) shall not be assigned
by operation of law or otherwise.
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<PAGE>
10.6 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.7 Other Remedies. Any and all remedies herein expressly conferred upon
--------------
a party will be deemed exclusive of all other remedies, except that such
remedies will be deemed cumulative with and not exclusive of any equitable
remedies, and the exercise by any party of the remedies set forth herein will
not preclude the exercise of any equitable remedies.
10.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
The parties agree that, except as provided in Article VIII, and except in the
event that the Closing is not consummated and a dispute arises from an alleged
breach by Acquiror of its obligation under Section 6.3 hereof, any dispute
regarding the interpretation or validity of, or otherwise arising out of this
Agreement, shall be subject to the exclusive jurisdiction of the California
State Courts in and for San Diego County, California or, in the event of federal
jurisdiction, the United States District Court for the Southern District of
California sitting in San Diego County, California, and each party hereby agrees
to submit to the personal and exclusive jurisdiction and venue of such courts
and not to seek the transfer of any case or proceeding out of such courts. Each
of the parties hereto agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such process.
10.9 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
10.10 Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
10.11 Stockholder Action. Execution of this Agreement by the Company
------------------
Stockholders constitutes, among other things, unanimous written consent of the
Company's Stockholders to approve this Agreement, the Merger Agreement, and the
principal terms of the Merger.
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<PAGE>
10.12 Expenses. Whether or not the Merger occurs, each party hereto shall
be responsible for its own expenses; provided, that the Company Stockholders
(and not the Company nor Acquiror as successor to the Company) shall be
responsible for all broker and finder fees and expenses, all financial advisor
and investment bank fees and expenses, all accounting fees and expenses of
$10,000 and all legal fees and expenses in excess of $70,000. The accounting
and legal fees and expenses up to such caps shall be deemed accounts payable
under Section 2.25.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, Acquiror, the Company and the Company Stockholders have
caused this Agreement to be signed as of the date first written above.
SYNBIOTICS CORPORATION PRISMA ACQUISITION CORP.
-------------------------- ----------------------
By: /s/ Kenneth M. Cohen By: /s/ Robert Behrens
-------------------------- ----------------------
Name: Name: Robert Behrens
-------------------------- ----------------------
Title: Title: President and CEO
COMPANY STOCKHOLDERS:
----------------------
By: /s/ Robert Behrens
----------------------
Name:
----------------------
Title:
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE>
EXHIBIT A
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT
----------------
This Agreement is made and entered into as of this 6th day of March,
1998, by and among Synbiotics Corporation, a California corporation
("Synbiotics"), Prisma Acquisition Corp., a Delaware corporation ("Prisma"),
Robert A. Behrens (the "Stockholders' Agent") and Imperial Bank (the "Escrow
Agent").
RECITALS
WHEREAS, Synbiotics and Prisma have entered into an Agreement and Plan
of Reorganization dated as of February 27, 1998 (collectively, with all
schedules, exhibits and certificates referred to therein, the "Reorganization
Agreement") which provides for the merger of Prisma with and into Synbiotics
(the "Merger"); and
WHEREAS, the Reorganization Agreement provides that on the effective
date of the Merger and in connection therewith, certain shares of Synbiotics
Common Stock to be issued to the stockholders of Prisma and issued upon the
exercise by Robert A. Behrens (in his individual capacity) of options of Prisma
assumed by Synbiotics will be deposited in escrow with the Escrow Agent pursuant
to this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained in the Reorganization Agreement and herein, the parties agree as
follows:
ARTICLE I
Escrow and Escrow Shares
------------------------
1.1 Escrow. Subject to Section 2.6 hereof, and pursuant to the
------
Reorganization Agreement, the Escrow Shares (as hereinafter defined) shall be
held by the Escrow Agent in escrow subject to the terms and conditions
hereinafter set forth and shall be represented by one (1) or more Synbiotics
Common Stock certificate(s) in the name of the Escrow Agent, on behalf of all of
(i) the holders of Common Stock of Prisma (individually, a "Stockholder" and
collectively, the "Stockholders") and (ii) Robert A. Behrens, in his capacity as
a holder of outstanding options to acquire shares of Common Stock of Prisma
("Prisma Options") assumed by Synbiotics in connection with the Merger, to the
extent he exercises such Prisma Options ("Behrens" or the "Optionee"). Such
A-1
<PAGE>
stock certificate(s) shall represent (i) ten percent (10%), or 45,835 shares, of
the total number of shares of Synbiotics Common Stock into which outstanding
shares of Prisma Common Stock are converted in connection with the Merger and
(ii) ten percent (10%) of the total number of shares of Synbiotics Common Stock
issued at any time upon exercise of Behrens' Prisma Options assumed by
Synbiotics in connection with the Merger, and shall be allocated on a pro rata
basis among such shares of Synbiotics Common Stock to be received by the holders
of Prisma Common Stock and Behrens' Prisma Options (the "Escrow Shares"). The
Escrow Shares (together with dividends, interest and other income thereon) shall
constitute the "Escrow Fund" and shall be held and distributed by the Escrow
Agent in accordance with the terms and conditions of this Agreement. The number
of Escrow Shares attributable to each Stockholder is set forth in Annex A
-------
attached hereto.
1.2 Shares Subject to Options.
-------------------------
a. Ten percent (10%) of the Synbiotics shares initially purchasable
under Behrens' Prisma Options assumed by Synbiotics pursuant to the
Reorganization Agreement are hereby designated as "Divestable Option Shares" and
are subject to option termination in accordance with the following procedure:
Should any Escrow Shares be delivered to Synbiotics for cancellation
pursuant to the terms of Article II hereof, then the number of shares of
Synbiotics Common Stock subject to each assumed Behrens Prisma Option
immediately after the Effective Time shall automatically, and without any
further action on the part of Synbiotics or Optionee, be reduced by that
number of shares of Synbiotics Common Stock obtained by (i) multiplying the
Divestable Option Shares by a fraction, the numerator of which is the
number of shares delivered to Synbiotics for cancellation pursuant to
Article II hereof and the denominator of which is the total number of
Escrow Shares, and (ii) then subtracting from that the number of actual
Escrow Shares attributable to the Optionee which were actually delivered to
Synbiotics for cancellation. In the event that such reduction would
otherwise result in a fractional share, the amount of the reduction shall
be rounded to the nearest whole share of Synbiotics Common Stock.
b. In the event that the Optionee exercises a Prisma Option
assumed by Synbiotics prior to the earlier of the distribution of the Escrow
Shares pursuant to Section 2.6 hereof or termination of this Agreement, ten
percent (10%) of the shares of Synbiotics Common Stock otherwise issuable to the
Optionee upon such exercise shall instead be Escrow Shares, be registered in the
name of the Escrow Agent and held in the Escrow Fund and be subject to delivery
to Synbiotics for cancellation pursuant to the terms hereof.
ARTICLE II
Indemnity
---------
A-2
<PAGE>
2.1 Indemnity by the Stockholders. Subject to the provisions and
-----------------------------
limitations of this Agreement, each of the Stockholders and the Optionee agrees
to indemnify, defend and hold harmless Synbiotics and its officers, directors,
agents and employees (hereinafter referred to individually as an "Indemnified
Person" and collectively as "Indemnified Persons") from and against any and all
losses, costs, damages, liabilities and expenses arising from claims, demands,
actions, causes of action, including, without limitation, reasonable legal fees,
net of any recoveries under existing insurance policies or indemnities from
third parties, and any diminutions in value arising out of any misrepresentation
or breach of or default in connection with any of the representations,
warranties, covenants and agreements given or made by Prisma and/or the
Stockholders and Behrens in the Reorganization Agreement, the Prisma disclosure
letter or any exhibit or schedule to the Reorganization Agreement (the "Prisma
Obligations"). (The obligation under the preceding sentence is several but not
joint as to all Stockholders and the Optionee other than BioQuest Venture
Leasing Partnership, L.P. ("BioQuest"), but BioQuest is fully, jointly and
severally obliged both for its own several share and for the respective several
shares of the other Stockholders and the Optionee.) The Escrow Fund shall be
security for this indemnity/defense obligation subject to the limitations in
this Agreement and the Reorganization Agreement, but the Indemnified Person's
recourse shall not be limited to the Escrow Fund or to the value of the Escrow
Fund.
Notwithstanding the foregoing, the Escrow Fund itself (as opposed to
assets which composed part of the Escrow Fund) shall be subject to obligations
under this Section 2.1 only with respect to claims submitted pursuant to an
Officer's Certificate (as defined in Section 2.2) during the Escrow Period (as
defined in Section 2.6).
2.2 Application of Escrow Shares to Claims.
--------------------------------------
a. If Synbiotics shall (after taking into account any applicable
deductible amount provided for in the Reorganization Agreement) have any claim
against the Stockholders and the Optionee pursuant to this Agreement, Synbiotics
shall promptly deliver to the Escrow Agent a certificate signed by the President
of Synbiotics (an "Officer's Certificate") specifying in reasonable detail the
individual items of such Damages included in the amount so stated, the date each
such item was paid, or properly accrued or arose, the nature of the
misrepresentation, breach of warranty or covenant, and the claim (if any) to
which such item is related. Upon receipt by the Escrow Agent on or before the
last day of the Escrow Period of an Officer's Certificate, the Escrow Agent
shall, subject to the provisions of Section 2.3 and 2.4 below, deliver to
Synbiotics out of the Escrow Fund, as promptly as practicable, Synbiotics Common
Stock or other assets held in the Escrow Fund having a value equal to such
Damages (or, if the Escrow Fund is insufficient to satisfy the Damages, then the
entire Escrow Fund).
b. For the purpose of compensating Synbiotics for its Damages
pursuant to this Agreement, Synbiotics Common Stock in the Escrow Fund shall be
valued at the Nasdaq National Market closing sale price the day before the
Escrow Agent's delivery to Synbiotics.
A-3
<PAGE>
2.3 Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agent and for a period of twenty (20)
days after such delivery to the Escrow Agent, the Escrow Agent shall make no
delivery of Synbiotics Common Stock or other property pursuant to Section 2.2
hereof unless the Escrow Agent shall have received written authorization from
the Stockholders' Agent to make such delivery. After the expiration of such
twenty (20) day period, the Escrow Agent shall make delivery of the Synbiotics
Common Stock or other property in the Escrow Fund in accordance with Section 2.2
hereof, provided that no such payment or delivery shall be made if the
Stockholders' Agent shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent and to Synbiotics prior to the expiration of such twenty (20) day
period.
2.4 Resolution of Conflicts.
-----------------------
a. In case the Stockholders' Agent shall so object in writing to any
claim or claims by Synbiotics made in any Officer's Certificate, the
Stockholders' Agent and Synbiotics shall attempt in good faith for twenty (20)
days to agree upon the right of the respective parties with respect to each of
such claims. If the Stockholders' Agent and Synbiotics should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and shall distribute the Synbiotics
Common Stock or other property from the Escrow Fund in accordance with the terms
thereof. Any Escrow Shares delivered out of escrow to satisfy claims in
accordance with this Section 2.4 will be cancelled.
b. If no such agreement can be reached after such twenty (20) days
of good faith negotiation, either Synbiotics or the Stockholders' Agent may, by
written notice to the other, with a copy to the Escrow Agent, demand arbitration
of the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration.
2.5 Arbitration and Disputes.
------------------------
a. All disputes which may arise between or among the parties hereto
under or with respect to this Agreement, will be determined solely by
arbitration in San Diego, California and in accordance with the rules of the
American Arbitration Association pursuant to the procedure hereinafter set
forth.
b. The aggrieved party or parties shall serve upon the other party
or parties a notice in writing requiring arbitration and designating one (1)
arbitrator. Within five (5) business days thereafter, the other party shall
designate a second arbitrator. The two (2) arbitrators thus chosen shall appoint
a third within five (5) business days thereafter. If the third arbitrator is not
appointed within such five (5) business day period, then either party may secure
the appointment of a third arbitrator by application to the American Arbitration
Association. When appointed, the three
A-4
<PAGE>
(3) arbitrators shall determine the controversy by majority vote, except that if
there is only one arbitrator mentioned above, then the first arbitrator
appointed shall be the sole arbitrator. If any vacancy occurs on the board of
arbitrators appointed hereunder by reason of death, resignation, refusal to act,
physical incapacity or otherwise, a new arbitrator shall be appointed by the
party who originally appointed an arbitrator to such position. The arbitration
shall be in San Diego, California and the costs thereof shall be borne by the
party which does not prevail therein. Such determination by the three (3)
arbitrators or by the sole arbitrator, as the case may be, shall be final,
binding and conclusive upon the parties hereto and shall be rendered in such
form that it may be judicially confirmed under the laws of the State of
California.
c. The decision of the arbitrator as to the validity and amount of
any claim in such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement, and notwithstanding anything in Section 2.5 hereof,
the Escrow Agent shall be entitled to act in accordance with such decision and
make or withhold payments out of the Escrow Fund in accordance therewith. If
any such arbitrator shall determine that Escrow Shares are to be delivered out
of escrow, the Escrow Agent shall, within ten (10) business days following
receipt of a copy of such determination, deliver out of escrow the lesser of:
(a) the number of Escrow Shares (in whole shares) that have an aggregate market
value (determined as provided above most nearly equal to the amount of the claim
or claims thus to be satisfied) or (b) all of the Escrow Shares. If any
distribution referred to above involves fewer than all of the Escrow Shares, it
shall be allocated pro rata against the Escrow Shares based on the Escrow Shares
beneficially owned by each Stockholder and Optionee. Any Escrow Shares
delivered out of escrow to satisfy claims in accordance with this Section 2.5
will be cancelled.
2.6 Third-Party Claims. In the event Synbiotics becomes aware of a
------------------
third-party claim which Synbiotics believes may result in a demand against the
Escrow Fund, Synbiotics shall notify the Stockholders' Agent of such claim, and
the Stockholders' Agent and the Stockholders and Optionees for whom shares of
Synbiotics Common Stock otherwise issuable to them are deposited in the Escrow
Fund shall be entitled, at their expense, to participate in any defense of such
claim. Synbiotics shall have the right in its sole discretion to settle any
such claim. A copy of all written settlement offers made by any third party
shall be forwarded to the Stockholders' Agent. In the event that the
Stockholders' Agent has consented to any such settlement, the Stockholders'
Agent shall have no power or authority to object under Section 2.3 or any other
provision of this Article II to the amount of any claim by Synbiotics against
the Escrow Fund for indemnity with respect to such settlement. In the event
that the Stockholders' Agent advises Synbiotics in writing to accept the third
party's written settlement offer but Synbiotics decides not to, then (if such
offer required nothing of Synbiotics other than the payment of money)
Synbiotics' claim for indemnification against the Escrow Fund under this Article
II shall be limited to the settlement amount stated in such offer plus
unreimbursed defense fees and costs incurred by Acquiror on or before the date
the Stockholders' Agent advised acceptance.
2.7 Distribution of Escrow Shares.
-----------------------------
A-5
<PAGE>
a. The Escrow Period shall terminate with respect to all of the
Escrow Shares at the expiration of eleven (11) months after the Effective Time;
provided, however, that a portion of the Escrow Shares, which are necessary to
satisfy any unsatisfied claims specified in any Officer's Certificate
theretofore delivered to the Escrow Agent prior to termination of the Escrow
Period with respect to facts and circumstances existing prior to expiration of
the Escrow Period, shall remain in the Escrow Fund until such claims have been
resolved. Synbiotics shall deliver to the Escrow Agent a certificate specifying
the Effective Time.
b. Within thirty (30) days after the last day of the Escrow Period,
the Escrow Agent shall in accordance with a distribution schedule to be provided
by Synbiotics and approved by the Stockholders' Agent distribute to the
Stockholders and the Optionee all of the remaining Escrow Shares deposited for
them in escrow pursuant to Article I hereof less the sum of: (a) the number of
Escrow Shares delivered out of escrow to satisfy claims and cancelled in
accordance with Section 2.2 above and (b) the number of Escrow Shares (in whole
shares) having an aggregate market value (determined as provided in Section 2.2
above) most nearly equal to (i) 100% of the amount of pending claims asserted by
Synbiotics hereunder, less (ii) any applicable deductible amount provided for in
the Reorganization Agreement. The Escrow Shares not so distributed pursuant to
this Section 2.6 and not cancelled in accordance with Section 2.2 above, shall
be retained in escrow by the Escrow Agent until all such pending claims are
resolved, and all Escrow Shares deliverable from escrow as a result thereof, if
any, shall have been delivered to Synbiotics, the Stockholders or the Optionee,
as the case may be.
2.8 Ownership of Escrow Shares; Voting Rights. The Stockholders and
-----------------------------------------
the Optionee shall have contingent beneficial, but not record, ownership of
shares of Synbiotics Common Stock while the Escrow Shares are held in escrow,
provided, that any distribution, other than cash and taxable stock dividends
(which dividends shall be paid to the Stockholders), on or with respect to the
Escrow Shares and any other shares or securities into which such Escrow Shares
may be changed or for which they may be exchanged pursuant to corporate action
of Synbiotics affecting holders of Synbiotics Common Stock generally shall be
delivered to and held by the Escrow Agent in escrow and shall be subject to the
indemnity and escrow provisions of this Article II.
2.9 Fees. All fees of the Escrow Agent for performance of its duties
----
hereunder, as set forth on Schedule A hereto, and other amounts described in
----------
this Section 2.8 shall be paid by Synbiotics to the Escrow Agent on demand. It
is understood that the fees and charges set forth on Schedule A hereto shall be
----------
considered compensation for ordinary services as contemplated by this Agreement.
In the event that the conditions of this Agreement are not promptly fulfilled,
or if the Escrow Agent renders any service not provided for in this Agreement,
or if the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation.
A-6
<PAGE>
2.10 Escrow Agent.
------------
a. Nothing contained in this Agreement shall constitute the
Escrow Agent as trustee for any party hereto or impose on the Escrow Agent any
duties or obligations other than those for which there is an express provision
herein. Except as provided herein, the Escrow Agent shall have no
responsibility or liability for delivery of the Escrow Fund.
b. For all purposes connected herewith the Escrow Agent shall
be entitled to assume that the parties hereto are exclusively entitled to their
share of the Escrow Fund in accordance with this Agreement (and any further
instructions given pursuant hereto) and are fully authorized and empowered,
without affecting the rights of any third parties, to appoint the Escrow Agent
as the Escrow Agent in accordance with the terms and provisions hereof.
c. The Escrow Agent shall be obliged to render statements of
account only with respect to the Escrow Fund and only to the parties referred to
herein and the Escrow Agent shall not be under any obligation to render
statements of account to any third parties unless the Escrow Agent so consents
in writing.
d. The Escrow Agent undertakes to perform such duties as are
specifically set forth herein and no implied duties or obligations shall be read
into this Agreement against the Escrow Agent.
e. The Escrow Agent shall not be responsible for determining or
verifying the authority of any person acting or purporting to act on behalf of
any party to this Escrow Agreement.
2.11 Limitations on Liability of Escrow Agent.
----------------------------------------
a. It is understood and agreed that the Escrow Agent shall
incur no liability (except for acts of gross negligence or willful misconduct)
and be under no obligation to take any steps or action (whether by commencement
of legal proceedings or otherwise) to ensure that any funds are actually
received by the Escrow Agent.
b. None of the provisions hereof shall be construed so as to
require the Escrow Agent to expend or risk any of its own funds or otherwise
incur any liability in the performance of its duties under this Agreement and it
shall be under no obligation to make any payment except out of the funds
received by it (after deduction of its fees and expenses).
c. If it becomes illegal or impossible for the Escrow Agent to
carry out any of the provisions hereof, the Escrow Agent shall incur no
liability as a consequence of the enforceability or lack thereof of any
agreements referred to herein.
A-7
<PAGE>
d. The Escrow Agent shall not be required to take or be bound by
notice of default of any person, or to take any action with respect to such
default involving any expense or liability, unless written notice of such
default is given to Escrow Agent by the undersigned or any of them, and unless
the Escrow Agent is indemnified in a manner satisfactory to it against such
expense or liability.
e. The Escrow Agent shall not be liable to any party hereto in
acting upon any written notice, request, waiver, consent, receipt or other paper
or document believed by the Escrow Agent to be signed by the proper party or
parties. The Escrow Agent will be entitled to treat as genuine and as the
document it purports to be any letter, paper, telex or other document furnished
or caused to be furnished to the Escrow Agent by Synbiotics or the Stockholders'
Agent, and believed by the Escrow Agent to be genuine and to have been
transmitted by the proper party or parties. The Escrow Agent shall have no
liability with respect to any good faith action taken or allowed by it
hereunder.
f. The Escrow Agent shall not be liable for any error of judgment or
for act done or step taken or omitted by it in good faith or for any mistake or
fact or law (except for acts of gross negligence or willful misconduct), or for
anything which it may do or refrain from doing in connection herewith, and the
Escrow Agent shall have no duties to anyone except those signing this Agreement.
g. The Escrow Agent may consult with legal counsel in the event of
any dispute or questions as to the interpretation or construction of this
Agreement or the Escrow Agent's duties hereunder, and the Escrow Agent shall
incur no liability and shall be fully protected in acting in accordance with the
opinion and instructions of counsel. Any fees or costs so incurred shall be
borne by the signatories hereto, other than the Escrow Agent.
h. In the event of any disagreement between the undersigned or any
person or persons named in this Agreement, and any other person, resulting in
adverse claims and demands being made in connection with or for any money and/or
securities involved herein or affected hereby, the Escrow Agent shall be
entitled at its option to refuse to comply with any such claims or demands, so
long as such disagreement shall continue, and in so doing the Escrow Agent shall
not be or become liable for damages or interest to the undersigned or any of
them, or to any person named in this Agreement, for its refusal to comply with
such conflicting or adverse demands; and the Escrow Agent shall be entitled to
continue so to refrain and refuse so to act until:
(i) the rights of the adverse claimants have been finally
adjudicated in a court or by arbitration as set forth below assuming and having
jurisdiction of the parties and the money and/or securities involved herein and
affected hereby; or
(ii) all differences have been adjudicated by agreement and the
Escrow Agent has been notified thereof in writing by all of the persons
interested.
A-8
<PAGE>
I. In the event of such disagreement, the Escrow Agent, in its
discretion, may file a suit in interpleader or for declaratory relief for the
purpose of having the respective rights of the claimants adjudicated, and
deposit with the court all documents and property held hereunder, and Synbiotics
agrees to pay the Escrow Agent's fee and all reasonable costs and reasonable
counsel fees incurred in such action and said costs and fees shall be included
in the judgment of any such action.
2.12 Resignation of Escrow Agent. The Escrow Agent reserves the right
---------------------------
to resign as the Escrow Agent at any time by giving five (5) business days
written notice thereof to all parties at the last known address. Upon notice or
resignation by the Escrow Agent, the undersigned agree that the Escrow Agent may
deliver the deposited funds, upon payment in full of all fees due the Escrow
Agent, to such replacement Escrow Agent. The appointment of a successor escrow
holder shall be accomplished as follows: Synbiotics and the Stockholders' Agent
shall use their best efforts to mutually agree on a successor escrow holder
within five (5) calendar days after receiving such notice. If Synbiotics and the
Stockholders' Agent fail to agree on a successor escrow holder within such time,
the Escrow Agent may petition any court of competent jurisdiction for
disposition of the assets and the Escrow Agent shall thereby be released from
any and all responsibility and liability to the parties hereto.
2.13 Indemnification of Escrow Agent. Synbiotics on the one hand, and
-------------------------------
the Stockholders and the Optionee, jointly and severally, on the other hand,
shall on an equal basis reimburse, indemnify and hold harmless the Escrow Agent,
its employees and agents (referred to herein severally and collectively as the
"Escrow Agent"), from and against any loss, damage, liability or claim suffered,
incurred by, or asserted against the Escrow Agent (including any amounts paid in
settlement of any action, suit, proceeding, or claim brought or threatened to be
brought and including expenses of legal counsel) arising out of, in connection
with or based upon any act or omission by the Escrow Agent relating in any way
to this Escrow Agreement or its services hereunder, so long as the Escrow Agent
has acted in good faith and without negligence.
Synbiotics and/or the Stockholders and the Optionee may participate at
their own expense in the defense of any claim or action which may be asserted
against the Escrow Agent, and if Synbiotics so elects, Synbiotics may assume and
control the defense (including settlement) of such claim or action; provided,
however, that if there exists a conflict of interest which would make it
inappropriate for the same counsel to represent both Synbiotics and the Escrow
Agent, retention of separate counsel by Escrow Agent shall be reimbursable as
hereinabove provided; and provided, further, that Synbiotics shall not settle or
-------- -------
compromise any such claim or action without the consent of the Escrow Agent,
which consent shall not be unreasonably withheld. The right of the Escrow Agent
to indemnification hereunder shall survive its resignation or removal as Escrow
Agent and shall survive the termination of this Escrow Agreement by lapse of
time or otherwise.
2.14 Merger or Consolidation of Escrow Agent. Any company into which
---------------------------------------
the Escrow Agent may be merged or converted or with which it may be consolidated
or any company resulting from any merger, conversion or consolidation to which
it shall be a party or any company
A-9
<PAGE>
to which the Escrow Agent may sell or transfer all or substantially all of its
corporate trust business, shall be the successor to the Escrow Agent without the
execution or filing of any paper or further act, anything herein to the contrary
notwithstanding.
ARTICLE III
Authority and Indemnification
-----------------------------
3.1 Stockholders' Agent Liability. The Stockholders' Agent shall not
-----------------------------
be liable for any act done or omitted hereunder as Stockholders' Agent while
acting in good faith and in the exercise of reasonable judgment, and any act
done or omitted pursuant to the advice of counsel shall be conclusive evidence
of such good faith. The Stockholders shall severally indemnify the
Stockholders' Agent and hold him or her harmless against any loss, liability or
expense incurred without gross negligence or bad faith on the part of the
Stockholders' Agent and arising out of or in connection with the acceptance or
administration of his or her duties hereunder.
3.2 Reliance. The Stockholders' Agent shall be entitled to treat as
--------
genuine, and as the document it purports to be, any letter, paper, facsimile,
telex, or other document furnished or caused to be furnished to it by any party
to this Agreement and believed by it to be genuine and to have been telexed,
telegraphed, faxed, or cabled or signed and presented by any party to this
Agreement. The Stockholders' Agent may consult with counsel and shall be fully
protected in respect to any action taken or suffered by the Stockholders' Agent
as a result of such consultation with counsel.
3.3 Legal Compliance. The Stockholders' Agent is hereby authorized
----------------
to disregard any and all notices and warnings that may be given by any person,
firm or corporation except the final order, judgment or decree of any court
made, filed, entered or issued, whether with or without jurisdiction, from which
no further appeal may be taken and the Stockholders' Agent is hereby authorized
to comply with and obey any and all such final orders, judgments and decrees of
any court made, filed, entered or issued, whether with or without jurisdiction.
If the Stockholders' Agent shall comply with or obey any such order, judgment or
decree of any court, he or she shall not be liable to any of the parties hereto,
or to any other person, firm, association or corporation, by reason of any such
compliance or obedience even if any such order, judgment or decree may be
subsequently revised, modified, annulled, set aside or vacated.
3.4 Replacement of Stockholders' Agent. If the Stockholders' Agent
----------------------------------
shall die, become disabled or otherwise be unable to fulfill his or her
responsibilities hereunder, the holders of a majority in interest of the Escrow
Fund shall select a replacement Stockholders' Agent from among those persons who
are affiliated with, or were themselves significant stockholders of, Prisma
prior to the Merger.
A-10
<PAGE>
ARTICLE IV
Miscellaneous
-------------
4.1 Notices. Any notice or other communication required or permitted
-------
to be given to the parties hereto shall be deemed to have been given if
personally delivered (including personal delivery by facsimile with confirmation
copy), or two days after mailing by certified or registered mail, return receipt
requested, first class postage prepaid, addressed as follows (or at such other
address as the addressed party may have substituted by notice pursuant to this
Section 4.1), with copies to counsel as set forth in the Reorganization
Agreement:
a. If to Synbiotics:
Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
Attention: Chief Executive Officer
Facsimile: (619) 451-5719
b. If to the Stockholders' Agent:
Robert A. Behrens
21 Harris Drive
Southborough, MA 01772
Facsimile: (508) 485-1739
c. If to the Stockholders, to the most recent address contained
in Synbiotics' books and records.
d. If to the Escrow Agent, and only to the Escrow Agent, all
notices, instructions and other communications under this Agreement shall be in
writing and shall be deemed given to the Escrow Agent only upon the Escrow
Agent's actual receipt of the same at the following address (or to such other
address or addresses as the Escrow Agent may designate to the parties in
writing):
Imperial Bank
695 Town Center Drive, Suite 200
Costa Mesa, CA 92626
Facsimile: (714) 540-3941
4.2 Termination. This Agreement shall terminate upon the mutual
-----------
written express agreement of Synbiotics and the Stockholders' Agent. In any
event, this Agreement terminates when all of the Escrow Shares have been
distributed according to its terms.
A-11
<PAGE>
4.3 Interpretation. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. The parties agree that any dispute regarding the interpretation or
validity of, or otherwise arising out of this Agreement, shall be subject to the
exclusive jurisdiction of the California State Courts in and for San Diego
County, California or, in the event of federal jurisdiction, the United States
District Court for the Southern District of California sitting in San Diego
County, California, and each party hereby agrees to submit to the personal and
exclusive jurisdiction and venue of such courts and not to seek the transfer of
any case or proceeding out of such courts. Each of the parties hereto agrees
that process may be served upon them in any manner authorized by the laws of the
State of California for such persons and waives and covenants not to assert or
plead any objection which they might otherwise have to such process. All
provisions of the Reorganization Agreement shall be incorporated herein by
reference as if set forth in their entirety herein. All capitalized terms used
in this Agreement, unless otherwise defined herein, shall have the meanings
ascribed to them in the Reorganization Agreement. All rights of the parties
contained herein and in the Reorganization Agreement shall, except to the extent
set forth in Section 10.7 of the Reorganization Agreement, be cumulative.
4.4 Counterparts. This Agreement may be signed in one or more
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.
4.5 Fractional Shares. The Escrow Agent shall not be obligated to
-----------------
issue or deliver pursuant to any provision of this Escrow Agreement any
fractional shares of Common Stock. Instead, each Stockholder who would
otherwise be entitled to a fractional Escrow Share will receive from Synbiotics
cash in lieu thereof equal to the per share market value of Synbiotics Common
Stock (determined as provided in Section 2.2 above) multiplied by the fraction
of a share of Synbiotics Common Stock to which such Stockholder would otherwise
be entitled.
4.6 Transfer of Interests. No Stockholder or Optionee shall sell,
---------------------
transfer, pledge, hypothecate or otherwise dispose of any Escrow Shares, or any
interest therein, prior to the distribution of such Escrow Shares in accordance
with Section 2.7 above.
4.7 Entire Agreement. This Agreement constitutes the complete
----------------
agreement of the parties with respect to the subject matter hereof, and may not
be modified or amended except by written instrument executed by the parties. No
modification, amendment, rescission, supplement or change of this Agreement
shall be valid, binding or in effect unless notice thereof is given to the
Escrow Agent in writing by all parties hereto and accepted by the Escrow Agent.
4.8 Successors and Assigns. The provisions hereof shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective legal
representatives, heirs, successors and assigns. The provisions hereof in favor
of the Escrow Agent shall survive the termination of the Escrow and this
Agreement.
[Remainder of This Page Intentionally Left Blank]
A-12
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.
SYNBIOTICS CORPORATION
By:
---------------------------------------
Michael K. Green, Vice President, Chief
Financial Officer, and Secretary
PRISMA ACQUISITION CORP.
BY:
---------------------------------------
Robert A. Behrens, President
THE STOCKHOLDERS' AGENT
---------------------------------------
ESCROW AGENT
---------------------------------------
<PAGE>
Annex A
LIST OF ESCROW SHARES
ATTRIBUTABLE TO FORMER PRISMA STOCKHOLDERS
<TABLE>
<CAPTION>
Name Number of Shares 10%
- ------------------ ----------------------
<S> <C>
Bioquest 23,620
D. Pillsbury 3,703
R. Spizzin 3,703
R. Groben 3,703
D. Adams 3,703
D. Nelson Adams 3,703
Bill Kaynor 3,703
</TABLE>
<PAGE>
LIST OF POTENTIAL ESCROW
SHARES ATTRIBUTABLE TO THE OPTIONEE
<TABLE>
<CAPTION>
Name Number of Shares 10%
- -------------------- ----------------------
<S> <C>
R. Behrens 12,129
</TABLE>
<PAGE>
Schedule A
SCHEDULE OF FEES
<TABLE>
<CAPTION>
<S> <C>
ANNUAL ADMINISTRATION FEE $2,500.00
(First Year)
ANNUAL ADMINISTRATION FEE $2,000.00
(Second year, if applicable)
</TABLE>
FEES PAYABLE IN ADVANCE OF ESCROW FUNDING.
A-i
<PAGE>
EXHIBIT B
FORM OF LEGAL OPINION OF ACQUIROR'S COUNSEL
March 6, 1998
Prisma Acquisition Corp.
1721 Black River Road
Rome, New York 13440
Ladies and Gentlemen:
We have acted as counsel for Synbiotics Corporation, a California
corporation (the "Acquiror"), in connection with the statutory merger of Prisma
Acquisition Corp., a Delaware corporation (the "Company"), with and into the
Acquiror pursuant to the Agreement and Plan of Reorganization, dated as of
February 27, 1998, by and among the Acquiror, the Company, Robert Behrens and
each of the stockholders of the Company listed on Schedule 2.2(a) thereto (the
"Reorganization Agreement"). This opinion is being rendered to you pursuant to
Section 7.2(d) of the Reorganization Agreement. Capitalized terms used herein
and not otherwise defined shall have the same meaning given to such terms in the
Reorganization Agreement.
In connection with the opinions expressed herein, we reviewed the
following:
(i) the Reorganization Agreement;
(ii) the Agreement of Merger, dated as of March 6, 1998, between
the Acquiror and the Company; and
(iii) the Escrow Agreement, dated as of March 6, 1998.
The documents listed as items (i) though (iii) above are referred to herein as
the "Transaction Documents."
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates, including certificates of public officials, and
other instruments as we have deemed necessary or advisable for purposes of this
opinion, including those relating to the authorization, execution and delivery
of the Reorganization Agreement and the other Transaction Documents.
B-1
<PAGE>
Prisma Acquisition Corp. Page 2
March 6, 1998
In connection with the opinions expressed herein we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Acquiror pursuant to the
Reorganization Agreement and upon certificates and statements of officers of the
Acquiror. We have assumed for the purposes of this opinion letter the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of the documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as certified, facsimile
or photostatic copies, and the authenticity of the originals of such copies.
In rendering this opinion letter we have also assumed: (A) that the
Transaction Documents have been duly and validly executed and delivered by or on
behalf of each party thereto other than the Acquiror, that each party to the
Transaction Documents other than the Acquiror has the power to enter into and
perform its or his/her obligations thereunder and that the Transaction Documents
constitute legal, valid, binding and enforceable obligations of each such party;
(B) that the representations and warranties made in the Transaction Documents by
the parties thereto other than the Acquiror are true and correct; and (C) that
each party to the Transaction Documents other than the Acquiror has filed any
required state franchise, income or similar tax returns and has paid any
required state franchise, income or similar taxes.
Whenever a statement herein is qualified by the expressions "to our
knowledge," "we are not aware" or a similar phrase or expression with respect to
our knowledge of matters of fact, it is intended to mean that our knowledge is
based upon the records, documents, instruments and certificates described above
and the current actual knowledge of the attorneys in our firm who have devoted
substantive attention to the transactions contemplated by the Transaction
Documents (but not including any constructive or imputed notice of any
information) and that we have not otherwise undertaken any independent
investigations for the purpose of rendering this opinion.
This opinion relates solely to the laws of the State of California and
applicable federal laws of the United States, and we express no opinion with
respect to the effect or applicability of the laws of other jurisdictions.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
1. The Acquiror is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California, and the Acquiror
has the requisite corporate power and authority to own its properties and to
conduct its business as, to our knowledge, it is presently conducted.
B-2
<PAGE>
Prisma Acquisition Corp. Page 3
March 6, 1998
2. The Acquiror has the requisite corporate power and authority to
execute, deliver and perform the Reorganization Agreement and the other
Transaction Documents. Each of the Reorganization Agreement and the other
Transaction Documents has been duly and validly authorized by the Acquiror, has
been duly executed and delivered by an authorized officer of the Acquiror and
constitutes a legal, valid and binding obligation of the Acquiror, enforceable
by the Company against the Acquiror in accordance with its terms.
3. Neither the execution or delivery by the Acquiror of the
Transaction Documents nor the consummation by the Acquiror at the Closing of the
transactions contemplated thereby will (i) violate any provision of the Articles
of Incorporation or Bylaws of the Acquiror, (ii) violate or be in conflict with
any federal or California laws which to our knowledge are applicable to the
Acquiror or (iii) to our knowledge, violate or contravene any judgment, decree,
injunction or order of any federal or California court, or any arbitrator or
governmental agency or authority, having jurisdiction over the Acquiror or its
properties or by which the Acquiror may be bound.
4. Except as set forth in the Acquiror Schedules, no consents,
approvals or authorizations of or filings with any governmental authority of the
State of California or the United States are required or necessary on the part
of the Acquiror in connection with the execution, delivery and performance at
the Closing by the Acquiror of the Transaction Documents, except for such
consents, approvals, authorizations or filings which have been obtained, waived
or made prior to the date hereof.
5. We are not aware that there is any action, proceeding or
governmental investigation pending, or threatened in writing, against the
Acquiror which questions the validity or enforceability of the Transaction
Documents or the right of the Acquiror to enter into the Transaction Documents.
The foregoing opinions are subject to the following additional
limitations, qualifications, assumptions and exceptions:
(a) The validity, binding nature and enforceability of the Acquiror's
obligations under the Transaction Documents may be subject to or limited by (i)
bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent
transfer and other similar laws affecting the rights of creditors generally;
(ii) general principles of equity (whether relief is sought in a proceeding at
law or in equity), including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the discretion of any court of
competent juris diction in awarding specific performance or injunctive relief
and other equitable remedies; and (iii), without limiting the generality of the
foregoing, the effect of California court decisions and statutes which indicate
that
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Prisma Acquisition Corp. Page 4
March 6, 1998
provisions of the Transaction Documents which permit the Company or any other
person or entity ("Person") to take action or make determinations may be subject
to a requirement that such action be taken or such determinations be made on a
reasonable basis in good faith or that it be shown that such action is
reasonably necessary for the protection of the Company or such other Person.
(b) Our opinions are subject to the effect of California law which
provides that a court may refuse to enforce, or may limit the application of, a
contract or any clause thereof which the court finds as a matter of law to have
been unconscionable at the time it was made or contrary to public policy.
(c) We express no opinion as to:
(i) provisions purporting to require the award or payment of
attorneys' fees, expenses or costs in any action where the Company is not the
prevailing party, or the impact of California Civil Code (S)1717 et seq. on any
-- ----
such provisions;
(ii) the enforceability under certain circumstances of
provisions to the effect that rights or remedies are not exclusive, that every
right or remedy is cumulative and may be exercised in addition to or with any
other right or remedy, that the election of some particular remedy or remedies
does not preclude recourse to one or another remedy or that failure to exercise
or delay in exercising rights or remedies will not operate as a waiver of any
such right or remedy;
(iii) provisions prohibiting waivers of any terms or provisions
of any of the Transaction Documents other than in writing, or prohibiting oral
modifications thereof or modification by course of dealing to the extent such
provisions are inconsistent with applicable law;
(iv) the enforceability under certain circumstances of
provisions indemnifying a party against, or requiring contributions toward, that
party's liability for its own wrongful or negligent acts or where such
indemnification or contribution is contrary to public policy or prohibited by
law;
(v) any provision providing for the exclusive jurisdiction of
a particular court or purporting to waive rights to trial by jury, service of
process or objections to the laying of venue or to forum on the basis of forum
non conveniens, in connection with any litigation arising out of or pertaining
- --- ----------
to the Transaction Documents; and
(vi) provisions purporting to waive any applicable statutes of
limitation.
(d) Our opinions are subject to the effect of judicial decisions which
may permit
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Prisma Acquisition Corp. Page 5
March 6, 1998
the introduction of extrinsic evidence to interpret the terms of written
contracts.
(e) Our opinions in clause (ii) of paragraph 3 above and in paragraph
4 above are limited to laws and regulations normally applicable to transactions
of the type contemplated in the Transaction Documents and do not extend to
licenses, permits and approvals necessary for the conduct of the Acquiror's
business. In addition and without limiting the previous sentence, we express no
opinion herein with respect to the effect of any land use, environmental or
similar law, any state or federal antitrust law or any local law. Further, we
express no opinion as to the effect of or compliance with any state or federal
laws or regulations applicable to the transactions contemplated by the
Transaction Documents because of the nature of the business of any party thereto
other than the Acquiror.
(f) We also express no opinion as to Section 10.8 of the
Reorganization Agreement and similar provisions of the other Transaction
Documents to the extent that they purport to exclude conflict of law principles
under California law.
This opinion is rendered as of the date first written above solely for
your benefit in connection with the Reorganization Agreement and may not be
delivered to, quoted or relied upon by any person other than you, or for any
other purpose, without our prior written consent; provided, however, that Robert
Behrens and the stockholders listed on Schedule 2.2(a) to the Reorganization
Agreement may rely upon this opinion as if such opinion were addressed to them.
Our opinion is expressly limited to the matters set forth above and we render no
opinion, whether by implication or otherwise, as to any other matters relating
to the Acquiror. We assume no obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
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EXHIBIT C
FORM OF LEGAL OPINION OF COMPANY'S COUNSEL
March 6, 1998
Synbiotics Corporation
11011 Via Frontera
San Diego, California 92127
Ladies and Gentlemen:
We have acted as counsel for Prisma Acquisition Corp., a Delaware
corporation (the "Corporation"), the shareholders of the Corporation (the
"Shareholders"), and Robert A. Behrens, in his individual capacity and also in
his capacity as Stockholders' Agent ("Behrens"), in connection with the
negotiation, execution and delivery of the Agreement and Plan of Reorganization,
dated February 27, 1998 (the "Reorganization Agreement"), by the Corporation,
the Shareholders, Behrens and Synbiotics Corporation ("Synbiotics"), providing
for, among other things, the merger of the Corporation with and into Synbiotics.
This opinion is being delivered to you pursuant to Section 7.3(d) of the
Reorganization Agreement. Capitalized terms not otherwise defined herein shall
have the meanings respectively ascribed thereto in the Reorganization Agreement.
In rendering the opinions set forth herein, we have examined the
following documents (collectively, the "Transaction Documents"):
1. Reorganization Agreement;
2. Agreement of Merger, dated on even date hereof, by and between the
Corporation and Synbiotics;
3. Employment Agreement by and between Synbiotics and Behrens;
4. Covenant Not To Compete Agreements executed pursuant to Section 7.3(e)
of the Reorganization Agreement;
5. Escrow Agreement;
6. Note Purchase Agreement by and between Synbiotics and BioQuest Venture
Leasing Partnership, L.P. ("BioQuest"); and
7. Synbiotics Convertible Promissory Note.
C-1
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March 6, 1998
Page 2
We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
instruments and public records, have made such inquiries of the officers and
representatives of the Corporation and have investigated such matters of law as
we have deemed relevant or necessary as the basis for such opinions.
We have (without any investigation or independent confirmation) relied
upon, and assumed the accuracy of, the responses to such inquiries and such
certificates, corporate records and other documents with respect to factual
matters. In addition, we have assumed the genuineness and authenticity of all
signatures (including all signatures of the Shareholders on the powers of
attorney annexed hereto as Exhibit A), the authenticity of all documents
submitted to us as originals (including the genuineness of all powers of
attorney annexed hereto as Exhibit A), the conformity to authentic original
documents of all documents submitted to us as copies, the accuracy, completeness
and authenticity of certificates of public officials, and the due authorization,
execution and delivery of all documents by Synbiotics. We have also assumed
that the documents to which Synbiotics is a party are binding upon and
enforceable against it.
Wherever we have stated that we have assumed any matter, it is intended to
indicate that we assume such matter without making any factual, legal or other
inquiry or investigation concerning such matter. Nothing has come to our
attention that would lead us to believe that our assumptions are not justified.
We are admitted to practice only in the State of New York and do not hold
ourselves out as being conversant with, and therefore express no opinion with
respect to, the laws of any jurisdiction other than the federal laws of the
United States of America, the Delaware General Corporation Law, and the laws of
the State of New York. Our enforceability opinions covering the Transaction
Documents not governed by New York law should be read on the assumption that in
all relevant regards the governing law does not differ substantially from New
York law.
Based upon the foregoing, and subject to the qualifications set forth
below, it is our opinion that:
1. The Corporation has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware.
2. The Corporation (i) has all necessary corporate power to own and
lease its properties and to carry on its business as now being conducted, and to
execute, deliver, and perform the Reorganization Agreement, and (ii) has
obtained all corporate authorizations and approvals which are necessary for it
to execute and perform the Reorganization Agreement.
3. The Corporation has all requisite corporate power and authority
to execute, deliver and perform the Transaction Documents to which it is a
party. The execution, delivery and
C-2
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March 6, 1998
Page 3
performance by the Corporation of the Transaction Documents to which the
Corporation is a party have been duly authorized by all necessary corporate
action on the part of the Corporation, and the Transaction Documents to which it
is a party have been duly executed and delivered by the Corporation and
constitute valid and binding obligations of the Corporation, enforceable against
the Corporation in accordance with their respective terms.
4. Neither the execution, delivery and performance of the
Transaction Documents to which the Corporation is a party nor the consummation
of the transactions contemplated thereby will conflict with, or result in a
breach of the terms, conditions and provisions of, or constitute a default under
(i) the Certificate of Incorporation or Bylaws of the Corporation or, (ii) to
the best of our knowledge and based solely on the representations and warranties
set forth in the Reorganization Agreement, any agreement, indenture or other
instrument to which the Corporation is bound or to which any assets of the
Corporation are subject, or result in the creation or imposition of any security
interest, lien, charge or encumbrance upon any of the assets of the Corporation.
5. The Transaction Documents and the other agreements to which each
of the Shareholders or Behrens is a party have been duly executed and delivered
by each of the Shareholders or Behrens, as the case may be, and constitute valid
and binding obligations of each of the Shareholders or Behrens, as the case may
be, enforceable against each in accordance with their respective terms;
provided, however, that we have not been asked to express, and do not express,
any opinion regarding the enforceability of the Covenant Not To Compete
Agreements which were executed pursuant to Section 7.3(e) of the Reorganization
Agreement.
6. To the best of our knowledge (without independent verification),
except as disclosed in the Company Schedules, there is no action, investigation,
suit or proceeding at law or in equity or by or before any governmental
instrumentality or other agency now pending against the Corporation, or
affecting the assets or the business of the Corporation or questioning the
validity of any of the Transaction Documents.
7. Except as set forth in the Company Schedules, no consent of any
person, corporation, association, company, partnership or other entity, and no
consent, license, approval or authorization of, or registration or declaration
with, any governmental body, authority, bureau or agency or federal, state or
local court is required in connection with the execution and delivery of the
Transaction Documents, or the consummation of the transactions contemplated
thereby.
8. To the best of our knowledge (relying solely on an affidavit
signed by the attorney-in-fact) none of the powers of attorney annexed hereto as
Exhibit A have been revoked. In addition, nothing has come to our attention to
give us the suspicion that such affidavit is untrue.
Each of the foregoing opinions is subject to the following qualifications:
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March 6, 1998
Page 4
(a) All opinions, to the extent that they relate to the enforceability of
any agreement or obligation or to the legality, validity and enforceability of
any rights and remedies provided in the Transaction Documents, are subject and
qualified by exceptions provided by bankruptcy, insolvency, reorganization,
receivership, moratorium, assignment for the benefit of creditors' laws or
similar laws now or hereafter in effect affecting the validity, legality and
binding effect and enforceability of creditors' rights generally, including,
without limitation, the effect of statutory or other laws regarding fraudulent
conveyances or preferential transfers.
(b) The availability of any equitable remedies for the enforcement of any
provision of the Transaction Documents may be subject to the discretion of the
court before which any proceeding for the enforcement of such provision may be
brought.
(c) We express no opinion as to the enforceability of any provision of the
Transaction Documents providing for the recovery of attorneys' fees or other
costs of collection.
(d) We express no opinion as to the enforceability of any provision for
indemnification insofar as such indemnification would violate public policy or
federal or state securities laws.
(e) We express no opinion with respect to any provisions for submission to
jurisdiction and the related waivers of defense to such jurisdiction or with
respect to liquidated damages provisions.
This opinion letter speaks only as of its date, and we specifically
disclaim any obligation to update or revise this opinion as circumstances of
fact or law change. Our opinions set forth herein are strictly limited to the
matters expressly set forth, and no other opinions are to be implied.
This opinion letter is given for you benefit and may not be relied upon by
any other person or entity without our prior written consent.
Very truly yours,
HARRIS BEACH & WILCOX, LLP
By:
--------------------------
Patrick J. Dalton, Partner
C-4
<PAGE>
EXHIBIT D
FORM OF HUMAN LICENSE AGREEMENT
LICENSE AGREEMENT
THIS AGREEMENT, effective as of February 25, 1998 (EFFECTIVE DATE)
between Prisma Acquisition Corp., a Delaware corporation, with headquarters
offices at 1721 Black River Boulevard, Rome, New York 13440 ("PAC") and Microlab
Systems, Inc., a Delaware corporation having offices at 130 East Main Street,
Rochester, New York 14604 ("COMPANY")
WITNESSETH
WHEREAS, under research programs funded by PAC, and by its
predecessors in interest PAC owns full right, title and interest in an
invention, know-how, trade secrets, copyrights and other intellectual property
pertaining to the human clinical and diagnostic uses and applications of its
product, known and sold as the ProChem system and components, parts, processes,
and methods incorporated therein ("LICENSED PRODUCT");
WHEREAS, PAC holds issued U.S. Patents Numbers: No. 5,128,104, No.
4,857,735 and No. 4,451,149 covering said invention together with its other
intellectual property, in which all of the inventors' rights, title and
interest have been assigned to PAC's predecessor and acquired by PAC;
WHEREAS, PAC represents to the best of its knowledge and belief that
it is the owner of all rights, title and interest in said patent and other
intellectual property and has the right and ability to grant the license
hereinafter described;
WHEREAS, PAC is interested in licensing the LICENSED PRODUCT and thus
benefiting the public and PAC by facilitating the dissemination of the results
of its research in the form of useful LICENSED PRODUCTs for the human clinical
and diagnostic markets only; and
WHEREAS, COMPANY desires to commercially develop, manufacture, use and
distribute such LICENSED PRODUCTs for the human clinical and diagnostic markets
throughout the world;
NOW THEREFORE, in consideration of the premises and of the faithful
performance of the covenants herein contained, the parties hereto agree as
follows:
D-1
<PAGE>
1. DEFINITIONS
--------------
1.1 The term "ACCOUNTING PERIOD" shall mean each three month period
ending March 31, June 30, September 30 and December 31 of each year during the
term hereof.
1.2 The term "AFFILIATE" shall mean any corporation or other legal
entity other than COMPANY in whatever country organized, controlling, controlled
by or under common control with COMPANY.
The term "control" means possession, direct or indirect, of the powers to direct
or cause the direction of the management and policies of an entity, whether
through the ownership of voting securities, by contract or otherwise.
1.3 The term "HUMAN LICENSE FIELD" shall mean the human clinical and
diagnostic markets worldwide, excluding entirely and absolutely any applications
in the animal or veterinary clinical and diagnostic or other animal or
veterinary applications as such terms shall be broadly defined.
1.4 The term "CO-EXCLUSIVE LICENSE FIELD shall mean all markets
worldwide, excluding the HUMAN LICENSE FIELD and excluding entirely and
absolutely any applications in the animal or veterinary clinical and diagnostic
or other animal or veterinary applications as such terms shall be broadly
defined. "LICENSE FIELDS" shall mean the HUMAN LICENSE FIELD and the CO-
EXCLUSIVE LICENSE FIELD.
1.5 The term "FIRST COMMERCIAL SALE" shall mean in each country the
first sale of any LICENSED PRODUCT by COMPANY, its AFFILIATES or SUBLICENSEES,
(a) following approval, when such approval is necessary, of the marketing of
such LICENSED PRODUCT by the appropriate governmental agency for the country in
which the sale is to be made, or (b) when such government approval is not
required in a country, the first sale of such LICENSED PRODUCT in that country.
1.6 The term "SUBLICENSEE" shall mean any non-AFFILIATE third party
licensed by COMPANY or by an AFFILIATE to make, have made, use or sell any
LICENSED PRODUCT.
1.7 The term "NET SALES PRICE" shall mean the GROSS SALES PRICE as
defined in (b)-(d) below received or deemed received by COMPANY or any of its
AFFILIATES or SUBLICENSEES ("SELLERS") for the sale or distribution of any
LICENSED PRODUCT, less (to the extent appropriately documented) the following
amounts actually paid out by COMPANY, its AFFILIATE or SUBLICENSEE or credited
against the amounts received by them from the sale or distribution of LICENSED
PRODUCT:
D-2
<PAGE>
(a) (i) credits and allowances for price adjustment, rejection, or
return of LICENSED PRODUCTS previously sold;
(ii) rebates and cash discounts to purchasers allowed and taken;
(iii) amounts for transportation, insurance, handling or
shipping charges paid for the account of and invoiced to
purchasers;
(iv) taxes, duties and other governmental charges levied on or
measured by the sale of LICENSED PRODUCTS, whether absorbed
by COMPANY or paid by the purchaser so long as COMPANY'S
price is reduced thereby, but not franchise or income taxes
of any kind whatsoever;
(b) For any bona fide sale to a bona fide customer by COMPANY or any
of its AFFILIATES or SUBLICENSEES, the GROSS SALES PRICE shall be the gross
billing price of the LICENSED PRODUCT.
(c) If COMPANY or any of its AFFILIATES or SUBLICENSEES sell any
LICENSED PRODUCT in a bona fide sale as a component of a combination of active
functional elements, the GROSS SALES PRICE of the LICENSED PRODUCT shall be
determined by multiplying the GROSS SALES PRICE of the combination by the
fraction A over A + B, in which "A" is the GROSS SALES PRICE of the LICENSED
PRODUCT portion of the combination when sold separately during the ACCOUNTING
PERIOD in the country in which the sale was made, and "B" is the GROSS SALES
PRICE of the other active elements of the combination sold separately during
said ACCOUNTING PERIOD in said country. In the event that no separate sale of
either such LICENSED PRODUCT or active elements of the combination is made
during said ACCOUNTING PERIOD in said country, the GROSS SALES PRICE of the
LICENSED PRODUCT shall be determined by multiplying the GROSS SALES PRICE of
such combination by the fraction C over C + D, in which "C" is the standard
fully-absorbed cost of the LICENSED PRODUCT portion of such combination, and "D"
is the sum of the standard fully-absorbed costs of the other active elements
component(s), such costs being arrived at using the standard accounting
procedures of COMPANY which will be in accord with generally accepted accounting
practices.
(d) If a SELLER commercially uses or disposes of any LICENSED PRODUCT
by itself (as opposed to a use or disposition of the LICENSED PRODUCT as a
component of a combination of active functional elements) other than in a bona
fide sale to a bona fide customer, the GROSS SALES PRICE hereunder shall be the
price which would be then payable in an arm's length transaction. If a SELLER
commercially uses or disposes of any LICENSED PRODUCT as a component of a
combination of active functional elements other than in a bona fide sale to a
bona fide customer, the GROSS SALES PRICE of the LICENSED PRODUCT shall be
determined in accordance with paragraph (c) above, using as the GROSS SALES
PRICE of the combination that price which would be then payable in an arm's
length transaction.
D-3
<PAGE>
(e) Transfer of a LICENSED PRODUCT within COMPANY or between COMPANY
and an AFFILIATE for sale by the transferee shall not be considered a sale,
commercial use or disposition for the purpose of the foregoing paragraphs; in
the case of such transfer the GROSS SALES PRICE shall be based on sale of the
LICENSED PRODUCT by the transferee.
1.8 The term "PATENT RIGHT" shall mean the U.S. Patents numbers
5,128,104, No. 4,857,735 and No. 4,451,149, or the equivalent of such patent,
including any division, continuation or any foreign patent application or
Letters Patent or the equivalent thereof issuing thereon or reissue,
reexamination or extension thereof. PATENT RIGHTS shall also include those
claims in any continuation-in-part of the aforementioned patent which claim an
invention described or claimed in-said patents.
1.9 The term "LICENSED PRODUCT" shall mean any article, device,
composition, method or service, the manufacture, use, or sale of which
(a) absent the licenses granted herein, would infringe a VALID
CLAIM of any PATENT RIGHT, or
(b) does not infringe a VALID CLAIM of any PATENT RIGHT licensed
to COMPANY hereunder but the discovery, development, -
manufacture or use of which employs TECHNOLOGICAL
INFORMATION.
1.10 The term "TECHNOLOGICAL INFORMATION" shall mean any research
data, designs, formulas, process information, manufacturing information current
vendor lists, clinical data and other information pertaining to any invention or
other intellectual property claimed or utilized in the design, manufacture, use,
or operation of the LICENSED PRODUCT on the EFFECTIVE DATE.
1.11 The term "VALID CLAIM" shall mean any claim of any PATENT RIGHT
that has not been (i) finally rejected or (ii) declared invalid by a patent
office or court of competent jurisdiction in the applicable country in any
unappealed and unappealable decision.
2. LICENSE
----------
2.1 PAC hereby grants COMPANY:
(a) an exclusive, worldwide, perpetual, royalty-bearing license
in the HUMAN LICENSE FIELD under PAC's rights in PATENT
RIGHTS to make, have made, make, have made modifications,
upgrades, and derivatives, use and sell and have sold
LICENSED PRODUCTS;
D-4
<PAGE>
(b) to the extent an exclusive license is not available to
COMPANY in a country, a non-exclusive, royalty-bearing
license in the HUMAN LICENSE FIELD under PATENT RIGHTS to
make, have made, use and sell LICENSED PRODUCTS;
(c) the right to sublicense PATENT RIGHTS exclusively and/or co-
exclusively licensed to COMPANY in the HUMAN LICENSE FIELD
and/or the CO-EXCLUSIVE LICENSE FIELD(but not to
persons who conduct, or whose Affiliates conduct, any animal
or veterinary clinical or diagnostic business without the
express written consent of PAC); and
(d) a co-exclusive, worldwide, perpetual, royalty-bearing
license in the CO-EXCLUSIVE LICENSE FIELD under PAC's rights
in PATENT RIGHTS to make, have made, make, have made
modifications, upgrades, and derivatives, use and sell and
have sold LICENSED PRODUCTS.
The above licenses to sell LICENSED PRODUCTS include the right to
grant to the purchaser of LICENSED PRODUCTs from COMPANY, its AFFILIATES, and
SUBLICENSEES the right to use such purchased LICENSED PRODUCTS in a method
coming within the scope of PATENT RIGHT.
2.2 The granting of any license hereunder is subject to PAC's right
to make and to use and sell the subject matter described and claimed in PATENT
RIGHT for all purposes and applications in the animal or veterinary markets or
applications fields, which shall be broadly defined, and in the CO-EXCLUSIVE
LICENSE FIELD.
2.3 Within three (3) months of EFFECTIVE DATE, upon request by
COMPANY, PAC shall disclose to COMPANY, in confidence, TECHNOLOGICAL INFORMATION
which COMPANY will be entitled to use to the extent such use does not infringe
any patent not licensed to COMPANY hereunder.
2.4 PAC shall have the right to license any PATENT RIGHT to any other
party for the purpose of manufacturing, using or selling of any LICENSED PRODUCT
outside of the LICENSE FIELDS.
2.5 It is understood that nothing herein shall be construed to grant
COMPANY a license express or implied under any patent owned solely or jointly by
PAC other than the PATENT RIGHTS expressly licensed hereunder.
3. FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHT
-------------------------------------------------------
D-5
<PAGE>
3.1 PAC shall be responsible for the preparation, filing, prosecution
and maintenance of all patent applications and patents included in PATENT
RIGHTS. COMPANY shall reimburse PAC for all reasonable costs ("Costs") incurred
by PAC for the preparation, filing, prosecution and maintenance of all PATENT
RIGHTS with specific applicability and/or relevance to the human clinical and
diagnostic markets as follows:
Subject to paragraph 3.2, for all Costs incurred by PAC from and after the
EFFECTIVE DATE, COMPANY shall reimburse PAC upon receipt of invoices from
PAC;
3.2 With respect to any PATENT RIGHT, each document or a draft
thereof pertaining to the filing, prosecution, or maintenance of such PATENT
RIGHT, including but not limited to each patent application, office action,
response to office action, request for terminal disclaimer, and request for
reissue or reexamination of any patent issuing from such application shall be
provided to COMPANY as follows. Documents received from any patent office or
counsel's analysis thereof shall be provided promptly after receipt. For a
document to be filed in any patent office, a draft of such document shall be
provided sufficiently prior to its filing, to allow for review and comment by
the other party. If as a result of the review of any such document, COMPANY
shall elect not to pay or continue to pay the Costs for such PATENT RIGHT,
COMPANY shall so notify PAC within thirty (30) days of COMPANY's receipt of such
document and COMPANY shall thereafter be relieved of the obligation to pay any
additional Costs regarding such PATENT RIGHT incurred after the receipt of such
notice by PAC. Such U.S. or foreign patent application or patent shall
thereupon cease to be a PATENT RIGHT hereunder and PAC shall be free to license
its rights to that particular U.S. patent application or patent to any other
party on any terms.
4. ROYALTIES
------------
4.1 Beginning with the FIRST COMMERCIAL SALE in any country, on all
sales of LICENSED PRODUCTS anywhere in the world by COMPANY, its AFFILIATES or
SUBLICENSEES, COMPANY shall pay PAC royalties in accordance with the following
schedule, such undertaking and schedule having been agreed to for the purpose of
reflecting and advancing the mutual convenience of the parties. For each
LICENSED PRODUCT sold by COMPANY or its AFFILIATES and SUBLICENSEES:
Two percent (2%) of the NET SALES PRICE.
4.2 Only one royalty under paragraph 4.1 shall be due and payable to
PAC by COMPANY for any LICENSED PRODUCT regardless of the number of PATENT
RIGHTS covering such LICENSED PRODUCT.
4.3 In addition to the royalties provided for above, COMPANY shall
pay PAC two percent (2%) of any and all non-royalty income, including without
limitation license fees and milestone payments, received from its AFFILIATES and
sublicensees in consideration for the sublicensing of any right or license
granted to COMPANY hereunder.
D-6
<PAGE>
4.4 The payments due under this Agreement shall, if overdue, bear
interest until payment at a per annum rate equal to one percent (1%) above the
Wall Street Journal prime rate in effect on the due date, not to exceed the
- -------------------
maximum permitted by law. The payment of such interest shall not preclude PAC
from exercising any other rights it may have as a consequence of the lateness of
any payment.
5. REPORTS AND PAYMENTS
-----------------------
5.1 COMPANY shall keep, and shall cause each of its AFFILIATES and
SUBLICENSEES, if any, to keep full and accurate books of accounts containing all
particulars that may be necessary for the purpose of calculating all royalties
payable to PAC. Such books of account shall be kept at their principal place of
business and, with all necessary supporting data shall, during all reasonable
times for the three (3) years next following the end of the calendar year to
which each shall pertain be open for inspection at reasonable times by PAC or
its designee at PAC's expense for the purpose of verifying royalty statements or
compliance with this Agreement.
5.2 In each year the amount of royalty due shall be calculated
annually as of the end of each ACCOUNTING PERIOD and shall be paid annually
within the ninety (90) days next following such date, every such payment to be
supported by the accounting prescribed in paragraph 5.3 and to be made in United
States currency. Whenever conversion from any foreign currency shall be
required, such conversion shall be at the rate of exchange thereafter published
in the Wall Street Journal for the business day closest to the end of the
-------------------
applicable ACCOUNTING PERIOD.
5.3 With each annual payment, COMPANY shall deliver to PAC a full and
accurate accounting to include at least the following information:
(a) Quantity of each LICENSED PRODUCT sold or leased (by
country) by COMPANY, and its AFFILIATES and SUBLICENSEES;
(b) Total billings for each LICENSED PRODUCT (by country);
(c) Quantities of each LICENSED PRODUCT used by COMPANY and its
AFFILIATES and SUBLICENSEES;
(d) Names and addresses of all SUBLICENSEES of COMPANY; and
(e) Total royalties payable to PAC.
6. INFRINGEMENT
---------------
6.1 PAC will protect its PATENT RIGHTS from infringement and
prosecute infringers when, in its sole judgement, such action may be reasonably
necessary, proper and justified.
D-7
<PAGE>
6.2 If COMPANY shall have supplied PAC with written evidence
demonstrating to PAC's reasonable satisfaction prima facie infringement of a
claim of a PATENT RIGHT by a third party in the LICENSE FIELDs, COMPANY may by
notice request PAC to take steps to protect the PATENT RIGHT. PAC shall notify
COMPANY within three (3) months of the receipt of such notice whether PAC
intends to prosecute the alleged infringement. If PAC notifies COMPANY that it
intends to so prosecute, PAC shall, within three (three) months of its notice to
COMPANY either (i) cause infringement to terminate or (ii) initiate legal
proceedings against the infringer. In the event PAC notifies COMPANY that PAC
does not intend to prosecute said infringement COMPANY may, upon notice to PAC,
initiate legal proceedings against the infringer at COMPANY's expense and in
PAC's name if so required by law. No settlement, consent judgment or other
voluntary final disposition of the suit which invalidates or restricts the
claims of such PATENT RIGHTS may be entered into without the consent of PAC,
which consent shall not be unreasonable withheld. COMPANY shall indemnify PAC
against any order for payment that may be made against PAC in such proceedings.
6.3 In the event one party shall initiate or carry on legal
proceedings to enforce any PATENT RIGHT against any alleged infringer in the
LICENSE FIELDs, the other party shall fully cooperate with and supply all
assistance reasonably requested by the party initiating or carrying on such
proceedings. The party which institutes any suit to protect or enforce a PATENT
RIGHT shall have sole control of that suit and shall bear the reasonable
expenses (excluding legal fees) incurred by said other party in providing such
assistance and cooperation as is requested pursuant to this paragraph. The
party initiating or carrying on such legal proceedings shall keep the other
party informed of the progress of such proceedings and said other party shall be
entitled to counsel in such proceedings but at its own expense. Any award paid
by third parties as the result of such proceedings (whether by way of settlement
or otherwise) shall first be applied to reimbursement of the unreimbursed legal
fees and expenses incurred by either party and then the remainder shall be
divided between the parties as follows:
(a) (i) If the amount is based on lost profits, COMPANY shall
receive an amount equal to the damages the court determines
COMPANY has suffered as a result of the infringement less
the amount of any royalties that would have been due PAC on
sales of LICENSED PRODUCT lost by COMPANY as a result of the
infringement had COMPANY made such sales; and
(ii) PAC shall receive an amount equal to the royalties it would
have received if such sales had been made by COMPANY; or
(b) As to awards other than those based on lost profits, sixty (60)
percent to the party initiating such proceedings and forty (40)
percent to the other party.
6.4 For the purpose of the proceedings referred to in this Article 6,
PAC and COMPANY shall permit the use of their names and shall execute such
documents and carry out such
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other acts as may be necessary. The party initiating or carrying on such
legal proceedings shall keep the other party informed of the progress of such
proceedings and said other party shall be entitled to counsel in such
proceedings but at its own expense, said expenses to be off-set against any
damages received by the party bringing suit in accordance with the foregoing
paragraph 6.3.
7. INDEMNIFICATION
------------------
7.1 (a) COMPANY shall indemnify, defend and hold harmless PAC and
its directors, shareholders, officers, medical and professional staff,
employees, and agents and their respective successors, heirs and assigns (the
"Indemnitees"), against any liability, damage, loss or expense (including
reasonable attorney's fees and expenses of litigation) incurred by or imposed
upon the Indemnitees or any one of them in connection with any claims, suits,
actions, demands or judgments arising out of any theory of LICENSED PRODUCT
liability (including, but not limited to, actions in the form of tort,
warranty, or strict liability) concerning any LICENSED PRODUCT, process or
service made, used or sold pursuant to any right or license granted under this
Agreement.
(b) COMPANY's indemnification under (a) above shall not apply to
any liability, damage, loss or expense to the extent that it is directly
attributable to the negligent activities, reckless misconduct or intentional
misconduct of the Indemnitees.
(c) COMPANY agrees, at its own expense to provide attorneys
reasonably acceptable to PAC to defend against any actions brought or filed
against any party indemnified hereunder with respect to the subject of indemnity
contained herein, whether or not such actions are rightfully brought.
(d) This paragraph 7.1 shall survive expiration or termination of
this Agreement.
7.2 (a) At such time as any LICENSED PRODUCT, process or service
relating to, or developed pursuant to, this Agreement is being commercially
distributed or sold (other than for the purpose of obtaining regulatory
approvals) by COMPANY or by a licensee, affiliate or agent of COMPANY, COMPANY
shall, at its sole cost and expense, procure and maintain comprehensive general
liability insurance in amounts not less than $2,000,000 per incident and
$2,000,000 annual aggregate and naming the Indemnitees as additional insureds.
Such COMPANY liability insurance shall provide (i) LICENSED PRODUCT liability
coverage and (ii) broad form contractual liability coverage for COMPANY's
indemnification under paragraph 8.1 of this Agreement. If COMPANY elects to
self-insure all or part of the limits described above (including deductibles or
retentions which are in excess of $250,000 annual aggregate) such self-insurance
program must be acceptable to PAC. The minimum amounts of insurance coverage
required under this paragraph 7.2 shall not be construed to create a limit of
COMPANY's liability with respect to its indemnification under paragraph 7.1 of
this Agreement.
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<PAGE>
(b) COMPANY shall provide PAC with written evidence of such
insurance upon request of PAC. COMPANY shall provide PAC with written notice at
least fifteen (15) days prior to the cancellation, non-renewal or material
change in such insurance; if COMPANY does not obtain replacement insurance
providing comparable coverage prior to the expiration of such fifteen (15) day
period, PAC shall have the right to terminate this Agreement effective at the
end of such fifteen (15) day period without notice or any additional waiting
periods.
(c) This paragraph 7.2 shall survive expiration or termination of
this Agreement.
7.3 OTHER THAN WARRANTIES SET FORTH HEREIN, PAC MAKES NOT WARRANTY,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH
PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO COMPANY OR TO
ANY THIRD PARTY HEREUNDER OR OTHERWISE AND HEREBY DISCLAIMS THE SAME.
8. PRODUCT PURCHASE RIGHTS
--------------------------
8.1 COMPANY may from time to time request PAC to manufacture and sell
to COMPANY, on terms mutually acceptable to the Parties, LICENSED PRODUCTS,
including parts, subsystems, consumables, and components thereof. Upon any such
request, the Parties shall negotiate to determine whether they can agree on
terms for such manufacture and sale. Absent such agreement, PAC shall have no
obligation to manufacture and sell LICENSED PRODUCTS to COMPANY.
9. TERMINATION
--------------
9.1 If either party shall fail to faithfully perform any of its
obligations under this Agreement, the nondefaulting party may give written
notice of the default to the defaulting party. Unless such default is corrected
within ninety (90) days after such notice, the notifying party may terminate
this Agreement and the license hereunder upon thirty (30) days prior written
notice, provided that only one such ninety (90) day grace period shall be
available in any twelve (12) month period with respect to a default of any
particular provision hereunder. Thereafter notice of default of said provision
shall constitute termination.
9.2 In the event that any license granted to COMPANY under this
Agreement is terminated, any sublicense under such license granted prior to
notice of default under Section 9.1 shall remain in full force and effect,
provided that:
(i) the SUBLICENSEE is not then in breach of its sublicense agreement;
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<PAGE>
(ii) the SUBLICENSEE agrees to be bound to PAC as the licensor under
the terms and conditions of this sublicense agreement, as modified by the
provisions of this paragraph 9.2;
(iii) PAC shall have the right to receive the greater of (a) any
payments payable to COMPANY under such sublicense agreement to the extent they
are reasonably and equitably attributable to such SUBLICENSEE's right under such
sublicense to use and exploit PATENT RIGHTS and/or TECHNOLOGICAL INFORMATION or
(b) the lowest royalty which is within the "Competitive" range as hereinafter
defined, at the time PAC's license to COMPANY is terminated. A royalty rate
shall be regarded as "Competitive" if it is within the range of royalty rates
that PAC would charge in an arms length transaction with a licensee taking into
account the value of the licensed technology at the time PAC's license to
COMPANY is terminated;
(iv) PAC has the right to terminate such sublicense upon fifteen (15)
days prior written notice to COMPANY and such SUBLICENSEE in the event of any
material breach of the obligation to make the payments described in clause (iii)
of this paragraph 9.2, unless such breach is cured prior to the expiration of
such fifteen (15) day period;
(v) PAC shall not assume, and shall not be responsible to such
SUBLICENSEE for, any representations, warranties or obligations of COMPANY to
such SUBLICENSEE, other than to permit such SUBLICENSEE to exercise any rights
to PATENT RIGHTS and TECHNOLOGICAL INFORMATION that are granted under such
sublicense agreement consistent with the terms of this AGREEMENT.
9.3 Upon termination of any license granted hereunder COMPANY shall
pay PAC all royalties due or accrued on (i) the sale of LICENSED PRODUCT up to
and including the date of termination and (ii) for six (6) months following the
date of termination, the sale of LICENSED PRODUCT manufactured prior to the
termination date. After such six (6) months, COMPANY may no longer sell any
LICENSED PRODUCTs.
10. MISCELLANEOUS
-----------------
10.1 This Agreement constitutes the entire understanding between the
parties with respect to the subject matter hereof.
10.2 In order to facilitate implementation of this Agreement, PAC and
COMPANY are designating the following individuals to act on their behalf with
respect to this Agreement for the matter indicated below:
(a) with respect to all royalty payments, any correspondence
pertaining to any PATENT RIGHT, or any notice of the use of
PAC's name, for PAC, the President and Chief Executive
Officer, and for COMPANY the President and Chief Executive
Officer, provided that correspondence relating to the
billing of patent costs shall be copied
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<PAGE>
to, for PAC, the Chief Financial Officer, and for
COMPANY, the President and Chief Executive Officer.
(b) any amendment of or waiver under this Agreement, any written
notice including progress reports or other communication
pertaining to the Agreement: for PAC, the President and
Chief Executive Officer, and for COMPANY the President and
Chief Executive Officer,
(c) the above designations may be superseded from time to time
by alternative designations made by: for PAC, the President,
and for COMPANY, the President.
10.3 This Agreement may be amended and any of its terms or conditions
may be waived only by a written instrument executed by the parties or, in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in no
manner affect its rights at a later time to enforce the same. No waiver by
either party of any condition shall be deemed as a further or continuing waiver
of such condition or term or of any other condition or term.
10.4 This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns.
10.5 Any delays in or failures of performance by either party under
this Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to: Acts of God; acts, regulations or laws
of any government; strikes or their concerted acts of worker; fires; floods;
explosions; riots; wars; rebellion; and sabotage. Any time for performance
hereunder shall be extended by the actual time of delay caused by such
occurrence.
10.6 Neither party shall use the name of the other party or of any
officer, employee, director, agent, or contractor of the other party or any
adaptation thereof in any advertising, promotional or sales literature,
publicity or in any document employed to obtain funds or financing without the
prior written approval of the party or individual whose name is to be used,
except as required under the Securities Exchange Act reporting requirements or
the Securities Act registration requirements. For PAC, such approval shall be
obtained from the President.
10.7 This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the State of New York.
10.8 COMPANY may at its own discretion and without approval by PAC
transfer its interest or any part thereof under this Agreement to a wholly-owned
subsidiary or any assignee or purchaser or licensee of the portion of its
business associated with the manufacture and sale of LICENSED PRODUCT. In the
event of any such transfer, the transferee shall assume and be bound
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<PAGE>
by the provisions of this Agreement, and the transferor shall remain bound.
Otherwise this Agreement shall be assignable by COMPANY only with the consent in
writing of PAC which shall not unreasonably be withheld.
10.9 For any and all claims, disputes, or controversies arising under,
out of, or in connection with this Agreement, except issues relating to the
validity, construction or effect of any PATENT RIGHT, which the parties shall be
unable to resolve within sixty (60) days, the party raising such dispute shall
promptly advise the other party of such claim, dispute, or controversy in a
writing which describes in reasonable detail the nature of such dispute. By not
later than five (5) business days after the recipient has received such notice
of dispute, each party shall have selected for itself a representative who shall
have the authority to bind such party and shall additionally have advised the
other party in writing of the name and title of such representative. By not
later than ten (10) business days after the date of such notice of dispute, such
representatives shall agree upon a third party which is in the business of
providing Alternative Dispute Resolution (ADR) services (hereinafter, "ADR
Provider") and shall schedule a date with such ADR Provider to engage in ADR.
Thereafter, the representatives of the parties shall engage in good faith in an
ADR process under the auspices of the selected ADR Provider. If within the
aforesaid thirty (30) business days after the date of the notice of dispute the
representatives of the parties have not been able to agree upon an ADR Provider
and schedule a date to engage in ADR, or if they have not been able to resolve
the dispute within thirty (30) business days after the termination of ADR, the
parties shall have the right to pursue any other remedies legally available to
resolve such dispute in either the Superior Court of San Diego County,
California or in the United States District Court for the Southern District of
California, to whose exclusive jurisdiction for such purposes PAC and COMPANY
hereby irrevocably consent and submit. Notwithstanding the foregoing, nothing
in this Paragraph 10.9 shall be construed to waive any rights or timely
performance of any obligations existing under this Agreement.
10.10 If any provision(s) of this Agreement are or become invalid,
are ruled illegal by any court of competent jurisdiction or are deemed
unenforceable under then current applicable law from time to time in effect
during the term hereof, it is the intention of the parties that the remainder of
this agreement shall not be effected thereby. It is further the intention of
the parties that in lieu of each such provision which is invalid, illegal or
unenforceable, there be substituted or added as part of this Agreement a
provision which shall be as similar as possible in economic and business
objectives as intended by the parties to such invalid, illegal or enforceable
provision, but shall be valid, legal and enforceable.
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<PAGE>
THE PARTIES have duly executed this Agreement as of the date first
shown above written.
Microlab Systems, Inc. Prisma Acquisition Corp.
BY BY
----------------------------- ------------------------------
TITLE TITLE
-------------------------- ---------------------------
DATE DATE
--------------------------- ----------------------------
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<PAGE>
EXHIBIT E
FORM OF NON-COMPETITION AGREEMENT
COVENANT NOT TO COMPETE
-----------------------
This Covenant Not to Compete ("Covenant") is entered into as of
February 27, 1998 by and among Synbiotics Corporation, a California corporation
("Buyer"), Prisma Acquisition Corp., a Delaware corporation (the "Company"), and
___________________ ("Employee"), with reference to the following facts:
A. Pursuant to the terms of a certain Agreement and Plan of
Reorganization dated February 27, 1998 (the "Agreement"), among Buyer, the
Company, and others, Buyer is acquiring the Company by merger.
B. Buyer currently intends to maintain and operate the business of the
Company.
C. The execution of this Covenant by Employee is a material inducement
for Buyer's consummation of the Agreement.
D. The parties hereto desire to provide for the protection of the
goodwill and other proprietary rights of the Company being acquired by Buyer
pursuant to the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained in this Covenant and in order to protect the
goodwill of the Company to be acquired by Buyer pursuant to the Agreement, the
parties hereto agree as follows:
1. Competition. Employee hereby agrees that he will not, at any time
-----------
for a period of two (2) years from the date hereof, directly or indirectly,
whether or not for compensation, engage in any activity, or have any interest
in, any person, firm, corporation or business (whether as a shareholder,
partner, proprietor, director, officer, employee, agent, security holder,
trustee, consultant, creditor providing credit or money for the purpose of
establishing or operating any such business, or otherwise) which is the same as,
or similar to, or competitive with, the veterinary diagnostic instrument and
QVET business of the Company anywhere in the United States of America (including
its territories and possessions) and the industrialized world; provided,
however, that Employee may own securities of companies whose securities are
publicly traded, so long as such securities do not constitute more than 1% of
the outstanding securities of any such company. Employee further agrees that as
long as this Covenant remains in effect, he will not divert or attempt to
divert, directly or indirectly, any business of Buyer or the Company or any
customers or suppliers of such business to any other person, entity or
competitor; or induce or attempt to induce, directly or indirectly, any person
to leave his or her employment with the Company or Buyer.
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<PAGE>
2. Confidential Information. Employee acknowledges that Employee has
------------------------
knowledge of information of substantial value to Buyer and the Company regarding
the Company's business which is not generally known and which gives Buyer and
the Company an advantage over competitors who do not know or use it, including
but not limited to know-how, trade secrets, techniques, designs, processes,
sales and customer information, and business and financial information, relating
to the business, products, practices and techniques of the Company being
acquired by Buyer and plans for future products or developments (hereinafter
collectively referred to as "Confidential Information"). Employee agrees at all
times to regard and preserve as confidential such Confidential Information, and
to refrain from publishing or disclosing any part of it and from using, copying
or duplicating it in any way or by any means whatsoever, and Employee further
agrees that such Confidential Information will not be disclosed by him to any
person or entity without the prior written consent of Buyer; provided, however,
that Employee may disclose any Confidential Information which he is required by
law to disclose, that Employee may disclose, publish, copy, duplicate or use any
Confidential Information which has entered the public domain through no fault of
Employee, and that Employee may disclose, publish, copy, duplicate or use any
Confidential Information for any purpose expressly contemplated by the
Agreement. Finally, Employee agrees, at all times, to refrain from any other
act or omission that would reduce or impair the value of such Confidential
Information to Buyer and the Company.
3. Remedies. Employee acknowledges that Employee's compliance with the
--------
covenants contained in paragraphs 1 and 2 hereof is necessary to protect the
goodwill and other proprietary interests being acquired by Buyer pursuant to the
Agreement. Employee further acknowledge that a breach of the covenants in
paragraph 1 or 2 hereof will result in irreparable and continuing damage to
Buyer and the Company for which there will be no adequate remedy at law; and
agrees that in the event of any breach of the aforesaid covenants, Buyer and the
Company and their successors and assigns shall be entitled to temporary,
preliminary and permanent injunctive relief (without needing to post any bond or
other security) in addition to such other and further relief as may be proper.
4. Severability. In the event any portion of this Covenant shall for any
------------
reason be held to be illegal or unenforceable to any extent, such portion shall
be deemed to read in such a way as to render it legal or enforceable to the
maximum extent possible in every respect, so as to effectuate the parties'
expressed intent to the maximum extent possible, and the remaining portions of
this Covenant shall remain in full force and effect and shall not be affected
thereby.
5. Choice of Law. This Covenant shall be governed by and construed in
-------------
accordance with the internal laws of the State of New York.
6. Modification; Waiver. This Covenant may not be changed, modified,
--------------------
released, discharged, waived or otherwise amended, in whole or in part, except
by an instrument in writing signed by all parties herein. No covenant, term or
condition or the breach thereof shall be deemed waived, unless it is waived in
writing and signed by the party against whom
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<PAGE>
the waiver is claimed. Any waiver of breach of any covenant, term or condition
shall not be deemed to be a waiver of any preceding or succeeding breach of the
same or any other covenant, term or condition. The failure of any party to
insist upon strict performance of any covenant, term or condition hereunder
shall not constitute a waiver of such party's right to demand strict compliance
therewith in the future.
7. Successors and Assigns. This Covenant shall be for the benefit of
----------------------
Buyer and the Company and their successors and assigns.
8. Attorneys' Fees. In the event any action is brought by any party to
---------------
this Covenant to enforce or interpret its terms or provisions, the prevailing
party shall be entitled to reasonable attorneys' fees and costs, in addition to
any remedy to which such party may be entitled.
9. Employment Status. This Covenant is not an employment agreement. It
-----------------
gives Employee no right to be employed by Buyer or to receive compensation in
lieu of employment. If Employee ever becomes employed by Buyer, such employment
shall (unless there is an express written agreement, signed by Buyer and
Employee, to the contrary) be "at will," meaning such employment can be
terminated without liability by either party at any time, and for any reason or
no reason.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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10. Entire Agreement. This Covenant, together with the Agreement and the
----------------
related agreements referred to therein, represents the entire agreement of the
parties relating to the subject matter hereof. All prior or contemporaneous
agreements, understandings, representations and statements, oral or written, are
merged herein and therein.
Employee: Buyer:
SYNBIOTICS CORPORATION, a
- ---------------------------- California corporation
By:
------------------------------
Title:
----------------------------
The Company:
PRISMA ACQUISITION CORP., a
Delaware corporation
By:
------------------------
Title:
---------------------
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EXHIBIT 2.2
-----------
AGREEMENT OF MERGER
This Agreement of Merger is dated as of March 6, 1998, by and between
Prisma Acquisition Corp., a Delaware corporation (the "Company"), and Synbiotics
Corporation, a California corporation (the "Acquiror").
R E C I T A L S
A. The Company and Acquiror have entered into an Agreement and Plan of
Reorganization, dated February 27, 1998 (the "Merger Agreement"), which
contemplates the merger of the Company with and into the Acquiror (the "Merger")
in accordance with this Agreement of Merger.
B. The respective Boards of Directors of the Company and the Acquiror deem
it advisable and in the best interest of each such corporation and their
respective shareholders that the Company be merged with and into the Acquiror as
provided herein and in the Merger Agreement, and they have accordingly adopted
resolutions approving the Merger Agreement and this Agreement of Merger.
C. The stockholders of the Company have approved this Agreement of Merger
and the principal terms of the Merger in accordance with the laws of Delaware.
D. The approval of the Merger by the shareholders of the Acquiror is not
required under Section 1201 of the California Corporations Code.
Capitalized terms not otherwise defined herein shall have the meanings
given them in the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
At the Effective Time (as defined in Article II) and subject to the
applicable provisions of the California Corporations Code ("California Law") and
the Delaware General Corporate Law ("Delaware Law"), the Company shall be merged
with and into the Acquiror, the separate corporate existence of Company shall
cease and the Acquiror shall continue as the surviving corporation. Acquiror as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
<PAGE>
ARTICLE II
EFFECTIVE TIME
As used in this Agreement of Merger, the term "Effective Time" shall mean
the time the Secretary of State of the State of California files this Agreement
of Merger and the officers' certificates required by California Law.
ARTICLE III
ARTICLES OF INCORPORATION AND BYLAWS
At the Effective Time, the Articles of Incorporation of Acquiror, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Articles of Incorporation. The Bylaws of Acquiror, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
ARTICLE IV
MANNER AND BASIS OF EXCHANGING SHARES
By virtue of the Merger and without any action on the part of Acquiror,
Company or Company Stockholders:
A. Conversion of Company Common Stock.
----------------------------------
1. At the Effective Time, the holders of shares of Company
Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares to be cancelled pursuant to Section C below)
shall be entitled to receive in the aggregate such number of shares of
Acquiror Common Stock (the "Merger Shares") as is equal to (i) the
Merger Consideration (as defined in Section E below) less (ii) all
Assumed Option Shares (as defined below).
2. At the closing of the Merger (the "Closing"), the holders of
shares of Company Common Stock outstanding at the Effective Time shall
be entitled to receive in the aggregate such number of shares of
Acquiror Common Stock (the "Initial Shares") as is equal to ninety
percent (90%) the Merger Shares. Ten percent (10%) of the Merger
Shares shall at the Closing be deposited with the Escrow Agent and
shall be held and disposed of in accordance with the terms of the
Merger Agreement and the Escrow Agreement.
3. For purposes of determining the pro rata allocation of the
Initial Shares among the holders of Company Common Stock outstanding
at the Effective Time, the numerator shall be the number of shares of
Company Common Stock held by such holder at the Effective Time and the
denominator shall be the aggregate number of shares of Company Common
Stock issued and outstanding at the Effective Time less the shares to
be cancelled pursuant to Section C below.
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<PAGE>
4. No fraction of a share of Acquiror Common Stock will be
issued under this Section A of Article IV, but in lieu thereof each
holder of shares of Company Common Stock who would otherwise be
entitled to a fraction of a share of Acquiror Common Stock (after
aggregating all fractional shares of Acquiror Common Stock to be
received by such holder) shall receive from Acquiror an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the mean average closing sales price of a
share of Acquiror Common Stock for the thirty (30) most recent trading
days that Acquiror Common Stock has traded ending on the trading day
immediately prior to the Effective Time, as reported on the Nasdaq
National Market (the "Closing Price").
B. Conversion of Company Options. At the Effective Time, all options to
-----------------------------
purchase Company Common Stock then outstanding ("Company Options") shall be
assumed by Acquiror in accordance with this Section B of Article IV. At the
Effective Time, all Company Options granted and outstanding immediately prior to
the Effective Time shall be converted and exchanged for options to purchase such
number of shares of Acquiror Common Stock (the "Assumed Options") as is equal to
(a) the number of shares of Company Common Stock for which the unexercised
portion of all such Company Options would be exercisable multiplied by (b) the
Merger Consideration per share of Company Common Stock calculated on a Fully
Diluted Basis as of the Effective Time (with any fraction resulting from such
multiplication to be rounded down to the nearest whole number) (the "Assumed
Option Shares"). The exercise price per share of each such Assumed Option Share
shall be equal to (c) the exercise price of such Assumed Option immediately
prior to the Effective Time divided by (d) the Merger Consideration per share of
Company Common Stock calculated on a Fully Diluted Basis as of the Effective
Time (with any fraction resulting from such multiplication to be rounded down to
the nearest whole number). The term "Fully Diluted Basis" as used in this
Agreement shall mean (e) the number of shares of Company Common Stock issued and
outstanding as of the Effective Time (after giving effect to the provisions of
Section C below) plus (f) the number of shares of Company Common Stock issuable
pursuant to Company Options.
For purposes of determining the pro rata allocation of the Assumed
Option Shares among the holders of Company Options outstanding at the Effective
Time, the numerator for each such option holder shall be the number of shares of
Company Common Stock for which the unexercised portion of the Company Options
owned by said holder were exercisable immediately prior to the Effective Time
and the denominator shall be the aggregate number of shares of Company Common
Stock for which all Company Options issued and outstanding immediately prior to
the Effective Time were exercisable.
C. Cancellation of Company Common Stock Owned by Acquiror or Company. At
-----------------------------------------------------------------
the Effective Time, all shares of Company Common Stock that are owned by Company
as treasury stock, and each share of Company Common Stock owned by Acquiror or
any direct or indirect wholly owned subsidiary of Acquiror or of Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
D. Adjustments to Merger Consideration. The Merger Consideration shall
-----------------------------------
be adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of
3
<PAGE>
securities convertible into Acquiror Common Stock or Company Common Stock),
reorganization, recapitalization or other like change with respect to Acquiror
Common Stock or Company Common Stock occurring after the date hereof and prior
to the Effective Time.
E. Definition of "Merger Consideration". The maximum number of shares of
------------------------------------
Acquiror Common Stock to be issued (including Acquiror Common Stock to be
reserved for issuance upon exercise of Assumed Options) shall be equal to that
number of shares of Acquiror Common Stock obtained by dividing $2,000,000 by the
mean average of the closing sales price for a share of Acquiror Common Stock as
quoted on the Nasdaq National Market for the thirty (30) trading days
immediately preceding and ending on the trading day that is one (1) calendar day
prior to the Closing Date (the "Merger Consideration"). No other adjustment
shall be made in the number of shares of Acquiror Common Stock issued in the
Merger as a result of (x) any increase or decrease in the market price of
Acquiror Common Stock prior to the Effective Time not otherwise required by the
immediately preceding sentence, or (y) any cash proceeds received by Company
from the date hereof to the Effective Time pursuant to the exercise of Company
Options, or (z) any expiration or termination after the Effective Time of any
Assumed Options.
F. Surrender of Certificates.
-------------------------
1. Exchange Agent. ChaseMellon Shareholder Services, LLC shall act
--------------
as exchange agent (the "Exchange Agent") in the Merger.
2. Acquiror to Provide Common Stock and Cash. Promptly after the
-----------------------------------------
Effective Time, Acquiror shall make available to the Exchange Agent for exchange
in accordance with this Section F of Article IV, through such reasonable
procedures as Acquiror may adopt, (i) the Merger Shares and (ii) cash in an
amount sufficient to permit payment of cash in lieu of fractional shares
pursuant to Section A(4) of Article IV.
3. Exchange Procedures. Promptly after the Effective Time, the
-------------------
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock, whose
shares were converted into the right to receive shares of Acquiror Common Stock
(and cash in lieu of fractional shares) pursuant to Section A of Article IV, (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon receipt of
the Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Acquiror may reasonably specify, and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Acquiror Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Acquiror, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing the number of whole
shares of Acquiror Common Stock less the number of shares of Acquiror Common
Stock to be deposited in the "Escrow Fund" on such holder's behalf and payment
in lieu of fractional shares which such holder has the right to receive pursuant
to Section A(4) of Article IV, and the Certificate so surrendered shall
forthwith be cancelled. Until so surrendered, each outstanding Certificate that,
prior to the Effective Time, represented shares of Company Common Stock will be
deemed from and after the Effective
4
<PAGE>
Time, for all corporate purposes, to evidence the ownership of the number of
full shares of Acquiror Common Stock into which such shares of Company Common
Stock shall have been so converted and the right to receive an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section A(4) of
Article IV. As soon as practicable after the Effective Time, Acquiror shall
cause to be distributed to the Escrow Agent a certificate or certificates
representing ten percent (10%) of the Merger Shares which shall be registered in
the name of the Escrow Agent as nominee for the holders of Certificates
cancelled pursuant to this Section F(3) of Article IV. Such shares shall be
beneficially owned by such holders and shall be held in escrow and shall be
available to compensate Acquiror for certain damages. To the extent not used for
such purpose, such shares shall be released.
4. Transfers of Ownership. If any certificate for shares of
----------------------
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
5. No Liability. Notwithstanding anything to the contrary in this
------------
Section F of Article IV, none of the Exchange Agent, the Surviving Corporation
or any party hereto shall be liable to any person for any amount properly paid
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
G. No Further Ownership Rights in Company Common Stock. All shares of
---------------------------------------------------
Acquiror Common Stock issued in the Merger in accordance with the terms hereof
(including any cash paid in lieu of fractional shares) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Article IV.
H. Lost, Stolen or Destroyed Certificates. In the event any Certificates
--------------------------------------
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereto, such cash and shares of Acquiror Common Stock, if any, as may be
required pursuant to Section B of Article IV; provided, however, that Acquiror
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificates to deliver a
bond in such sum as it may reasonably direct as indemnity against any claim that
may be made against Acquiror or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
ARTICLE V
ABANDONMENT OF MERGER
5
<PAGE>
This Agreement of Merger shall be terminated and abandoned without further
action by the parties hereto in the event that the Merger Agreement is
terminated in accordance with its terms, and in such event this Agreement of
Merger shall have no further force and there shall be no liability on the part
of the parties hereto to each other, except to the extent otherwise provided in
the Merger Agreement.
ARTICLE VI
AMENDMENT
Subject to applicable law, this Agreement of Merger may be amended or
modified or supplemented only by written agreement of the Company and the
Acquiror, duly authorized by each of their respective Boards of Directors, at
any time prior to the filing of the officers' certificates required by
California Law with respect to the Merger with the Secretary of State of the
State of California; provided, however, that no such amendment, modification or
supplement shall change the amount or the form of the consideration to be
furnished to the Company Stockholders in accordance with Article IV hereof.
[Remainder of This Page Intentionally Left Blank]
6
<PAGE>
IN WITNESS HEREOF, the parties hereto have executed this Agreement of Merger
as of the date first written above.
SYNBIOTICS CORPORATION
By: /s/ Michael K. Green
-------------------------------------------------
Michael K. Green, Vice President, Chief Financial
Officer, and Secretary
PRISMA ACQUISITION CORP.
By: /s/ Robert A. Behrens
-------------------------------------------------
Robert A. Behrens, President
By: /s/ Douglas R. Brian
-------------------------------------------------
Douglas R. Brian, Secretary
[SIGNATURE PAGE TO AGREEMENT OF MERGER]
<PAGE>
Exhibit 99.1
------------
NOTE
----
PURCHASE AGREEMENT
------------------
THIS NOTE PURCHASE AGREEMENT (the "Agreement") is made as of March 6, 1998,
by and between Synbiotics Corporation, a California corporation ("Synbiotics")
and BIOQUEST VENTURE LEASING PARTNERSHIP, L.P., a limited partnership organized
under the laws of the State of Delaware (the "Holder").
1. Purchase and Sale of Note.
-------------------------
1.1 Purchase and Sale of Note. Subject to the terms and
-------------------------
conditions of this Agreement, the Holder agrees to purchase at the Closing, and
Synbiotics agrees to sell and issue to the Holder at the Closing, a Note in the
form attached hereto as Exhibit A, in exchange for 482 shares of Common Stock
---------
(the "Note Shares") of Prisma Acquisition Corp., a Delaware corporation (the
"Company").
1.2 Purchase and Sale of Additional Shares. Subject to the
--------------------------------------
terms and conditions of this Agreement, the Holder agrees to sell at the
Closing, and Synbiotics agrees to purchase at the Closing, 0 shares of Common
Stock of the Company (the "Additional Shares") for a purchase price (the
"Purchase Price") in an amount equal to the excess of (i) $500,000 over (ii) the
amount by which the aggregate amount of all accounts payable of the Company on
the date hereof, including all outstanding loans to the Company by Synbiotics,
exceeds the total amount of all accounts receivable (net of appropriate
reserves) and cash of the Company on the date hereof. The Additional Shares
shall be transferred to Synbiotics at the Closing and shall not be returned even
if the Purchase Price, as adjusted in accordance with Section 1.3 below, differs
or is zero.
1.3 Closing. The purchase and sale of the Note in exchange
-------
for the Note Shares and the purchase and sale of the Additional Shares shall
take place forthwith at the offices of Brobeck, Phleger & Harrison LLP, 550 West
"C" Street, Suite 1300, San Diego, California or in such other manner and at
such other time as is mutually agreed upon by Synbiotics and the Holder (which
time and place are designated as the "Closing"). At the Closing, the Holder
shall deliver to Synbiotics (i) the certificate for the Note Shares against
Synbiotics' delivery of the Note, and (ii) the certificate for the Additional
Shares. At the Closing, the Holder shall deliver the Note Shares and the
Additional Shares free and clear of all security interests, charges, adverse
claims, liens, encumbrances and legends, duly endorsed in blank for transfer. At
the Closing, Synbiotics shall deliver to the Holder the estimated amount of the
Purchase Price (as determined by the Company or, if the Company declines to
determine, then as mutually estimated in good faith by Synbiotics and the
Holder) by the wire transfer of immediately available funds to a bank account
designated by the Holder. Within 60 days after the Closing, Synbiotics and the
Holder shall reconcile such estimate to the exact amount of the Purchase Price
and either Synbiotics shall pay the amount of any underpayment or the Holder
shall return the amount of any overpayment, as the case may be, to the other
party.
2. Representations and Warranties of the Holder. The Holder hereby
--------------------------------------------
represents and warrants to and for the benefit of Synbiotics, with knowledge
that Synbiotics is relying thereon in entering into this Agreement and issuing
the Note to the Holder, as follows:
2.1 Organization of the Company. The Company is a corporation
---------------------------
duly
<PAGE>
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own, operate and lease its
properties and to carry on its business as now being conducted. The Company is
duly qualified or licensed to conduct its business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have, or would reasonably be expected to have, a material adverse effect
on the business, assets (including intangible assets), financial condition,
results of operations, liabilities or prospects of the Company (hereinafter
referred to as a "Material Adverse Effect"). The Holder has delivered a true
and correct copy of the Company's Certificate of Incorporation and Bylaws, each
as amended to date, to Synbiotics.
2.2 Company Capital Structure.
-------------------------
a. The authorized capital stock of the Company consists
solely of 3,000 shares of Company Common Stock. As of the date hereof, there are
1,200 shares of Company Common Stock outstanding. The Company Common Stock is
held of record by the persons, with the addresses of record and in the amounts
set forth on Schedule 2.2(a). All outstanding shares of Company Common Stock are
duly authorized, validly issued, fully paid and non-assessable and not subject
to preemptive rights created by statute, the Certificate of Incorporation or
Bylaws of the Company or any agreement to which the Company is a party or by
which it is bound.
b. The Company has reserved 246 shares of Common Stock for
issuance upon the exercise of 246 options that are issued and outstanding.
Schedule 2.2(b) sets forth for each outstanding Company option, the name of the
holder of such option, the domicile address of such holder, the number of shares
of Common Stock subject to such option, the exercise price of such option and
the vesting schedule for such option, including the extent vested to date and
whether the exercisability of such option will be accelerated and become
exercisable by reason of an acquisition of the Company. Except for the Company
options described in Schedule 2.2(b), there are no options, warrants, calls,
rights, commitments or agreements of any character, written or oral, to which
the Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement.
2.3 Subsidiaries. The Company has no subsidiaries, partners or
------------
joint venturers.
2.4 Authority. The Holder has all requisite corporate power and
---------
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Holder. This Agreement
has been duly executed and delivered by the Holder and constitutes a valid and
binding obligation of the Holder, enforceable in accordance with its terms,
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, and (b) as limited by laws relating to availability
of specific performance, injunctive relief or other equitable remedies. Except
as set forth on Schedule 2.4, the execution and delivery and performance of this
Agreement by the Holder does not conflict with, or result in any violation of,
or default under (with or without notice or lapse of time, or both), or give
rise to a right of termination, cancellation or acceleration of any obligation
-2-
<PAGE>
or loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Certificate of Incorporation or Bylaws of the Holder or the Company or (ii)
any mortgage, indenture, lease, license, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Holder or the
Company or its properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, county, local or
foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party (so as not to trigger any Conflict)
is required by or with respect to the Holder or the Company in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
2.5 Company Financial Statements.
----------------------------
a. Schedule 2.5 sets forth (i) the Company's audited balance
sheet as of November 30, 1997 (the "Balance Sheet"), and the related audited
statements of operations and cash flows for the period from inception to such
date, and (ii) the Company's unaudited balance sheet as of December 31, 1997 and
the related unaudited statements of operations and cash flows for the one-month
period then ended (collectively, the "Company Financials"). The Balance Sheet
and related audited statements of operation and cash flows for the period from
inception to November 30, 1997 are correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a basis consistent throughout the periods indicated and
consistent with each other. The Company Financials present fairly the assets,
liabilities, and operating results of the Company as of the dates and during the
periods indicated therein, subject to normal year-end adjustments, which
adjustments will not be material in amount or significance.
2.6 No Undisclosed Liabilities. Except as set forth in
--------------------------
Schedule 2.6, the Company does not have any liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with GAAP), which
individually or in the aggregate would have a Material Adverse Effect on the
Company and has not been reflected in the Company Financials.
2.7 No Changes. Except as set forth in Schedule 2.7 or with
----------
respect to agreements with Synbiotics, since the date of the Balance Sheet,
there has not been, occurred or arisen any:
a. transaction by the Company except in the ordinary course of
business as conducted on the date of the Balance Sheet and consistent with past
practices;
b. amendments or changes to the Certificate of Incorporation
or Bylaws of the Company;
c. capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $10,000;
d. destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not by covered by insurance);
-3-
<PAGE>
e. labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
f. revaluation by the Company of any of its assets;
g. declaration, setting aside of payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any Company
Common Stock;
h. sale, lease, license-out or other disposition of any of the
assets or properties of the Company, except sales of inventory in the ordinary
course of business;
i. amendment or termination of any material contract,
agreement or license to which the Company is a party or by which it is bound;
j. loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
k. waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
l. commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of the Company or its affairs;
m. notice of any claim of ownership by a third party of Company
Intellectual Property Rights (as defined in Section 2.11 below) or notice of
infringement by the Company of any third party's intellectual property rights;
n. issuance or sale by the Company of any of its shares of
Company Common Stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
o. change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Company Intellectual Property Rights to the
Company;
p. event or condition of any character that has or could be
reasonably expected to have a Material Adverse Effect on the Company; or
q. negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (p) (other than negotiations with Synbiotics and its representatives
regarding the transactions contemplated by this Agreement).
-4-
<PAGE>
2.8 Tax and Other Returns and Reports.
---------------------------------
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, 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, exercise 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 Schedule 2.8:
----------------------
(1) The Company has prepared and filed all required federal,
state, local and foreign returns, estimates, information statements and reports
("Returns") relating to any and all Taxes concerning or attributable to the
Company or its operations and such Returns are true and correct and have been
completed in accordance with applicable law.
(2) The Company: (A) has paid or accrued all Taxes it is
required to pay or accrue and (B) has withheld with respect to its employees all
federal and state income Taxes, FICA, FUTA and other Taxes required to be
withheld.
(3) The Company has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed against
the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(4) No audit or other examination of any Return of the Company is
currently in progress, nor has the Company been notified of any request for such
an audit or other examination.
(5) The Company does not have any liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved against
in accordance with GAAP on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Holder has no knowledge of any basis of the
assertion of any such liability attributable to the Company, its assets or
operations.
(6) The Holder has provided to Synbiotics copies of all the
Company's federal and state income and all state sales and use Tax Returns
for all periods since the date of the Company's incorporation.
(7) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of the Company relating to or
attributable to Taxes.
(8) The Holder has no knowledge of any basis for the assertion
against the Company of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company.
-5-
<PAGE>
(9) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(10) The Company has no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to Section 280G or 162 of the Code.
(11) The Company 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 the Company.
(12) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(13) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(14) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
2.9 Restrictions on Business Activities. Except as set forth on
-----------------------------------
Schedule 2.9, there is no agreement (noncompete or otherwise), commitment,
judgment, injunction, order or decree to which the Company is a party or
otherwise binding upon the Company which has or reasonably could be expected to
have the effect of prohibiting or impairing any business practice of the
Company, any acquisition of property (tangible or intangible) by the Company or
the conduct of business by the Company. Without limiting the foregoing, except
as set forth on Schedule 2.9, the Company has not entered into any agreement
under which the Company is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
a. The Company owns no real property, nor has it ever owned any
real property. Schedule 2.10(a) sets forth a list of all real property
currently, or at any time in the past, leased by the Company, the name of the
lessor, the date of the lease and each amendment thereto and, with respect to
any current lease, the aggregate annual rental and/or other fees payable under
any such lease. All such current leases are in full force and effect, are valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default).
b. The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Liens, except as reflected in the Company
Financials or in Schedule 2.10(b) and except for liens for Taxes not yet due and
payable
-6-
<PAGE>
and such imperfections of title and encumbrances, if any, which are not
material in character, amount or extent, and which do not materially detract
from the value, or materially interfere with the present use, of the property
subject thereto or affected thereby.
2.11 Intellectual Property.
---------------------
a. Except as set forth in Schedule 2.11(a), the Company owns,
or is licensed or otherwise possesses legally enforceable rights to use, all
patents, trade secrets, trademarks, trade names, service marks, copyrights, and
any applications therefor, and tangible or intangible proprietary information or
material that are used in the business of the Company as currently conducted or
as proposed to be conducted by the Company (the "Company Intellectual Property
Rights").
b. Schedule 2.11(b) sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners. Schedule 2.11(b) sets forth a complete list of
all licenses, sublicenses and other agreements as to which the Company is a
party and pursuant to which the Company or any other person is authorized to use
any Company Intellectual Property Right or trade secret of the Company, and
includes the identity of all parties thereto, a description of the nature and
subject matter thereof, the applicable royalty or other fees and the term
thereof. The execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will neither cause the
Company to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement. Except
as set forth in Schedule 2.11(a) or 2.11(b), the Company is the sole and
exclusive owner or licensee of, with all right, title and interest in and to
(free and clear of any liens or encumbrances), the Company Intellectual Property
Rights, and has sole and exclusive rights (and is not contractually obligated to
pay any compensation to any third party in respect thereof) to the use thereof
or the material covered thereby in connection with the services or products in
respect to which the Company Intellectual Property Rights are being used. The
Company has delivered of a copy of each of the documents listed on Schedule
2.11(a) and Schedule 2.11(b) to Synbiotics.
c. Except as set forth in Schedule 2.11(c), no claims with
respect to the Company's Intellectual Property Rights have been asserted or are,
to the Holder's knowledge, threatened by any person, nor to the Holder's
knowledge, are there any valid grounds for any bona fide claims, (i) to the
effect that the manufacture, sale, licensing or use of any of the products of
the Company infringes on any copyright, patent, trademark, service mark, trade
secret or other proprietary right, (ii) against the use by the Company of any
trademarks, service marks, trade names, trade secrets, copyrights, maskworks,
patents, technology, know-how or applications used in the Company's business as
currently conducted or as proposed to be conducted by the Company, or (iii)
challenging the ownership or the right to use, as the case may be, by the
Company, validity or effectiveness of any of the Company Intellectual Property
Rights. All registered patents, trademarks, service marks and copyrights held by
the Company are valid and subsisting. The Company has not infringed, and the
business of the Company as currently conducted or as
-7-
<PAGE>
proposed to be conducted does not infringe, any copyright, patent, trademark,
service mark, trade secret or other proprietary right of any third party. There
is no material unauthorized use, infringement or misappropriation of any of the
Company Intellectual Property Rights by any third party, including any employee
or former employee of the Company. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the licensing
thereof by the Company. Each employee, consultant or contractor of the Company
has executed a proprietary information and confidentiality agreement
substantially in the Company's standard forms, copies of all of which the
Company has delivered to Synbiotics.
2.12 Agreements, Contracts and Commitments. Except as set
-------------------------------------
forth on Schedule 2.12, the Company does not have, is not a party to nor is it
bound by:
(1) any collective bargaining agreements.
(2) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations;
(3) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or arrangements;
(4) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to the Company.
(5) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(6) any fidelity or surety bond or completion bond;
(7) any agreement, contract or commitment under which it has
limited or restricted its right to compete with any person in any respect;
(8) any agreement of indemnification or guaranty;
(9) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person;
(10) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000;
-8-
<PAGE>
(11) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(12) any mortgages, indentures, loans or credit agreements,
security agreements or other arrangements or instruments relating to the
borrowing of money or extension of credit, including guaranties referred to in
clause (viii) hereof;
(13) any purchase order or contract for the purchase of raw
materials involving $10,000 or more;
(14) any distribution, joint marketing or development
agreement;
(15) any assignment, license or other agreement with respect
to any form of intangible property, or,
(16) any other agreement, contract or commitment that involves
$10,000 or more or is not cancelable without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events that would
constitute a breach, violation or default with the lapse of time, giving of
notice, or both, all of which are noted in Schedule 2.12, the Company has not
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment required to be set forth on Schedule 2.12, Schedule
2.11(a), or Schedule 2.11(b) (any such agreement, contract or commitment, a
"Contract"). Each Contract is in full force and effect and, except as otherwise
disclosed in Schedule 2.12, is not subject to any default thereunder of which
the Company has knowledge by any party obligated to the Company pursuant
thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule
-----------------------------
2.13, no officer, director or stockholder of the Company (nor any ancestor,
sibling, descendant or spouse of any of such persons, or any trust, partnership
or corporation in which any of such persons has or has had an interest), has or
has had, directly or indirectly, (i) an economic interest in any entity which
furnished or sold, or furnishes or sells, services or products that the Company
furnishes or sells or proposes to furnish or sell, (ii) an economic interest in
any entity that purchases from or sells or furnishes to, the Company, any goods
or services or (iii) a beneficial interest in any contract or agreement set
forth in Schedule 2.12(a) or Schedule 2.11(b); provided, that ownership of no
more than one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "economic interest in any entity" for
purposes of this Section 2.13.
2.14 Compliance with Laws. The Company has complied in all material
--------------------
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
----------
action, suit or proceeding of any nature pending or threatened against the
Company, its properties or any of its officers or directors, in their respective
capacities as such. Except as set forth in Schedule 2.15, there is no
investigation pending or threatened against the Company, its properties or any
of its
-9-
<PAGE>
officers or directors by or before any governmental entity. Schedule 2.15 sets
forth, with respect to any pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages, claims or other remedy requested. No governmental entity
has at any time challenged or questioned the legal right of the Company to
conduct its business in the present manner or style thereof.
2.16 Insurance. The Company maintains valid and enforceable
---------
insurance policies (which term shall also include any fidelity bonds) covering
the assets, business, equipment, properties and operations of the Company, and
such insurance policies, which are identified in Schedule 2.16, contain
provisions which are reasonable and customary in the Company's industry, and
there is no claim by the Company pending under any of such policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies. A copy of each insurance policy identified in Schedule 2.16 has been
delivered to Synbiotics. All premiums due and payable under all such policies
have been paid and the Company is otherwise in material compliance with the
terms of such policies (or other policies providing substantially similar
insurance coverage). The Holder has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of the Company made available to
------------
counsel for Synbiotics are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and stockholders or actions by written consent since the time of incorporation
of the Company. The Company is in full compliance with all of the terms and
provisions of its Certificate of Incorporation and Bylaws.
2.18 Relationships With Suppliers and Licensors. No current supplier
------------------------------------------
to the Company has notified it of an intention to terminate or substantially
alter its existing business relationship with the Company nor has any licensor
under a license agreement with the Company notified the Company of an intention
to terminate, non-renew or substantially alter the Company's rights under such
license.
2.19 Trade Secrets. The Company has taken reasonable security
-------------
measures to protect the confidentiality of its trade secrets. Except as set
forth on Schedule 2.19, all current and past employees or consultants of the
Company, who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed such trade secrets, or who have or
had access to information disclosing such trade secrets, have entered into
confidentiality and non-disclosure agreements with the Company (the "Trade
Secret Agreements"). Any exception which has been taken to the Trade Secrets
Agreements (for example an employee or consultant excluding a prior invention)
is described in Schedule 2.19, including the exception taken and the employee
taking such exception. To the knowledge of the Holder, neither the Company, nor
its employees or its consultants have (i) caused any of the Company's trade
secrets to become part of the public knowledge or literature, or (ii) permitted
any such trade secrets to be used, divulged or appropriated.
2.20 Environmental Matters.
---------------------
a. To the knowledge of the Holder, the Company is not in violation of
any Federal, state or local Environmental Law (as defined below), which
violation could reasonably be expected to result in a material liability to the
Company or its properties and assets. Neither the
-10-
<PAGE>
Company nor, to the knowledge of the Holder, any third party has used, released,
discharged, generated, manufactured, produced, stored, or disposed of in, on,
under or about its owned or leased property or other assets, or transported
thereto or therefrom, any Hazardous Materials (as defined below) in a manner
that could reasonably be expected to subject the Company to a material liability
under any Environmental Law; there are no underground tanks, whether operative
or temporarily or permanently closed, located on its owned or leased property or
other assets; there are no polychlorinated biphenyls ("PCBs") or items
containing PCBs used, stored or present at, on or, to the knowledge of the
Holder, near the Company's owned or leased property or assets; and there is or
has been no condition, circumstance, action, activity or event that could
reasonably be expected to form the basis of any violation of, or material
liability to the Company under, any local, state or Federal Environmental Law.
b. There is no proceeding, investigation or inquiry by any local,
state or Federal governmental authority or any non-governmental third party with
respect to the presence or release of such Hazardous Materials in, on, from or
to the Company's owned or leased property and, to the knowledge of the Holder,
no such proceedings are threatened or contemplated by any such governmental
authorities or non-governmental third parties.
c. For purposes of this Agreement, (i) "Environmental Law" means
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. Sections 9601 et seq.) ("CERCLA"); the Federal Clean
-- ---
Water Act (33 U.S.C. Section 1251 et seq.); the Federal Clean Air Act (42 U.S.C.
-- ---
Section 7401); Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S)
136 et seq.); Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.);
-- --- -- ---
Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.) ("RCRA");
-- ---
and Emergency Planning and Community Right to Know Act (42 U.S.C. (S) 11001 et
--
seq.), together with applicable state and local laws of similar substance, and
- ---
(ii) "Hazardous Materials" shall mean substances defined as "hazardous
substances," "hazardous materials," or "toxic substances" in CERCLA, the
Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.) and
-- ---
RCRA; those substances defined as "hazardous waste," "hazardous materials" or
"regulated substances" by RCRA; those substances designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. (S) 1317); those substances regulated as a hazardous chemical
substance or mixture or as an imminently hazardous chemical substance or mixture
pursuant to Section 6 or 7 of the Toxic Substances Control Act (15 U.S.C. (S)(S)
2605, 2606); those substances defined as a pesticide pursuant to Section 136(u)
of the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S)
136(u)); those substances defined as hazardous waste constituents in 40 CFR
260.10, specifically including Appendix VII and VIII of Subpart D of 40 CFR 261;
and those substances defined by the Atomic Energy Act of 1954, as amended (42
U.S.C. (S)(S) 3011 et seq., as amended) as a source, special nuclear or by-
-- ---
product material; and in the regulations adopted and publications promulgated
pursuant to said laws.
2.21 Brokers' and Finders' Fees: Third Party Expenses. Except as set
------------------------------------------------
forth on Schedule 2.21, neither of the Holder nor the Company has incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby. Schedule 2.21 sets forth the
principal terms and conditions of any agreement, written or oral, with respect
to such fees.
2.22 Permits and Licenses. Schedule 2.22 contains a complete and
--------------------
correct copy of (i) each pending application or registration for governmental
approval and each governmental
-11-
<PAGE>
approval held by the Company to import, export, store, market and/or sell the
Company's products, and (ii) the most recent report by or on behalf of any
governmental body involving or relating to any facility inspection of the
Company facilities. Except as set forth in Schedule 2.22, (i) the Company
possesses such governmental approvals from all governmental bodies necessary to
permit the operation of its business in the manner as the same is currently
conducted, and to operate, own or occupy its properties, (ii) there have been no
product recalls, field corrective activity, medical device reports, warning
letters or administrative actions by any governmental body, and (iii) to the
best of the Holder's knowledge (aa) there is no administrative action pending or
threatened for the revocation of any such governmental approval and (bb)
assuming the obtaining of the authorizations, consents, approvals and other
actions listed in the Schedule 2.22, no governmental approval by any
governmental body having jurisdiction over the operation of the Company's
businesses, whether in whole or in part, will be revoked, or become ineffective
or subject to revocation, as a consequence of the transactions contemplated by
this Agreement. All such applications, registrations and approvals are
transferable to Synbiotics in the Merger.
2.23 Employee Matters and Benefit Plans.
----------------------------------
a. Definitions. With the exception of the definition of
-----------
"Affiliate" set forth in Section 2.23(a)(i) below (which definition shall apply
only to this Section 2.23), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(1) "Affiliate" shall mean any other person or entity under
---------
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder, except that the Holder (and
any person or entity that would be deemed an Affiliate solely by virtue of his,
her or its affiliation with the Holder) shall not be deemed an Affiliate
hereunder;
(2) "ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended;
(3) "Company Employee Plan" shall refer to any plan, program,
---------------------
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or stock-
related awards, fringe benefits or other employee benefits or remuneration of
any kind, whether formal or informal, funded or unfunded and whether or not
legally binding, including without limitation, each "employee benefit plan"
within the meaning of Section 3(3) of ERISA, which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined below), and pursuant to
which the Company or any Affiliate has or may have any material liability
contingent or otherwise;
(4) "Employee" shall mean any current, former or retired
--------
employee, officer, or director of the Company or of any Affiliate;
(5) "Employee Agreement" shall refer to each management,
------------------
employment, severance, consulting, relocation, repatriation, expiration, visas,
work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
-12-
<PAGE>
(6) "IRS" shall mean the Internal Revenue Service;
---
(7) "Multiemployer Plan" shall mean any "Pension Plan" (as
------------------
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA; and
(8) "Pension Plan" shall refer to each Company Employee Plan
------------
which is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
b. Schedule. Schedule 2.23(b) contains an accurate and complete
--------
list of each Employee Agreement, together with a schedule of all liabilities,
whether or not accrued, under each Employee Agreement. The Company does not have
any Company Employee Plan, or any commitment, whether legally binding or not, to
establish any new Company Employee Plan or Employee Agreement, to modify any
Employee Agreement (except to the extent required by law or to conform any
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to Synbiotics in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or Employee Agreement,
nor does it have any intention or commitment to do any of the foregoing.
c. Pension Plans. The Company does not now, nor has it ever,
-------------
maintained, established, sponsored, participated in, or contributed to any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
d. Multiemployer Plans. At no time has the Company contributed to
-------------------
or been requested to contribute to any Multiemployer Plan.
e. No Post-Employment Obligations. The Company has never
------------------------------
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
f. Effect of Transaction.
---------------------
(1) Except as set forth on Schedule 2.23(f)(i), the execution of
this Agreement and the consummation of the transactions contemplated hereby will
not (either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(2) No payment or benefit of which will or may be made by the
Company or Synbiotics or any of their respective affiliates with respect to any
Employee will be characterized as an "excess parachute payment," within the
meaning of Section 280G(b)(1) of the Code.
g. Employment Matters. The Company (i) is in compliance in all
------------------
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in
-13-
<PAGE>
each case, with respect to Employees; (ii) has withheld all amounts required by
law or by agreement to be withheld from the wages, salaries, and other payments
to Employees; (iii) except as set forth in Schedule 2.23(g), is not liable for
any arrears of wages or any Taxes or any penalty for failure to comply with any
of the foregoing; and (iv) is not liable for any payment to any trust or other
fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice).
h. Labor. No work stoppage or labor strike against the Company is
-----
pending or, to the best knowledge of the Holder, threatened. Except as set forth
in Schedule 2.23(h), the Company is not involved in or, to the knowledge of the
Holder, threatened with, any labor dispute, grievance, or litigation relating to
labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, have a Material Adverse Effect on the Company. Neither the Company
nor any of its subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a liability to the Company. The
Company is not presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by the Company.
2.24 Employees. To the best of the Holder's knowledge, no employees
---------
of the Company (i) are in violation of any term of any employment contract,
patent disclosure agreement, non-competition agreement, or any restrictive
covenant to a former employer relating to the right of any such employee to be
employed by the Company because of the nature of the business conducted or
presently proposed to be conducted by the Company or to the use of trade secrets
or proprietary information of others and (ii) have given notice to the Company,
nor is the Company otherwise aware, that any such employee intends to terminate
his or her employment with the Company.
2.25 Accounts Payable. On the date hereof, the aggregate amount of
----------------
all accounts payable of the Company, including all outstanding loans to the
Company by Synbiotics and all indebtedness of the Company to the Holder, less
the total amount of all accounts receivable (net of appropriate reserves) and
cash of the Company does not exceed $500,000.
2.26 Representations Complete. None of the representations or
------------------------
warranties made by the Holder (as modified by the Schedules), nor any statement
made in any schedule or certificate furnished by the Holder pursuant to this
Agreement, contains or will contain at the Closing any untrue statement of a
material fact, or omits or will omit at the Closing to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
2.27 Ownership of Shares. The Holder has good and marketable title
-------------------
to the Shares, free and clear of any and all adverse claims, security interests
and encumbrances.
2.28 Investment in Synbiotics Note/Common Stock.
------------------------------------------
a. Suitable Holder. The Holder has such knowledge and expertise in
---------------
financial
-14-
<PAGE>
and business matters that the Holder is capable of evaluating the merits and
risks of the exchange of its shares of Company Common Stock for the Note (and,
potentially, shares of Synbiotics Common Stock) and Additional Shares pursuant
to this Agreement and of protecting its interests in connection therewith. The
Holder has the ability to bear the economic risk of the investment in the Note
(and, potentially, Synbiotics Common Stock) and Additional Shares.
b. Receipt of Information. The Holder reviewed a copy of all
----------------------
reports and registration statements filed by Synbiotics with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended, for all periods since November 1, 1996, and has had an opportunity to
discuss Synbiotics' business, management and financial affairs with Synbiotics'
management.
c. Purchase for Own Account. The Holder is acquiring Synbiotics
------------------------
securities for its own account and not with a view to, or for resale in
connection with, any distribution thereof in violation of applicable law, and
the Holder has no present intention of selling, granting any participation in,
or otherwise distributing the same in violation of applicable laws. The Holder
understands that the Note (and, potentially, the shares of Synbiotics Common
Stock) and Additional Shares to be received by the Holder pursuant to this
Agreement have not been registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act that
depends upon, among other things, the bona fide nature of the Holder's
investment intent and the accuracy of the Holder's representations, warranties
and covenants as expressed herein. The Holder understands that the Note (and,
potentially, shares of Synbiotics Common Stock) and Additional Shares to be
received by the Holder pursuant to this Agreement are characterized as
"restricted securities" under the Securities Act inasmuch as they are being
acquired from Synbiotics in a transaction not involving a public offering and
that under such laws and applicable regulations such Note/Shares may be resold
without registration under the Securities Act only in certain limited
circumstances. The Holder acknowledges that the Note/Shares of Synbiotics Common
Stock must be held indefinitely unless subsequently registered under the
Securities Act or an exemption from such registration is available. The Holder
is aware of the provisions of Rule 144 under the Securities Act which permit
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, including the existence of a public market
for the securities, the availability of certain current public information about
the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" (as
provided by Rule 144(f) under the Securities Act) and the number of shares being
sold during any three-month period not exceeding specified limitations.
d. Legends. It is understood that each certificate representing the
-------
Note and/or shares of Synbiotics Common received by the Holder pursuant to this
Agreement shall bear a legend substantially to the following effect (in addition
to any legend required under applicable state securities laws):
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED ABSENT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE
144 PROMULGATED UNDER SUCH
-15-
<PAGE>
ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
3. Representations, Warranties and Covenants of Synbiotics. Synbiotics
-------------------------------------------------------
hereby represents and warrants to and for the benefit of the Holder, with
knowledge that the Holder is relying thereon in entering into this Agreement and
purchasing the Note from Synbiotics, that the following are true and correct:
3.1 Organization, Good Standing and Qualification. Synbiotics is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted.
Synbiotics is duly qualified or licensed to conduct its business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have, or would reasonably be expected to have, a material
adverse effect on the business assets (including intangible assets), financial
condition, results of operations, liabilities or prospects of Synbiotics.
3.2 Authorization. All corporate action on the part of Synbiotics,
-------------
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the Note, and the performance of
all obligations of Synbiotics thereunder has been taken or will be taken prior
to the Closing, and this Agreement and the Note constitute valid and legally
binding obligations of Synbiotics, enforceable against Synbiotics in accordance
with their respective terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (b) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies, and (c) to the extent the indemnification provisions, if
any, contained in any of such documents may be limited by applicable federal or
state securities laws.
3.3 Valid Issuance of Common Stock. The shares of Common Stock of
------------------------------
Synbiotics issuable upon the optional conversion of the Note have been or will
be duly and validly reserved for issuance and, upon issuance in accordance with
the terms of the Note (i) shall be duly and validly issued, fully paid and
nonassessable, and issued in compliance with all applicable securities laws, as
presently in effect, of the United States and each of the states whose
securities laws govern the issuance of the Note pursuant to this Agreement and
(ii) shall not be issued in violation of any preemptive or similar right.
3.4 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of Synbiotics is required in connection with the consummation of the
transactions contemplated by this Agreement.
3.5 Compliance with Other Instruments. Synbiotics is not in material
---------------------------------
violation or default of any provisions of its Articles of Incorporation or
Bylaws or of any instrument, judgment, order, writ, decree or contract to which
it is a party or by which it is bound or, to its knowledge, of any provision of
federal or state statute, rule or regulation applicable to Synbiotics or
otherwise in breach of any of the terms or conditions of any contract or
agreement which breach, either individually or in the aggregate, could
reasonably be expected to have a materially adverse
-16-
<PAGE>
effect on the business, properties, financial condition or results of operations
of Synbiotics. To Synbiotics' knowledge, no other party to any of its material
contracts or agreements is in material default under any such contract or
agreement. The execution, delivery and performance of this Agreement and the
Note, and the consummation of the transactions contemplated hereby and thereby
shall not (i) result in any such material violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
contract or an event that results in the creation of any lien, charge or
encumbrance upon any assets of Synbiotics or the suspension, revocation,
impairment, forfeiture or nonrenewal of any material permit, license,
authorization or approval applicable to Synbiotics, its business or operations
or any of its assets or properties, or (ii) result in the breach or violation of
any provision of the Articles of Incorporation or Bylaws of Synbiotics.
3.6 Disclosure. Synbiotics has fully provided the Holder with all
----------
the information which the Holder has requested for deciding whether to purchase
the Note and all information which Synbiotics believes is reasonably necessary
to enable the Holder to make such decision. Neither this Agreement nor any other
written statements or certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements in this Agreement or therein not
misleading.
3.7 Corporate Documents. The Articles of Incorporation and (except
-------------------
as disclosed to the Company's counsel) Bylaws of Synbiotics are in the form
previously provided to the Holder.
3.8 Registration Rights. In the event that the Note is converted
-------------------
into Common Stock of Synbiotics, Synbiotics agrees to use its reasonable best
efforts to cause a Form S-3 registration statement covering such Common Stock to
be filed with and declared effective by the SEC within one hundred and twenty
(120) days of the issuance of such Common Stock (or, if later, by April 30,
1999), to maintain the effectiveness of such registration statement until any
remaining unsold shares can be sold immediately under Rule 144 and to have all
such shares listed on the Nasdaq National Market.
4. General Provisions.
------------------
4.1 Construction. This Agreement is deemed to be entered into in,
------------
and shall be governed, construed and enforced in accordance with the internal
laws of, the State of California, without giving effect to its conflicts of laws
principles.
4.2 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior and contemporaneous negotiations, agreements and
understandings.
4.3 Notices. All payments, notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given at the earlier of (i) the time of actual delivery or (ii) on the
third business day following the date deposited with the United States Postal
Service, postage prepaid, certified with return receipt requested, to the
parties at the following addresses or at such other address as shall be given in
writing by a party to the other parties:
-17-
<PAGE>
Holder: BioQuest Venture Leasing Partnership, L.P.
20 William Street
Suite 210
Wellesley, MA 02181
Attn: General Partner
Synbiotics: Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
Attn: Kenneth M. Cohen
4.4 Successors and Assigns. This Agreement, and the rights and
----------------------
obligations of each of the parties hereunder, may not be assigned by the Holder
without the prior written consent of Synbiotics. Subject to the foregoing
sentence, this Agreement shall inure to the benefit of, and shall be binding
upon, the parties and their successors and assigns.
4.5 Severability. If any term, covenant or condition of this
------------
Agreement is held to be invalid, void or otherwise unenforceable by any court of
competent jurisdiction, the remainder of this Agreement shall not be affected
thereby and each term, covenant and condition of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
4.6 Modification. Any term of this Agreement may be amended and the
------------
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of Synbiotics and the Holder. Any amendment or waiver effected
in accordance with this Section 4.6 shall be binding upon all parties to this
Agreement, including, without limitation, each future holder of any equity
security into which the Note is convertible.
4.7 Attorney's Fees. If any action of law or in equity is necessary
---------------
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to an award of its reasonable attorneys' fees, costs and
disbursements in addition to any other relief to which such party may be
entitled.
4.8 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.9 Survival. All representation and warranties made in this
--------
Agreement shall survive the Closing until December 30, 1999.
-18-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement to be
effective as of the date first written above.
SYNBIOTICS: SYNBIOTICS CORPORATION,
a California corporation
By: /s/ Michael K. Green
---------------------------------------
Michael K. Green, Vice President, Chief
Financial Officer, and Secretary
HOLDER: BIOQUEST VENTURE LEASING
PARTNERSHIP, L.P.
By: BioQuest, Ltd., General Partner
By: /s/ C. Ysenburg
-------------------------------
Name:
Title: Attorney-in-fact
[SIGNATURE PAGE TO
NOTE PURCHASE AGREEMENT]
-19-
<PAGE>
EXHIBIT A
---------
FORM OF NOTE
------------
NEITHER THIS CONVERTIBLE PROMISSORY NOTE NOR ANY OF THE SECURITIES ISSUABLE
HEREUNDER HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES, OR DELIVERY TO SYNBIOTICS CORPORATION OF AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO SYNBIOTICS CORPORATION THAT SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT
OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 144 UNDER THE ACT.
$1,000,000.00 San Diego, California
March 6, 1998
SYNBIOTICS CORPORATION
CONVERTIBLE PROMISSORY NOTE
Synbiotics Corporation, a California corporation ("Synbiotics"), for value
received, hereby promises to pay to BIOQUEST VENTURE LEASING PARTNERSHIP, L.P.,
a limited partnership organized under the laws of the State of Delaware, or
order (the "Holder"), the principal amount of One Million Dollars ($1,000,000)
(the "Issue Price"), together with interest on the unpaid amount thereof in
accordance with the terms hereof, from the date hereof until paid or converted
in accordance with the terms hereof.
1. Convertible Promissory Note ("Note").
------------------------------------
1.1 Note Purchase Agreement. This Note is issued by Synbiotics
-----------------------
pursuant to that certain Note Purchase Agreement, dated of even date herewith,
by and between Synbiotics and the Holder (the "Purchase Agreement"), and is
subject to the Purchase Agreement.
1.2 Interest Rate. The rate of interest hereunder shall equal five
-------------
percent (5%) per annum, simple interest; provided, however, that upon the
occurrence of an "Event of Default," as defined below, the interest rate shall
increase to eight and one-half percent (8.5%) per annum until all amounts due
and owing hereunder have been paid in full.
A-1
<PAGE>
1.3 Payment. Subject to the provisions of Section 2 regarding
-------
conversion of this Note, the Issue Price plus all accrued but previously unpaid
interest thereon, shall become due and payable in one lump sum on March 5, 1999
(the "Due Date"). Payment and any prepayment under Section 1.4 below shall be
made by the wire transfer of immediately available funds to a bank account
designated by the Holder to Synbiotics (or, if none is designated, then at 11011
Via Frontera, San Diego, California), in lawful money of the United States of
America.
1.4 Prepayment. This Note may be prepaid, in whole or in part, at
----------
any time in lawful money of the United States of America without premium or
penalty.
2. Conversion.
----------
2.1 Synbiotics' Option to Convert. Synbiotics may at its option
-----------------------------
satisfy this Note in full by issuing to the Holder that number of fully paid and
nonassessable (albeit unregistered) shares of Common Stock of Synbiotics as is
equal to the then outstanding balance of this Note, including all accrued but
unpaid interest due and owing hereunder, divided by the mean average of the
closing sales price of a share of Common Stock of Synbiotics as reported by the
Nasdaq National Market for the thirty (30) trading days immediately preceding
and ending on the trading day that is one (1) business day prior to the date on
which Synbiotics converts this Note (the "Synbiotics Conversion Date").
Synbiotics must provide the Holder with written notice of its election to
convert this Note, specifying the Synbiotics Conversion Date, at least one (1)
business day prior to the Synbiotics Conversion Date.
2.2 Holder's Option to Convert. Upon the occurrence of an "Event of
--------------------------
Default," as that term is defined in Section 4, the Holder shall have the option
to convert all amounts due and owing under this Note, including all accrued and
unpaid interest due and owing hereunder plus any and all other amounts due and
owing hereunder, into shares of Common Stock of Synbiotics by giving written
notice thereof to Synbiotics, which notice shall include a closing date for the
conversion within ten (10) business days thereafter (said closing date hereafter
referred to as the "Holder Conversion Date"). In connection therewith,
Synbiotics shall issue to Holder a number of shares of Common Stock of
Synbiotics obtained by dividing (i) the then outstanding balance of this Note,
including any and all accrued but unpaid interest due and owing hereunder
together with any and all other amounts due and owing hereunder, by (ii) the
mean average of the closing sales price of a share of Common Stock of Synbiotics
as reported by the Nasdaq National Market for the thirty (30) trading days
immediately preceding and ending on the trading day that is one (1) business day
prior to the Holder Conversion Date.
2.3 Termination of Rights Upon Conversion. Conversion shall be
-------------------------------------
deemed effective on the Synbiotics Conversion Date or the Holder Conversion
Date, as the case may be, and the Holder of this Note shall have no further
rights under this Note, whether or not this Note is surrendered. Nonetheless,
the Holder is obligated to surrender this Note.
3. Subordination.
-------------
A-2
<PAGE>
3.1 Insolvency. Except for the issuance of shares of Common Stock of
----------
Synbiotics in accordance with the provisions of Section 2 above, in the event of
any insolvency, bankruptcy, receivership, assignment for the benefit of
creditors, reorganization, or arrangement with creditors of Synbiotics, whether
or not pursuant to bankruptcy laws, or any dissolution, liquidation, or other
marshalling of the assets and liabilities of Synbiotics, all Senior Debt
(defined as indebtedness to any bank or institutional lender) shall be paid in
full before any payment or distribution of any character, whether in cash,
securities (other than those issued in accordance with the provisions of Section
2 above), or other property, which would otherwise, but for these subordination
provisions be payable or distributable for or on account of any obligations
under this Note shall first be paid or distributed directly to the holders of
the Senior Debt, until all Senior Debt shall have been paid in full.
3.2 Accelerated Senior Debt. Except for the issuance of shares of
-----------------------
Common Stock of Synbiotics in accordance with the provisions of Section 2 above,
if any Senior Debt is accelerated, all such accelerated Senior Debt shall be
paid in full before any payment or distribution of any character, whether in
cash, securities, or other property, shall be made for or on account of any
obligations under this Note. In any such event, any payment or distribution of
any character, whether in cash, securities (other than those issued in
accordance with the provisions of Section 2 above), or other property, which
would otherwise, but for the subordination provisions applicable to the
obligations under this Note, be payable or distributable for or on account of
any obligations under this Note shall first be paid or distributed directly to
the holders of the Senior Debt, until all such accelerated Senior Debt shall
have been paid in full.
3.3 Event of Default on Senior Debt. Upon the occurrence of any
-------------------------------
event of default by Synbiotics with respect to any Senior Debt under
circumstances when the subordination provisions described in the preceding
paragraphs are not applicable and the delivery by the holder of Senior Debt of
written notice of such default to Synbiotics, then, unless and until the holder
of Senior Debt shall have notified Synbiotics that such default shall have been
cured or waived or shall have ceased to exist, no payment or distribution of any
character, whether in cash, securities (other than those issued in accordance
with the provisions of Section 2 above), or other property, shall be made for or
on account of any obligations under this Note.
3.4 Constructive Trust. If Synbiotics makes any payment on account
------------------
of any obligations under this Note in contravention of the subordination
provisions described in this Section 3, such payment shall be held by the Holder
of the obligations under this Note for the benefit of, and shall be paid
forthwith over and delivered to, Synbiotics for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt
in full in accordance with the terms of such Senior Debt.
3.5 Acceptance by Holder. Holder, by acceptance of this Note, is
--------------------
deemed to accept, agree to, and be bound by this Section 3.
4. Acceleration. The occurrence of any of the following events shall
------------
constitute an "Event of Default" under this Note:
A-3
<PAGE>
(a) any failure to make any payment of interest and/or principal due
and owing under this Note within ten (10) days after the Due Date;
(b) the insolvency of Synbiotics, the voluntary appointment of a
receiver or liquidator for Synbiotics or for any of its properties; the filing
by Synbiotics of a petition under the provisions of any state insolvency law, or
Title 11 of the United States Code (the "Bankruptcy Code"), as now in effect or
hereafter amended; the filing against Synbiotics of a petition under the
provisions of any state insolvency law or the Bankruptcy Code, as now in effect
or hereafter amended, which petition is not dismissed within sixty (60) days
after its filing; the making by Synbiotics of an assignment for the benefit of
its creditors; the institution by Synbiotics of any other type of insolvency
proceeding (under bankruptcy laws or otherwise) or general proceeding for the
settlement of claims against it; or the institution against Synbiotics of any
other type of insolvency proceeding (under bankruptcy laws or otherwise) or for
the appointment of a receiver or liquidator for Synbiotics or for any of its
properties or a general proceeding for the settlement of claims against it,
which proceeding is not dismissed within sixty (60) days after its filing;
(c) the institution by Synbiotics of any formal or written proceeding
for the dissolution or liquidation of, or winding up of the affairs of,
Synbiotics;
(d) the sale, assignment, transfer or delivery of all or substantially
all of Synbiotics' assets, or the cessation by Synbiotics as a going business
concern; or
(e) any representation or warranty made by Synbiotics herein or in any
document or certificate furnished by Synbiotics in connection herewith or
pursuant hereto shall prove to have been incorrect in any material respect at
the time made.
Upon the occurrence of any Event of Default, all sums due and owing
hereunder, together with all costs incurred in the collection thereof (including
reasonable attorney's fees and court costs), shall become immediately due and
payable without presentment, demand, protest or other notice of any kind.
5. Miscellaneous.
-------------
5.1 Transfer of Note. This Note may be transferred only upon
----------------
surrender of the original Note for registration of transfer, duly endorsed, or
accompanied by a duly executed written instrument of transfer in form
satisfactory to Synbiotics. Thereupon, a new Note for like principal amount and
interest will be issued to, and registered in the name of, the transferee.
Interest and principal are payable only to the registered holder of the Note.
5.2 Titles and Subtitles. The titles and subtitles used in this Note
--------------------
are for convenience only and are not to be considered in construing or
interpreting this Note.
A-4
<PAGE>
5.3 Notices. Any notice required or permitted under this Note shall
-------
be given in writing and in accordance with Section 4.3 of the Purchase Agreement
(for purposes of which the term "Investor" shall mean the Holder hereunder),
except as otherwise expressly provided in this Note.
5.4 Attorneys' Fees. If any action at law or in equity is necessary
---------------
to enforce or interpret the terms of this Note, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
5.5 Amendments and Waivers. Any term of this Note may be amended and
----------------------
the observance of any other term of this Note may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of Synbiotics and the Holder. Any amendment or waiver
effected in accordance with this Section 5.5 shall be binding upon the Holder of
this Note (and of any securities into which this Note is convertible), each
future holder of all such securities and Synbiotics.
5.6 Late Payment Charge. Any payment not received within ten (10)
-------------------
days of the date that the same becomes due shall be subject to an additional
late charge equal to two percent (2%) of the payment then due.
5.7 Governing Law. This Note shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of California, without giving
effect to its conflicts of laws principles.
SYNBIOTICS CORPORATION,
a California corporation
By:
---------------------------------------
Michael K. Green
Vice President, Chief Financial Officer,
and Secretary
A-5
<PAGE>
[SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE]
A-6
<PAGE>
Exhibit 99.2
NEITHER THIS CONVERTIBLE PROMISSORY NOTE NOR ANY OF THE SECURITIES ISSUABLE
HEREUNDER HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES, OR DELIVERY TO SYNBIOTICS CORPORATION OF AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO SYNBIOTICS CORPORATION THAT SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT
OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 144 UNDER THE ACT.
$1,000,000.00 San Diego, California
March 6, 1998
SYNBIOTICS CORPORATION
CONVERTIBLE PROMISSORY NOTE
Synbiotics Corporation, a California corporation ("Synbiotics"), for value
received, hereby promises to pay to BIOQUEST VENTURE LEASING PARTNERSHIP, L.P.,
a limited partnership organized under the laws of the State of Delaware, or
order (the "Holder"), the principal amount of One Million Dollars ($1,000,000)
(the "Issue Price"), together with interest on the unpaid amount thereof in
accordance with the terms hereof, from the date hereof until paid or converted
in accordance with the terms hereof.
1. Convertible Promissory Note ("Note").
------------------------------------
1.1 Note Purchase Agreement. This Note is issued by Synbiotics
-----------------------
pursuant to that certain Note Purchase Agreement, dated of even date herewith,
by and between Synbiotics and the Holder (the "Purchase Agreement"), and is
subject to the Purchase Agreement.
1.2 Interest Rate. The rate of interest hereunder shall equal five
-------------
percent (5%) per annum, simple interest; provided, however, that upon the
occurrence of an "Event of Default," as defined below, the interest rate shall
increase to eight and one-half percent (8.5%) per annum until all amounts due
and owing hereunder have been paid in full.
1.3 Payment. Subject to the provisions of Section 2 regarding
-------
conversion of this Note, the Issue Price plus all accrued but previously unpaid
interest thereon, shall become due and payable in one lump sum on March 5, 1999
(the "Due Date"). Payment and any prepayment under Section 1.4 below shall be
made by the wire transfer of immediately available funds to a bank account
designated by the Holder to Synbiotics (or, if none is designated, then at 11011
Via Frontera, San Diego, California), in lawful money of the United States of
America.
<PAGE>
1.4 Prepayment. This Note may be prepaid, in whole or in part, at
----------
any time in lawful money of the United States of America without premium or
penalty.
2. Conversion.
----------
2.1 Synbiotics' Option to Convert. Synbiotics may at its option
-----------------------------
satisfy this Note in full by issuing to the Holder that number of fully paid and
nonassessable (albeit unregistered) shares of Common Stock of Synbiotics as is
equal to the then outstanding balance of this Note, including all accrued but
unpaid interest due and owing hereunder, divided by the mean average of the
closing sales price of a share of Common Stock of Synbiotics as reported by the
Nasdaq National Market for the thirty (30) trading days immediately preceding
and ending on the trading day that is one (1) business day prior to the date on
which Synbiotics converts this Note (the "Synbiotics Conversion Date").
Synbiotics must provide the Holder with written notice of its election to
convert this Note, specifying the Synbiotics Conversion Date, at least one (1)
business day prior to the Synbiotics Conversion Date.
2.2 Holder's Option to Convert. Upon the occurrence of an "Event of
--------------------------
Default," as that term is defined in Section 4, the Holder shall have the option
to convert all amounts due and owing under this Note, including all accrued and
unpaid interest due and owing hereunder plus any and all other amounts due and
owing hereunder, into shares of Common Stock of Synbiotics by giving written
notice thereof to Synbiotics, which notice shall include a closing date for the
conversion within ten (10) business days thereafter (said closing date hereafter
referred to as the "Holder Conversion Date"). In connection therewith,
Synbiotics shall issue to Holder a number of shares of Common Stock of
Synbiotics obtained by dividing (i) the then outstanding balance of this Note,
including any and all accrued but unpaid interest due and owing hereunder
together with any and all other amounts due and owing hereunder, by (ii) the
mean average of the closing sales price of a share of Common Stock of Synbiotics
as reported by the Nasdaq National Market for the thirty (30) trading days
immediately preceding and ending on the trading day that is one (1) business day
prior to the Holder Conversion Date.
2.3 Termination of Rights Upon Conversion. Conversion shall be
-------------------------------------
deemed effective on the Synbiotics Conversion Date or the Holder Conversion
Date, as the case may be, and the Holder of this Note shall have no further
rights under this Note, whether or not this Note is surrendered. Nonetheless,
the Holder is obligated to surrender this Note.
3. Subordination.
-------------
3.1 Insolvency. Except for the issuance of shares of Common Stock of
----------
Synbiotics in accordance with the provisions of Section 2 above, in the event of
any insolvency, bankruptcy, receivership, assignment for the benefit of
creditors, reorganization, or arrangement with creditors of Synbiotics, whether
or not pursuant to bankruptcy laws, or any dissolution, liquidation, or other
marshalling of the assets and liabilities of Synbiotics, all Senior Debt
(defined as indebtedness to any bank or institutional lender) shall be paid in
full before any payment or distribution of any
-2-
<PAGE>
character, whether in cash, securities (other than those issued in accordance
with the provisions of Section 2 above), or other property, which would
otherwise, but for these subordination provisions be payable or distributable
for or on account of any obligations under this Note shall first be paid or
distributed directly to the holders of the Senior Debt, until all Senior Debt
shall have been paid in full.
3.2 Accelerated Senior Debt. Except for the issuance of shares of
-----------------------
Common Stock of Synbiotics in accordance with the provisions of Section 2 above,
if any Senior Debt is accelerated, all such accelerated Senior Debt shall be
paid in full before any payment or distribution of any character, whether in
cash, securities, or other property, shall be made for or on account of any
obligations under this Note. In any such event, any payment or distribution of
any character, whether in cash, securities (other than those issued in
accordance with the provisions of Section 2 above), or other property, which
would otherwise, but for the subordination provisions applicable to the
obligations under this Note, be payable or distributable for or on account of
any obligations under this Note shall first be paid or distributed directly to
the holders of the Senior Debt, until all such accelerated Senior Debt shall
have been paid in full.
3.3 Event of Default on Senior Debt. Upon the occurrence of any
-------------------------------
event of default by Synbiotics with respect to any Senior Debt under
circumstances when the subordination provisions described in the preceding
paragraphs are not applicable and the delivery by the holder of Senior Debt of
written notice of such default to Synbiotics, then, unless and until the holder
of Senior Debt shall have notified Synbiotics that such default shall have been
cured or waived or shall have ceased to exist, no payment or distribution of any
character, whether in cash, securities (other than those issued in accordance
with the provisions of Section 2 above), or other property, shall be made for or
on account of any obligations under this Note.
3.4 Constructive Trust. If Synbiotics makes any payment on account
------------------
of any obligations under this Note in contravention of the subordination
provisions described in this Section 3, such payment shall be held by the Holder
of the obligations under this Note for the benefit of, and shall be paid
forthwith over and delivered to, Synbiotics for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt
in full in accordance with the terms of such Senior Debt.
3.5 Acceptance by Holder. Holder, by acceptance of this Note, is
--------------------
deemed to accept, agree to, and be bound by this Section 3.
4. Acceleration. The occurrence of any of the following events shall
------------
constitute an "Event of Default" under this Note:
(a) any failure to make any payment of interest and/or principal due
and owing under this Note within ten (10) days after the Due Date;
(b) the insolvency of Synbiotics, the voluntary appointment of a
receiver or liquidator for Synbiotics or for any of its properties; the filing
by Synbiotics of a petition under the
-3-
<PAGE>
provisions of any state insolvency law, or Title 11 of the United States Code
(the "Bankruptcy Code"), as now in effect or hereafter amended; the filing
against Synbiotics of a petition under the provisions of any state insolvency
law or the Bankruptcy Code, as now in effect or hereafter amended, which
petition is not dismissed within sixty (60) days after its filing; the making by
Synbiotics of an assignment for the benefit of its creditors; the institution by
Synbiotics of any other type of insolvency proceeding (under bankruptcy laws or
otherwise) or general proceeding for the settlement of claims against it; or the
institution against Synbiotics of any other type of insolvency proceeding (under
bankruptcy laws or otherwise) or for the appointment of a receiver or liquidator
for Synbiotics or for any of its properties or a general proceeding for the
settlement of claims against it, which proceeding is not dismissed within sixty
(60) days after its filing;
(c) the institution by Synbiotics of any formal or written proceeding
for the dissolution or liquidation of, or winding up of the affairs of,
Synbiotics;
(d) the sale, assignment, transfer or delivery of all or substantially
all of Synbiotics' assets, or the cessation by Synbiotics as a going business
concern; or
(e) any representation or warranty made by Synbiotics herein or in any
document or certificate furnished by Synbiotics in connection herewith or
pursuant hereto shall prove to have been incorrect in any material respect at
the time made.
Upon the occurrence of any Event of Default, all sums due and owing
hereunder, together with all costs incurred in the collection thereof (including
reasonable attorney's fees and court costs), shall become immediately due and
payable without presentment, demand, protest or other notice of any kind.
5. Miscellaneous.
-------------
5.1 Transfer of Note. This Note may be transferred only upon
----------------
surrender of the original Note for registration of transfer, duly endorsed, or
accompanied by a duly executed written instrument of transfer in form
satisfactory to Synbiotics. Thereupon, a new Note for like principal amount and
interest will be issued to, and registered in the name of, the transferee.
Interest and principal are payable only to the registered holder of the Note.
5.2 Titles and Subtitles. The titles and subtitles used in this Note
--------------------
are for convenience only and are not to be considered in construing or
interpreting this Note.
5.3 Notices. Any notice required or permitted under this Note shall
-------
be given in writing and in accordance with Section 4.3 of the Purchase Agreement
(for purposes of which the term "Investor" shall mean the Holder hereunder),
except as otherwise expressly provided in this Note.
5.4 Attorneys' Fees. If any action at law or in equity is necessary
---------------
to enforce or interpret the terms of this Note, the prevailing party shall be
entitled to reasonable attorneys' fees,
-4-
<PAGE>
costs and disbursements in addition to any other relief to which such party may
be entitled.
5.5 Amendments and Waivers. Any term of this Note may be amended and
----------------------
the observance of any other term of this Note may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of Synbiotics and the Holder. Any amendment or waiver
effected in accordance with this Section 5.5 shall be binding upon the Holder of
this Note (and of any securities into which this Note is convertible), each
future holder of all such securities and Synbiotics.
5.6 Late Payment Charge. Any payment not received within ten (10)
-------------------
days of the date that the same becomes due shall be subject to an additional
late charge equal to two percent (2%) of the payment then due.
5.7 Governing Law. This Note shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of California, without giving
effect to its conflicts of laws principles.
SYNBIOTICS CORPORATION,
a California corporation
By: /s/Michael K. Green
---------------------------------------
Michael K. Green
Vice President, Chief Financial Officer,
and Secretary
[SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE]
-5-
