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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) November 28, 1997
Medicis Pharmaceutical Corporation
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(Exact name of registrant as specified in its charter)
DELAWARE 0-18443 52-1574808
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4343 East Camelback Road, Suite 250
Phoenix, Arizona 85018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 808-8800
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(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 3, 1997, Medicis Pharmaceutical Corporation (the "Company")
acquired all outstanding stock of privately-held GenDerm Corporation, a
Delaware corporation ("GenDerm") in an arm's length transaction conducted
pursuant to the terms of the Agreement and Plan of Merger dated November 28,
1997 by and among the Company, Medicis Acquisition Corporation, a Delaware
corporation and GenDerm (the "Agreement").
GenDerm is a specialty pharmaceutical company engaged in the discovery,
development and marketing of products targeting two principal areas: (i) the
treatment of skin and allergic disorders and (ii) the management of pain.
GenDerm's principal products include the over-the-counter brands Zostrix(R), a
topical analgesic, Occlusal(R), a topical wart remedy, SalAc(R) acne wash and
Pentrax(R) anti-dandruff coal tar shampoos; and the prescription brands
Novacet(R), a topical rosacea and acne treatment, and Zonalon(R), an anti-itch
medication.
Under terms of the Agreement, Medicis paid an initial $60 million in
cash, and will pay an additional sum not to exceed $20 million if certain sales
thresholds are achieved during calendar year 1999. The summary of terms of the
Agreement contained herein is qualified in its entirety by reference to the
Agreement, attached hereto as Exhibit 2.1 and incorporated herein by reference.
The funds used for the acquisition were obtained from the liquid
resources of the Company and no bank or other loans were used for the
transaction. The principles involved in determining the valuation followed an
assessment of the present value of the assets of GenDerm and an assessment of
GenDerm's historical annual sales as a result of research and inquiry by the
Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The Company will furnish by amendment the financial statements required
by this item within 60 days after the date this report is required to be filed.
EXHIBITS
EXHIBIT NO.
2.1 Agreement of Merger by and between Medicis Pharmaceutical
Corporation, a Delaware corporation, Medicis Acquisition
Corporation, a Delaware corporation, and GenDerm Corporation,
a Delaware corporation, dated November 28, 1997.
27 Financial Data Schedules *TO BE FILED BY AMENDMENT*
2
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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.
MEDICIS PHARMACEUTICAL CORPORATION,
a Delaware corporation
/s/ Mark A. Prygocki, Sr.
Date December 15, 1997 By __________________________________________
Mark A. Prygocki, Sr, Chief Financial Officer
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EXHIBIT 2.1
AGREEMENT OF MERGER
BY AND AMONG
MEDICIS CORPORATION,
a Delaware corporation,
MEDICIS ACQUISITION CORPORATION,
a Delaware corporation,
AND
GENDERM CORPORATION,
a Delaware corporation
As of December 1, 1997
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TABLE OF CONTENTS
Section 1. Definitions .................................................. 1
Section 2. Basic Transaction ............................................ 14
(a) The Merger ................................................... 14
(b) The Closing .................................................. 14
(c) Actions at the Closing; Effective Time ....................... 15
(d) Effect of Merger ............................................. 15
(e) Dissenting Shares Procedure .................................. 17
(f) Target Stockholders Representative Escrow Fund;
Procedure .................................................... 17
(g) Merger Consideration Escrow Fund; Procedure .................. 18
(h) Earnout Amount ............................................... 18
(i) Closing of Transfer Records .................................. 22
(j) Delivery of Merger Consideration to Public Official .......... 22
(k) Lost, Stolen or Destroyed Certificates ....................... 22
(l) Transferability Restriction .................................. 22
Section 3. Representations and Warranties of the Target ................. 22
(a) Organization, Qualification and Corporate Power .............. 22
(b) Capitalization ............................................... 23
(c) Authorization of Transaction ................................. 24
(d) Noncontravention; Approvals .................................. 24
(e) Brokers' Fees ................................................ 25
(f) Title to Assets .............................................. 25
(g) Subsidiaries ................................................. 25
(h) Financial Statements ......................................... 25
(i) Inventory .................................................... 26
(j) Absence of Certain Changes or Events ......................... 26
(k) Related Party Transactions ................................... 27
(l) Absence of Undisclosed Liabilities ........................... 28
(m) Legal Compliance-General ..................................... 28
(n) Legal Compliance-Food and Drug Administration ................ 28
(o) Warranties ................................................... 30
(p) Product Liability ............................................ 31
(q) Taxes and Returns ............................................ 32
(r) Real Property ................................................ 33
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(s) Intellectual Property ........................................ 33
(t) Validity of Contracts ........................................ 36
(u) Powers of Attorney ........................................... 38
(v) Litigation ................................................... 38
(w) Arbitration .................................................. 39
(x) Employee Benefits and ERISA-Related Matters .................. 39
(y) Regulatory Matters ........................................... 42
(z) Labor and Employment Matters ................................. 42
(aa) Insurance .................................................... 44
(bb) Condition of Assets .......................................... 44
(cc) Accounts Receivable .......................................... 44
(dd) Environmental Matters ........................................ 45
(ee) State Takeover Statutes ...................................... 46
(ff) Vote Required ................................................ 46
(gg) Licenses and Permits ......................................... 47
(hh) Customers and Suppliers ...................................... 47
(ii) Product Treatments; Product Returns .......................... 47
(jj) Foreign Corrupt Practices Act ................................ 47
(kk) Complete Disclosure .......................................... 47
Section 4. Representations and Warranties of the Buyer and the Transitory
Subsidiary ................................................... 48
(a) Organization, Qualification and Corporate Power .............. 48
(b) Authorization of Transaction ................................. 48
(c) Noncontravention ............................................. 48
(d) Brokers' Fees ................................................ 49
(e) Transitory Subsidiary ........................................ 49
(f) Buyer Stockholder Vote Not Required; Financing of
Merger ....................................................... 49
(g) SEC Filings .................................................. 50
(h) Absence of Certain Changes or Events ......................... 50
(i) Investment ................................................... 50
Section 5. Covenants .................................................... 50
(a) General ...................................................... 50
(b) Notices ...................................................... 51
(c) Regulatory Matters and Approvals ............................. 51
(d) Operation of Business ........................................ 51
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(e) Full Access .................................................. 54
(f) Notice of Developments ....................................... 54
(g) Exclusivity .................................................. 55
(h) Indemnification .............................................. 55
(i) Performance of Contracts ..................................... 56
(j) Termination of Options ....................................... 56
(k) Transition ................................................... 57
Section 6. Conditions to Obligations to Close ........................... 57
(a) Conditions to Obligations of the Parties ..................... 57
(b) Additional Conditions to Obligations of the Buyer and the
Transitory Subsidiary ........................................ 58
(c) Additional Conditions to Obligation of the Target ............ 60
Section 7. Termination .................................................. 61
(a) Termination of Agreement ..................................... 61
(b) Effect of Termination; Expense Reimbursements ................ 62
Section 8. Indemnification .............................................. 63
(a) General ...................................................... 63
(b) Indemnification of Buyer Indemnitees ......................... 63
(c) Indemnification of Seller Indemnitees ........................ 65
(d) Limitation on Indemnification Obligations .................... 65
(e) Cooperation .................................................. 66
(f) Subrogation .................................................. 66
(g) Third Party Claims Subject to Indemnification ................ 67
(h) Third Party Claims Not Subject to Indemnification ............ 68
(i) Exclusivity .................................................. 68
(j) Binding Arbitration .......................................... 68
Section 9. Miscellaneous ................................................ 71
(a) Press Releases and Public Announcements ...................... 71
(b) No Third-Party Beneficiaries ................................. 72
(c) Expenses ..................................................... 72
(d) Entire Agreement ............................................. 72
(e) Succession and Assignment .................................... 72
(f) Counterparts ................................................. 73
(g) Headings ..................................................... 73
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(h) Notices ...................................................... 73
(i) Governing Law ................................................ 75
(j) Amendments and Waivers ....................................... 76
(k) Severability ................................................. 76
(l) Construction ................................................. 76
(m) Incorporation of Exhibits and Disclosure Schedules ........... 77
Exhibit A - Certificate of Incorporation of the Transitory Subsidiary
Exhibit B - Bylaws of the Transitory Subsidiary
Exhibit C - Merger Consideration
Exhibit D - Merger Consideration Escrow Terms
Exhibit E - Form of Merger Consideration Escrow Agreement
Exhibit F - Target Stockholders Representative Escrow Terms
Exhibit G - Form of Target Stockholders Representative Escrow Agreement
Exhibit H - Form of Non-Competition, Non-Disclosure and Confidentiality
Agreement
Exhibit I - Form of Opinion of Special Counsel to the Target and its Subsidiary
Exhibit J - Form of Opinion of Counsel to the Buyer and the Transitory
Subsidiary
Exhibit K - Pre-Merger Charter Amendment
Exhibit L - Form of License Agreement
Exhibit M - Form of Certificate of Joel E. Bernstein, M.D.
Target Disclosure Schedule - Exceptions to Representations and Warranties
iv
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AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "Agreement") is entered into as of
December 1, 1997 by and among Medicis Pharmaceutical Corporation, a Delaware
corporation (the "Buyer"), Medicis Acquisition Corporation, a Delaware
corporation and wholly-owned Subsidiary of the Buyer (the "Transitory
Subsidiary"), and GenDerm Corporation, a Delaware corporation (the "Target").
The Buyer, the Transitory Subsidiary and the Target are sometimes referred to
herein individually as a "Party" and collectively as the "Parties." Certain
capitalized terms used herein are defined in Section 1 and in the remaining
portions of this Agreement.
This Agreement contemplates a transaction in which the Target shall
become a wholly-owned Subsidiary of the Buyer through a merger of the Transitory
Subsidiary with and into the Target. Target Stockholders will receive cash and
contingent rights to additional cash in exchange for their capital stock in the
Target.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties
and covenants herein contained, the Parties agree as follows.
SECTION 1. DEFINITIONS.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of such particular Person whether through the
ownership of voting securities, contract or otherwise.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504.
"Agreement" has the meaning set forth in the preface.
"Alternative Proposal" has the meaning set forth in Section 5(g).
"Applicable Laws" shall mean all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common law), rules,
regulations, ordinances, permits, concessions, grants, franchises, licenses or
other governmental authorizations or approvals of any Governmental Entity and
(ii) orders, decisions, judgments, awards and decrees of or agreements with any
Governmental Entity.
"Applicable Rate" means the prime rate of interest for corporate
borrowers announced from time to time in The Wall Street Journal (National
Edition).
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"Award" has the meaning set forth in Section 8(j)(v).
"Bernstein Severance Agreement" means the Severance Agreement, dated
as of August 18, 1995, by and between the Target and Joel E. Bernstein, M.D.
"Buyer" has the meaning set forth in the preface.
"Buyer Claim" means a Claim (as defined in Exhibit D attached
hereto) made by Buyer.
"Buyer Indemnitee" has the meaning set forth in Section 8(b).
"Capitalization Reserve" has the meaning set forth in Exhibit D
attached hereto.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time.
"CERCLIS" has the meaning set forth in Section 3(dd)(i).
"Certificate of Amendment" has the meaning set forth in Section
2(c).
"Certificate of Merger" has the meaning set forth in Section 2(c).
"Closing" has the meaning set forth in Section 2(b).
"Closing Date" has the meaning set forth in Section 2(b).
"Closing Price Adjustment" means an amount equal to the sum of (i)
one-half of any amounts in excess of $175,000 but equal to or less than $500,000
paid by the Target and not reimbursed by an insurer pursuant to a claim asserted
by the Target at or before the Effective Time in respect of the claims of Joel
M. Appel, Gregory N. Chletsos, Frank P. DiPrima and Kelly M. Kaplan in the New
Jersey Employee Litigation, and all of any amounts in excess of $500,000 paid by
the Target and not reimbursed by an insurer pursuant to a claim asserted by the
Target at or before the Effective Time in respect of such claims, prior to the
Closing; (ii) one-half of any amounts equal to or less than $100,000 in the
aggregate paid by the Target and not reimbursed by an insurer pursuant to a
claim asserted by the Target at or before the Effective Time in respect of the
claims of the plaintiffs in the Product-Related Litigation, and all of any
amounts in excess of $100,000 in the aggregate so paid by the Target and not
reimbursed by an insurer pursuant to a claim asserted
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by the Target at or before the Effective Time, prior to the Closing; (iii)
one-half of the Lehman Fee (or portion thereof) to which Lehman Brothers Inc. is
entitled at the Closing (i.e., one-half of 1% of the amounts payable by the
Buyer to the Target Stockholders Representative Escrow Fund pursuant to Section
2(f)(i) determined without regard to this clause (iii)); and (iv) one-half of
all reasonable legal and accounting fees and expenses incurred by the Target on
or after October 1, 1997 and at or before the Closing with respect to the Letter
of Intent and the transactions contemplated thereby.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Common Stock" means the Common Stock, par value $0.01 per share, of
the Target.
"Confidential Disclosure Agreement" means the Confidential
Disclosure Agreement, effective October 1, 1997, between the Buyer and the
Target.
"Confidential Information" means "Confidential Information" as such
term is used in the Confidential Disclosure Agreement.
"Containers" has the meaning set forth in Section 3(dd)(iii).
"Contingent Merger Consideration" has the meaning set forth in
Exhibit C attached hereto.
"Contracts" has the meaning set forth in Section 3(t)(ii).
"Controlled Group" has the meaning set forth in Section 3(x)(ii).
"Damages" means all liabilities, demands, claims, actions or causes
of action, regulatory, legislative or judicial proceedings or investigations,
assessments, levies, losses, deficiencies, fines, judgments, interest,
penalties, amounts paid in respect of settlement, damages (including without
limitation consequential, punitive and treble damages), costs and expenses,
including, without limitation, reasonable fees and expenses of attorneys,
accountants and other professionals sustained or incurred in connection with the
defense or investigation of any claim.
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"Delaware Corporation Law" means the General Corporation Law of the
State of Delaware, as amended from time to time.
"Disposition" means the direct or indirect sale, license or other
transfer of any right to sell any GenDerm Product (or any right in related
underlying Intellectual Property or other assets) by the Buyer or its
Affiliates, successors or assigns; it being understood that a direct sale of a
GenDerm Product to a customer of the seller in the ordinary course of the
seller's business is not included in the term "Disposition."
"Dissenting Share" means any Target Share the appraisal of the fair
market value of which under Section 262 of the Delaware Corporation Law has been
properly demanded in accordance with such Section and with respect to which the
right to such an appraisal under such Section has not terminated (whether on
account of a vote by the holder thereof in favor of, or a written consent by the
holder thereof to, the Merger, a waiver or withdrawal of such demand or
otherwise).
"Dissenting Stockholder" means the holder of a Dissenting Share.
"Draft Calculation" has the meaning set forth in Section 2(h)(iii).
"Earnout Amount" has the meaning set forth in Section 2(h)(i).
"Earnout Period" means, subject to extension as provided in Section
2(h)(vi), calendar year 1999.
"Earnout Transferee" means the purchaser, licensee or other
transferee in any Disposition.
"Effective Time" has the meaning set forth in Section 2(c).
"Employee Benefit Plan" means any (a) qualified or nonqualified
Employee Pension Benefit Plan (including any Multiemployer Plan), (b) Employee
Welfare Benefit Plan or (c) material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
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"Environmental Event" has the meaning set forth in Section 3(dd)(i).
"Environmental Laws" has the meaning set forth in Section
3(dd)(iii).
"Environmental Permits" has the meaning set forth in Section
3(dd)(iii).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Escrow Distribution" means any distribution to a Target Stockholder
or holder of Options out of the Target Stockholders Representative Escrow Fund
pursuant to Exhibit F attached hereto.
"Euroderma" means Euroderma Limited, a U.K. private limited company.
"Event of Force Majeure" means any fire, flood, hurricane, typhoon,
earthquake, lightning or explosion which results in a reduction of the gross
sales (as such term is used in the definition of 1999 Gross Sales) of any
GenDerm Product during calendar year 1999 by 5 percent or more of the monthly
average of the gross sales (as such term is so used) of such GenDerm Product
during the twelve calendar months immediately preceding the date of inception of
such event.
"FDA" has the meaning set forth in Section 3(n)(i).
"FDCA" means the Federal Food, Drug and Cosmetic Act of 1938, as
amended from time to time.
"Financial Statements" has the meaning set forth in Section 3(h).
"$5.30 Options" means the following options to purchase shares of
Common Stock under which the exercise price per share of Common Stock is $5.30:
(i) Edward O'Connell - 5,000 shares; and (ii) Frank Pollard - 27,900 shares.
"Fixed Merger Consideration" has the meaning set forth in Exhibit C
attached hereto.
"Fixed Payment Dates" has the meaning set forth in Section 2(h)(ii).
"Foreign Plans" has the meaning set forth in Section 3(x)(vii).
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"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
"GenDerm Canada" means GenDerm Canada Inc., a Canadian corporation.
"GenDerm Products" means (i) all products sold or marketed by the
Target, at or prior to the Closing Date, including without limitation, Zostrix,
Zostrix-HP, Zostrix Sports, Zonalon, Novacet, Occlusal, Occlusal-HP, Dolorac,
Pentrax, Pentrax Gold, Salac, Texacort, Pramegel, Meted, Step-2, A-Fil, Packer's
Pine Tar Soap, Papulex, Quineprox and Occlucort, (ii) all products in
development by the Target at or prior to the Closing Date, including without
limitation Atoplex (barrier lipid complex in cream or lotion), Psoricap
(nutritional supplement for psoriasis), Zonacort (doxepin and corticosteroid),
Diabetic cream (dionethicone cream) and Selenium disulfide cream, (iii) all
products sold, marketed or developed after the Closing Date that utilize any of
the patents owned by or licensed to the Target as of the Closing Date, (iv)
Ovide lotion and Ovide cream and (v) any improved versions or variations of any
of the foregoing (it being expressly understood that the use on any other
product of a trademark that is used on any of the products referred to in
clauses (i) through (iv) shall not, in and of itself, be determinative of
whether such other product is an improved version or variation).
"Governmental Entity" means any regulatory body, agency,
instrumentality, department, commission, court, tribunal, authority or board of
any government, whether foreign or domestic and whether national, federal,
state, provincial or local.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended from time to time.
"Hearing" has the meaning set forth in Section 8(j)(v).
"Income Tax" means any federal, state, local or foreign income tax,
including any interest, penalty or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"Indemnified Party" means a party that is entitled to
indemnification from another party pursuant to Section 8; which term, for
purposes of any notice to be given to or by or any action to be taken by the
Seller Indemnitees, shall mean the Target Stockholders Representative.
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"Indemnifying Party" means a party that is required to provide
indemnification to another party pursuant to Section 8; which term, for purposes
of any notice to be given to or by or any action (other than payment) to be
taken by the Target Stockholders and holders of Options, shall mean the Target
Stockholders Representative.
"Intellectual Property" has the meaning set forth in Section
3(s)(i).
"Independent Firm" has the meaning set forth in Section 2(h)(iii).
"In-the-Money Option":
(i) For purposes of clause (i) of Section 5(j), means an Option
other than a $5.30 Option.
(ii) For purposes of clause (ii) of Section 5(j), means at the time
of any determination pursuant to such clause, (A) an Option other than a
$5.30 Option and (B) if the In-the-Money Condition is satisfied, a $5.30
Option. The In-the-Money Condition is satisfied if, as of the time of such
a determination, $5.30 is less than (A) the sum of (1) the Fixed Merger
Consideration, plus (2) the aggregate amount of any Escrow Distributions
then being or theretofore distributed plus (3) the aggregate amount
theretofore distributed to the Buyer with respect to Dissenting Shares
from amounts otherwise payable to the Target Stockholders Representative
Escrow Fund from the Merger Consideration Escrow Fund and not subsequently
paid by the Buyer to the Target Stockholders Representative Escrow Fund
plus (4) the aggregate exercise price of the unexercised portions of all
Options outstanding immediately prior to the Effective Time, divided by
(B) the aggregate number of shares of Common Stock outstanding immediately
prior to the Effective Time (for this purpose, treating each then
outstanding share of Series C Preferred Stock as if it had been converted
into Common Stock immediately prior to the Effective Time and each
unexercised portion of each then outstanding Option as if it had been
exercised immediately prior to the Effective Time and, if the time of such
determination is at or after the occurrence of the Series D Preferred
Condition, treating the shares of Series D Preferred Stock outstanding
immediately prior to the Effective Time as if they had been converted into
244,874 shares of Common Stock immediately prior to the Effective Time).
"Inventory" has the meaning set forth in Section 3(i).
"IRS" has the meaning set forth in Section 3(x)(ii).
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"Knowledge of the Target" means the actual knowledge, after due
inquiry of current employees of the Target and its Subsidiary, of Dr. Joel E.
Bernstein, the Target's Chairman of the Board, Henry Kuehn, the Target's
President and Chief Executive Officer and Frank R. Pollard, the Target's
Executive Vice President, Marketing and Sales.
"Leased Premises" has the meaning set forth in Section 3(r)(ii).
"Lehman Fee" shall mean the fee payable to Lehman Brothers Inc.
under the letter agreement, dated December 27, 1995, between Lehman Brothers
Inc. and the Target, with respect to any Consideration (as defined in such
letter agreement) paid by the Buyer in connection with the Merger.
"Letter of Intent" shall mean the letter of intent, dated October
17, 1997, executed by the Buyer, the Target and Joel E. Bernstein, M.D.
"Liabilities" has the meaning set forth in Section 3(l).
"Materials of Environmental Concern" has the meaning set forth in
Section 3(dd)(iii).
"Merger" has the meaning set forth in Section 2(a).
"Merger Consideration" for a Target Share of a particular class
means the Fixed Merger Consideration per Target Share of such class and the
Contingent Merger Consideration per Target Share of such class.
"Merger Consideration Escrow Agent" has the meaning set forth in
Section 2(g).
"Merger Consideration Escrow Agreement" means an Escrow Agreement
substantially in the form of Exhibit E attached hereto.
"Merger Consideration Escrow Fund" has the meaning set forth in
Exhibit D attached hereto.
"Most Recent Fiscal Year End" has the meaning set forth in Section
3(h).
"Multiemployer Plan" has the meaning set forth in ERISA Section
3(37).
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"New Jersey Employee Litigation" means Joel M. Appel, Gregory N.
Chletsos, Frank P. DiPrima and Kelly M. Kaplan v. GenDerm Corporation, a
Delaware corporation, Joel E. Bernstein, M.D., and Jeremy Silverman, No.
L-MRS-2903-97 (Superior Court of New Jersey Law Division: Morris County), and
any other litigation arising out of the same facts and circumstances as such
litigation.
"1999 Gross Sales" means aggregate worldwide gross sales of GenDerm
Products during the Earnout Period by the Buyer or any Earnout Transferee, any
of their respective Affiliates, the respective successors and assigns of any of
the foregoing and any authorized licensees of or other sellers authorized by any
of the foregoing; for purposes of which "gross sales" means total sales less
returns related to total sales during the Earnout Period but not otherwise
reduced (including without limitation by marketing, promotional or other sales
expense, freight or delivery expense) determined in accordance with GAAP (for
purposes of which gross sales shall be recognized upon shipment); except that
consignment sales shall be treated as gross sales when products are shipped
during the Earnout Period to the consignee (if and only to the extent that
payment is ultimately received). A sale of a GenDerm Product to the Buyer or an
Earnout Transferee or any Affiliate of the Buyer or an Earnout Transferee shall
be deemed to have occurred on an arms-length basis so that (irrespective of the
actual gross sales price of any such transaction) such sale shall be deemed to
have been made at a gross sales price equal to the price that would be paid for
such GenDerm Product by a non-affiliated party in a similar transaction; and no
subsequent sale by the Buyer or Earnout Transferee or Affiliate of the GenDerm
Product so accounted for shall be included in gross sales. Other than any sales
pursuant to or in connection with a Disposition to it after the Effective Time,
sales by Euroderma of any GenDerm Product shall not be included in 1999 Gross
Sales. A sale of any GenDerm Product during the Earnout Period in a currency
other than United States dollars shall be translated into the number of United
States dollars credited to the Buyer's account by the Buyer's primary banking
institution with respect to the currency received from such sale; provided that
any such sale of GenDerm Products with respect to which payment has not been
received on or prior to the end of the Earnout Period with respect to such
GenDerm Product shall be translated at the exchange rate of such currency into
United States dollars on the last day of such Earnout Period as reported in The
Wall Street Journal (National Edition); provided further that if such exchange
rate is not made available for the relevant day in The Wall Street Journal
(National Edition), the first day immediately preceding such day for which such
exchange rate is so available shall be the relevant day.
"NPL" has the meaning set forth in Section 3(dd)(i).
"Objection Notice" has the meaning set forth in Section 2(h)(iii).
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"Option" means each option to acquire Common Stock set forth in
Section 3(b) of the Target Disclosure Schedule.
"Party" has the meaning set forth in the preface.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity (or any
department, agency or political subdivision thereof).
"Plan" has the meaning set forth in Section 3(x)(i).
"Preferred Stock" means the Series C Preferred Stock and the Series
D Preferred Stock.
"Pre-Merger Charter Amendment" means the amendment to Section 6.5(d)
of the certificate of incorporation of the Target set forth on Exhibit K
attached hereto.
"Product-Related Litigation" means (i) Astoria Cosmetics Trading
Co., Inc. v. GenDerm Corporation and A.R.L. Distributors, Index No. 17265/95
(Supreme Court of New York for Kings County); and (ii) Gem Laboratories v.
GenDerm Corporation, No. 97-04959 (District Court of Travis County, Texas, 98th
Judicial District), and any other litigation arising out of the same facts and
circumstances as such litigation.
"RCRA" has the meaning set forth in Section 3(dd)(iii).
"Referenced Product" has the meaning set forth in Section 3(p).
"Related Company" has the meaning set forth in Section 3(x).
"Related Party" has the meaning set forth in Section 3(k).
"Remedial Activity" has the meaning set forth in Section 3(dd)(i).
"Requisite Stockholder Approval" means the affirmative vote or
consent in favor of the Pre-Merger Charter Amendment and adoption of this
Agreement of: (i) a majority of the total votes which the Common Stock and
Series C Preferred Stock are entitled to cast; (ii) the holders of greater than
66b% of the shares of Series C Preferred Stock and Series D Preferred Stock;
(iii) a
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majority of the outstanding shares of Series C Preferred Stock; and (iv) a
majority of the outstanding shares of Series D Preferred Stock.
"SEC Filings" has the meaning set forth in Section 4(g).
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest, other than (a) mechanic's, materialmen's and
similar liens for charges not yet due or being contested in good faith and (b)
inchoate liens for taxes not yet due and payable or for taxes that the taxpayer
is contesting in good faith.
"Seller Indemnitee" has the meaning set forth in Section 8(c).
"Series C Preferred Stock" means the Series C Preferred Stock, no
par value, of the Target.
"Series D Preferred Condition" has the meaning given in Exhibit C
attached hereto.
"Series D Preferred Stock" means the Series D Preferred Stock, no
par value, of the Target.
"Set Aside" has the meaning set forth in Exhibit F attached hereto.
"Shareholders Agreement" means the Shareholders Agreement, dated
April 15, 1986, by and between GenDerm Corporation (an Illinois corporation),
those persons and entities set forth on Schedule I thereto and Joel E.
Bernstein, M.D., individually and as Trustee u/t/d July 26, 1983, as amended.
"Subsidiary" means any corporation with respect to which a specified
Person (and/or one or more Subsidiaries thereof) owns a majority of the common
stock or has the power to vote or direct the voting of sufficient securities to
elect a majority of the directors.
"Survival Period" has the meaning set forth in Section 8(d)(i).
"Surviving Corporation" has the meaning set forth in Section 2(a).
"Target" has the meaning set forth in the preface.
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"Target Approvals" has the meaning set forth in Section 3(gg).
"Target Disclosure Schedule" means the schedule entitled "Target
Disclosure Schedule" heretofore delivered by the Target and initialed by the
Parties for identification, which schedule is arranged in sections corresponding
to the lettered and numbered subsections contained in Section 3.
"Target Material Adverse Effect" means any event, claim, occurrence
or change in circumstances that has or could reasonably be expected to have a
material adverse effect upon the properties, assets, business, financial
condition, results of operations or prospects of the Target and its Subsidiary,
or the Surviving Corporation and its Subsidiary, in each case taken as a whole.
"Target Share" means any share of Common Stock, Series C Preferred
Stock or Series D Preferred Stock outstanding immediately prior to the Effective
Time.
"Target Stockholder" means any Person who or which holds any Target
Share immediately prior to the Effective Time.
"Target Stockholders Representative" initially means Henry Kuehn,
Joel E. Bernstein, M.D. and Jeremy H. Silverman, who shall serve together in
such capacity and while serving together shall act upon the written direction of
a majority of such individuals. In the event Henry Kuehn ceases for any reason
to act in such capacity, Neal S. Penneys, M.D., Ph.D. shall then replace him in
such capacity. In the event Neal S. Penneys, M.D., Ph.D. ceases for any reason
to act in such capacity, Frank A. Ehmann shall replace him in such capacity. In
the event Jeremy H. Silverman ceases for any reason to act in such capacity, a
successor designated by Frontenac Company shall replace him in such capacity. If
Joel E. Bernstein, M.D. ceases for any reason to act in such capacity, a
successor designated by his principal heir shall replace him in such capacity.
The individuals serving as the Target Stockholders Representative shall not be
entitled to any remuneration (other than out-of-pocket expenses) for their
service in such capacity, except that Henry Kuehn and any of his successors
shall be entitled to a semi-annual fee of up to $25,000 as determined by the
other individuals serving as the Target Stockholders Representative out of the
Target Stockholders Representative Escrow Fund. Upon any change in or succession
pursuant to the foregoing, the then acting or successor Target Stockholders
Representative shall immediately notify the Buyer, the Merger Consideration
Escrow Agent and the Target Stockholders Representative Escrow Agent of such
change or succession (including the names of all of the individuals then serving
as the Target Stockholders Representative). The Parties acknowledge and agree
that any liability of the Target Stockholders Representative to the Buyer
contemplated by this Agreement or the Exhibits attached hereto shall be
satisfied only against the Target Stockholders
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<PAGE> 18
Representative Escrow Fund to the extent of any amounts then in the Target
Stockholders Representative Escrow Fund.
"Target Stockholders Representative Escrow Agent" has the meaning
set forth in Section 2(f).
"Target Stockholders Representative Escrow Agreement" means an
Escrow Agreement substantially in the form of Exhibit G attached hereto.
"Target Stockholders Representative Escrow Fund" has the meaning set
forth in Exhibit F attached hereto.
"Taxes" means all taxes, charges, fees, premiums, levies, penalties,
customs, duties or like assessments or charges of any kind whatsoever imposed by
any United States federal, state or local, or provincial or foreign taxing
authority, including, but not limited to, Income Taxes, franchise or capital
stock taxes, sales taxes, use taxes, gross receipts taxes, real or personal
property taxes, excise taxes, transfer taxes, payroll, withholding, social
security or other taxes (including taxes or premiums for unemployment insurance
or similar governmental impositions), including any interest, penalties or
additions attributable thereto and any obligations under any agreements or
arrangements relating to the foregoing.
"Taxpayer" has the meaning set forth in Section 3(q).
"Tax Return" shall mean any report, return, statement or other
information (including any attached schedules or any amendments to such report,
return or other information) required to be supplied to or filed with a
Governmental Entity with respect to any Tax, including an information return,
claim for refund, amended return or declaration of estimated Tax.
"Third Party Claims" shall mean any claims for Damages which are
asserted or threatened by a Person, other than a Party or a successor or assign
of a Party (for purposes of which the Target Stockholders Representative shall
be deemed to be included), against any Indemnified Party or to which an
Indemnified Party is subject from such a Person.
"Third-Party Intellectual Property" has the meaning set forth in the
section of the Target Disclosure Schedule corresponding to Section 3(s)(i).
"Third Party Manufacturer" has the meaning set forth in Section
3(n)(iv).
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"Total Agreed Claims" means at any time the sum of (i) the amount of
all then pending Buyer Claims arising out of Third Party Claims (each valued at
the amount stated by the Third Party Claim claimant except to the extent the
amount or validity of the Buyer's Claim related thereto has been determined by
arbitration between the Buyer and the Target Stockholders Representative
pursuant to Section 8(j) (it being understood that such arbitration need not be
instituted when such Buyer's Claim is originally asserted), in which event the
Buyer's Claim related thereto shall be valued as determined by the arbitrator)
and (ii) the amount of all other then pending Buyer Claims (each valued at zero
dollars unless the validity of such amount (and of the Buyer's Claim related
thereto) has been determined by arbitration between the Buyer and the Target
Stockholders Representative pursuant to Section 8(j) (it being understood that
such arbitration need not be instituted when such Buyer's claim is originally
asserted), in which event such Buyer Claim shall be valued as determined by the
arbitrator). Notwithstanding the foregoing, if the Buyer and the Target
Stockholders Representative agree upon the value of a Buyer Claim, such agreed
value shall be substituted for the value thereof determined pursuant to the
preceding sentence.
"Transitory Subsidiary" has the meaning set forth in the preface.
"Transfer" shall have the meaning set forth in Section 2(l).
"Unaudited Financial Statements" has the meaning set forth in
Section 3(h).
SECTION 2. BASIC TRANSACTION.
(a) The Merger. On and subject to the terms and conditions of this
Agreement and in accordance with Delaware Corporation Law, the Transitory
Subsidiary shall merge with and into the Target (the "Merger") at the Effective
Time. Following the Merger, the separate corporate existence of the Transitory
Subsidiary shall cease and the Target shall be the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all of the rights and
obligations of the Transitory Subsidiary in accordance with the Delaware
Corporation Law.
(b) The Closing. The closing of the Merger (the "Closing") shall take
place at the offices of Kirkland & Ellis, 200 East Randolph Drive, Chicago,
Illinois 60601, at 10:00 a.m. local time on December 3, 1997 (or, if all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective parties are to take at the Closing itself) are not then satisfied or
waived, on the second business day following the satisfaction or waiver of all
such conditions) or such other date as the Parties may mutually determine (the
"Closing Date").
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<PAGE> 20
(c) Actions at the Closing; Effective Time. Subject to the
satisfaction or waiver of the conditions set forth in Section 6, at the Closing
the Target and the Transitory Subsidiary shall cause the filing with the
Secretary of State of the State of Delaware of (i) a certificate of amendment
with regard to the Pre-Merger Charter Amendment meeting the requirements of
Section 242 of the Delaware Corporation Law (the "Certificate of Amendment") and
then (ii) a certificate of merger with regard to the Merger meeting the
requirements of Section 251(c) of the Delaware Corporation Law (the "Certificate
of Merger") executed in accordance with Section 103 of the Delaware Corporation
Law. The Merger shall become effective at the effective time set forth in the
certified copy of the Certificate of Merger issued by the Delaware Secretary of
State with respect to the Merger (the "Effective Time"). The Surviving
Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf of
either the Target or the Transitory Subsidiary in order to carry out and
effectuate the transactions contemplated by this Agreement.
(d) Effect of Merger.
(i) General. The Merger shall have the effects set forth in
Section 259(a) of the Delaware Corporation Law.
(ii) Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of the Transitory Subsidiary in effect
immediately prior to the Effective Time (attached as Exhibit A hereto)
shall become the Certificate of Incorporation of the Surviving
Corporation, without any modification or amendment, except that the name
of the Surviving Corporation set forth therein shall be changed to GenDerm
Corporation.
(iii) Bylaws. At the Effective Time, the Bylaws of the Transitory
Subsidiary in effect immediately prior to the Effective Time (attached as
Exhibit B hereto) shall become the Bylaws of the Surviving Corporation,
without any modification or amendment, except that the name of the
Surviving Corporation set forth therein shall be changed to GenDerm
Corporation.
(iv) Directors and Officers. At the Effective Time, the directors
and officers of the Transitory Subsidiary immediately prior to the
Effective Time shall become the directors and officers of the Surviving
Corporation (retaining their respective positions and terms of office).
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<PAGE> 21
(v) Conversion of Target Shares. At and as of the Effective Time,
(A) Shares of Common Stock held in the treasury of Target
immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and no payment shall be
made with respect thereto.
(B) Each Target Share of each particular class shall be
converted automatically and without any action on the part of the
holder thereof into the following rights, subject to the subsequent
provisions of this Section 2, and shall have no other rights:
(1) the right to receive the applicable Fixed Merger
Consideration per Target Share of such class set forth on
Exhibit C attached hereto; and
(2) the right to receive the applicable Contingent
Merger Consideration per Target Share of such class set forth
on Exhibit C attached hereto.
(C) In the event that, subsequent to the Effective Time, any
Target Stockholder causes any Target Share to become a Dissenting
Share, the provisions of (B) above shall cease, ab initio, to apply
to such Target Share and such Dissenting Share shall thereupon be
converted into the right to receive payment from the Surviving
Corporation with respect thereto in accordance with the Delaware
Corporation Law; provided, that if such Dissenting Share thereafter
ceases to be a Dissenting Share, it shall thereupon be deemed to be
converted as of the Effective Time into the right to receive the
Merger Consideration for such share, without interest thereon.
No Common Stock or Preferred Stock shall be deemed to be outstanding, or
to have any rights other than those set forth above in this Section
2(d)(v), after the Effective Time.
(vi) Conversion of Capital Stock of the Transitory Subsidiary. At
the Effective Time, each share of Common Stock, par value $0.01 per share,
of the Transitory Subsidiary shall be converted automatically and without
any action on the part of the holder thereof into one share of Common
Stock, par value $0.01 per share, of the Surviving Corporation.
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<PAGE> 22
Options shall be treated as set forth in Section 5(j).
(e) Dissenting Shares Procedure. Within ten days after the Effective
Time, the Buyer and the Surviving Corporation shall notify each Target
Stockholder as provided in Section 262(d)(2) of the Delaware Corporation Law.
The Buyer shall give the Target Stockholders Representative prompt notice of (i)
any demand of appraisal rights received by the Buyer or the Surviving
Corporation subsequent to the Effective Time and (ii) any subsequent withdrawal
of any such demand.
(f) Target Stockholders Representative Escrow Fund; Procedure.
(i) At the Effective Time, the Buyer shall furnish to First
Trust National Association (together with any successor thereto pursuant
to the Target Stockholders Representative Escrow Agreement, the "Target
Stockholders Representative Escrow Agent") the following amounts:
(A) An amount of cash equal to the Fixed Merger Consideration;
and
(B) $2,250,000 in cash as a reserve for certain expenses of
the Target Stockholders Representative.
(ii) In accordance with Exhibit F attached hereto, the Target
Stockholders Representative shall mail a letter of transmittal (with
instructions for its use) to each record holder of Target Shares for the
holder to use in surrendering the certificates which represented his
Target Shares against payment of the Fixed Merger Consideration therefor.
(iii) All such cash furnished to the Target Stockholders
Representative Escrow Agent, any portion of any Earnout Payment paid into
the Target Stockholders Representative Escrow Fund pursuant to Section
2(h)(ii) and any other amount received by the Target Stockholders
Representative Escrow Fund from the Buyer or the Merger Consideration
Escrow Fund pursuant to this Agreement, and the income thereon, if any,
shall be held, invested, administered and distributed by the Target
Stockholders Representative Escrow Agent in accordance with the Target
Stockholders Representative Escrow Agreement, and shall be dealt with by
the Target Stockholders Representative in accordance with Exhibit F.
(iv) The Target acknowledges that income earned on assets held by
the Target Stockholders Representative Escrow Agent and expenses of the
Target Stockholders
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<PAGE> 23
Representative paid from such assets shall be attributed for purposes of
taxation to the Target Stockholders and the holders of Options, who shall
be responsible for filing all necessary tax returns with respect thereto
and for the payment of all taxes thereon and related thereto.
(g) Merger Consideration Escrow Fund; Procedure. At the Effective
Time, the Buyer shall furnish to First Trust National Association (together with
any successor thereto pursuant to the Merger Consideration Escrow Agreement, the
"Merger Consideration Escrow Agent") $11 million in cash to secure the
indemnification rights of the Buyer Indemnitees under Section 8. All such cash
furnished to the Merger Consideration Escrow Agent and any portion of any
Earnout Payment paid into the Merger Consideration Escrow Fund pursuant to
Section 2(h)(ii), and the income thereon, if any, shall be dealt with by the
Buyer and the Target Stockholders Representative in accordance with the terms of
Exhibit D attached hereto and shall be held, invested, administered and
distributed by the Merger Consideration Escrow Agent in accordance with the
terms of the Merger Consideration Escrow Agreement.
(h) Earnout Amount.
(i) Amount. The "Earnout Amount" shall equal the lesser of (a)
1999 Gross Sales less $31 million and (b) $20 million. If 1999 Gross Sales
are less than $31 million, the Earnout Amount shall be zero.
(ii) Payment. The Earnout Amount, if any, shall be paid by Buyer
one-half on February 1, 2000 and one-half on August 1, 2000 (the "Fixed
Payment Dates"); provided that (x) if the Earnout Period for any GenDerm
Product is extended pursuant to Section 2(h)(vi) any payment for the
extension period shall be paid at the next Fixed Payment Date or, if there
is no next Fixed Payment Date, within 30 days after the end of such
extension period; and (y) if payment for products shipped to a consignee
during the Earnout Period remains open at the conclusion of the Earnout
Period for the consigned product, any Earnout Amount due with respect to
the ultimate receipt of payment for such product shall be paid at the next
Fixed Payment Date or, if there is no next Fixed Payment Date, within 30
days after such receipt. If the Buyer is required to pay the Earnout
Amount and if the payment of any portion of the Earnout Amount is delayed
beyond its due date for any reason (including as a result of a
determination that the Earnout Amount is greater than that reflected in a
Draft Calculation), the Buyer shall also be required to pay interest at
the Applicable Rate on the amount which is delayed with respect to the
period from its due date until the payment of such amount by the Buyer.
Subject to the limitation in Section 2(a) of Exhibit D with respect to the
Capitalization Reserve, if at the time such a portion (and any interest
thereon) is payable, the balance then in the Merger Consideration Escrow
Fund does
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<PAGE> 24
not cover then pending timely indemnity claims of the Buyer Indemnitees
pursuant to Section 8(b), such portion (and any interest thereon) shall be
paid by the Buyer into the Merger Consideration Escrow Fund to the extent
of such shortfall and the balance (less .5% of such balance, representing
the portion of the Lehman Fee to which Lehman Brothers Inc. is entitled on
account of the payment of such balance) shall be paid by wire transfer of
immediately payable funds into the Target Stockholders Representative
Escrow Fund. The Buyer shall withhold from any amount otherwise payable as
Earnout Amount that portion thereof attributable to any Target Shares that
are then Dissenting Shares, which withheld amount shall be retained by the
Buyer and either (i) paid to the holder of such Dissenting Shares upon and
in accordance with the resolution of the demand for appraisal of such
Target Shares or (ii) paid by wire transfer of immediately available funds
into the Target Stockholders Representative Escrow Fund upon the
withdrawal of the demand for appraisal of such Target Shares, as
applicable.
(iii) Determination of 1999 Gross Sales. On February 1, 2000, the
Buyer and its independent auditors will deliver to the Target Stockholders
Representative a computation of 1999 Gross Sales based on a compilation
prepared by the Buyer and its independent auditors of the financial
statements of the Buyer and its Subsidiaries regarding gross sales of
GenDerm Products for calendar year 1999 (the "Draft Calculation"), with
respect to which compilation such independent auditors shall have
justified the sales recognition process (and the Draft Calculation shall
include such independent auditors' confirmation thereof). In the event the
Earnout Period is extended beyond calendar year 1999 with respect to any
GenDerm Product on account of an Event of Force Majeure or payment for
products shipped to a consignee during the Earnout Period remains open at
the conclusion of the Earnout Period for the consigned product, the Buyer
and its independent auditors will promptly after the end of such extension
or the ultimate receipt of payment for such products deliver a revised
computation similarly based and confirmed (also a "Draft Calculation").
The Buyer and its auditors will (i) make available to the Target
Stockholders Representative and its agents, attorneys and accountants upon
reasonable advance notice all records and work papers necessary to
understand each Draft Calculation and to calculate 1999 Gross Sales and
(ii) allow the Target Stockholders Representative and its agents,
attorneys and accountants upon reasonable advance notice to interview any
Buyer personnel or independent auditor personnel significantly involved in
the preparation of such Draft Calculation regarding such Draft
Calculation. If the Target Stockholders Representative disagrees with the
computation of 1999 Gross Sales reflected on a Draft Calculation, the
Target Stockholders Representative may, within 15 days after receipt of
the Draft Calculation, deliver a notice (an "Objection Notice") to the
Buyer setting forth the Target Stockholders Representative's objections
and, to the extent reasonably possible, 1999 Gross
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<PAGE> 25
Sales as determined by the Target Stockholders Representative. The Buyer
and the Target Stockholders Representative will use reasonable efforts to
resolve any disagreements as to the computation of 1999 Gross Sales, but
if they do not obtain a final resolution within 15 days after the Buyer
has received the Objection Notice, the Buyer and the Target Stockholders
Representative will jointly retain an independent accounting firm of
recognized national standing that is not a public accountant of the Buyer,
the Target or any of their respective Affiliates (an "Independent Firm")
to resolve any remaining disagreements. If the Buyer and the Target
Stockholders Representative are unable to agree on the choice of an
Independent Firm, the choice will be selected by lot from those "big-six"
accounting firms that are Independent Firms or, if no "big-six" accounting
firm is an Independent Firm or is willing to serve, selected by lot from
those Independent Firms that are willing to serve. The Buyer and the
Target Stockholders Representative will direct the chosen Independent Firm
to render a determination within 20 days of its retention and the Buyer
and the Target Stockholders Representative and their respective agents
will cooperate with the chosen Independent Firm during its engagement. The
chosen Independent Firm will consider only those issues related to the
Draft Calculation set forth in the Objection Notice which the Buyer and
the Target Stockholders Representative have been unable to resolve. The
determination of the chosen Independent Firm will be based on and
consistent with the definition of 1999 Gross Sales included herein. The
determination of the chosen Independent Firm will be conclusive and
binding upon the Buyer, the Target Stockholders Representative, the Target
Stockholders and the Option holders. In any proceeding described above in
this paragraph (iii), all of the costs and expenses of the Buyer, all of
the reasonable costs and expenses of the Target Stockholders
Representative (including reasonable attorneys' fees) and all costs and
expenses of the chosen Independent Firm shall be borne (i) by Buyer in the
event the Draft Calculation is lower than the amount of 1999 Gross Sales
as determined by the chosen Independent Firm by an amount in excess of 5%
of the amount of the 1999 Gross Sales set forth in the Draft Calculation
(or 5% of any additional 1999 Gross Sales set forth in any Draft
Calculation subsequent to the initial Draft Calculation required by any
extension of the Earnout Period for any GenDerm Product or by any receipt
of payment for a consignment sale) or (ii) by the Target Stockholders
Representative in the event any Draft Calculation is either (x) lower than
the amount of 1999 Gross Sales as determined by the chosen Independent
Firm by an amount less than $250,000 or (y) equal to or higher than the
amount of 1999 Gross Sales as determined by the chosen Independent Firm,
otherwise each party shall bear its own costs and expenses and all costs
and expenses of the chosen Independent Firm shall be divided equally
between the parties.
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<PAGE> 26
(iv) Information Rights. At all times from the Closing Date until
the final determination of the amount of the Earnout Payment, the Buyer
shall (and shall cause its Affiliates to) provide the Target Stockholders
Representative and its agents, attorneys and accountants with reasonable
access, upon reasonable advance notice, to such books and records of the
Buyer and its Affiliates and the Earnout Transferees regarding sales of
GenDerm Products which are necessary to determine the Earnout Amount.
Within 45 days following the end of each of the first three calendar
quarters during the Earnout Period, the Buyer shall provide the Target
Stockholders Representative with a statement setting forth the Buyer's
good faith determination of 1999 Gross Sales through the close of such
quarter (which statement shall not under any circumstances be binding on
the Target Stockholders Representative or the Buyer for purposes of
calculating 1999 Gross Sales). As a precondition to any Disposition, the
Buyer shall obtain the binding written agreement of the Earnout Transferee
to permit the Target Stockholders Representative to obtain such
information, have such access to books and records and have such other
rights with respect to the Earnout Transferee as are provided for with
respect to the Buyer in this Section 2(h) and the binding written
agreement of the Earnout Transferee to be bound by the provisions in
Section 2(h)(v) as if the Earnout Transferee were the Buyer. Any Earnout
Transferee and any subsequent transferee thereof shall in turn be bound by
this Section 2(h)(iv).
(v) Efforts by the Buyer. It is expressly understood (i) that as
the sole stockholder of the Target after the Closing, the Buyer will have
the power and right to control all aspects of the business and operations
of the Target and its Subsidiary, including the expenditure or not of
funds for the promotion of the GenDerm Products and the pricing of the
GenDerm Products, and (ii) that the Buyer intends to exercise or refrain
from exercising such power and right as it may deem appropriate and in the
best overall interests of the Buyer and its Affiliates as a whole taking
into account their respective conditions and prospects from time to time
(rather than the best interest of the Target and its Subsidiary as a
separate entity). It is also expressly understood that neither the Buyer
nor any of its Affiliates will take or omit to take any action that would
reasonably be expected to adversely affect the amount of 1999 Gross Sales
unless such action or omission is commercially reasonable without regard
to the existence of the Buyer's obligation with respect to the earnout
provided for in this Section 2(h).
(vi) Force Majeure. If any Event of Force Majeure occurs with
respect to any GenDerm Product, the Earnout Period shall be extended with
respect to the affected GenDerm Product for an amount of time equal to the
portion of calendar year 1999 in which sales of such GenDerm Product are
subject to such Event of Force Majeure. The Buyer shall promptly give
notice to the Target Stockholders Representative of any such Event of
Force
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<PAGE> 27
Majeure upon becoming aware of such event, and such notice shall include a
description of the nature of such event.
(i) Closing of Transfer Records. After the Effective Time, transfers
of Target Shares shall not be made on the stock transfer books of the Surviving
Corporation. If, after the Effective Time, certificates representing Target
Shares are presented to the Surviving Corporation, they shall be forwarded to
the Target Stockholder Representative to be canceled and exchanged for the
consideration set forth in this Section 2 deliverable in respect thereof
pursuant to this Agreement in accordance with the procedures set forth in this
Section 2.
(j) Delivery of Merger Consideration to Public Official. None of the
Buyer, the Transitory Subsidiary, the Target, the Surviving Corporation or any
other Persons shall be liable to any former holder of Target Shares or Options
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(k) Lost, Stolen or Destroyed Certificates. In the event any
certificate representing Target Shares shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such certificate, the Buyer will
issue in exchange for such lost, stolen or destroyed certificate a new
certificate that may be surrendered to the Target Stockholders Representative
pursuant to this Section 2.
(l) Transferability Restriction. The right of a Target Stockholder to
receive any Contingent Merger Consideration shall not be sold, assigned,
pledged, gifted, conveyed, transferred or otherwise disposed of (a "Transfer")
by any Target Stockholder, except by will or the laws of descent and
distribution. Any Transfer in violation of this Section 2(l) shall be null and
void.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE TARGET. The Target
represents and warrants to the Buyer and the Transitory Subsidiary that,
subject in the case of the representations and warranties in each particular
section below to the exceptions set forth in the corresponding section of the
Target Disclosure Schedule and, with respect to the representations and
warranties set forth in the first sentence of Section 3(b), subject to changes
resulting from exercises of Options or conversions of Preferred Stock in
accordance with their terms:
(a) Organization, Qualification and Corporate Power. Each of the
Target and its Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of
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the jurisdiction of its incorporation. The Target is qualified to do business
and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the failure to be so qualified would not
have a material adverse effect on the business, operations, assets, liabilities,
financial condition or prospects of the Target. The Target's Subsidiary is
qualified to do business and is in good standing under the laws of each
jurisdiction where such qualification is required, except where the failure to
be so qualified would not have a material adverse effect on the business,
operations, assets, liabilities, financial condition or prospects of such
Subsidiary. The Target and its Subsidiary have corporate power and corporate
authority to carry on the businesses in which they are engaged and to own and
use the properties owned or used by them, and have obtained all licenses,
permits, franchises and other governmental authorizations necessary to the
ownership or operation of such properties or the conduct of such businesses.
(b) Capitalization. The entire authorized capital stock of the Target
consists of: (i) 25,000,000 shares of Common Stock, of which 11,545,801 shares
are issued and outstanding and no shares are held in treasury, (ii) 181,818
shares of Series C Preferred Stock, of which 178,932 shares are issued and
outstanding (and are convertible into 894,660 shares of Common Stock) and no
shares are held in treasury and (iii) 69,964 shares of Series D Preferred Stock,
of which 69,964 shares are issued and outstanding and no shares are held in
treasury. All of the issued and outstanding shares of capital stock of the
Target have been validly issued and are fully paid, nonassessable and free of
preemptive rights. There are no outstanding stock appreciation rights,
subscriptions, options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or arrangements,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating the Target to issue, deliver, sell or
cause to be issued, delivered or sold, additional shares of the capital stock of
the Target or obligating the Target or its Subsidiary to grant, extend or enter
into any such agreement or commitment except pursuant to this Agreement. There
are no commitments, understandings, restrictions or arrangements obligating the
Target to purchase, redeem or acquire, or register under any securities law any
shares of capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe to any shares of capital
stock of the Target. Except for any obligations in connection with this
Agreement, there are no stockholder agreements, voting trusts or other
agreements or understandings to which the Target is a party or to which it is
bound relating directly or indirectly to any Common Stock or other capital stock
of the Target. The Target Disclosure Schedule sets forth a true, complete and
correct list of all of the stockholders of the Target, and their respective
record holdings of capital stock of the Target, as of December 1, 1997.
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(c) Authorization of Transaction. The Target has full corporate power
and corporate authority to execute and deliver this Agreement and all other
agreements contemplated hereby to which the Target is or is to be a party and to
consummate the transactions contemplated hereby and thereby; provided, however,
that the Target cannot consummate the Merger unless and until this Agreement and
the Pre-Merger Charter Amendment receive the Requisite Stockholder Approval and
the Certificate of Amendment is filed. The board of directors of the Target has
duly approved the Pre-Merger Charter Amendment and this Agreement and all other
agreements contemplated hereby to which the Target is or is to be a party and
has duly authorized the execution and delivery of this Agreement and all such
other agreements and the consummation of the transactions contemplated hereby
and thereby. Except for the Requisite Stockholder Approval, no other corporate
action is necessary for the consummation of the transactions contemplated
hereby. This Agreement and all such other agreements are valid and legally
binding obligations of the Target, enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting creditor's rights generally and limitations on the availability
of equitable remedies.
(d) Noncontravention; Approvals.
(i) The execution and delivery of this Agreement and the other
agreements contemplated hereby to which the Target is or is to be a party
does not, and the consummation by the Target of the transactions
contemplated hereby will not, violate, conflict with or result in a breach
of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by,
or result in a right of termination or acceleration under, or result in
the creation of any lien, security interest, charge or encumbrance upon
any of the properties or assets of the Target or its Subsidiary under any
of the terms, conditions or provisions of (1) the respective charter and
bylaws of the Target and its Subsidiary, (2) subject to obtaining the
Requisite Stockholder Approval and making the filings described in (ii)
below, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any Governmental Authority,
court or arbitrator applicable to the Target or its Subsidiary or any of
their respective properties or assets (except that no representation or
warranty is made with respect to any antitrust statute, regulation, rule
or other restriction) or (3) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, arrangement or agreement of any kind to which the Target or
its Subsidiary is now a party or by which the Target or its Subsidiary or
any of their respective properties or assets is bound or affected.
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(ii) Except for (1) the filings by the Target required by the
Hart-Scott-Rodino Act and (2) the filing of necessary certificates with
the State of Delaware in connection with the Pre-Merger Charter Amendment
and the Merger, no declaration, filing or registration with, or notice to,
or authorization, consent or approval of, any Governmental Authority or
third party is necessary for the execution and delivery of this Agreement
by the Target or the consummation by the Target of the transactions
contemplated hereby.
(e) Brokers' Fees. Neither the Target nor its Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, advisor,
finder or agent with respect to the transactions contemplated by this Agreement.
(f) Title to Assets. Each of the Target and its Subsidiary (i) has
good and marketable title to the assets it purports to own, free and clear of
all Security Interests, and (ii) enjoys peaceful and undisturbed possession
under all leases to which it is a party as lessee. All of the leases to which
the Target or its Subsidiary is a party are legal, valid and binding and in full
force and effect, and no default by the Target, its Subsidiary or, to the
Knowledge of the Target, any other party thereto has occurred or is continuing
thereunder. The Buyer and the Transitory Subsidiary acknowledge that the artwork
at the Target's Lincolnshire, Illinois Leased Premises and the furniture and
furnishings at Joel E. Bernstein's office at the Target's Lincolnshire, Illinois
Leased Premises are not owned by or leased to the Target or its Subsidiary.
(g) Subsidiaries. GenDerm Canada is the only Subsidiary of the Target.
The Target has never had any other Subsidiary. GenDerm Canada does not own,
lease or operate properties, or otherwise conduct business, in any jurisdiction
other than Canada. All of the outstanding shares of capital stock of GenDerm
Canada are validly issued, fully paid, nonassessable and free of preemptive
rights, and are owned directly by the Target free and clear of any liens,
claims, encumbrances, security interests, equities, charges and options of any
nature whatsoever. There are no outstanding stock appreciation rights,
subscriptions, options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or arrangements
relating to the issuance, sale, voting, transfer, ownership or other rights
affecting any shares of capital stock of GenDerm Canada, including any right of
conversion or exchange under any outstanding security, instrument or agreement.
Neither the Target nor GenDerm Canada directly or indirectly own any interest in
any other corporations, partnerships, joint ventures and other business entities
(other than the ownership of GenDerm Canada by the Target).
(h) Financial Statements. The financial statements previously
delivered to the Buyer (collectively, the "Financial Statements"), consisting of
audited consolidated balance sheets and
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audited consolidated statements of operations, cash flows and stockholders'
equity (and notes thereto) as of and for the fiscal years ended December 31,
1994, December 31, 1995 and December 31, 1996 (the "Most Recent Fiscal Year
End") and unaudited consolidated balance sheets and unaudited consolidated
statements of operations and cash flows as of and for the nine months ended
September 30, 1997 as revised (the "Unaudited Financial Statements") for the
Target and its Subsidiary have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods covered thereby and present fairly the
financial position of the Target and its Subsidiary at the dates thereof and the
results of their operations and the changes in their financial position for the
periods then ended, subject, in the case of the unaudited consolidated interim
financial statements, to any adjustments described therein and to the absence of
certain notes thereto.
(i) Inventory. All inventory of the Target and its Subsidiary which is
held for sale or resale, including raw materials, work in process and finished
goods (collectively, "Inventory"), consists of items of a quantity and quality
useable and/or saleable in the normal course of business, except for items of
obsolete and slow-moving material and materials which are below standard
quality, all of which that existed at September 30, 1997 have been written down
to estimated net realizable value in the Unaudited Financial Statements. With
the exception of items of below standard quality which have been or prior to the
Closing will be written down to their estimated net realizable value, the
Inventory is free from defects in materials and/or workmanship. The product mix
of the Inventory and the raw materials and work in process necessary to convert
to finished goods is not materially out of balance in relation to the Target's
and its Subsidiary's expectations of the demands of their customers for the next
twenty-four months. The Inventory is not excessive in kind or amount, or slow
moving, in light of the business of the Target and its Subsidiary done or
expected to be done within the next twenty-four months. All Inventory reflected
in the Financial Statements is valued at the lower of cost or market with cost
determined by the first in first out accounting method. Since the Most Recent
Fiscal Year End, there has not been a material increase in the level of
Inventory.
(j) Absence of Certain Changes or Events. Since the Most Recent Fiscal
Year End, there has not been: (i) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to the capital stock of the Target or any purchase, exchange or
redemption by the Target or its Subsidiary of any capital stock of the Target;
(ii) any increase (other than increases in accordance with past custom and
practice) compared to the compensation for 1996 in the compensation (including,
without limitation, bonuses, but excluding bonuses for 1996 accrued on the
Financial Statements for 1996) payable or to become payable by the Target or its
Subsidiary to any of its directors or officers; (iii) subject to exceptions
which, taken as a whole, are de minimis, any payment by the Target or its
Subsidiary of, or agreement by the Target or its Subsidiary to pay, any pension,
retirement allowance or other employee benefit to any
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of its past or present directors, officers or employees, except as required by
previously existing plans, agreements or arrangements and in accordance with
past custom and practice; (iv) any establishment by the Target or its Subsidiary
of any additional pension, profit-sharing, bonus, incentive, deferred
compensation, group insurance, retirement or other employee benefit plan, or of
any employment or consulting agreement with or for the benefit of any Person,
except in accordance with usual and customary practices; (v) subject to
exceptions which, taken as a whole, are de minimis, any sale, lease, assignment,
transfer or other disposition of any of the property, assets or business of the
Target or its Subsidiary or cancellation of any of the debts or claims of the
Target or its Subsidiary except in each case in the ordinary course of business
in accordance with past practice; (vi) subject to exceptions which, taken as a
whole, are de minimis, any increase in the obligations owed by the Target and
its Subsidiary for borrowed money, other than any increase in short-term
borrowings in the ordinary course of business consistent with past practice and
other than capital lease obligations in the ordinary course of business; (vii)
any acceleration of or change in the interest rate applicable to the obligations
of the Target and its Subsidiary for borrowed money or capital leases, other
than a periodic automatic change in the interest rate applicable to a variable
rate obligation; (viii) any increase in the obligations of the Target and its
Subsidiary for operating leases, other than operating leases in the ordinary
course of business; (ix) any change or amendment to the charter or bylaws (or
similar governing documents) of the Target or its Subsidiary; (x) any discharge
or satisfaction of any Security Interest or payment or prepayment of any
material obligation or liability (fixed or contingent) by the Target or its
Subsidiary, other than in the ordinary course of business and in accordance with
past custom and practice; (xi) any mortgaging, pledging or subjecting to any
Security Interest of any assets or properties of the Target or its Subsidiary;
(xii) any new investment by the Target or its Subsidiary in any Person other
than the Target or its Subsidiary, either by purchase of stock or securities,
loan, contribution to capital, property transfer, purchase of property or assets
or otherwise; (xiii) any waiver or release of any rights by the Target or its
Subsidiary; (xiv) any casualty loss or damage or interruption in the use of any
material asset (whether or not such loss or damage shall have been covered by
insurance); (xv) any Target Material Adverse Effect; (xvi) any writing off of
any material asset as unusable or obsolete or for any other reason; (xvii) any
change in accounting methods or principles; or (xviii) any binding commitment by
the Target or its Subsidiary to any of the things specified in clauses (i)
through (xvii) above, inclusive.
(k) Related Party Transactions. Since January 1, 1996, neither the
Target nor its Subsidiary has been a party to any transaction (other than
employee compensation and other ordinary incidents of employment) with a Person
who was at the time a Related Party. "Related Party" means any present or former
officer, director or affiliate of the Target or its Subsidiary, any present or
former holder of 10% or more of the Common Stock (determined on a fully diluted
basis after the assumed conversion of outstanding Preferred Stock into Common
Stock and the assumed
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exercise of outstanding options to purchase Common Stock) or any other Person
who, to the Knowledge of the Target, at the time relevant to the determination,
is or was a spouse, child, parent or sibling of any of the aforementioned
persons or is or was a trust or other similar entity for the benefit of any of
the foregoing persons. No property or interest in any property (including,
without limitation, designs and drawings concerning machinery) which relates to
and is or will be necessary or useful in the present or currently contemplated
future operation of the Target's or its Subsidiary's business, is presently
owned by or leased or licensed by or to any Related Party. Except for the
ownership of securities representing less than a 5% equity interest in various
publicly traded companies, neither the Target nor its Subsidiary has an
interest, directly or indirectly, in any business, corporate or otherwise, which
is in competition with the Target's or its Subsidiary's business.
(l) Absence of Undisclosed Liabilities. Neither the Target nor its
Subsidiary has any obligation or liability of any nature (whether known or
unknown and whether accrued, absolute, contingent, unliquidated, asserted or
unasserted, inchoate or choate or otherwise, including without limitation any
indemnification obligation described in Section 5(h)(ii)) (collectively,
"Liabilities") other than: (i) Liabilities stated or reserved against in the
Financial Statements, including the notes thereto, (ii) Liabilities for
borrowings from Bank of America National Trust and Savings Association in the
ordinary course of business and (iii) other Liabilities which have arisen
subsequent to September 30, 1997 in the ordinary course of business consistent
with past practice (none of which is a liability resulting from breach of
contract, breach of warranty (other than an ordinary course warranty), fraud or
other tort, infringement or lawsuit).
(m) Legal Compliance-General. The Target and its Subsidiary have not
violated and are not in violation of any Applicable Laws. No investigation,
review, inquiry or proceeding by any Governmental Entity with respect to the
Target or its Subsidiary is pending or, to the Knowledge of the Target,
threatened. Neither the Target nor its Subsidiary currently is subject to any
agreement, contract or decree with any Governmental Entity arising out of any
current or previously existing violations or alleged violations of Applicable
Laws.
(n) Legal Compliance-Food and Drug Administration.
(i) As to each prescription and over-the-counter product of the
Target or its Subsidiary for which a new or abbreviated new drug
application has been approved by the United States Food and Drug
Administration (the "FDA"), which product is described in the Target
Disclosure Schedule, the applicant and all Persons performing operations
covered by
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the application are in compliance with 21 U.S.C. Sections 355 or 357, 21
C.F.R. Parts 314 or 430 et. seq., respectively, and all terms and
conditions of such application.
(ii) Neither the Target nor its Subsidiary has filed any
establishment license application or product license application for any
biologic product.
(iii) The Target and its Subsidiary are in compliance with all
applicable registration and listing requirements set forth in 21 U.S.C.
Section 360 and 21 C.F.R. Part 207.
(iv) Neither the Target nor its Subsidiary conduct any
manufacturing operations. All manufacturing operations relating to the
business of the Target and its Subsidiary are conducted by third parties
(each a "Third Party Manufacturer"). To the Knowledge of the Target, all
manufacturing operations conducted by or on behalf of the Target and its
Subsidiary have been and are being conducted in compliance with the good
manufacturing practice regulations set forth in 21 C.F.R. Parts 210 and
211.
(v) Neither the Target nor its Subsidiary, nor their respective
officers, employees or agents, has made an untrue statement of a material
fact or fraudulent statement to the FDA, failed to disclose a material
fact required to be disclosed to the FDA, or committed an act, made a
statement or failed to make a statement that could reasonably be expected
to provide a basis for the FDA to invoke its policy respecting "Fraud,
Untrue Statements of Material Facts, Bribery, and Illegal Gratuities" as
set forth in 56 Fed. Reg. 46191 (September 10, 1991).
(vi) The Target has made available to the Buyer copies of any and
all reports of inspection observations, establishment inspection reports,
warning letters and any other documents received by the Target or its
Subsidiary from the FDA that indicate or suggest lack of compliance with
the FDA regulatory requirements by the Target, its Subsidiary or any
Person covered by a new or abbreviated new drug application of, or
otherwise performing manufacturing operations for the benefit of, the
Target or its Subsidiary.
(vii) Neither the Target nor its Subsidiary nor, to the Knowledge
of the Target, any Third Party Manufacturer, has received any notice that
the FDA has commenced, or threatened to initiate any action to withdraw
its approval or request the recall of any product of the Target or its
Subsidiary, or commenced or threatened to initiate any action to enjoin
production at any facility of the Target or its Subsidiary or any facility
at which a Third
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Party Manufacturer conducts manufacturing operations on behalf of the
Target and its Subsidiary.
(viii) As to each article of drug or consumer product
manufactured and/or distributed by the Target or its Subsidiary, which
products are described in the Target Disclosure Schedule, such article is
not adulterated or misbranded within the meaning of the FDCA, 21 U.S.C.
Sections 301c et. seq. in any manner that gives rise to any liability on
the part of the Target or its Subsidiary.
(ix) As to each product referred to in Section 3(n)(i), the
Target, its Subsidiary and their respective officers, employees, agents
and affiliates have included or caused to be included in the application
for such product, where required, the certification described in 21 U.S.C.
Section 335a(k)(l) and the list described in 21 U.S.C. Section 335a(k)(2),
and such certification and such list was in each case true and accurate
when made and remained true and accurate thereafter.
(x) Neither the Target nor its Subsidiary, nor their respective
officers, employees or agents, has been convicted of any crime or engaged
in any conduct for which debarment is mandated by 21 U.S.C. Section
335a(a) or authorized by 21 U.S.C. Section 335a(b).
(xi) As to each new or abbreviated new drug application submitted
to but not approved by the FDA, and not withdrawn by the Target, its
Subsidiary or any applicant acting on its or their behalf as of the date
of this Agreement, the Target and its Subsidiary have complied in all
material respects with the requirements of 21 U.S.C. Sections 355 and 357
and 21 C.F.R. Parts 312, 314 and 430 et. seq. and have provided all
additional information and taken all additional action requested by the
FDA in connection with the application.
(o) Warranties. Neither the Target nor its Subsidiary has made any
oral or written warranties to its customers with respect to the quality or
absence of defects of its products or services which it has sold or performed
which are in force as of the date hereof. There are no claims pending,
anticipated or threatened against the Target or its Subsidiary with respect to
the quality of, or existence of defects in, such products or services and, to
the Knowledge of the Target, there is no legitimate basis for any such claim.
The Target has made available to Buyer information which is accurate in all
material respects, regarding all returns of defective products (other than
expired products or products damaged in transit) during the period beginning
January 1, 1997 and ending on the date hereof, and all credits and allowances
for such defective products given or promised to customers during said period,
and said summary in each case accurately describes the defect which
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resulted in the return, allowance or credit. To the Knowledge of the Target, the
percentage of products sold and services performed by the Target and its
Subsidiary for which warranties are presently in effect and for which warranty
adjustments can be expected during unexpired warranty periods which extend
beyond the Closing will not be higher than eight percent of such products and
services. Neither the Target nor its Subsidiary has paid or been required to pay
direct, incidental or consequential damages to any person in connection with any
of such products or services.
(p) Product Liability. Neither the Target nor its Subsidiary has
received any notice or claim involving any product manufactured, licensed,
produced, distributed or sold by or on behalf of the Target or its Subsidiary
(each a "Referenced Product") resulting from an alleged defect in design,
manufacture, materials or workmanship, or any alleged failure to warn, or from
any breach of implied warranties or representations; nor, to the Knowledge of
the Target, is there any basis for any such notice or claim. The Referenced
Products sold by the Target since January 1, 1992 (i) have been sold and
marketed in compliance in all material respects with all Applicable Laws and
(ii) have been fit for the purposes for which they were intended to be used and
conformed in all material respects to any promises or affirmations of fact made
by Target, or with the authorization or consent of the Target, (x) on the
containers or labels therefor or (y) in connection with their sale. The Target
and its Subsidiary, and to the Knowledge of the Target their authorized
licensees or distributors, have obtained all approvals and clearances necessary
in order to market the current Referenced Products in any and all geographic
areas in which they are marketed by or on behalf of the Company and its
Subsidiary. To the Knowledge of the Target, there are no statements, citations
or decisions by any Governmental Entity that any current Referenced Product is
defective or fails to meet any standards promulgated by such Governmental
Entity. To Knowledge of the Target, there have been no recalls ordered by any
Governmental Entity with respect to any current Referenced Product. To the
Knowledge of the Target there is no (i) fact relating to any Referenced Product
that may impose upon the Target a duty to recall the same or to warn customers
of a defect therein or (ii) latent or overt design, manufacturing or other
defect in any Referenced Product. Section 3(p) of the Target Disclosure Schedule
sets forth all of the express product warranty, repair and replacement policies
and obligations, formal and informal, of the Target relating to the Referenced
Products manufactured or sold since January 1, 1992. To the Knowledge of the
Target there is no (i) fact relating to any Referenced Product that may impose
upon the Target any duty to recall such Referenced Product or duty to warn
customers of any defect in such Referenced Product or (ii) latent or overt
defect in any Referenced Product sold by the Target. All Referenced Products
sold by the Target contained adequate warnings presented in accordance with then
Applicable Laws and then current industry practice.
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(q) Taxes and Returns.
(i) Each current and former member of any Affiliated Group the
common parent or member of which is or was the Target (each a "Taxpayer")
has timely filed, or caused to be timely filed, all Tax Returns required
to be filed by it with respect to the period while such a member, and all
such returns were complete and accurate in all respects, and has paid,
collected or withheld, or caused to be paid, collected or withheld, all
material Taxes required to be paid, collected or withheld (whether or not
shown on a Tax Return) by it with respect to such period, other than such
Taxes for which adequate reserves in the Financial Statements have been
established or which are being contested in good faith. There are no
claims or assessments pending against any Taxpayer for any alleged
deficiency in any Tax payable by it with respect to such period, and
neither the Target nor its Subsidiary has been notified in writing of any
proposed Tax liens, claims or assessments against any Taxpayer relating to
such period (other than, in each case, claims or assessments for which
adequate reserves in the Financial Statements have been established or
which are being contested in good faith). No Taxpayer has granted any
waivers or extensions of any applicable statute of limitations to assess
any Taxes in excess of $10,000 relating to such periods. There are no
outstanding requests by any Taxpayer for any extension of time within
which to file any material Tax Return relating to such period or within
which to pay any material amounts of Taxes shown to be due on any Tax
Return relating to such period.
(ii) To the Knowledge of the Target, there are no liens for
amounts of Taxes on the assets of the Target or its Subsidiary except for
statutory liens for current Taxes not yet due and payable.
(iii) There have been no audits of any Taxpayer with respect to
taxable periods beginning on or after January 1, 1993, and there are no
ongoing audits of any Tax Returns filed by any Taxpayer, with respect to
the period while such Taxpayer was such a member. There are no ongoing
audit adjustments of Taxes that will affect taxable periods of the Company
and its Subsidiary subsequent to the last audit.
(iv) Section 3(q)(iv) of the Target Disclosure Schedule sets
forth all Income Tax elections made by any Taxpayer in the past four years
that remain in effect for such Taxpayer with respect to Taxes relating to
such period.
(v) There has not been made with respect to any Taxpayer, or any
property held by any Taxpayer, any consent under Section 341 of the Code
(or any corresponding
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provisions of state, local or foreign income Tax law) with respect to the
period while such Taxpayer was such a member.
(vi) No Taxpayer is party to any Tax sharing agreement or any
other agreement with respect to Taxes with respect to the period while
such Taxpayer was such a member.
(r) Real Property.
(i) Neither the Target nor its Subsidiary owns or has owned any
real property.
(ii) The Target Disclosure Schedule lists all real property now
or heretofore leased or subleased to or by the Target or its Subsidiary
(the "Leased Premises"). The Target has delivered to the Buyer correct and
complete copies of all leases and subleases for the Leased Premises. Each
such lease and sublease is legal, valid and binding. None of the
businesses conducted or proposed to be conducted by the Target or its
Subsidiary on the Leased Premises, and, to the Knowledge of the Target,
none of the improvements comprising the Leased Premises, are in violation
of any building line or use or occupancy restriction, limitation,
condition or covenant of record or any zoning or building law, code or
ordinance, public utility or other easement or other applicable law. No
condition currently exists at any of the Leased Premises that under the
terms of lease thereof will require an expenditure by the Target or its
Subsidiary either for the repair or maintenance of any improvements
thereon or in order for such Leased Premises to be used for their intended
purposes.
(s) Intellectual Property.
(i) The Target Disclosure Schedule sets forth an accurate and
complete list of all the following ("Intellectual Property"):
(1) all patents and patent applications owned by or filed by
the Target or its Subsidiary or used in the business or operations
of the Target or its Subsidiary, including the country of filing,
owner, filing number, date of issue, expiration date and title;
(2) all registered trademarks and applications for
registration of trademarks owned by or filed by or used by the
Target or its Subsidiary, including
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country of filing, description of goals or services, registration or
application number and date of issue;
(3) all registered copyrights and applications for
registration of copyrights owned by or filed by or used by the
Target or its Subsidiary, including country of filing, owner, filing
number, date of issue and expiration date;
(4) all common law trademarks, service marks, trade names,
slogans, trade dress and the like owned by the Target or its
Subsidiary or used in the business or operations of the Target or
its Subsidiary;
(5) all license agreements pursuant to which the Target or its
Subsidiary has outstanding rights to any intellectual property of
others and all agreements, oral or written, pursuant to which the
Target or its Subsidiary is obligated to pay royalties to third
parties with respect to such intellectual property; and
(6) all license agreements, oral or written, pursuant to which
the Target or its Subsidiary has granted to any person any
outstanding right to any intellectual property and all agreements,
oral or written, pursuant to which Target or its Subsidiary is
entitled to receive royalties from third parties with respect to
such intellectual property, including licenses or other rights in
unpatented formulations, manufacturing methods and other know-how
and proprietary information of the Target and its Subsidiary.
(ii) Complete and accurate copies of all patents, trademarks,
copyrights and applications referenced in clauses (1), (2) and (3) of
subsection (i) above and all agreements referred to in clauses (5) and (6)
of subsection (i) above have been made available to the Buyer. The
Intellectual Property referenced in clauses in (1), (2) and (3) has been
duly registered with, filed in or issued by, as the case may be, the
United States Patent and Trademark Office or such other government entity,
domestic or foreign to the extent necessary, and to the extent any
ownership of such Intellectual Property has been registered, the Target or
its Subsidiary is the registered owner thereof (other than with respect to
any Third-Party Intellectual Property), in each case free and clear of all
licenses or liens. The registered trademarks referenced in clause (2) of
subsection (i) above (other than the Quineprox trademark) are (i) valid
and (ii) enforceable in their respective countries of filing against
topical agents bearing the same name or otherwise infringing (as finally
determined by a court of competent jurisdiction) such trademarks, and the
Quineprox trademark
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referenced in clause (2) of subsection (i) above is (i) valid and (ii)
enforceable in its respective countries of filing against systemic drugs
bearing the same name or otherwise infringing (as finally determined by a
court of competent jurisdiction) such trademarks (except that in each case
no representation or warranty is made with respect to any country of
filing other than the United States and Canada).
(iii) The conduct of the business and operations of the Target
and its Subsidiary and their ownership, purchase, sale, licensing, use and
performance of the products or services of the Target and its Subsidiary
do not, to the Knowledge of the Target, contravene, conflict with, violate
or infringe upon any patent, trademark, service mark, copyright or other
intellectual property right of a third party and no proprietary
information or trade secret has been misappropriated by the Target or its
Subsidiary from any third party (except that no representation or warranty
is made with respect to the litigation described in clause (ii) of the
definition of "Product-Related Litigation"). In addition, the use,
licensing or sale by the Target or its Subsidiary of any of the
Intellectual Property does not require the acquiescence, agreement or
consent of any third party that has not been obtained.
(iv) To the Knowledge of the Target, no third party is infringing
upon any of the Intellectual Property, no claim exists that any of the
Intellectual Property is not valid or enforceable by the Target or the
Surviving Corporation and none of the Intellectual Property is subject to
any outstanding order, ruling, decree, judgment or stipulation by or of
any Governmental Authority.
(v) To the Knowledge of the Target, neither the Target nor its
Subsidiary has taken or omitted to take any action which would have the
effect of waiving any of their rights under any of the Intellectual
Property.
(vi) No licenses, sublicenses or other agreements relating to the
Intellectual Property exist which would limit or restrict the rights of
the Surviving Corporation to operate the business and operations of the
Target and its Subsidiary as conducted as of the Closing Date, or which
grant to a third party any rights in any Intellectual Property relating to
the business and operations of the Target and its Subsidiary as conducted
as of the Closing Date.
(vii) There are no oppositions, cancellations or governmental,
arbitration or other proceedings currently pending or to the Knowledge of
the Target threatened, that protest the rights of the Target or its
Subsidiary to use and/or register the trademarks and copyrights referenced
in clauses (2) and (3) of subsection (i) above.
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(viii) Neither Target nor its Subsidiary is making use of any
patentable or unpatentable invention or any confidential information in
the business and operations of the Target and its Subsidiary in which any
present or past employee of either of them has claimed or, to the
Knowledge of the Target has, an interest, and to the Knowledge of the
Target there are no facts that could reasonably be expected to give rise
to such a claim. To the Knowledge of the Target, there are no assertions
against it or any of its officers or directors of any conflicting rights
to any of the Intellectual Property which could have a Target Material
Adverse Effect. No employee has refused to assign to the Target or its
Subsidiary his or her rights to the Intellectual Property and no third
party retains any rights to the Intellectual Property.
(t) Validity of Contracts.
(i) Except for contracts, leases, commitments, plans, agreements
and licenses, together with all amendments thereto, listed on the Target
Disclosure Schedule (complete and accurate copies of which have been made
available to the Buyer), purchase orders for inventory issued in the
ordinary course of business in accordance with past practice and the
agreements entered into in connection with the Merger, the Target and its
Subsidiary are not a party to or subject to:
(1) any plan or contract providing for bonuses, pensions,
options, stock purchases, profit sharing, severance or termination
pay, collective bargaining or the like, or any contract or agreement
with any labor union;
(2) any employment contract or contract for services which
requires the payment of $25,000 or more annually or which is not
terminable within 60 days by the Target or its Subsidiary without
liability for any penalty or severance payment other than pursuant
to the severance policies of the Target existing on the date hereof;
(3) any contract or agreement for the purchase of any
commodity, material or equipment except purchase or sale orders in
the ordinary course for less than $25,000 each;
(4) any other contract or agreement creating any obligation of
the Target or its Subsidiary of $25,000 or more;
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(5) any contract or agreement providing for the purchase of
all or substantially all of its requirements of a particular product
from a supplier;
(6) any contract or agreement which by its terms does not
terminate within 60 days after the date hereof or is not terminable
by the Target or its Subsidiary or successor or assign within 60
days after the date hereof without payment of a penalty of $25,000
or more;
(7) any contract or agreement for the sale or lease of its
products or services not made in the ordinary course of business;
(8) any contract with any sales agent or distributor of
products or services of the Target or its Subsidiary;
(9) any contract containing covenants limiting the freedom of
the Target or its Subsidiary to compete in any line of business or
with any person or entity;
(10) any contract or agreement for the purchase of any fixed
asset for a price in excess of $25,000 whether or not such purchase
is in the ordinary course of business;
(11) any license agreement (as licensor or licensee);
(12) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money
or any related security agreement;
(13) any contract or agreement with any officer, employee,
director or stockholder of the Target or its Subsidiary or with any
person or organization which to the Knowledge of the Target is an
Affiliate of any of them, including any severance obligation;
(14) any partnership, joint venture or other similar contract,
arrangement or agreement;
(15) any registration rights agreement, warrant, warrant
agreement or other right to subscribe for securities, any voting
agreement, voting trust, shareholder
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agreement or other similar arrangement or any stock purchase or
repurchase agreement or stock restriction agreement; or
(16) any other contract (written or oral) not described in
clauses (1) through (15) above which is material to the business or
operations of the Target or its Subsidiary.
(ii) All contracts, leases, commitments, plans, agreements and
licenses, including those described in Section 3(t)(i) to which the Target
or its Subsidiary are parties or by which the Target or its Subsidiary are
obligated ("Contracts") are legal, valid and binding and, in the case of
each such contract, lease, commitment, plan, agreement and license
designated an "Identified Contract" on the Section of the Target
Disclosure Schedule corresponding to this Section 3(t)(ii), are
enforceable under the laws of the United States and Canada to the extent
necessary to permit the Target to realize the principal benefits purported
to be provided thereby. Neither the Target nor its Subsidiary, nor to the
Knowledge of the Target any other party to any Contract, is in default in
complying with any provisions thereof, and no condition or event or facts
exists which with notice, lapse of time or both would constitute a default
thereunder on the part of the Target or its Subsidiary or, to the
Knowledge of the Target, on the part of any other party thereto, in any
such case that could have a Target Material Adverse Effect.
(iii) There are no severance obligations of the Target other than
as set forth in Section 3(t)(iii) of the Target Disclosure Schedule.
(iv) No contract with a customer or supplier of the Target or its
Subsidiary provides for or permits, by its terms, the customer or supplier
to terminate the Contract at will, for convenience, without cause or upon
a change of the ownership or control of the Target (excluding any rights
not to renew or continue any such contract).
(v) No consent of any party to a Contract is required in
connection with the consummation of the transactions contemplated herein.
(u) Powers of Attorney. To the Knowledge of the Target, there are no
outstanding powers of attorney executed on behalf of the Target or its
Subsidiary.
(v) Litigation. The Target Disclosure Schedule sets forth each
instance in which the Target or its Subsidiary: (i) is subject to any
outstanding injunction, judgment, order, decree, ruling
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or charge or, to the Knowledge of the Target, review, or (ii) is a party to any
action, suit, proceeding, hearing or investigation of, in or before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction. The Target Disclosure Schedule also sets forth all actions, suits,
proceedings, hearings or investigations of, in or before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction with which, to the Knowledge of the Target, the Target or its
Subsidiary has been threatened. To the Knowledge of the Target, there are no
facts which, if known by a potential claimant or governmental authority, would
give rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Target or its Subsidiary, would have a Target Material
Adverse Effect before or after the Closing.
(w) Arbitration. Neither the Target nor its Subsidiary is a party to,
or bound by, any decree, order or arbitration award (or agreement entered into
in any administrative, judicial or arbitration proceeding with any Governmental
Authority) with respect to or affecting the properties, assets, personnel or
business activities of the Target or its Subsidiary.
(x) Employee Benefits and ERISA-Related Matters.
(i) Section 3(x)(i) of the Target Disclosure Schedule sets forth
each employee pension, defined benefit, defined contribution, retirement,
profit sharing, stock bonus, stock option, stock purchase, incentive,
deferred compensation, hospitalization, medical, dental, vision, life
insurance, tuition assistance, flexible spending account, premium
conversion, sick pay, vacation, disability, severance or other plan, fund,
program, policy, contract or arrangement providing employee benefits
administered, maintained or contributed to by the Target or its Subsidiary
in which any employee of the Target or its Subsidiary currently
participates, has participated or was eligible to participate or under
which any employee of the Target or its Subsidiary has accrued or is or
will be entitled to any benefits or pursuant to which the Target or its
Subsidiary has any liability, contingent or otherwise (individually, a
"Plan" and collectively, the "Plans"). Neither the Target nor its
Subsidiary is a plan fiduciary with respect to any such plan, fund,
program, policy, contract or arrangement that is not a Plan.
(ii) The Target has made available to Buyer true, complete and
correct copies, together with all amendments thereto, of (1) each Plan (or
in the case of any unwritten Plans, descriptions thereof), (2) the two
most recent annual reports on Form 5500, including all schedules and
attachments thereto filed with the Internal Revenue Service (the "IRS")
with respect to each Plan (if any such report was required), (3) the most
recent
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summary plan description for each Plan for which such a summary plan
description is required, (4) each trust agreement and group annuity
contract relating to any Plan; (5) reasonable evidence of adoption for
each Plan; and (6) a complete copy of each IRS determination letter for
each Plan for which such a letter was obtained. Neither the Target nor any
corporation or trade or business (whether or not incorporated) which is or
was treated as a member of the controlled group of the Target under
Section 4001(a)(14) of ERISA (the "Controlled Group"), while such a
member, is now sponsoring or contributing to or, during the five-year
period ending on the Closing Date, sponsored or contributed to, any Plan
subject to Title IV of ERISA.
(iii) Neither the Target nor its Subsidiary or any of the Plans,
or any trust created thereunder, or any trustee or administrator thereof,
or any other "disqualified person" within the meaning of Section
4975(e)(2) of the Code, has engaged in a transaction in connection with
which the Target or its Subsidiary could be subject to or liable for
either a liability or civil penalty assessed pursuant to Section 409,
502(i) or 502(l) of ERISA or a tax imposed pursuant to Sections 4971, 4972
and 4975 through 4980 of the Code.
(iv) Each of the Plans and any trust created thereunder has been
operated and administered in accordance with its terms and in compliance
with Applicable Laws, including but not limited to ERISA and the Code.
There are no pending or, to the Knowledge of the Target threatened,
claims, action, audits or examinations with respect to any of the Plans or
any trust created thereunder by any Governmental Authority. There are no
pending or, to the Knowledge of the Target threatened, claims with respect
to any of the Plans or any trust created thereunder, by any employee or
former employee that participated in, currently participates in, or is or
was eligible to participate in, or by any beneficiary covered under, any
Plan, or otherwise involving any Plan (other than routine claims for
benefits).
(v) With respect to each Plan, all contributions due and owing
for all periods ending prior to or as of the Closing Date shall have been
timely made under Applicable Laws or accrued for on the Financial
Statements. All account allocations required to have been made prior to
the Closing Date under each Plan and Applicable Laws shall have been made.
There are no unfunded Plans except as set forth in Section 3(x)(v) of the
Target Disclosure Schedule.
(vi) None of the Plans or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Section 302
of ERISA and Section 412 of
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the Code), whether or not waived, as of the last day of the most recent
fiscal year of such Plan. No contribution failure has occurred with
respect to any Plan sufficient to give rise to a lien under Section 302(f)
of ERISA.
(vii) With respect to any Plan that provides welfare benefits as
defined in Section 419(e) of the Code, except as disclosed in Section
3(x)(vii) of the Target Disclosure Schedule, such Plan is funded through a
welfare benefits fund, as such term is defined in Section 419(e) of the
Code.
(viii) With respect to any "welfare plan" (as defined in Section
3(1) of ERISA) which qualifies as a "group health plan" under Section
607(1) of ERISA and Section 4980B of the Code and related regulations
(relating to the benefit continuation rights imposed by COBRA), the
Target, its Subsidiary, such group health plan and the plan administrator
of such group health plan have all complied, in all material respects,
with all reporting, disclosure, notice, election and other benefit
requirements imposed under COBRA, as and when applicable; and the Target
has not incurred any direct or indirect liability, nor is the Target
subject to any loss, assessment, excise tax penalty, loss of federal
income tax deduction or other sanction arising on account of or in respect
of any direct or indirect failure to comply with such COBRA requirements.
(ix) With respect to each Plan that is funded wholly or partially
through an insurance policy, there will be no liability of the Target or
its Subsidiary due and owing as of the Closing Date that has not been
either paid or reasonably estimated and reserved for in accordance with
GAAP.
(x) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in
any payment (including, without limitation, severance, unemployment
compensation, golden parachute payments within the meaning of Section 280G
of the Code or otherwise) becoming due from the Target under any Plan, (B)
increase any benefits otherwise payable under any Plan or (C) result in
the acceleration of the time of payment or vesting of any such benefits.
(xi) The Target has not announced any plan or made any legally
binding commitment to create additional benefits which are intended to
cover employees or former employees of the Target or to make any amendment
or modifications to any Plan that covers or has covered or is available to
the Target's employees or former employees (other than a general
announcement of intent to comply with ERISA or the Code or pursuant to
Section
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5(j)). No payment under any Plan providing for payment by the Target will
not be deductible by the Target by reason of failure to comply with any
provisions of the Code.
(xii) The Target does not contribute to or participate in, nor has
it ever contributed to or participated in, any Multiemployer Plan.
(xiii) All employee benefit plans or programs maintained by the
Target's Subsidiary that are subject to foreign law, including any
deferred compensation or retirement program, any defined benefit or
defined contribution plan, any arrangement for the provision of current or
post-termination medical, health or life insurance, and any other employee
benefit, welfare, medical, disability, life insurance, stock, stock
purchase or stock option plan, program, agreement or arrangement ("Foreign
Plans"), comply in all respects with such foreign law, as well as with any
United States law or laws, if any, that apply to such Foreign Plans. All
required reports and notices related to Foreign Plans have been filed or
distributed. No material unfunded benefit obligations exist with respect
to the Foreign Plans, except as disclosed on the Financial Statements. All
contributions that are due and owing for all plan years prior to the date
hereof, as well as those due and owing for the current plan year, have
been paid with respect to each such Foreign Plan by the Target or its
Subsidiary.
(y) Regulatory Matters. The Target has made available to the Buyer
true, complete and correct copies of all regulatory permits, licenses,
certificates and other governmental authorizations and approvals of the Target
and its Subsidiary required from any Governmental Authority for the conduct of
the business of the Target and its Subsidiary on the date hereof, all of which
have been duly obtained and are in full force and effect; the Target and its
Subsidiary are in compliance with the terms and conditions thereof, and there
are no proceedings pending or, to the Knowledge of the Target, threatened
seeking to revoke, cancel or suspend, or to adversely modify, any thereof. The
consummation of the transactions contemplated hereby will not result in the
revocation, cancellation, suspension or adverse modification of any thereof.
Neither Target nor its Subsidiary is subject to or bound by any agreement,
judgment, decree or order which will, or can reasonably be expected to, have a
Target Material Adverse Effect.
(z) Labor and Employment Matters.
(i) The Target and its Subsidiary are and have been in compliance
in all material respects with all Applicable Laws respecting employment
and employment practices, terms and conditions of employment and wages and
hours, or relating to employment discrimination, equal opportunity,
affirmative action, worker's compensation,
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occupational safety and health requirements and unemployment insurance and
related matters, and are not engaged in and have not engaged in any unfair
labor practice, as defined under Applicable Laws.
(ii) The Target and its Subsidiary are not delinquent or in
arrears in payments to any of their respective officers, directors,
employees or agents for any wages, salaries, commission, overtime
payments, bonuses or other direct compensation for any services performed
by them or benefits required to be provided or amounts required to be
reimbursed to such officers, directors, employees or agents.
(iii) If the employment of any such officers, directors,
employees or agents terminates for any reason, neither the Target, its
Subsidiary nor the Buyer will, pursuant to any agreement in effect, or by
reason of any act or omission by the Target or its Subsidiary before the
Effective Time, be liable to any of such officers, directors, employees or
agents for so-called "severance pay" or any other payments, benefits or
damages.
(iv) There is no material controversy pending or, to the
Knowledge of the Target, threatened between the Target and its Subsidiary,
on the one hand, and any of its employees or consultants or former
employees or consultants, on the other hand.
(v) The Target and its Subsidiary (i) have never been and are not
now subject to a union organizing effort, (ii) are not subject to any
collective bargaining agreement with respect to any of their respective
employees and (iii) are not subject to any other contract, written or
oral, with any trade or labor union, employees' association or similar
organization.
(vi) The Target and its Subsidiary have no employment contracts
or consulting agreements currently in effect that are not terminable by
them at will (other than agreements with the sole purpose of providing for
the confidentiality of proprietary information or assignment of
inventions). To the Knowledge of the Target, (x) no employee of the Target
or its Subsidiary is in violation of any term of any employment contract,
patent disclosure statement, noncompetition agreement or other contract or
agreement, or restrictive covenant, with the Target or its Subsidiary,
relating to the right of such employee to be employed thereby or to use
the proprietary information of others, and (y) the employment of such
employee does not subject the Target or its Subsidiary to any claim by any
other Person.
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(vii) Target and its Subsidiary do not have and will not have at
the Effective Time more than 50 employees in the United States. A list as
of November 14, 1997 of all employees and officers of the Target and its
Subsidiary, their compensation and their accrued vacation and sick pay is
set forth on the Target Disclosure Schedule.
(aa) Insurance. The Target Disclosure Schedule contains a description
of all policies of fire, liability, workers' compensation and other forms of
insurance providing insurance coverage to or for the Target or its Subsidiary
(including any such policies which name the Target or its Subsidiary as a loss
payee or pursuant to which such party otherwise has rights). The Target and/or
its Subsidiary is a named insured under such policies owned by them, all
premiums with respect thereto have been paid when due and no notice of
cancellation or termination has been received with respect to any such policy.
All such policies owned by the Target or its Subsidiary and the coverage
provided thereunder are and will continue to be in full force and effect through
the Closing Date and no insurer thereunder has any right of payment, whether by
way of set-off, indemnity or otherwise, of any nature whatsoever, against the
Target or its Subsidiary in respect of any recovery under any such policy. In
the three (3) year period ending on the date hereof, neither the Target nor its
Subsidiary has received any written notice from, or on behalf of, any insurance
carrier relating to or involving an increase in insurance rates (except to the
extent that insurance risks may be increased for all similarly situated risks)
or non-renewal of a policy, or requiring or suggesting material alteration of
any of the Target's or its Subsidiary's assets, purchase of material additional
equipment or material modification of any of the Target's or its Subsidiary's
methods of doing business. Neither the Target nor its Subsidiary has made any
claim for reimbursement from its insurance carriers (other than health insurance
carriers) since January 1, 1992.
(bb) Condition of Assets. The tangible personal property, fixtures and
equipment owned or leased by the Target and its Subsidiary are in good operating
condition (ordinary wear and tear excepted), subject to de minimis exceptions.
Except for such assets and facilities as are immaterial to the business of the
Target or its Subsidiary, all tangible assets and facilities of the Target and
its Subsidiary are sufficient to conduct the respective businesses of the Target
and its Subsidiary as previously conducted prior to the date hereof.
(cc) Accounts Receivable. The trade accounts receivable reflected on
the balance sheet contained in the Unaudited Financial Statements and all trade
accounts receivable which have arisen since such date arose from bona fide
transactions in the ordinary course of business with unaffiliated third parties,
and otherwise represent valid receivables in accordance with GAAP. No such trade
account receivable is subject to any right of set-off or counter-claim. The
Target
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Disclosure Schedule lists each outstanding extension of a payment due date for a
trade account receivable beyond the date shown on the invoice therefor.
(dd) Environmental Matters.
(i) The Target has never used or handled any Materials of
Environmental Concern in connection with the development or manufacture of
its products. The Target and its Subsidiary conduct their businesses and
operations (including, without limitation, the handling and destruction of
any expired or other products) in compliance with all applicable
Environmental Laws and Environmental Permits. Neither the Target nor its
Subsidiary has received written notice of any claim, action, suit,
proceeding, hearing or investigation based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened
release into the environment, of any Material of Environmental Concern by
the Target or its Subsidiary (each an "Environmental Event"). To the
Knowledge of the Target, no notice of any Environmental Event related to
any of the Leased Premises has been given to the lessor thereof. Without
limiting the generality of the foregoing, neither the Target nor its
Subsidiary has disposed of or placed on or in any property or facility
used in its business any Material of Environmental Concern in violation of
any Environmental Laws or Environmental Permits, and to the Knowledge of
the Target, no third party has disposed of or placed on or in any property
or facility used in the business of the Target and its Subsidiary any
Material of Environmental Concern in violation of any Environmental Laws
or Environmental Permits. No Environmental Permits have been issued to the
Target or its Subsidiary, nor are there any environmental reports with
respect to the Leased Premises in the possession of the Target or its
Subsidiary that were conducted during the last five (5) years. None of the
Leased Premises is listed (A) on the National Priorities List ("NPL") or
its state equivalent or (B) in the Comprehensive Environmental Response
Compensation and Liability Information System ("CERCLIS") or its state
equivalent. Neither the Target nor its Subsidiary is currently required to
perform any removal or remedial action (as defined in CERCLA), any
corrective action (as defined in RCRA) or any similar remediation under
federal or state law (collectively "Remedial Activity"). To the Knowledge
of the Target, there are no facts which would require Remedial Activity.
To the Knowledge of Target, no wastes generated by the Target or its
Subsidiary have been disposed of at a site listed on or proposed for
listing on the NPL or its state equivalent.
(ii) The Disclosure Schedule sets forth a complete list of all
Containers that are now present at the Leased Premises or that have
heretofore been removed from the
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Leased Premises by the Target or its Subsidiary during their occupancy
thereof. All Containers which have been heretofore so removed from the
Leased Premises by or for the Target or its Subsidiary have been removed
and, to the Knowledge of the Target, handled after removal, in accordance
with all applicable Environmental Laws.
(iii) For the purposes of this Agreement: (1) "Environmental
Laws" means all federal, state and local statutes, regulations,
ordinances, rules and regulations, all court orders and decrees and
arbitration awards, and the common law, which pertain to protection of the
environment or contamination of the environment. Environmental Laws
include, without limitation, those relating to: manufacture, processing,
use, distribution, treatment, storage, disposal, generation or
transportation of Materials of Environmental Concern; air, surface or
ground water or noise pollution; protection of wildlife, endangered
species, wetlands or natural resources; Containers; and notification
requirements relating to the foregoing; (2) "Environmental Permits" means
licenses, permits, registrations, governmental approvals and consents
which are required under or are issued pursuant to Environmental Laws; (3)
"Materials of Environmental Concern" means (A) pollutants, contaminants,
pesticides, radioactive substances, solid wastes or hazardous or extremely
hazardous, special, dangerous or toxic wastes, substances, chemicals or
materials within the meaning of any Environmental Law, including without
limitation any (i) "hazardous substance" as defined in CERCLA and (ii) any
"hazardous waste" as defined in the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C., Sec. 6902 et. seq., and all amendments thereto and
reauthorizations thereof; and (B) even if not prohibited, limited or
regulated by Environmental Laws, all pollutants, contaminants, hazardous,
dangerous or toxic chemical materials, wastes or any other substances,
including without limitation, any industrial process or pollution control
waste (whether or not hazardous within the meaning of RCRA) which could
pose a hazard to the environment or the health and safety of any person,
or impair the use or value of any portion of the Leased Premises; and (4)
"Containers" means above-ground and underground storage tanks, vessels and
related equipment and containers.
(ee) State Takeover Statutes. The Board of Directors of the Target has
approved the Merger and all related transactions contemplated by this Agreement
to be entered into by the Target; and the provisions of Delaware Corporation Law
Section 203 will not impair, impede or prevent any transaction contemplated
hereby provided the Buyer is not a Person (or included in a Person) that is an
"interested stockholder" as defined under Delaware Corporation Law Section 203.
(ff) Vote Required. The Requisite Stockholder Approval is the only vote
of the holders of any class or series of Target capital stock necessary to
approve the Merger or the other transactions on the part of the Target
contemplated by this Agreement.
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(gg) Licenses and Permits. The Target Disclosure Schedule lists all
material permits, registrations, licenses, franchises, certifications and other
approvals (collectively, the "Target Approvals") required from any United States
or Canadian Governmental Entity in order for the Target and its Subsidiary to
conduct their respective businesses as currently conducted. The Target or its
Subsidiary has obtained all Target Approvals so required, which are valid and in
full force and effect. None of the Target Approvals so required is subject to
termination by its express terms as a result of the execution of this Agreement
by the Target or the consummation of the Merger.
(hh) Customers and Suppliers. The Target Disclosure Schedule sets forth
a true, complete and correct list of the 10 largest customers and the 10 largest
suppliers of the Target and its Subsidiary by dollar volume of purchases for the
year ended December 31, 1996, and for the nine month period ended September 30,
1997. The Target and its Subsidiary have not received any indication from any
material supplier of the Target or its Subsidiary to the effect that, and to the
Knowledge of the Target there is no reason to believe that, such supplier will
stop, or materially decrease the rate of, supplying materials, products or
services to the Target or its Subsidiary. The Target and its Subsidiary have not
received any indication from any material customer of the Target or its
Subsidiary to the effect that, and to the Knowledge of the Target there is no
reason to believe that, such customer will stop, or materially decrease the rate
of, buying materials, products or services from the Target or its Subsidiary.
(ii) Product Treatments; Product Returns. Neither the Target nor its
Subsidiary has offered any promotional allowance to any customer since April of
1997. Neither the Target nor its Subsidiary nor their agents provide any
customer-specific packaging or value added services (other than displays) with
respect to the products of the Target or its Subsidiary. The Target and its
Subsidiary have processed all material returns or requests for returns of
product of which the Target or its Subsidiary is aware. No customer of the
Target or its Subsidiary has refused to accept further shipments of products of
the Target or its Subsidiary since January 1, 1996. Neither the Target nor its
Subsidiary has outstanding any authorization to any of its customers to destroy
any product in lieu of returning such product to it.
(jj) Foreign Corrupt Practices Act. Each of the Target and its
Subsidiary has complied and has caused its employees, consultants, Affiliates,
representatives and agents to comply with applicable provisions of the Foreign
Corrupt Practices Act of 1977, as amended.
(kk) Complete Disclosure. This Agreement and the certificates and other
documents required to be delivered by the Target to the Buyer under this
Agreement as a condition to the Closing, taken together, do not contain a
statement of a material fact that is untrue in any material
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respect, or omit to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading in any material respect.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE
TRANSITORY SUBSIDIARY. Each of the Buyer and the Transitory Subsidiary
represents and warrants to the Target that:
(a) Organization, Qualification and Corporate Power. Each of the Buyer
and the Transitory Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation.
The Buyer and each of its Subsidiaries is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the failure to be so qualified would not
have a material adverse effect on the business, operations, assets, liabilities,
financial condition or prospects of the Buyer and its Subsidiaries, taken as a
whole. The Buyer and each of its Subsidiaries has corporate power and corporate
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.
(b) Authorization of Transaction. Each of the Buyer and the Transitory
Subsidiary has corporate power and corporate authority to execute and deliver
this Agreement and all other agreements contemplated hereby to which the Buyer
and/or the Transitory Subsidiary is or is to be a party and to consummate the
transactions contemplated hereby and thereby. The respective boards of directors
of the Buyer and the Transitory Subsidiary have duly approved this Agreement and
all other agreements contemplated hereby to which the Buyer and/or the
Transitory Subsidiary, as applicable, is or is to be a party, and have duly
authorized the execution and delivery of this Agreement and all such other
agreements and the consummation of the transactions contemplated hereby and
thereby. The Buyer, in its capacity as the sole stockholder of the Transitory
Subsidiary, has duly approved this Agreement. This Agreement and all such other
agreements constitute the valid and legally binding obligations of each of the
Buyer and the Transitory Subsidiary, enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy or other
laws affecting creditor's rights generally and limitations on the availability
of equitable remedies.
(c) Noncontravention. Neither the execution and delivery of this
Agreement and the other agreements contemplated hereby to which the Buyer and/or
the Transitory Subsidiary is or is to be a party, nor the consummation of the
transactions contemplated hereby and thereby, shall (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling,
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charge or other restriction of any government, governmental agency or court to
which the Buyer or any of its Subsidiaries is subject (except that no
representation or warranty is made with respect to any antitrust statute,
regulation, rule or other restriction) or any provision of the charter or bylaws
of the Buyer or any of its Subsidiaries or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which the Buyer or any of its Subsidiaries is a party or by which
it is bound or to which any of its assets is subject, except where such
violations, conflicts, breaches, defaults, accelerations, rights and notices in
the aggregate would not have a material adverse effect on the business,
operations or condition (financial or other) of the Buyer and its Subsidiaries,
taken as a whole. Other than in connection with the provisions of the
Hart-Scott-Rodino Act and the Delaware Corporation Law, neither the Buyer nor
the Transitory Subsidiary needs to give any notice to, make any filing with, or
obtain any authorization, consent or approval of, any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement.
(d) Brokers' Fees. Except for the fees payable to Corporate
Development Specialists, Inc., neither the Buyer nor any of its Subsidiaries has
any liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement for
which the Target or any of its Subsidiaries could become liable or obligated.
(e) Transitory Subsidiary. The Transitory Subsidiary's capital
consists of 100 shares of Common Stock, par value $1.00 per share, of which 100
shares are issued and outstanding. The Transitory Subsidiary has no other class
of securities authorized, issued or outstanding. All of the issued and
outstanding shares of capital stock of the Transitory Subsidiary have been duly
authorized and are validly issued, fully paid and nonassessable. The Buyer holds
of record and owns beneficially all of the outstanding shares of each class of
capital stock of the Transitory Subsidiary. There are no outstanding options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights or other contracts or commitments that could require the Transitory
Subsidiary to issue, sell or otherwise cause to become outstanding any
additional capital stock of the Transitory Subsidiary. There are no outstanding
stock appreciation, phantom stock, profit participation or similar rights with
respect to the Transitory Subsidiary.
(f) Buyer Stockholder Vote Not Required; Financing of Merger. No vote
or consent of any stockholder of the Buyer is required in connection with the
Merger. Buyer has the ability to fully finance the transactions contemplated by
this Agreement out of its available cash and liquid short-term investments
without any third-party consent or approval.
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(g) SEC Filings. The Buyer has heretofore delivered to the
Target true, correct and complete copies of the Buyer's (i) Annual Report on
Form 10-K for the year ended June 30, 1997, (ii) Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 and (iii) all other reports,
registration statements and other documents filed by the Buyer with the
Securities and Exchange Commission since June 30, 1997 (collectively, the "SEC
Filings"). As of their respective dates, the foregoing (including all exhibits
and schedules thereto and documents incorporated by reference therein) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
Buyer has filed all the material required to be filed by it pursuant to Sections
13, 14 or 15(d) of the Securities Exchange Act since June 30, 1997.
(h) Absence of Certain Changes or Events. Since September 30,
1997, there has not been any material adverse change in the business, operations
or condition (financial or other) of the Buyer and its Subsidiaries, taken as a
whole, or any binding commitment by the Buyer or any of its Subsidiaries to any
such change.
(i) Investment. The Buyer understands that the Target Shares
have not been, and shall not be, registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
United States federal and state exemptions for transactions not involving any
public offering. The Buyer acknowledges that it is acquiring the Target Shares
solely for its own account for investment purposes, and not with a view to, or
intention to effect, the distribution thereof in violation of the Securities Act
or any applicable state securities laws, and that the Target Shares may not be
disposed of in contravention of the Securities Act or any applicable state
securities laws. The Buyer represents that it is a sophisticated investor with
knowledge and experience in business and financial matters, is able to evaluate
the risks and benefits of the investment in the Target Shares, has received
certain information concerning the Target and its Subsidiary and has had the
opportunity to obtain additional information as desired in order to evaluate the
merits of and the risks inherent in purchasing the Target Shares.
SECTION 5. COVENANTS. The Parties agree as follows with
respect to the period from and after the execution of this Agreement.
(a) General. Each of the Parties shall use its reasonable best
efforts to take all action and to do all things necessary, proper or advisable
in order to consummate and make effective, as soon as reasonably practicable,
the transactions contemplated by this Agreement (including satisfaction, but not
waiver of, the closing conditions set forth in Section 6).
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(b) Notices. In addition to any notices required to be provided
in connection with the consummation of the proposed transaction, and whether or
not otherwise required to do so, each of the Parties shall (and the Target shall
cause its Subsidiary to) give any notices to third parties that any other Party
reasonably may request in connection with the Merger.
(c) Regulatory Matters and Approvals. The Target shall (and the
Target shall cause its Subsidiary to) give any notices to, make any filings
with, and use its reasonable best efforts to obtain any authorizations, consents
and approvals of, governments and governmental agencies in connection with the
matters referred to in Section 3(d). Without limiting the generality of the
foregoing:
(i) Delaware Corporation Law. Immediately following the
execution and delivery of this Agreement, the Target shall solicit the
written consents set forth under the caption "Consent" following the
signatures of the parties hereto of those of its stockholders whose
names appear under such caption. Promptly thereafter, and continuing
until the Closing Date, the Target shall solicit corresponding written
consents of certain other stockholders of the Target as heretofore
discussed with the Buyer. Such solicitation shall include a
recommendation of the Board of Directors of the Target in favor of
adoption of this Agreement and approval of the Pre-Merger Charter
Amendment.
(ii) Hart-Scott-Rodino Act. Each of the Buyer and the
Target has filed a Notification and Report Form and certain related
material in connection with the Merger with the Federal Trade
Commission and the Antitrust Division of the United States Department
of Justice under the Hart-Scott-Rodino Act. Each shall make any further
filings pursuant thereto that may be necessary, proper or advisable.
(d) Operation of Business. The Target shall, and shall cause its
Subsidiary to, conduct its business only in the ordinary course and consistent
with past practice, including using commercially reasonable efforts to preserve
intact its present business, to preserve its relationships with customers,
suppliers and others having material business dealings with it and to maintain
in full force and effect all material contracts, documents and arrangements.
Without limiting the generality of the foregoing, prior to the
Effective Time, unless the Buyer has consented in writing thereto (which consent
shall not be unreasonably withheld or delayed), the Target:
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(i) Shall not, and shall cause its Subsidiary not to,
propose to amend or amend their respective Certificate of Incorporation
or Bylaws or comparable governing instruments.
(ii) Shall promptly notify the Buyer of any material
emergency or other significant change in its or its Subsidiary's
condition (financial or otherwise), business, properties, assets,
liabilities, prospects or the normal course of business or of its
properties, or any material litigation or material governmental
complaints, investigations or hearings (or communications indicating
that the same may be contemplated).
(iii) Shall not (A) except pursuant to the conversion of
any shares of Preferred Stock into Common Stock or the exercise of any
Options in accordance with their respective terms, authorize the
issuance or issue any shares of its capital stock, effect any stock
split or otherwise change its capitalization as it exists on the date
hereof; (B) grant, confer or award any option, warrant, conversion
right or other right not existing on the date hereof to acquire any
shares of its capital stock or any debt or equity security or
exchangeable for such capital stock; (C) increase any compensation or
enter into or amend any employment agreement with any of its past,
present or future officers, directors or employees; (D) grant any
severance or termination package to any employee or consultant; (E)
hire any new employee (other than after December 15, 1997 to fill
vacancies); or (F) adopt any new Employee Benefit Plan (including any
stock option, stock benefit or stock purchase plan) or amend any
existing Employee Benefit Plan in any material respect, except for
changes which are less favorable to participants in such plans or which
are required by Applicable Law.
(iv) Shall not (A) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any
shares of its capital stock or other ownership interests; or (B)
directly or indirectly, redeem, purchase or otherwise acquire any
shares of its capital stock or shares of capital stock of its
Subsidiary, or make any commitment for any such action.
(v) Shall not, and shall cause its Subsidiary to not,
enter into any agreement or transaction, or agree to enter into any
agreement or transaction, outside the ordinary course of business
consistent with past practice, including, without limitation, any
transaction involving a merger, consolidation, joint venture, partial
or complete liquidation or dissolution, reorganization,
recapitalization, restructuring or a purchase, sale, lease or other
disposition or acquisition of a material portion of its assets or
capital stock.
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(vi) Shall not, and shall cause its Subsidiary to not,
incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights
to acquire any debt securities of others other than in the ordinary
course of its business consistent with past practices or establish any
new line of credit or other credit facility.
(vii) Shall not enter into any agreements or other
commitments that are binding on the Target or its Subsidiary for a
period in excess of one year or that require payments by the Target or
its Subsidiary in excess of $100,000 singly or $500,000 in the
aggregate.
(viii) Shall not, and shall cause its Subsidiary to not,
make any loans, advances or capital contributions to, or investments
in, any other Person, other than loans, advances or capital
contributions by the Target to, or investments by the Target in, its
Subsidiary in the ordinary course consistent with past practice.
(ix) Shall not, and shall cause its Subsidiary to not,
make or commit to make any capital expenditures prior to December 15,
1997.
(x) Shall not, and shall cause its Subsidiary to not,
enter into any new transaction or course of dealing with any Related
Party.
(xi) Shall not, and shall cause its Subsidiary to not,
alter the manner of keeping its books, accounts or records or change in
any manner the accounting practices therein reflected.
(xii) Shall not, and shall cause its Subsidiary to not,
grant or make any mortgage, lien or pledge or subject itself or any of
its material properties or assets to any Security Interest.
(xiii) Shall maintain, and shall cause its Subsidiary to
maintain with its existing insurance companies or financially
responsible replacement insurance companies, insurance on its tangible
assets and its businesses in such amounts and against such risks and
losses as are currently in effect.
(xiv) Shall not adopt, enter into or amend any bonus,
profit sharing, compensation (except regularly scheduled, ordinary
course salary adjustments consistent
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with historic practice), stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of any
employee or retiree, except as required to comply with changes in
applicable law.
(xv) Shall not agree in writing, or otherwise, to take
any of the foregoing actions or any other action which would make any
representation or warranty contained in Article 3 untrue or incorrect
in any material respect as of the time of the Closing.
Buyer agrees that Target may agree with Joel E. Bernstein,
M.D. to settle in full its obligations under the Bernstein Settlement
Agreement at the Effective Time for $1,377,580 and may agree with Henry
Kuehn to settle in full its obligations under the letter agreement,
dated September 15, 1997 between Henry Kuehn and the Target at the
Effective Time for $100,000.
(e) Full Access. The Target shall, and shall cause its
Subsidiary to, permit representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Target and its Subsidiary, to (i) all premises,
properties, personnel, books, records (including tax records), contracts and
documents of or pertaining to the Target and its Subsidiary and (ii) to the
extent within the power of the Target and its Subsidiary, to their respective
customers, vendors, consultants and professional advisors; provided, however,
that no investigation pursuant to this Section 5(e) shall affect any
representations or warranties made herein or the conditions to the obligations
of the respective parties to consummate the Merger. Each of the Buyer and the
Transitory Subsidiary shall treat and hold all information it receives from the
Target or its Subsidiary in the course of the access contemplated by this
Section 5(e) as Confidential Information pursuant to the terms of the
Confidential Disclosure Agreement.
(f) Notice of Developments. Each Party shall give prompt written
notice to the others in the event its own representations and warranties (in
Section 3 or Section 4, as applicable, taking into account the exceptions
referred to in the introduction to such Section) are discovered to be untrue in
any material respect as of the time made or in the event such Party determines
that such representations and warranties shall be untrue as if made at and as of
the Closing Date. No disclosure by the Target pursuant to this Section 5(f),
however, shall be deemed to amend or supplement the Target Disclosure Schedule
or to cure any misrepresentation or breach of warranty.
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The Target and its Subsidiary shall promptly advise Buyer in writing of
any change, occurrence or event after the date of this Agreement and prior to
the Effective Time which would or could reasonably be expected to have a Target
Material Adverse Effect.
(g) Exclusivity. After the execution and delivery of this
Agreement, (i) the Target shall not (and shall not cause or permit its
Subsidiary to) and shall not authorize any of the Target's or its Subsidiary's
officers, directors, employees or other agents to, directly or indirectly,
solicit, initiate or encourage the submission of any proposal or offer (an
"Alternative Proposal") from any Person relating to the acquisition of a
material portion of the capital stock or assets of the Target or its Subsidiary
or to the acquisition of a material portion of the assets of either of their
principal businesses (including any acquisition structured as a merger,
consolidation or share exchange), or engage in any negotiations concerning, or
provide any confidential information or data to or grant access to or have any
discussions with, any Person relating to an Alternative Proposal, or otherwise
facilitate any effort or attempt to make or implement an Alternative Proposal;
and (ii) the Target agrees that it will notify the Buyer immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, it. Since September 30, 1997, neither the Target, nor any authorized
officer, director, employee or other agent of the Target or its Subsidiary has
engaged in any activities, discussions or negotiations with any parties with
respect to any of the foregoing.
(h) Indemnification.
(i) Subsequent to the Effective Time, the Buyer shall
not take, or permit to be taken, any action to alter or impair any
exculpatory or indemnification provision for the benefit of any
individual now existing in the certificate of incorporation or bylaws
of the Target or the certificate of incorporation or bylaws of its
Subsidiary insofar as such provision relates to any act or inaction by
such individual at any time prior to the Effective Time.
(ii) In addition to its obligations under the
exculpatory and indemnification provisions referred to in (i) above,
the Buyer shall cause the Surviving Corporation and its Subsidiary to
indemnify, to the maximum extent permitted by law, each individual who
served as a director or officer of the Target or any of its
Subsidiaries at any time prior to the Effective Time from and against
any and all actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders,
decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses
and fees, including all court costs and attorneys' fees and expenses,
resulting from, arising out of, relating to, or caused by any action or
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inaction by such individual at any time prior to the Effective Time in
his capacity as a director or officer of the Target or any of its
Subsidiaries, including, without limitation, any such action or
inaction related to this Agreement or any of the transactions
contemplated herein.
(i) Performance of Contracts. Subsequent to the Effective Time,
the Buyer shall cause the Surviving Corporation and its Subsidiary, as
applicable, to perform each employment, severance and change of control
agreement listed in the section of the Target Disclosure Schedule corresponding
to Section 3(t)(i).
(j) Termination of Options. Promptly following the execution and
delivery of this Agreement, the Target shall request that each holder of an
Option enter into an agreement in the form heretofore approved by the Buyer
providing for the termination of such Option, effective at the Effective Time,
for the following consideration (subject to deduction of such amounts, if any,
as are required to be deducted and withheld by the Target under the Code, or any
provision of state or local tax law):
(i) With respect to the Fixed Merger Consideration, in
the case of each In-the-Money Option, an amount, which shall be paid in
cash out of the Target Stockholders Representative Escrow Fund
immediately after the Effective Time, equal to the excess of (i) the
amount of Fixed Merger Consideration per Target Share of Common Stock
multiplied by the number of shares as to which such Option is
exercisable immediately prior to the Effective Time (or would then be
exercisable if fully vested) over (ii) the aggregate exercise price of
such Option with respect to such number of shares; and
(ii) With respect to any Contingent Merger
Consideration, in the case of each In-the-Money Option, an amount,
which shall be paid in cash out of the Target Stockholders
Representative Escrow Fund at the time of the Escrow Distribution then
to be made, equal to (A) the amount which the holder of such Option
would have received pursuant to clause (i) of this Section if the
amount of the Fixed Merger Consideration had been increased by the sum
of the aggregate amount of the Escrow Distribution(s) then to be or
theretofore distributed plus the aggregate amount theretofore
distributed to the Buyer with respect to Dissenting Shares from amounts
otherwise payable to the Target Stockholders Representative Escrow Fund
from the Merger Consideration Escrow Fund and not subsequently paid by
the Buyer to the Target Stockholders Representative Escrow Fund (and,
in the case of a $5.30 Option that is an In-the-Money Option, if such
$5.30 Option had been an In-the-Money Option and, if such Escrow
Distribution is subsequent to the Escrow
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Distribution to the holder of Series D Preferred Stock upon the
occurrence of the Series D Preferred Condition, if the Series D
Preferred Stock had been converted into 244,874 shares of Common Stock
immediately prior to the Effective time) less (B) the aggregate amount
of Escrow Distributions (in the case of a $5.30 Option, if any)
theretofore paid with respect to such Option under this Section 5(j).
It is expressly understood that nothing is to be paid pursuant to
either clause (i) or (ii) above with respect to any Option that, at the time the
consideration pursuant to such clause is payable, is not an In-the-Money Option.
The right to receive any Contingent Merger Consideration shall not be
Transferred by the holder of any Option, except by will or the laws of descent
and distribution. Any Transfer in violation of this provision shall be null and
void.
(k) Transition. The Target agrees to cooperate with the Buyer,
and to use its reasonable best efforts, prior to the Closing to
facilitate the expedient transition of ownership and operation
of the business of the Target to the Buyer at the Closing.
SECTION 6. CONDITIONS TO OBLIGATIONS TO CLOSE.
(a) Conditions to Obligations of the Parties. The obligation
of each of the Parties to consummate the Closing is subject to
the satisfaction of the following conditions:
(i) this Agreement and the Pre-Merger Charter Amendment
shall have received the Requisite Stockholder Approval;
(ii) the Buyer shall have received a copy of a
non-competition, non-disclosure and confidentiality agreement in
substantially the form attached hereto as Exhibit H executed by Dr.
Joel E. Bernstein;
(iii) Dr. Joel E. Bernstein, in his individual capacity
and as general partner of Elorac, Ltd., shall have granted all consents
as may be necessary with respect to any intellectual property that he
or Elorac, Ltd. licenses to the Target as of the Closing Date in order
to consummate the Merger without the violation of, or the creation of
the right of the licensor to terminate or receive greater compensation
or other benefits under, the agreements governing such licenses (which
licenses shall otherwise remain in full force and effect
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without any modification) or any adverse effect on the rights of the
Target under such licenses;
(iv) the Buyer, the Target Stockholders Representative
and the Merger Consideration Escrow Agent shall have entered into the
Merger Consideration Escrow Agreement and the Target Stockholders
Representative and the Target Stockholders Representative Escrow Agent
shall have entered into the Target Stockholders Representative Escrow
Agreement;
(v) there shall not be any judgment, order, decree,
stipulation, injunction or charge in effect, or overtly threatened to
be sought by any governmental entity (or any department, agency or
political subdivision thereof), preventing consummation of the Merger
(each Party agreeing to use all reasonable efforts to have any such
judgment, order, decree, stipulation, injunction or charge lifted);
(vi) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated and no additional requirements relating
thereto shall be applicable and the Target shall have received all
other authorizations, consents and approvals of governments and
governmental agencies referred to in the section of the Target
Disclosure Schedule corresponding to Section 3(d); and
(vii) No action shall have been taken, and no statute,
rule or regulation shall have been enacted, by any state, federal or
foreign government or governmental agency which would prevent the
consummation of the Merger.
A Party may waive any condition to its obligation to consummate the Closing
specified in this Section 6(a) if it executes a writing so stating at or prior
to the Closing.
(b) Additional Conditions to Obligations of the Buyer and the
Transitory Subsidiary. The obligation of each of the Buyer and the Transitory
Subsidiary to consummate the Closing is also subject to satisfaction of the
following conditions:
(i) the representations and warranties set forth in
Section 3 (taking into account the exceptions referred to in the
introduction to such Section) shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of the
Closing Date except for the effects of actions contemplated herein or
permitted hereunder;
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(ii) the Target shall have performed and complied with
all of its covenants and agreements hereunder required to be performed
on or prior to the Effective Time in all material respects;
(iii) the Target shall have delivered to the Buyer and
the Transitory Subsidiary a certificate to the effect that each of the
conditions specified in Section 6(b)(i) and (ii) is satisfied;
(iv) the Buyer shall have received from the Target
certified copies of the certificate of incorporation and bylaws of the
Target together with the minutes of the meetings, or the written
consents, of the Target's Board of Directors and stockholders approving
and adopting this Agreement and the Pre-Merger Charter Amendment, the
documents executed and delivered in connection herewith and the
transactions contemplated hereby and thereby;
(v) each holder of an Option shall have entered into an
agreement of the kind described in Section 5(j);
(vi) Winston Laboratories, L.L.C., a Delaware limited
liability company, shall have entered into a license with the Target in
the form of Exhibit L attached hereto;
(vii) the Target shall have received those consents of
third parties identified as conditions to the obligation of each of the
Buyer and the Transitory Subsidiary to consummate the Closing in the
section of the Target Disclosure Schedule corresponding to Section
3(d);
(viii) the Buyer and the Transitory Subsidiary shall
have received from the respective special counsel to the Target and its
Subsidiary set forth in Exhibit I opinions substantially in the
respective forms included in Exhibit I, addressed to the Buyer and
dated as of the Closing Date;
(ix) the Buyer and the Transitory Subsidiary shall have
received from each person who is, immediately prior to the Effective
Time, a director or officer of the Target or its Subsidiary his written
resignation, effective as of the Effective Time, from each position as
a director or officer of the Target or its Subsidiary; it being
understood that such resignations shall not be deemed voluntary
resignations for purposes of, nor shall they affect
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any rights of any such director or officer under, any employment,
severance or change of control agreement to which any such officer or
director is a party;
(x) from the date of this Agreement through the
Effective Time, there shall not have occurred any change in the
financial condition, business, operations or prospects of the Target
and its Subsidiary that would have or would be reasonably likely to
have a Target Material Adverse Effect;
(xi) all actions taken by the Target in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to
effect the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to the Buyer and the Transitory
Subsidiary;
(xii) the Target and its Subsidiary shall have executed
and delivered such other customary closing documents and taken such
other customary closing actions as the Buyer shall reasonably request;
and
(xiii) Joel E. Bernstein, M.D. shall have delivered a
certificate in the form of Exhibit M attached hereto.
The Buyer and the Transitory Subsidiary may waive any condition specified in
this Section 6(b) if they execute a writing so stating at or prior to the
Closing.
(c) Additional Conditions to Obligation of the Target. The
obligation of the Target to consummate Closing is also subject to satisfaction
of the following conditions:
(i) the representations and warranties set forth in
Section 4 (taking into account the exceptions referred to in the
introduction to such Section) shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of the
Closing Date except for the effects of actions contemplated herein or
permitted hereunder;
(ii) each of the Buyer and the Transitory Subsidiary
shall have performed and complied with all of its agreements and
covenants hereunder in all material respects;
(iii) each of the Buyer and the Transitory Subsidiary
shall have delivered to the Target a certificate to the effect that
each of the conditions specified in Section 6(c)(i) and (ii) is
satisfied;
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(iv) the Target shall have received from Bryan Cave LLP,
counsel to the Buyer and the Transitory Subsidiary, an opinion as to
the matters set forth in Exhibit J attached hereto, based on customary
reliance and assumptions and subject to customary qualifications,
addressed to the Target and dated as of the Closing Date;
(v) all actions to be taken by the Buyer and the
Transitory Subsidiary in connection with consummation of the
transactions contemplated hereby and all certificates, opinions,
instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and
substance to the Target; and
(vi) the Buyer and the Transitory Subsidiary shall have
executed and delivered such other customary closing documents and taken
such other customary closing actions as the Target shall reasonably
request.
The Target may waive any condition specified in this Section 6(c) if it executes
a writing so stating at or prior to the Closing.
SECTION 7. TERMINATION.
(a) Termination of Agreement. One or more of the Parties may
terminate this Agreement with the prior authorization of its board or their
respective boards of directors (whether before or after stockholder approval) as
provided below:
(i) the Parties may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Target at any time prior to the Effective Time
(A) in the event the Target has breached any of its representations,
warranties, covenants or agreements contained in this Agreement in any
respect material to the transactions contemplated by this Agreement,
the Buyer has notified the Target of the breach, and the breach has
continued without cure for a period of ten (10) days after the notice
of breach; (B) if the Requisite Stockholder Approval shall not have
been obtained on or before December 5, 1997; (C) if the Closing shall
not have occurred on or before January 14, 1998 by reason of the
failure of any condition precedent under Section 6(a) or Section 6(b)
(unless the failure results primarily from the Buyer or the Transitory
Subsidiary breaching any representation, warranty, covenant or
agreement contained in this Agreement); or (D) if a court of competent
jurisdiction or a governmental
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regulatory or administrative agency or commission shall have issued an
order, decree or ruling or taken any other action either (I)
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement or (II) compelling the
Buyer, the Transitory Subsidiary or the Surviving Corporation to
dispose of or hold separate all or a material portion of the businesses
or assets of the Buyer and its Subsidiaries, taken as a whole, or of
the Surviving Corporation and its Subsidiary, taken as a whole, and
such order, decree, ruling or other action shall have become final and
non-appealable; and
(iii) the Target may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Effective Time (A)
in the event the Buyer or the Transitory Subsidiary has breached its
representations, warranties, covenants or agreements contained in this
Agreement in any respect material to the transactions contemplated by
this Agreement, the Target has notified the Buyer of the breach, and
the breach has continued without cure for a period of ten (10) days
after the notice of breach or (B) if the Closing shall not have
occurred on or before January 14, 1998 by reason of the failure of any
condition precedent under Section 6(a) or Section 6(c) (unless the
failure results primarily from the Target breaching any representation,
warranty or covenant contained in this Agreement).
(b) Effect of Termination; Expense Reimbursements. If any Party
terminates this Agreement pursuant to Section 7(a), all rights and obligations
of the Parties hereunder and under the Letter of Intent shall terminate without
any liability of any Party to any other Party (except for any liability of any
Party then in breach and except for rights and obligations under the
Confidential Disclosure Agreement, the Escrow Agreement dated October 17, 1997
by and among the Target, the Buyer and First Trust National Association, and
paragraphs 3 (as modified by the remainder of this Section 7(b)), 9 and 16 of
the Letter of Intent, which shall survive any such termination). If the Buyer or
Transitory Subsidiary terminates or fails to close this Agreement other than in
accordance with Section 7(a), then (i) the Target shall be entitled to receive
the $250,000 (and any interest) held in escrow pursuant to the Letter of Intent
and (ii) the Buyer shall pay to Target within ten (10) days of receipt of demand
by Target, an amount equal to the excess, if any, of Target's reasonable fees
and expenses in connection with the contemplated Merger over $250,000, provided
that this payment by the Buyer with respect to the fees and expenses of the
Target shall under no circumstances exceed together with the amount received by
the Target from such escrow fund an aggregate of $500,000; as the sole and
complete satisfaction of all claims the Target may have against the Buyer or the
Transitory Subsidiary in connection with the Letter of Intent or this Agreement.
If the Target terminates or fails to close this Agreement other than in
accordance with Section 7(a), the Target will reimburse the Buyer (within 10
days of receipt of demand by the Buyer)for its reasonable fees and expenses in
connection with the contemplated Merger as the sole and complete satisfaction of
all claims the Buyer or the Transitory Subsidiary may have against the
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Target in connection with the Letter of Intent or this Agreement, provided that
this payment by the Target with respect to the fees and expenses of the Buyer
shall under no circumstances exceed together with the payment of up to $250,000
contemplated by the Letter of Intent an aggregate of $500,000.
SECTION 8. INDEMNIFICATION.
(a) General. From and after the Closing, the Parties shall be
indemnified as provided in this Section 8. For the purposes of this Section 8,
each Party shall be deemed to have remade all of its representations and
warranties contained in this Agreement at the Closing with the same effect as if
originally made at the Closing; provided that for purposes thereof, the Target
Disclosure Schedule shall be deemed amended to reflect any changes therein
furnished to the Buyer by the Target in writing in connection with the Closing
that are specifically contemplated herein or permitted herein prior to the
Closing Date.
(b) Indemnification of Buyer Indemnitees.
(i) The Buyer and its Subsidiaries (including the
Surviving Corporation) and their respective successors and permitted
assigns (each a "Buyer Indemnitee" and collectively the "Buyer
Indemnitees"), to the extent and only to the extent of amounts
available from the Merger Consideration Escrow Fund in accordance with
the terms of Exhibit D attached hereto, shall be entitled to
indemnification against all Damages sustained or incurred by any Buyer
Indemnitee, as a result of or arising out of:
(A) any inaccuracy in or breach of any representation
and warranty made by the Target to the Buyer herein or in any
other document executed in connection with the Closing,
regardless of whether such inaccuracy or breach was or could
have been discovered by the Buyer prior to Closing as a result
of its due diligence investigation or otherwise (including
without limitation all Damages sustained or incurred by any
Buyer Indemnitee as a result of or arising out of (i) any sale
of product by, or provision of any service by, the Target or
its Subsidiary prior to the Closing Date, (ii) any criminal
misconduct by the Target or its Subsidiary prior to the
Closing Date and (iii) any liability of the Target arising
prior to the Closing Date (regardless of when asserted) due to
affiliations, partnerships, joint ventures, associations or
other similar business arrangements, whether by contract or by
operation of law, in which Target participated prior to the
Closing Date) or any inaccuracy, incompleteness, irregularity
or absence of any corporate books and
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records of the Target or its Subsidiary, including but not
limited to the minutes of the Board of Directors or the stock
ledgers of the Target or its Subsidiary, or the failure to
take any required corporate action or maintain any required
corporate formality relating to Target's status or business,
in each case as of the Closing Date; or
(B) any breach by the Target of, or failure of the
Target to comply with, any of the covenants or obligations
under this Agreement to be performed by the Target.
(ii) The Buyer Indemnitees shall also be entitled to
indemnification, to the extent and only to the extent of amounts
available from the Merger Consideration Escrow Fund in accordance with
the terms of Exhibit D attached hereto, against and in an amount equal
to:
(A) one-half of any amounts in excess of $175,000 but
equal to or less than $500,000 paid by the Target and not
reimbursed by an insurer pursuant to a claim asserted by the
Target at or before the Effective Time in respect of the
claims of Joel M. Appel, Gregory N. Chletsos, Frank P. DiPrima
and Kelly M. Kaplan in the New Jersey Employee Litigation, and
all of any amounts in excess of $500,000 paid by the Target
and not reimbursed by an insurer pursuant to a claim asserted
by the Target at or before the Effective Time in respect of
such claims, but only if a Closing Price Adjustment was not
made with respect thereto; provided that the Buyer Indemnitees
shall not be entitled to indemnification for amounts in excess
of $500,000 paid by the Target and not reimbursed by an
insurer pursuant to a claim asserted by the Target at or
before the Effective Time in settlement of the claims involved
in the New Jersey Employee Litigation unless the Target
Stockholders Representative in advance of such settlement has
consented thereto in writing (which consent shall not be
unreasonably withheld or delayed);
(B) one-half of any amounts equal to or less than
$100,000 in the aggregate paid by the Target and not
reimbursed by an insurer pursuant to a claim asserted by the
Target at or before the Effective Time in respect of the
claims of the plaintiffs in the Product-Related Litigation,
and all of any amounts in excess of $100,000 in the aggregate
paid by the Target and not reimbursed by an insurer pursuant
to a claim asserted by the Target at or before the Effective
Time in respect of such claims, but only if a Closing Price
Adjustment was not made with respect thereto; provided that
the Buyer Indemnitees shall not be entitled to indemnification
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for amounts in excess of $100,000 in the aggregate paid by the
Target and not reimbursed by an insurer pursuant to a claim
asserted by the Target at or before the Effective Time in
settlement of the Product-Related Litigation unless the Target
Stockholders Representative in advance of such settlement has
consented thereto in writing (which consent shall not be
unreasonably withheld or delayed); and
(C) the excess (if any) of (x) the severance
obligations of the Target incurred in connection with the
Merger over (y) $1.5 million.
(c) Indemnification of Seller Indemnitees. The Buyer shall
indemnify, save and keep the Target Stockholders and the Option holders and
their respective successors and permitted assigns (each a "Seller Indemnitee"
and collectively the "Seller Indemnitees"), harmless against and from all
Damages sustained or incurred by any Seller Indemnitee, as a result of or
arising out of:
(i) any inaccuracy in or breach of any representation
and warranty made by the Buyer or the Transitory Subsidiary to the
Target herein or in any other document executed in connection with the
Closing; or
(ii) any breach by the Buyer or the Transitory
Subsidiary of, or failure of the Buyer or the Transitory Subsidiary to
comply with, any of the covenants or obligations under this Agreement
to be performed by the Buyer or the Transitory Subsidiary (including,
without limitation, the obligations of the Buyer under this Section 8).
(d) Limitation on Indemnification Obligations.
(i) All representations and warranties of the Target,
the Buyer and the Transitory Subsidiary contained in this Agreement
shall survive the Closing until August 1, 2000 (the "Survival Period").
A claim by a Buyer Indemnitee or a Seller Indemnitee for
indemnification under this Section 8 must be asserted within the
Survival Period; provided that a claim for indemnification under this
Section 8 with respect to a breach by the Buyer of any payment
obligation may be asserted at any time within one year after the due
date for such payment.
(ii) Notwithstanding anything to the contrary contained
herein, (A) the Buyer Indemnitees shall only be entitled to
indemnification pursuant to Section 8(b)(i) hereof once the aggregate
amount otherwise payable to the Buyer Indemnitees pursuant to such
Section exceeds $500,000, and after such aggregate amount exceeds such
dollar amount the Buyer
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Indemnitees shall be entitled to seek indemnification only for
indemnification claims above the first $250,000 of Damages relevant for
purposes of such Section, and (B) the indemnification to which the
Buyer Indemnitees are entitled pursuant to Section 8(b)(i) and (ii)
hereof shall be limited to the amount available from the Merger
Consideration Escrow Fund. Notwithstanding anything to the contrary
contained herein, the Buyer Indemnitees shall not be entitled to pursue
any claims for indemnification against the Target Stockholders, the
Target Stockholders Representative, the Target Stockholders
Representative Escrow Fund, the Target Stockholders Representative
Escrow Agent, the holders of Options or their respective assigns,
heirs, executors and legal representatives.
(iii) Notwithstanding anything to the contrary contained
herein, other than with respect to a breach by the Buyer of any of its
payment obligations under this Agreement, (A) the Seller Indemnitees
shall only be entitled to indemnification pursuant to Section 8(c) once
the aggregate amount otherwise payable to the Seller Indemnitees
pursuant to such Section exceeds $500,000, and after such aggregate
amount exceeds such dollar amount the Seller Indemnitees shall be
entitled to seek indemnification only for indemnification claims above
the first $250,000 of Damages relevant for purposes of such
indemnification, and (B) the indemnification to which the Seller
Indemnitees are entitled pursuant to Section 8(c) shall be limited to
$10 million. The indemnification to which the Seller Indemnitees are
entitled with respect to any breach by the Buyer of any of its
obligations to pay Merger Consideration shall be limited to the unpaid
Merger Consideration and shall not be subject to the prior sentence.
(e) Cooperation. Subject to the provisions of Section 8(g), the
Indemnifying Party shall have the right, at the Indemnifying Party's own expense
and by counsel of its choosing (provided in the event the Buyer is the
Indemnified Party that such counsel is Kirkland & Ellis or other counsel
reasonably satisfactory to Buyer), to participate in the defense of any Third
Party Claim, and if said right is exercised, the Indemnifying Party and the
Indemnified Party shall cooperate in the investigation and defense of said Third
Party Claim.
(f) Subrogation. The Indemnifying Party shall not be entitled to
require that any action be brought against any other Person before a claim is
brought against it hereunder by the Indemnified Party and shall not be
subrogated to any right of action with respect to such claim until it has
discharged or successfully defended against the Third Party Claim for which
indemnification is sought.
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(g) Third Party Claims Subject to Indemnification.
(i) Promptly following the receipt of notice of a Third
Party Claim for which it may seek indemnification hereunder, the party
receiving the notice of the Third Party Claim shall notify the
Indemnifying Party of such Third Party Claim. The failure to give such
notice shall not relieve the Indemnifying Party of its obligations
under this Agreement except to the extent that the Indemnifying Party
is prejudiced as a result of the failure to give such notice. Within
fifteen (15) business days after receipt of the notice by the
Indemnifying Party pursuant to the preceding sentence, the Indemnifying
Party shall notify the Indemnified Party whether it elects to control
the defense of the Third Party Claim. If the Indemnifying Party elects
to undertake the defense of such Third Party Claim, it shall do so at
its own expense with counsel of its own choosing and it shall
acknowledge in writing without qualification its indemnification
obligations as provided in this Agreement to the Indemnified Party as
to such Third Party Claim. If the Indemnifying Party elects not to
defend such Third Party Claim or fails to pursue such Third Party Claim
diligently, the Indemnified Party shall have the right to undertake,
conduct and control the defense of such Third Party Claim through
counsel of its own choosing. Notwithstanding the foregoing, and in
addition to the rights of the Buyer thereunder, if at any time the
amount of the outstanding Total Agreed Claims exceeds the balance of
the Merger Consideration Escrow Fund, the Buyer shall have the right
(but not the obligation) to control the defense of any or all then
pending Third Party Claims with respect to which Buyer is the
Indemnified Party until such time, if any, as the amount of the
outstanding Total Agreed Claims ceases to exceed the balance of the
Merger Consideration Escrow Fund, provided it causes such defense to be
pursued diligently. The party controlling the defense of a Third Party
Claim shall consult with and keep the other party fully advised of the
progress and disposition of such claim and provide the other party with
copies of all material correspondence and pleadings relating thereto.
(ii) In the event the Indemnifying Party elects not to
undertake the defense of a Third Party Claim or fails to pursue
diligently the defense of such Claim, and the Indemnified Party
litigates or otherwise contests or settles the Third Party Claim, then,
provided that a final determination has been made that the Indemnified
Party is entitled to indemnification hereunder, the Indemnifying Party
shall promptly reimburse the Indemnified Party for all amounts paid to
settle such claim or all amounts paid in satisfaction of a judgment on
such claim against the Indemnified Party, and all Damages incurred in
contesting such claim and in establishing its right to indemnification
hereunder, all in accordance with the provisions of this Section 8.
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(iii) No Third Party Claim will be settled by the
Indemnifying Party or the Indemnified Party without the consent of the
other, which consent will not be unreasonably withheld.
(h) Third Party Claims Not Subject to Indemnification. The Buyer
and the Target shall cooperate with each other with respect to the defense of
any claims or litigation made or commenced by third parties subsequent to the
Closing Date which are not subject to the indemnification provisions contained
in this Section 8, provided that the Party requesting cooperation shall
reimburse the other Party for the other Party's reasonable out-of-pocket costs
and expenses of furnishing such cooperation.
(i) Exclusivity.
(i) Except to the extent such limitation is prohibited
by Applicable Laws and such prohibition is not waivable by the Buyer
Indemnitees, the indemnification provisions of this Section 8 shall
constitute the exclusive remedy of the Buyer Indemnitees in connection
with this Agreement or the transactions contemplated herein, including
without limitation for any of the matters described in Sections 8(b)(i)
and (ii). To the maximum extent permitted by Applicable Laws, each of
the Buyer Indemnitees waives the benefit of any such prohibition.
(ii) Except to the extent such limitation is prohibited
by Applicable Laws and such prohibition is not waivable by the Seller
Indemnitees, the indemnification provisions of this Section 8 shall
constitute the exclusive remedy of the Seller Indemnitees in connection
with this Agreement or the transactions contemplated herein, including
without limitation for any of the matters described in Sections 8(c)(i)
and (ii). To the maximum extent permitted by Applicable Laws, each of
the Seller Indemnitees waives the benefit of any such prohibition.
(j) Binding Arbitration.
(i) The Parties shall promptly submit to arbitration
any dispute regarding indemnity claims which may arise in connection
with this Agreement that are not promptly resolved by them, except that
the Buyer may seek injunctive relief for breaches of non-competition,
non-disclosure or confidentiality provisions of this Agreement if such
relief is, in the good faith judgment of the Buyer, the only adequate
remedy. No Party shall commence any litigation on the basis of any
dispute in connection with this Agreement,
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except as specified in the first sentence of this Section 8(j)(i) and
except for litigation to enforce any Award pursuant to the arbitration
procedure set forth in this Section 8(j).
(ii) The Parties acknowledge that this Agreement
evidences a transaction involving commerce within the meaning of 9
U.S.C. Sections 1 and 2, that it is governed by the Federal Arbitration
Act Section 1 et seq. and that any Award pursuant to the arbitration
procedure set forth in this Section 8(j) will be governed by, and may
be enforced pursuant to, 9 U.S.C. Section 1 et seq.
(iii) The American Arbitration Association shall have
jurisdiction over the arbitration, which shall be conducted in
accordance with the Commercial Arbitration Rules of such Association,
except as modified by agreement of the Parties or this Section 8(j).
(iv) In the event a dispute is to be submitted to
arbitration pursuant to this Section 8(j), the parties agree that the
dispute shall be resolved by a private arbitration conducted by one
arbitrator. Within 10 days after the submission of such dispute to
arbitration, the parties shall agree upon one arbitrator, selected from
a panel of five individuals, none of whom is an officer, director or
employee of a party or an Affiliate of such party, or a person who has
a direct or indirect personal or financial interest in the outcome of
the arbitration, designated by the American Arbitration Association
from its permanent panel of commercial arbitrators. The parties shall
select the arbitrator by alternately striking names of the individuals
so designated until only one name remains. A coin toss will determine
which party is to strike the first name.
(v) The arbitrator shall set a hearing date for an
arbitration (the "Hearing") within 90 days from the date the arbitrator
is selected, unless otherwise agreed by the parties. At least 15 days
before the Hearing, each party shall submit to the arbitrator a list of
all witnesses and exhibits which it intends to present at the Hearing.
No later than 10 days before the Hearing, each party shall provide to
the arbitrator a short (not to exceed five single-spaced pages or such
other page limit as the arbitrator permits) statement of its position
with regard to the dispute. Notwithstanding the Commercial Arbitration
Rules, each party shall have the right to conduct up to a total of two
depositions. At the Hearing, each party shall, unless it waives the
opportunity, make an oral opening statement and an oral closing
statement. The arbitrator shall not be strictly bound by rules of
procedure or rules of evidence, but shall use the Federal Rules of
Evidence as a guideline in conducting the Hearing. When testimony is
complete and each party has introduced its exhibits pursuant to the
provisions of this Agreement, and each party has made a closing
statement pursuant
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the provisions of this Agreement or waived the opportunity to do so,
the arbitrator shall declare the Hearing closed; provided that the
parties may submit post-hearing briefs pursuant to an agreed upon
schedule or a schedule formulated by the arbitrator. The Hearing shall
be held at a location agreed upon by the parties and convenient for the
arbitrator, or if the parties cannot agree upon a location, at a
location designated by the arbitrator. The Hearing shall be conducted
in private. Attendance at the Hearing shall be limited to the
following: (i) the arbitrator; (ii) representatives of each party;
(iii) each party's attorneys and attorneys' assistants or advisors, if
any, including expert witnesses, if any; (iv) a court reporter if
requested by either party; and (v) any witnesses. The arbitrator may
sequester witnesses upon the motion of a party. Within 30 days of the
close of the Hearing or submission of the post-hearing briefs, the
arbitrator shall issue a written opinion and award (the "Award") based
on evidence, arguments and post-hearing briefs, if any. The Award shall
be a decision of the arbitrator, shall resolve the parties' dispute and
shall be final and binding on the parties. The arbitrator shall have
the Award delivered to each party in accordance with Section 9(h).
Except as otherwise provided in this Agreement, there shall be no ex
parte communication regarding the subject matter of the Hearing between
a party or its attorneys and the arbitrator from the time the
arbitrator is appointed until after the parties receive the Award. The
parties may agree to submit the dispute to the arbitrator without a
Hearing, in which event the arbitrator will render and deliver to the
parties a written opinion and Award within 30 days of being notified
that the parties waive the Hearing. Notwithstanding any other provision
of this Agreement, the arbitrator shall have no power to delete from,
add to or modify the terms of this Agreement, and may not award any
remedy which effectively conflicts directly or indirectly with any
provision of this Agreement.
(k) In any arbitration, all of the reasonable costs and expenses
of the Successful Party (including reasonable attorneys' fees), all fees and
expenses of experts retained by the Successful Party and all costs of the
arbitrator shall be borne the Losing Party in such arbitration. The "Losing
Party" and the "Successful Party" shall be determined by the arbitrator based on
the relative success or failure of each party to such arbitration.
(l) Following an Award in accordance with the provisions of this
Section 8, the parties to the arbitration that resulted in the Award shall meet
and confer in good faith to prepare a joint instruction to be given to the
Merger Consideration Escrow Agent regarding the distribution of funds, if any,
to be made from the Merger Consideration Escrow Fund. If such parties are unable
to concur on a joint instruction to the Merger Consideration Escrow Agent within
5 business days of the Award, or in the event of any other dispute regarding the
Merger Consideration Escrow Fund not subject to arbitration hereunder, Buyer or
the Target Stockholder Representative may commence a Declaratory Judgment Action
pursuant to A.R.S. Section 12-1831 et seq. in Superior Court of the State
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of Arizona in and for the County of Maricopa seeking a declaration of the
parties' rights with respect to any funds in such Escrow Fund. It shall not be
necessary to join any individual Target Stockholder, the Merger Consideration
Escrow Agent, or any other person or entity in such proceeding and the only
necessary parties to the proceeding will be Buyer (or its successors) on the one
hand and the Target Stockholder Representative on the other. The parties shall
file a joint stipulation with the court requesting the earliest possible hearing
and/or trial date and seeking the benefit of the scheduling priority available
for declaratory judgment proceedings under Rule 57, Arizona Rules of Civil
Procedures (or any successor rule). If any party refuses to execute such a joint
stipulation, any party may submit this Section 8(1) to the court as evidence of
the parties' intention that the action be advanced on the court's calendar. If
temporary, preliminary or permanent injunctive relief of any type is sought as
an adjunct to any relief sought in the declaratory judgment proceeding, the
party seeking such injunctive relief shall not be required to post a bond or
other security. There shall be no rights to discovery under any statute, court
rule or otherwise. Neither party will issue or commence any discovery request or
proceedings or request that the court authorize, require or permit any
discovery, so that any declaratory judgment proceeding shall be conducted
without the delay and expense associated with discovery proceedings of any type
or nature whatsoever. The parties shall jointly petition the court to dispense
with the preparation, filing and/or exchange of any disclosure statements or
other information pursuant to any court rule. Without limiting the foregoing,
any declaratory judgment action commenced pursuant to the provisions of this
Section 8(1) shall be determined in not less than 60 days, subject only to the
calendar of the court. In any proceeding commenced in accordance with this
Section 8(1), the prevailing party shall be entitled to recover all of its
costs, attorneys fees and expenses (including expert witness fees and other
expenses), such award to be determined by the court and entered as part of the
final judgment in the matter.
SECTION 9. MISCELLANEOUS.
(a) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement or disclosure relating to the
subject matter of this Agreement without the prior written approval of the other
Parties (for purposes of which, approval by the Buyer shall be deemed to include
approval by the Transitory Subsidiary), which approval shall not be unreasonably
withheld or delayed, unless such disclosure is required by applicable law or
governmental regulation or by order of a court of competent jurisdiction (in
which case prior to making such disclosure the Party which proposes to make such
disclosure shall give oral or written notice to the other Parties, describing in
reasonable detail the proposed content of such disclosure, and shall permit each
other Party to review and comment upon the form and substance of such
disclosure).
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(b) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that (i) the
provisions in Section 2 (and related provisions of Exhibits D, E, F and G)
relating to payment of the Merger Consideration are intended for the benefit of
the Target Stockholders and Target Stockholders Representative, their respective
successors, assigns, heirs, executors and legal representatives, (ii) the
provisions of Section 5(j) concerning the payment of consideration to the
holders of Options are intended for the benefit of the holders of Options and
their respective assigns, heirs, executors and legal representatives, (iii) the
provisions in Section 5(h) concerning indemnification are intended for the
benefit of the individuals specified therein and their respective heirs,
executors and legal representatives, (iv) the provisions of Section 8 concerning
indemnification are intended for the benefit of the Indemnitees and their
respective successors, assigns, heirs, executors and legal representatives and
(v) the provisions in Section 5(i) concerning the performance of employment,
severance and change of control agreements are intended for the benefit of the
parties to such agreements other than the Target and its Subsidiaries and their
respective heirs, executors and legal representations. It is expressly
understood that no Target Stockholder or holder of an Option shall have a right
to proceed directly against the Buyer pursuant to this Agreement or to hold the
Buyer responsible with respect to any act or omission of the Target Stockholders
Representative, including without limitation any distribution or retention of
funds which are in the Target Stockholders Representative Escrow Fund, and that
no Target Stockholder or holder of an Option shall be or be deemed to be a party
to this Agreement or any of its Exhibits for any purpose.
(c) Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses except as expressly provided herein.
(d) Entire Agreement. This Agreement (including the documents
referred to herein) and the Confidential Disclosure Agreement constitute the
entire agreement among the Parties and supersede any prior understandings,
agreements or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof; provided that
paragraphs 3 (as modified by Section 7(b)), 9, 14, 15 (for purposes of which,
Exhibit H shall be deemed the non-compete agreement and non-disclosure and
confidentiality agreement referred to in such paragraph) and 16 of the Letter of
Intent and the Escrow Agreement, dated October 17, 1997, by and among the Buyer,
the Target and First Trust National Association (as Escrow Agent) shall not be
superseded by this Agreement and shall remain in full force and effect.
(e) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties, the Target Stockholder
Representative and their respective successors
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and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties.
(f) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be sent by registered or certified mail,
return receipt requested, postage prepaid and addressed to the intended
recipient as set forth below:
If to the Target:
GenDerm Corporation
600 Knightsbridge Parkway
Lincolnshire, Illinois 60069-3657
Facsimile No.: 847/634-2008
Attention: Chairman
With a copy (which shall not constitute notice to the Target)
to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Facsimile No.: 312/861-2200
Attention: Brian D. Hogan, Esq.
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<PAGE> 79
If to the Buyer or Transitory Subsidiary:
Medicis Pharmaceutical Corporation
4343 East Camelback Road
Suite 250
Phoenix, Arizona 85018-2700
Attention: Jonah Shacknai
With a copy (which shall not constitute notice to the Buyer)
to:
Bryan Cave LLP
2800 North Central Avenue
21st Floor
Phoenix, Arizona 85004-1098
Facsimile No.: (602) 266-5938
Attention: Frank M. Placenti
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<PAGE> 80
If to the Target Stockholder Representative:
Henry Kuehn
2407 Bennett
Evanston, Illinois 60201
Facsimile No.: (847) 869-7393
and to
Joel E. Bernstein, M.D.
615 Brierhill
Deerfield, Illinois 60015
Facsimile No.: (847) 945-9599
and to
Jeremy H. Silverman
Frontenac Company
135 S. LaSalle Street
Suite 3800
Chicago, Illinois 60603
Facsimile No.: (312) 368-9520
or by any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail or electronic mail). No such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Arizona without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Arizona or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Arizona. The Buyer and the
Target Stockholders Representative shall be subject to the exclusive
jurisdiction of the Superior Court of the State of Arizona in and for the county
of Maricopa for any legal action, suit or proceeding arising out of or in
connection with this Agreement which is permitted to be brought by the terms of
this Agreement, and may not bring any such action, suit or proceeding in
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<PAGE> 81
any other court. The Buyer and the Target Stockholders Representative shall not
object to the laying of venue for any such suit, action or proceeding in such
court. The Buyer and the Target Stockholders Representative shall accept and
acknowledge service of any and all process that may be served in any such suit,
action or proceeding, and any service of process upon either of them mailed by
registered or certified mail, return receipt requested to it at the address
provided in Section 9(h), shall be deemed in every respect effective service of
process upon it in any such suit, action or proceeding. Neither the Buyer nor
the Target Stockholders Representative shall be entitled to any right to a trial
by jury in any such suit, action or proceeding.
(j) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that effecting any amendment subsequent to stockholder approval shall be subject
to the restrictions contained in the Delaware Corporation Law. No amendment of
any provision of this Agreement shall be valid unless the same shall be in
writing and signed by all of the Parties. No waiver by any Party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent occurrence.
(k) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean "including, without limitation." As used in this
Agreement (including any amendments hereto), the masculine, feminine or neuter
gender and the singular or plural number shall be deemed to include the others
whenever the context so requires.
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<PAGE> 82
(m) Incorporation of Exhibits and Disclosure Schedules. The
Exhibits identified in this Agreement and the Target Disclosure Schedule are
incorporated herein by reference and made a part hereof.
* * * *
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<PAGE> 83
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement of Merger as of the date first above written.
MEDICIS PHARMACEUTICAL CORPORATION
By: Jonah Shacknai
----------------------------------
Title: Chairman and Chief Executive Officer
----------------------------------
MEDICIS ACQUISITION CORPORATION
By: Mark A. Prygocki, Sr.
----------------------------------
Title: Vice President, Secretary and Treasurer
----------------------------------
GENDERM CORPORATION
(whose execution and delivery hereof also constitutes
its consent and agreement that, at the Effective Time
and without any further action on its part, the
Shareholders Agreement shall be terminated, any and all
defaults or breaches of the Shareholders Agreement shall
thereafter be forever waived and released and any and
all rights and obligations created by the Shareholders
Agreement shall be without any further force and effect)
By: Joel E. Bernstein
----------------------------------
Title: Chairman
----------------------------------
<PAGE> 84
CONSENT
The signature of each of the undersigned constitutes his or
its (i) written consent pursuant to Section 228 of the Delaware Corporation Law
in lieu of a meeting of stockholders of the Target in favor of the Pre-Merger
Charter Amendment and for approval of the Agreement, (ii) acknowledgment that he
or it has received from the Target a copy of Section 262 of the Delaware
Corporation Law, (iii) acknowledgment that such signature eliminates his or its
right to demand the appraisal of the fair market value of his or its Target
Shares under Section 262 of the Delaware Corporation Law, (iv) agreement that,
at the Effective Time and without any further action on the part of any of the
undersigned, the Shareholders Agreement shall be terminated, any and all
defaults or breaches of the Shareholders Agreement shall thereafter be forever
waived and released and any and all rights and obligations created by the
Shareholders Agreement shall be without any further force and effect, (v)
acknowledgment that he or it is not a party to the Agreement or any of its
Exhibits for any purpose and has no right to proceed directly against the Buyer
or the Surviving Corporation or to hold the Buyer or the Surviving Corporation
responsible with respect to any act or omission of the Target Stockholders
Representative, (vi) acknowledgment of and consent to the creation of the Target
Stockholders Representative pursuant to the Agreement and the delegation to the
Target Stockholders Representative of all of the rights, powers and
responsibilities delegated thereto in the Agreement and the Exhibits thereto.
Capitalized terms used in the preceding sentence that are defined in the
foregoing Agreement have the same meanings as in the foregoing Agreement.
DATE OF SIGNATURE:
- --------------------------- ----------------------------------
JOEL E. BERNSTEIN, M.D.
FRONTENAC COMPANY LIMITED
PARTNERSHIP (f/k/a FRONTENAC COMPANY)
- --------------------------- By:
-------------------------------
Its:
-------------------------------
FRONTENAC VENTURE IV
By: Frontenac Company,
Its: General Partner
- --------------------------- By:
-------------------------------
Its:
-------------------------------
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<PAGE> 85
FRONTENAC VENTURE V
By:
- ------------------------------- -------------------------------------
Its:
-------------------------------------
HAYES & GRIFFITH VENTURE
PARTNERSHIP, LTD.
By: Hayes & Griffith Venture Management
L.P.,a partner
By:
- ------------------------------- -------------------------------------
Its:
-------------------------------------
HAYES, GRIFFITH & CURRIE VENTURE
FUND II LIMITED PARTNERSHIP
By: Essex Venture Partners, L.P.,
Its: General Partner
By:
- ------------------------------- -------------------------------------
Its:
-------------------------------------
ESSEX VENTURE PARTNERS, L.P. FUND I
By:
- ------------------------------- -------------------------------------
Its:
-------------------------------------
ESSEX VENTURE PARTNERS, L.P. FUND II
By:
- ------------------------------- -------------------------------------
Its:
-------------------------------------
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<PAGE> 86
The undersigned hereby agree to act as the initial
Target Stockholders Representative in accordance with
the provisions of Exhibit D and Exhibit F attached to
the foregoing Agreement and to be bound by and perform
the obligations of the Target Stockholders
Representative set forth therein.
________________________________________
Henry Kuehn
Dated: ____________________________, 1997
________________________________________
Joel E. Bernstein
Dated: ____________________________, 1997
________________________________________
Jeremy H. Silverman
Dated: ____________________________, 1997
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<PAGE> 87
EXHIBIT A
CERTIFICATE OF INCORPORATION
OF
MEDICIS ACQUISITION CORPORATION
FIRST: The name of the corporation is MEDICIS ACQUISITION CORPORATION
SECOND: The address of its registered office in the State of Delaware is:
1209 Orange Street
New Castle County
Wilmington, Delaware 19801
The registered agent at said address is the Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
is:
To have unlimited power to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is 100 shares of Common Stock, par value $1.00 per
share.
FIFTH: The name and mailing address of the incorporator is as follows:
Name Address
---- -------
M. Eve Finkelstein 12th Floor Packard Building
15th & Chestnut Streets
Philadelphia, PA 19102
SIXTH: Elections of directors need not be by written ballot unless the
By-laws of the corporation shall so provide.
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or
repeal the By-Laws of the corporation.
<PAGE> 88
EIGHTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all of the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
NINTH: A director of this corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that this shall not exempt a
director from liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which a director derived an improper personal
benefit.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th day
of June, 1991.
/s/ M. Eve Finkelstein
--------------------------------------
M. Eve Finkelstein
Sole Incorporator
<PAGE> 89
EXHIBIT B
CORPORATE BYLAWS
OF
MEDICIS ACQUISITION CORPORATION
ARTICLE I
OFFICES AND SEAL
1. OFFICES. The registered office of the Corporation in the State of
Delaware shall be in the City of Wilmington, County of New Castle. The
Corporation may also maintain such other offices at such other places, either
within or without the State of Delaware, as may be designated from time to time
by the Board of Directors.
2. CORPORATE SEAL. A corporate seal shall not be requisite to the validity
of any instrument executed by or on behalf of the Corporation; nevertheless, if
in any instance a corporate seal be used, the same shall be, at the pleasure of
the officer affixing same, a circle having on the circumference thereof the name
of the Corporation and in the center the following: INCORPORATED DELAWARE.
ARTICLE II
STOCKHOLDERS
1. STOCKHOLDERS' MEETINGS. All meetings of stockholders shall be held at
such place as may be fixed from time to time by the Board of Directors, or in
the absence of direction by the Board of Directors, by the President or
Secretary of the Corporation, either within or without the State of Delaware, as
shall be stated in the notice of the meeting. A waiver of notice signed by all
stockholders entitled to vote at a meeting may designate any place, either
within or without the State, as the place for holding such meeting.
<PAGE> 90
2
2. NOTICE FOR MEETINGS Written or printed notice stating the place, day
and hour of the meeting and in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) days nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, or the
Secretary, or the officer or persons calling the meeting, to each stockholder of
record entitled to vote at such meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, addressed to the stockholder at his address as it appears on
the stock transfer books of the Corporation, with postage thereon prepaid.
3. ANNUAL MEETINGS Annual meetings of stockholders shall be held on the
second Friday of June, if not a legal holiday, and if a legal holiday, then on
the next secular day following, or at such other date and time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. At the annual meeting, stockholders shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting.
4. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the President and shall be called by the
President or Secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Corporation issued, outstanding, and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
5. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
A. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of
<PAGE> 91
3
Directors may fix, in advance, a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting.
B. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
C. In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by these Bylaws, the Certificate of Incorporation or the laws of the
State of Delaware, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt
<PAGE> 92
4
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by these Bylaws, the Certificate of
Incorporation or the laws of the State of Delaware, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
D. In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
6. LIST OF STOCKHOLDERS. The officer who has charge of the stock ledger of
the Corporation shall prepare and make at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder present.
<PAGE> 93
5
7. QUORUM, ADJOURNMENT. At any meeting of stockholders a majority of the
holders of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum. If less than said
number of the outstanding shares are represented at a meeting, a majority of the
shares so represented may adjourn the meeting from time to time without further
notice, other than announcement at the meeting at which adjournment is taken,
until a quorum shall be present or represented; provided, however, that if the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
8. VOTING.
A. At every meeting of the stockholders, each stockholder shall be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
B. At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be voted or
acted upon after three (3) years from its date, unless the proxy provides for a
longer period.
C. When a quorum is present at any meeting, the vote of the holders
of a majority of the voting power present, whether in person or represented by
proxy, shall decide any
<PAGE> 94
6
question brought before such meeting, unless the question is one upon which, by
express provision of the Delaware General Corporation Law or of the Certificate
of Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
D. Upon the demand of any stockholder, the vote for directors and
upon any question before the meeting shall be by ballot.
9. ACTION WITHOUT MEETING.
A. Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken without a meeting, without prior
notice, and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all stockholders entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail return
receipt requested.
B. Every written consent shall bear the date of signature of each
stockholder or member who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered in the manner required by this
section to the corporation, written consents signed by a sufficient number of
holders or members to take action are delivered to the corporation as provided
in subsection 10(A) above of this Article II.
<PAGE> 95
7
C. Prompt notice of the taking of the corporation action without a
meeting by less than unanimous written consent shall be given to those
stockholders or members who have not consented in writing. In the event that the
action which is consented to is such as would have required the filing of a
certificate under any other section of this title, if such action had been voted
on by stockholders or by members at a meeting thereof, the certificate filed
under such other section shall state, in lieu of any statement required by such
section concerning any vote of stockholders or members, that written consent has
been given in accordance with this section, and that written notice has been
given as provided in this section.
10. WAIVER OF NOTICE. Attendance of a stockholder at a meeting shall
constitute waiver of notice of such meeting, except when such attendance at the
meeting is for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Any stockholder
may waive notice of any annual or special meeting of stockholders by executing a
written notice of waiver either before or after the time of the meeting.
ARTICLE III
BOARD OF DIRECTORS
1. GENERAL POWERS. The business and affairs of the Corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts as are not by statute, the Certificate
of Incorporation, or these Bylaws directed or required to be exercised or done
by the stockholders. The Directors shall in all cases act as a board, and they
may adopt such rules and regulations for the conduct of their meetings and the
management of the Corporation, as they may deem proper, not inconsistent with
these Bylaws, the Certificate of Incorporation of this Corporation, and the laws
of the State of Delaware.
<PAGE> 96
8
2. NUMBER. The number of Directors which shall constitute the whole board
shall be not fewer than one (1) and not more than ten (10). The number of
Directors shall be set by the stockholders at their annual meeting. The
Directors shall be elected at the annual meeting of the stockholders, except as
provided in Section 3 of this Article, and each Director elected shall hold
office until his or her successor is elected and qualified. Directors need not
be stockholders.
3. VACANCIES. Vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by the affirmative
vote of a majority of the remaining Directors then in office, although less than
a quorum, or by a sole remaining Director, and the Directors so chosen shall
hold office until the next annual election and until their successors are duly
elected and qualified, unless sooner displaced. If there are no Directors in
office, then an election of Directors may be held in the manner provided by
statute.
4. REGULAR MEETINGS. A regular meeting of the Directors, the first meeting
of each newly elected Board of Directors, shall be held without other notice
than this By-Law immediately after, and at the same place as, the annual meeting
of stockholders. The Directors may provide, by resolution, the time and place
for the holding of additional regular meetings without other notice than such
resolution.
5. SPECIAL MEETINGS. Special meetings of the Board may be called by the
President or the Secretary on one (1) day's notice to each Director, either
personally or by telephone, or on five (5) days' notice if notice is given by
mail or telegram; special meetings shall be called by the President or Secretary
in like manner and on like notice on the written request of two (2) Directors.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage thereon prepaid. If notice be
given by telegram, such notice shall be deemed to be delivered when the telegram
is delivered to the telegraph company.
<PAGE> 97
9
The attendance of a Director at a meeting shall constitute a waiver of notice of
such meeting, except where a Director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Any Director may waive notice of any annual,
regular, or special meeting of Directors by executing a written notice of waiver
either before or after the time of the meeting.
6. PLACE OF MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
7. QUORUM. A majority of the membership of the Board of Directors shall
constitute a quorum and the concurrence of a majority of those present shall be
sufficient to conduct the business of the Board, except as may be otherwise
specifically provided by the Delaware General Corporation Law or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting of
the Board of Directors, the Directors then present may adjourn the meeting to
another time or place, without notice other than announcement at the meeting,
until a quorum shall be present. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the
Directors.
8. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if all members of the Board or Committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or Committee.
9. EXECUTIVE AND OTHER COMMITTEES. The Board, by resolution, may designate
from among its members an executive committee and other committees, each
consisting of three or more Directors. Each such committee shall serve at the
pleasure of the Board.
<PAGE> 98
10
10. REMOVAL OF DIRECTORS Any or all of the Directors may be removed for
cause by vote of the stockholders or by action of the Board. Directors may be
removed without cause only by vote of the stockholders.
11. RESIGNATION. A Director may resign at any time by giving written
notice to the Board, the President or the Secretary of the Corporation. Unless
otherwise specified in the notice, the resignation shall take effect upon
receipt thereof by the Board or such officer, and the acceptance of the
resignation shall not be necessary to make it effective.
12. COMPENSATION. No compensation shall be paid to Directors, as such, for
their services, but by resolution of the Board a fixed sum and expenses for
actual attendance at each regular or special meeting of the Board may be
authorized. Nothing herein contained shall be construed to preclude any Director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings. The amount or rate of such
compensation of members of the Board of Directors or of committees shall be
established by the Board of Directors and shall be set forth in the minutes of
the Board.
13. PRESUMPTION OF ASSENT. A Director of the Corporation who is present at
a meeting of the Directors at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a Director who voted in favor
of such action.
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11
ARTICLE IV
OFFICERS
1. NUMBER. The officers of the Corporation shall be a President, a Vice
President, a Secretary and a Treasurer, each of whom shall be elected by the
Directors. The Board of Directors may also choose a Chairman of the Board,
additional vice-presidents, and one or more assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws otherwise provide.
2. ELECTION AND TERM OF OFFICE. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a President, one
or more Vice Presidents, a Secretary, and a Treasurer, and may choose a chairman
of the Board, each of whom shall serve at the pleasure of the Board of
Directors. The Board of Directors at any time may appoint such other officers
and agents as it shall deem necessary to hold offices at the pleasure of the
Board of Directors and to exercise such powers and perform such duties as shall
be determined from time to time by the Board. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.
3. REMOVAL. Any officer or agent elected or appointed by the Directors may
be removed by the Directors whenever in their judgment, the best interests of
the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
4. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the directors for the
unexpired portion of the term.
<PAGE> 100
12
5. PRESIDENT. The President shall be the principal executive officer of
the Corporation and subject to the control of the Directors, shall in general
supervise and control all of the business and affairs of the Corporation. The
President shall preside at all meetings of stockholders, and if a Chairman of
the Board shall not have been appointed or, having been appointed, shall not be
serving or be absent, the President shall preside at all meetings of the Board
of Directors. He may sign, with the Secretary or any other proper officer of the
Corporation thereunto authorized by the Directors, certificates for shares of
the Corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the Directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Directors or
by these Bylaws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of President and such other duties as may be
prescribed by the Directors from time to time.
6. VICE PRESIDENT. In the absence of the President or in event of his
death, inability or refusal to act, the Vice President shall perform the duties
of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. The Vice President shall
perform such other duties as from time to time may be assigned to him by the
President or by the Directors.
7. SECRETARY. The Secretary shall keep the minutes of the stockholders'
and of the Directors' meetings in one or more books provided for that purpose,
see that all notices are duly given in accordance with the provisions of these
Bylaws or as required, be custodian of the corporate records and of the seal of
the Corporation and keep a register of the post office address of each
stockholder which shall be furnished to the Secretary by such stockholder, have
general charge
<PAGE> 101
13
of the stock transfer books of the Corporation and in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the President or by the Directors.
8. TREASURER. If required by the Directors, the Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Directors shall determine. He shall have charge and custody
of and be responsible for all funds and securities of the Corporation; receive
and give receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these Bylaws. He shall render financial statements to the President,
Directors, and stockholders at proper times. The Treasurer shall have charge of
the preparation and filing of such reports, financial statements, and returns as
may be required by law. He shall in general perform all of the duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him by the President or by the Directors.
9. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall have
been appointed and be serving, shall preside at all meetings of the Board of
Directors and shall perform such other duties as from time to time may be
assigned to him or her.
10. SALARIES. The salaries of the officers shall be fixed from time to
time by the Directors and no officer shall be prevented from receiving such
salary by reason of the fact that he is also a Director of the Corporation. The
salaries of the officers or the rate by which salaries are fixed shall be set
forth in the minutes of the meetings of the Board of Directors.
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14
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS. The Directors may authorize any officer or officers, agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation, and such authority may be general
or confined to specific instances.
2. LOANS. No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
Corporation, shall be signed by such officer or officers, agent or agents of the
Corporation and in such manner as shall from time to time be determined by
resolution of the Directors.
4. DEPOSITS. All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Directors. Such
certificates shall be signed by the President and by the Secretary or by such
other officers authorized by law and by the Directors. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the stockholders, the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like
<PAGE> 103
15
number of shares shall have been surrendered and canceled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Directors may prescribe.
2. TRANSFERS OF SHARES.
A. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the Corporation which shall be kept at its principal
office.
B. The Corporation shall be entitled to treat the holder of record
of any share as the holder in fact thereof, and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share on the
part of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of Delaware.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
July and end on the last day of June in each year.
ARTICLE VIII
REPEAL, ALTERATION OR AMENDMENT
The Bylaws may be repealed, altered, or amended, or substitute
Bylaws may be adopted at any time by a majority of the Board of Directors.
DATED as of November 24, 1997.
<PAGE> 104
EXHIBIT C
Fixed Merger Consideration
The "Fixed Merger Consideration" shall consist of $60.0
million, less the sum of (i) the amount of the Closing Price Adjustment, (ii)
the $2.25 million amount payable by the Buyer to the Target Stockholders
Representative Escrow Agent at the Effective Time pursuant to Section 2(f)(i)(B)
and (iii) the $11 million amount payable by the Buyer to the Merger
Consideration Escrow Agent at the Effective Time pursuant to Section 2(g). The
Fixed Merger Consideration shall be allocated as set forth below:
Common Stock: The amount of Fixed Merger Consideration per
Target Share of Common Stock shall equal (1) the Fixed Merger Consideration plus
the aggregate exercise price of the unexercised portions of all Options that are
outstanding immediately prior to the Effective Time that are In-the-Money
Options for purposes of clause (i) of Section 5(j) divided by (2) the aggregate
number of shares of Common Stock outstanding immediately prior to the Effective
Time (for this purpose, treating each then outstanding share of Series C
Preferred Stock as if it had been converted into Common Stock immediately prior
to the Effective Time, each then outstanding share of Series D Preferred Stock
as if it had been converted into zero shares of Common Stock immediately prior
to the Effective Time and the unexercised portion of each then outstanding
In-the-Money Option as if it had been exercised immediately prior to the
Effective Time).
Series C Preferred Stock: The amount of Fixed Merger
Consideration per Target Share of Series C Preferred Stock shall equal the
amount of Fixed Merger Consideration per Target Share of Common Stock,
multiplied by five.
Series D Preferred Stock: The amount of Fixed Merger
Consideration per Target Share of Series D Preferred Stock shall be zero
dollars.
The holders of Options shall be entitled to receive the
consideration provided in Section 5(j)(i).
Contingent Merger Consideration
The "Contingent Merger Consideration" shall consist of the
aggregate amount of any and all Escrow Distributions. The Contingent Merger
Consideration shall be allocated as set forth below:
Common Stock: The amount of Contingent Merger Consideration
per Target Share of Common Stock shall equal the Contingent Merger Consideration
to which the holders of Common Stock are entitled as hereinafter provided
divided by the number of Target Shares of
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Common Stock. Each holder of Common Stock shall be entitled to receive from any
Escrow Distribution an amount equal to (A) the amount which such holder would
have received if the amount of the Fixed Merger Consideration had been increased
by the sum of the aggregate amount of the Escrow Distribution(s) then to be or
theretofore distributed plus the aggregate amount theretofore distributed to the
Buyer with respect to Dissenting Shares from amounts otherwise payable to the
Target Stockholders Representative Escrow Fund from the Merger Consideration
Escrow Fund and not subsequently paid by the Buyer to the Target Stockholders
Representative Escrow Fund, if the status of Options as In-the-Money Options or
not had been determined under clause (ii) of Section 5(j) and, if such Escrow
Distribution is subsequent to the Escrow Distribution to the holder of Series D
Preferred Stock upon the occurrence of the Series D Preferred Condition, if the
Series D Preferred Stock had been converted into 244,874 shares of Common Stock
immediately prior to the Effective Time, less (B) the aggregate amount of Escrow
Distributions theretofore paid to such holder.
Series C Preferred Stock: The amount of Contingent Merger
Consideration per Target Share of Series C Preferred Stock shall equal the
amount of Contingent Merger Consolidation per Target Share of Common Stock,
multiplied by five.
Series D Preferred Stock: The amount of Contingent Merger
Consideration per Target Share of Series D Preferred Stock shall equal the
Contingent Merger Consideration to which the holder of Series D Preferred Stock
is entitled as hereinafter provided divided by the number of Target Shares of
Series D Preferred Stock. The holder of Series D Preferred Stock shall not be
entitled to receive any of the Contingent Merger Consideration until the total
of (i) the Fixed Merger Consideration and (ii) the Contingent Merger
Consideration actually distributed to Target Stockholders (including any
Contingent Merger Consideration to be distributed to such holder pursuant to the
remainder of this sentence) and holders of Options equals $60 million (the
"Series D Preferred Condition"); whereupon such holder shall be entitled to
receive an amount equal to the Fixed Merger Consideration and Contingent Merger
Consideration such holder would have received if the Series D Preferred Stock
had been converted into 244,874 shares of Common Stock immediately prior to the
Effective Time. At the time of any subsequent distribution of Contingent Merger
Consideration, such holder shall be entitled to receive the amount of Contingent
Merger Consideration per Target Share of Common Stock then distributed
multiplied by 244,874).
The holders of Options shall be entitled to receive the
consideration provided in Section 5(j)(ii).
AS PROVIDED IN SECTION 2(d)(v)(C) OF THE AGREEMENT, NO TARGET SHARE
THAT IS AT THE TIME A DISSENTING SHARE IS ENTITLED TO PAYMENT OF ANY MERGER
CONSIDERATION.
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EXHIBIT D
Merger Consideration Escrow Terms
Capitalized terms used in this Exhibit without definition that are defined in
the Agreement of Merger to which this Exhibit is an exhibit have the same
meanings herein as therein.
1. Merger Consideration Escrow Fund. The term "Merger Consideration Escrow
Fund" means (i) the $11 million delivered by the Buyer to the Merger
Consideration Escrow Agent pursuant to Section 2(g) of the Agreement at
the Effective Time, plus (ii) any portion of the Earnout Amount (and
any interest thereon) delivered by the Buyer to the Merger
Consideration Escrow Agent pursuant to Section 2(h)(ii) of the
Agreement, plus (iii) any proceeds of the investment of the foregoing
received by the Merger Consideration Escrow Agent.
2. Buyer Indemnitees' Claims.
a. At any time (or from time to time) on or prior to August 1,
2000, a Buyer Indemnitee may give written notice (a "Claim
Notice") to the Target Stockholders Representative that such
Buyer Indemnitee claims all or any part of the Merger
Consideration Escrow Fund pursuant to Section 8(b) of the
Agreement (a "Claim"); provided that $1 million of the Merger
Consideration Escrow Fund (the "Capitalization Reserve") shall
only be available to satisfy any such Claim or Claims based on
a breach of any representation or warranty by the Target
contained in Section 3(b) of the Agreement and not to satisfy
any other Claim or Claims. The Claim Notice shall set forth in
reasonable detail (i) the nature of the Claim and (ii) if
ascertainable, the amount of the Claim (hereinafter referred
to as the "Claim Amount").
b. Upon actual receipt of a Claim Notice, the Target Stockholders
Representative shall have thirty (30) days to dispute some or
all of the Claim (and, if set forth in the Claim Notice, some
or all of the Claim Amount) by giving written notice to the
Buyer specifying in reasonable detail the basis for the
dispute (a "Dispute Notice"). Upon the expiration of such
thirty (30) day period, any portion of the Claim (and, if set
forth in the Claim Notice, the Claim Amount) not disputed in a
Dispute Notice so given shall be deemed approved by the Target
Stockholders Representative.
c. If the Target Stockholders Representative approves or is
deemed to approve all or a part of the Claim Amount, the Buyer
(on behalf of the Buyer Indemnitee) shall be entitled to
receive from the Merger Consideration Escrow Fund an amount
equal to the Claim Amount (or such part thereof which is
approved or deemed approved by
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the Target Stockholders Representative) together with the pro
rata portion of the proceeds of the investment of the Merger
Consideration Escrow Fund as of such date attributable
thereto.
d. If, within the thirty (30) day period referred to in paragraph
2(b) above, the Target Stockholders Representative gives a
Dispute Notice to the Buyer, the Buyer and the Target
Stockholders Representative shall undertake to obtain as
promptly as practicable a final resolution of the dispute
specified therein. If the Buyer and the Target Stockholders
Representative are unable to resolve such dispute within
thirty (30) days after the delivery to the Buyer of the
Dispute Notice, then the Buyer and the Target Stockholders
Representative shall submit such dispute to arbitration in
accordance with Section 8(j) of the Agreement. The
determination of the arbitrator as to a dispute shall be final
and binding for all purposes of the Agreement.
3. Release and Transfer of Merger Consideration Escrow Fund.
a. On the first anniversary of the Effective Time (or, if such
date is not a business day in Chicago, Illinois, on the next
succeeding date that is such a business day), an amount shall
be distributed out of the Merger Consideration Escrow Fund to
the Target Stockholders Representative Escrow Fund equal to
any portion of the Capitalization Reserve not therefore used
to satisfy Claims thereon or required to satisfy Claims
thereon then pending (together with the pro rata portion of
the proceeds of the investment of the Merger Consideration
Escrow Fund as of such date attributable thereto) whether or
not payment of such Claims is being disputed by the Target
Stockholders Representative. Thereafter, when any pending
Claim against the Capitalization Reserve is approved or deemed
approved by the Target Stockholders Representatives or
resolved pursuant to paragraph 2(d) above: (i) the Buyer shall
be entitled to receive from the Merger Consideration Escrow
Fund (to the extent sufficient for such purpose) the amount of
such Claim so approved or deemed approved or determined by
such resolution to be owed to the Buyer with respect to such
Claim (if any) together with the pro rata portion of the
proceeds of the investment of the Merger Consideration Escrow
Fund as of such date attributable thereto, and (ii) if at such
time, after giving effect to clause (i), the value of the
assets in the Capitalization Reserve (as determined by the
Merger Consideration Escrow Agent upon the request of either
Buyer or the Target Stockholders Representative) exceeds the
aggregate amount required to satisfy all remaining Claims then
pending against the Capitalization Reserve, whether or not
payment of such Claims is being disputed by the Target
Stockholders Representative, such excess (together with the
pro rata portion of the proceeds of the investment of the
Merger Consideration Escrow Fund as of such date attributable
thereto) shall be distributed out of the Merger Consideration
Escrow Fund to the Target Stockholders Representative Escrow
Fund.
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b. On the date that is 15 months after the Closing Date (or, if
such date is not a business day in Chicago, Illinois, on the
next succeeding date that is such a business day), an amount
shall be distributed out of the Merger Consideration Escrow
Fund to the Target Stockholders Representative Escrow Fund
equal to the lesser of (i) $5 million and (ii) the value of
the assets then in the Merger Consideration Escrow Fund (as
determined by the Merger Consideration Escrow Agent upon the
request of either Buyer or the Target Stockholders
Representative) less the aggregate amount required to satisfy
all Claims then pending (together with the pro rata portion of
the proceeds of the investment of the Merger Consideration
Escrow Fund as of such date attributable thereto), whether or
not payment of such Claims is being disputed by the Target
Stockholders Representative. No such distribution shall be
made out of the Merger Consideration Escrow Fund if the amount
determined under clause (ii) of the preceding sentence is less
than zero.
c. On the date that is 24 months after the Closing Date (or, if
such date is not a business day in Chicago, Illinois, on the
next succeeding date that is such a business day), an amount
shall be distributed out of the Merger Consideration Escrow
Fund to the Target Stockholders Representative Escrow Fund
equal to the value of the assets then in the Merger
Consideration Escrow Fund (as determined by the Merger
Consideration Escrow Agent upon the request of either Buyer or
the Target Stockholders Representative) less the aggregate
amount required to satisfy all Claims then pending (together
with the pro rata portion of the proceeds of the investment of
the Merger Consideration Escrow Fund as of such date
attributable thereto), whether or not payment of such Claims
is being disputed by the Target Stockholders Representative.
No such distribution shall be made out of the Merger
Consideration Escrow Fund if the amount determined under the
preceding sentence is less than zero.
d. Thereafter, when any pending Claim is approved or deemed
approved by the Target Stockholders Representative or resolved
pursuant to paragraph 2(d) above: (i) the Buyer shall be
entitled to receive from the Merger Consideration Escrow Fund
(to the extent sufficient for such purpose) the amount of such
Claim so approved or deemed approved or determined by such
resolution to be owed to the Buyer from the Merger
Consideration Escrow Fund with respect to such Claim (if any)
together with the pro rata portion of the proceeds of the
investment of the Merger Consideration Escrow Fund as of such
date attributable thereto, and (ii) if at such time, after
giving effect to clause (i), the value of the assets in the
Merger Consideration Escrow Fund (as determined by the Merger
Consideration Escrow Agent upon the request of either Buyer or
the Target Stockholders Representative) exceeds the aggregate
amount required to satisfy all remaining Claims then pending
(together with the pro rata portion of the proceeds of the
investment of the Merger Consideration Escrow Fund as of such
date attributable thereto), whether or not payment of such
Claims is being
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disputed by the Target Stockholders Representative, such
excess shall be distributed out of the Merger Consideration
Escrow Fund to the Target Stockholders Representative Escrow
Fund.
e. Notwithstanding the foregoing, in the event that at the time
any amount is to be distributed out of the Merger
Consideration Escrow Fund to the Target Stockholders
Representative Escrow Fund any Target Share is a Dissenting
Share, the portion of such amount attributable to such
Dissenting Share shall be promptly distributed to the Buyer
for payment, as appropriate, to the holder of such Dissenting
Share in accordance with the Delaware Corporation Law. If such
Dissenting Share subsequently ceases to be a Dissenting Share
(other than as a result of the Buyer or the Surviving
Corporation making payment of the appraised value thereof or
in connection with a settlement of the rights of appraisal of
the holder), the Buyer shall promptly return such amount to
the Target Stockholders Representative Escrow Fund.
4. Directions to Merger Consideration Escrow Agent/Distributions.
a. Whenever the Buyer or the Target Stockholders Representative
Escrow Fund is entitled pursuant to the terms of this Exhibit
to receive an amount from the Merger Consideration Escrow Fund
the Target Stockholders Representative and the Buyer shall
direct the Merger Consideration Escrow Agent to distribute
such amount to the Buyer or the Target Stockholders
Representative Escrow Fund, as applicable, to the extent the
Merger Consideration Escrow Fund is sufficient. Any dispute
regarding distribution of such funds shall be resolved in
accordance with Section 8(l) of the Agreement.
b. At the time any distribution out of the Merger Consideration
Escrow Fund is to be made to the Target Stockholders
Representative Escrow Fund as contemplated by paragraph 4(a)
above, the amount of such distribution to the Target
Stockholders Representative Escrow Fund shall be reduced by
.5% thereof (representing the portion of the Lehman Fee to
which Lehman Brothers Inc. is entitled on account of such
distribution) and the amount of such reduction shall instead
be distributed to the Buyer, and the Target Stockholders
Representative and the Buyer shall so direct the Merger
Consideration Escrow Agent.
c. In the event that, at any time prior to the final distribution
from the Merger Consideration Escrow Fund, the Merger
Consideration Escrow Fund shall include any asset other than
cash or permitted investments, Buyer and the Target
Stockholders Representative shall agree upon, and propose to
the Merger Consideration Escrow Agent, an amendment to the
Merger Consideration Escrow
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Agreement to deal with such asset in accordance with the
intent reflected in this Exhibit.
5. Wrongful Refusal to Direct. In the event it is determined that the
Target Stockholders Representative has wrongfully refused to direct the
Target Stockholders Representative Escrow Agent to distribute funds to
the Buyer out of the Target Stockholders Representative Escrow Fund or
that either the Target Stockholders Representative or the Buyer has
wrongfully refused to join in a direction to the Merger Consideration
Escrow Agent to distribute funds out of the Merger Consideration Escrow
Fund, the wronged party shall be entitled to reimbursement of all of
its reasonable costs and expenses (including reasonable attorneys'
fees) which are attributable to the wrongful refusal of the other
party.
6. Target Stockholders Representative. The Target Stockholders
Representative is authorized to act as provided under the definition of
"Target Stockholders Representative" in the Agreement. In acting or
refraining from acting (including without limitation in determining
whether to dispute any Claim, in determining what further action, if
any, to take with respect to a disputed Claim and in determining what
actions to take or not take in connection with any arbitration
conducted pursuant to Section 8(j) of the Agreement), except to the
extent otherwise provided in this Exhibit, the Target Stockholders
Representative shall have complete discretion provided the Target
Stockholders Representative acts in good faith. Without limiting the
generality of the foregoing, the Target Stockholders Representative
may, in good faith: (i) employ accountants, attorneys and other
representatives or advisors, and undertake the dispute, defense or
settlement of any Claim; and (ii) pay expenses in connection with the
foregoing from sources other than the Merger Consideration Escrow Fund.
No Target Stockholder or holder of an Option shall have any claim
against the Target Stockholders Representative for any act or failure
to act except for any such act or failure to act that constitutes gross
negligence or wilful misconduct.
7. Target Stockholders. For purposes of this Exhibit, Target Stockholders
shall include their successors, assigns, heirs, executors and legal
representatives.
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EXHIBIT E
ESCROW AGREEMENT
(Merger Consideration)
ESCROW AGREEMENT dated _______________, 1997 (this
"Agreement"), by and among Medicis Pharmaceutical Corporation, a Delaware
corporation ("Medicis"), Henry Kuehn, Joel E. Bernstein, M.D. and Jeremy H.
Silverman (including any successors thereto pursuant to that certain Agreement
of Merger (the "Merger Agreement") dated as of December 1, 1997 between Medicis,
GenDerm Corporation and Medicis Acquisition Corporation, the "Target
Stockholders Representative") and First Trust National Association (including
any successor thereto, the "Escrow Agent").
1. Escrow. Simultaneously with the execution and delivery hereof, Medicis
is delivering to the Escrow Agent good funds in the amount of
$10,000,000. Medicis may hereafter deliver additional good funds to the
Escrow Agent. The Escrow Agent agrees that all such funds, together
with any proceeds of the investment thereof pursuant to this Agreement
received by the Escrow Agent (collectively, the "Escrow Fund"), shall
be held, invested, administered and distributed in accordance with the
terms of this Agreement.
2. Investment of Escrow Fund. Subject to the terms and conditions set
forth below, the Escrow Agent shall keep the Escrow Fund invested in
direct obligations of the United States of America for the payment of
which its full faith and credit is pledged or obligations of a person
controlled or supervised by and acting as an agency or instrumentality
of the United States of America the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States
of America (or in any mutual fund substantially all of which is
invested in such obligations) and/or in First American Fund Treasury
Obligations, Corporate Trust Class D, an open-end diversified
management investment company (a mutual fund) investing in short-term
U.S. Treasury obligations ("Class D") as directed in writing from time
to time by the Target Stockholders Representative and Medicis; provided
that any cash which is from time to time in the Escrow Fund (other than
cash held for imminent distribution out of the Escrow Fund) shall be
promptly invested by the Escrow Agent in Class D until such time as the
Target Stockholders Representative and Medicis direct such funds to be
otherwise invested in accordance with the first clause of this
sentence. Upon the written request of either Medicis or the Target
Stockholders Representative, the Escrow Agent shall promptly determine
the value of the assets in the Escrow Fund and inform both Medicis and
the Target Stockholders Representative of such value.
<PAGE> 112
3. Distributions. The Escrow Agent shall make distributions from the
Escrow Fund to Medicis and to [ACCOUNT DESCRIPTION] (including any
successor thereto, the "Target Stockholders Representative Escrow
Fund"), or to either of them, as jointly directed in writing by Medicis
and the Target Stockholders Representative. Otherwise, except as
provided in paragraph 9 below, the Escrow Agent shall make no
distributions from the Escrow Fund. Each distribution from the Escrow
Fund shall be made in cash. Unless otherwise jointly directed in
writing by Medicis and the Target Stockholders Representative, the
Escrow Agent shall determine the investments, if any, to be liquidated
in order to make each distribution from the Escrow Fund.
4. Compensation. All fees of the Escrow Agent, as provided on Exhibit A
attached hereto, and all reasonable expenses, disbursements and
advances incurred or paid by the Escrow Agent (including, without
limitation, reasonable attorneys' fees and expenses), shall be paid
one-half by Medicis and one-half by the Target Stockholders
Representative.
5. Legal Counsel. If the Escrow Agent is joined into any litigation
involving the Escrow Fund, the Escrow Agent shall have the right to
retain counsel and Medicis and the Target Stockholders Representative
shall each reimburse the Escrow Agent for one-half of any and all
costs, attorneys' fees, charges, disbursements and expenses reasonably
incurred in connection with such litigation.
6. Resignation. The Escrow Agent reserves the right to resign at any time
by giving at least thirty (30) days' advance written notice of
resignation to Medicis and to the Target Stockholders Representative,
specifying the effective date of such resignation. Within thirty (30)
days after receiving such notice, Medicis and the Target Stockholders
Representative shall appoint a successor escrow agent to which the
Escrow Agent will distribute the property then held hereunder. If a
successor escrow agent has not been appointed and has not accepted such
appointment by the end of the thirty (30) day period, the Escrow Agent
may apply to a court of competent jurisdiction for the appointment of a
successor Escrow Agent, and the costs, expenses and reasonable
attorneys' fees which are incurred in connection with such a proceeding
shall be paid one-half by Medicis and one-half by the Target
Stockholders Representative. The Escrow Agent shall continue to serve
as escrow agent hereunder (and will continue to accept any payments
into the Escrow Fund) until its successor accepts the escrow and
receives the Escrow Fund.
7. Liability. The Escrow Agent undertakes to perform only such duties as
are specifically set forth herein. The Escrow Agent, acting or
refraining from acting in good faith, shall not be liable for any
mistake of fact or error in judgment by it or for any acts or omissions
by it of any kind unless caused by its willful misconduct or gross
negligence, and shall be entitled to rely conclusively upon (i) any
written notice, instrument or signature believed by it to be genuine
and to have been signed or presented by the proper party or parties
duly authorized
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to do so and (ii) the advice of counsel (other than counsel to one of
the other parties hereto) retained by it. Medicis and the Target
Stockholders Representative shall each indemnify the Escrow Agent for
one-half of any damages it incurs for its acting or refraining from
acting in good faith hereunder, which damages were not caused by its
willful misconduct or gross negligence. The Escrow Agent is not
responsible for any of the terms and/or conditions of any agreement
other than this Agreement, including without limitation the Merger
Agreement, and may rely exclusively on the joint directions of Medicis
and the Target Stockholders Representative to satisfy its role as
Escrow Agent, including with respect to investment of the Escrow Fund
as provided in Section 2. If multiple individuals are at any time
acting as the Target Stockholders Representative, the Escrow Agent may
rely exclusively on directions signed by a majority of such
individuals. If only one individual is serving as the Target
Stockholders Representative, the Escrow Agent may rely exclusively on
the directions of the Target Representative signed by such individual.
8. Discharge of the Escrow Agent. Medicis and the Target Stockholders
Representative may, by mutual agreement at any time, remove the Escrow
Agent as escrow agent hereunder, and substitute a bank or trust company
therefor, in which event, upon receipt of written notice thereof and
payment by each of Medicis and the Target Stockholders Representative
of one-half of any accrued but unpaid amounts due the Escrow Agent
hereunder, the Escrow Agent shall account for and deliver to such
substituted escrow agent the Escrow Fund held by it, and the Escrow
Agent shall thereafter be discharged from all liability hereunder.
9. Court Orders. If the Escrow Fund shall be attached, garnished or levied
upon pursuant to any court order, or the delivery of the Escrow Fund
shall be mandated, ordered, stayed or enjoined by any court order
(including a court order pursuant to Section 8(l) of the Merger
Agreement), or any court order shall be made or entered into affecting
the Escrow Fund, or any part thereof, the Escrow Agent is hereby
expressly authorized, in its sole discretion, to obey and comply with
any court order so entered or issued, which it is advised by legal
counsel of its own choosing (other than counsel to one of the other
parties hereto) is binding upon it, whether with or without
jurisdiction, and in case the Escrow Agent obeys or complies with any
such court order, it shall not be liable to any of the parties hereto
or to any other person, firm or corporation, by reason of such
compliance notwithstanding such court order be subsequently reversed,
modified, annulled, set aside or vacated. The Escrow Agent shall
promptly notify Medicis and the Target Stockholders Representative of
any such attachment, garnishment or levy and of any service of process
or court order on it related to the Escrow Fund. Nothing in this
Section 9 shall relieve the Buyer or the Target Stockholders
Representative of their agreements or obligations regarding Section
8(l) of the Merger Agreement.
10. Amendments. This Agreement may not be amended or modified except by a
writing executed by each of the parties hereto. The Escrow Agent shall
not refuse to execute a written amendment or modification proposed by
the other parties that does not aversely
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affect the Escrow Agent.
11. Directions. All directions to the Escrow Agent from the other parties
hereto and notices to the other parties hereto from the Escrow Agent
shall be in writing and shall be addressed as follows:
If to the Escrow Agent, to it at:
First Trust National Association
400 N. Michigan Avenue
Chicago, Illinois 60601
Attention: Frank Layo, Trust Officer
Facsimile No.: (312) 228-9402
If to Medicis, to it at:
Medicis Pharmaceutical Corporation
4343 East Camelback Road
Suite 250
Phoenix, Arizona 85018-2700
Attention: Jonah Shacknai, President and CEO
If to the Target Stockholders
Representative, to:
Henry Kuehn
2407 Bennett
Evanston, Illinois 60201
(847) 869-7393
and to
Joel E. Bernstein, M.D.
615 Brierhill
Deerfield, Illinois 60015
Facsimile No.: (847) 945-9599
and to
Jeremy H. Silverman
Frontenac Company
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135 S. LaSalle Street
Suite 3800
Chicago, Illinois 60603
Facsimile No.: (312) 368-9520
or, in each case, to such other address (or to the attention of such other
person) as the intended recipient shall have specified to the other parties by
such written notice. Such directions and notices shall be effective only upon
receipt by the intended recipients.
12. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which together shall
constitute one and the same instrument.
13. Payments by Target Stockholders Representative. Any payments to the
Escrow Agent required by the terms hereof to be made by the Target
Stockholders Representative shall be made from sources other than the
Escrow Fund.
* * * * *
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IN WITNESS WHEREOF, each of the undersigned has hereunto subscribed on
this the date first written above.
MEDICIS PHARMACEUTICAL
CORPORATION
By:_____________________________________
Its:____________________________________
Target Stockholders Representative:
________________________________________
Henry Kuehn
________________________________________
Joel E. Bernstein, M.D.
________________________________________
Jeremy H. Silverman
FIRST TRUST NATIONAL
ASSOCIATION, as Escrow Agent
By:_____________________________________
Its:____________________________________
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Exhibit A
Acceptance Fee - $833 payable upon execution and delivery
Annual Escrow Fee - $1,500 payable in advance; completely
non-refundable notwithstanding termination of Escrow Agreement during
the year for which paid
Annual Out-Of-Pocket Expenses Fee (in lieu of specific charges for
postage related to distributions and for other ordinary out-of-pocket
expenses; any expenses related to tax reporting would be extra) - $90
payable in advance; completely non-refundable notwithstanding
termination of Escrow Agreement during the year for which paid
Investment Management Fee - None apart from the Annual Escrow Fee
Investment Transaction Fee - $90 per transaction, excluding
transactions involving a mutual fund. There will be no investment fee
or additional charge for transactions involving a mutual fund.
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EXHIBIT F
Target Stockholders Representative Escrow Terms
Capitalized terms used in this Exhibit without definition that are defined in
the Agreement of Merger (or in the exhibits thereto) to which this Exhibit is an
exhibit have the same meanings herein as therein.
1. Target Stockholders Representative Escrow Fund. The term "Target
Stockholders Representative Escrow Fund" means (i) the $[__] million
Fixed Merger Consideration delivered by the Buyer to the Target
Stockholders Representative Escrow Agent pursuant to Section 2(f)(A) of
the Agreement at the Effective Time, net of any portion thereof
distributed to the Buyer pursuant to Section 2(ii) below and not
returned by the Buyer pursuant to such Section 2 (the "Fixed Merger
Consideration Payment"), plus (ii) the $2.25 million delivered by the
Buyer to the Target Stockholders Representative Escrow Agent pursuant
to Section 2(f)(B) of the Agreement at the Effective Time (the "Expense
Reserve"), plus (iii) any portion of any installment of the Earnout
Amount (and any interest thereon) delivered by the Buyer to the Target
Stockholders Representative Escrow Agent pursuant to Section 2(h)(ii)
of the Agreement (an "Earnout Payment"), plus (iv) any funds
distributed out of the Merger Consideration Escrow Fund, or paid by the
Buyer, to the Target Stockholders Representative Escrow Fund pursuant
to Exhibit D to the Agreement (an "Escrow Release Payment"), plus (v)
any proceeds of the investment of the foregoing received by the Target
Stockholders Representative Escrow Agent. $250,000 of the Expense
Reserve shall be set aside as a reserve for, and applied to, any
payment required to be made out of the Target Stockholders
Representative Escrow Fund pursuant to Section 8(l) of the Agreement or
paragraph 5 of Exhibit D to the Agreement (the "Set Aside").
2. Paying Agent Responsibilities; Entitlement to Distributions.
(i) The Target Stockholders Representative shall serve as paying
agent with respect to the Fixed Merger Consideration and any
Contingent Merger Consideration for the benefit of the Target
Stockholders and the holders of Options. The responsibilities
of the Target Stockholders Representative as such shall
include the responsibilities set forth in paragraph (ii) of
this Section 2 and in Section 8 of the Target Stockholders
Representative Escrow Agreement (the "Paying Agent
Responsibilities").
(ii) Promptly after the Effective Time, the Target Stockholders
Representative shall mail a letter of transmittal (with
instructions for its use) to each record holder of Target
Shares for the holder to use in surrendering the certificates
which represented his Target Shares against payment of the
Fixed Merger Consideration therefor. Such
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letter of transmittal shall be accompanied by a copy of
Section 262 of the Delaware Corporation Law and shall include
a waiver of the right (if any) of the record holder to demand
the appraisal of the fair market value of his Target Shares
under such Section. If at the expiration of the period in
which a Target Stockholder may demand the appraisal of the
fair market value of his Target Shares under Section 262 of
the Delaware Corporation Law, any Target Share is a Dissenting
Share, an amount equal to the Fixed Merger Consideration per
Target Share of such class shall be promptly distributed out
of the Target Stockholders Representative Escrow Fund to the
Buyer for payment to the holder of such Dissenting Share in
accordance with the Delaware Corporation Law. If such
Dissenting Share subsequently ceases to be a Dissenting Share
(other than as a result of the Buyer or the Surviving
Corporation making payment of the appraised value thereof or
in connection with a settlement of the rights of appraisal of
the respective holder), the Buyer shall promptly return such
amount to the Target Stockholders Representative Escrow Agent
and the Target Stockholders Representative shall mail a letter
of transmittal to the record holder of such share for the
holder to use in surrendering the certificates which
represented such Dissenting Share against payment of the Fixed
Merger Consideration therefor. Any letter of transmittal used
by a Target Stockholder in surrendering Target Shares that are
pledged to the Target immediately prior to the Effective Time
must be accompanied by an authorization and direction by such
Target Stockholder to the Target Stockholders Representative
to deliver to the Surviving Corporation the Fixed Merger
Consideration attributable to such Target Shares to the extent
required to satisfy all indebtedness secured by such pledge.
(iii) Upon the surrender of certificates representing any Target
Shares together with a properly completed and executed letter
of transmittal with respect thereto (and, if required by (ii)
above, the authorization and direction required thereby), the
holder of such Target Shares shall be entitled out of the
Target Stockholders Representative Escrow Fund to: (i) prompt
payment of the Fixed Merger Consideration for such Target
Shares and (ii) payment of any Contingent Merger Consideration
for such Target Shares as provided below.
(iv) The Target Stockholders Representative shall deduct from any
amount otherwise distributable to the holder of an Option such
amount, if any, as is required to be deducted and withheld by
the Target with respect to such distribution under the Code,
or any provision of state or local tax law, and such deducted
amount shall be promptly paid over to the Surviving
Corporation, together with an explanation of the determination
thereof. Any amount so deducted shall be treated as having
been distributed to the holder of the Option.
(v) Promptly following receipt by the Target Stockholders
Representative Escrow Fund of any Earnout Payment or Escrow
Release Payment, an equivalent amount (but only
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to the extent of the balance then in the Target Stockholders
Representative Escrow Fund after payment or provision for the
costs and expenses described in Section 4) shall be promptly
distributed out of the Target Stockholders Representative
Escrow Fund to the Target Stockholders and the holders of
Options as and to the extent provided in the Agreement;
provided that from and after the time distributions to the
Target Stockholders and the holders of Options reach an amount
equal to $60 million less the amount to be distributed to the
holder of Series D Preferred Stock upon the occurrence of the
Series D Preferred Stock Condition, and until such time as the
amount to be distributed to the holder of Series D Preferred
Stock upon such occurrence has been so distributed or it has
been determined that the Series D Preferred Condition cannot
occur, the Target Stockholders Representative shall defer any
such distribution out of the Target Stockholders
Representative Escrow Fund to the extent of the amount to be
distributed to the holder of Series D Preferred Stock upon the
occurrence of the Series D Preferred Condition (which amount
shall be promptly distributed out of the Target Stockholders
Representative Escrow Fund to such holder upon such
occurrence); further provided that the Target Stockholders
Representative may elect to defer any distribution out of the
Target Stockholders Representative Escrow Fund if the
distribution thereof to the Target Stockholders and holders of
Options (together with any other amounts then being deferred
pursuant to this proviso) would not exceed $500,000.
(vi) At such time as the Target Stockholders Representative Escrow
Fund is no longer entitled to receive any further Earnout
Payments or Escrow Release Payments, a distribution shall
promptly be made out of the Target Stockholders Representative
Escrow Fund of the remaining balance therein after deducting
any then remaining balance of the Set Aside and the amount of
costs and expenses described in Section 4 incurred by the
Target Stockholders Representative through the time of such
distribution but not theretofore paid.
(vii) At the earlier of (i) December 31, 2002 and (ii) such date
after August 1, 2000 as the balance in the Merger
Consideration Escrow Fund is zero, a distribution of any then
remaining Set Aside shall promptly be made out of the Target
Stockholders Representative Escrow Fund after deducting the
amount of costs and expenses described in Section 4 incurred
by the Target Stockholders Representative through the time of
such distribution but not theretofore paid.
(viii) Notwithstanding (v), (vi) and (vii) above, no distribution
shall be made thereunder to any Target Stockholder with
respect to any shares that are at the time Dissenting Shares.
(ix) Notwithstanding any other provision of this Exhibit, the
Target Stockholders Representative may pay amounts from the
Target Stockholders Representative
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Escrow Fund to compensate, for their service prior to the
Effective Time, persons who are employees of the Target and
its Subsidiary as of the Effective Time and are thereafter
terminated by the Surviving Corporation, provided that the
total of such amounts does not exceed $150,000.
3. Representation of the Target Stockholders. The Target Stockholders
Representative on behalf of the Target Stockholders and the holders of
Options shall be entitled to take or refrain from taking any action
delegated to the Target Stockholders Representative in the Agreement or
which the Agreement or any Exhibit thereto contemplates the Target
Stockholders Representative may take or refrain from taking, including
without limitation determining whether to assert any claim or objection
against or dispute with, or to defend any claim by, Buyer (and if such
action is initiated, what actions to take in connection therewith)
("Representative Action"). In addition, the Target Stockholders
Representative shall be entitled to employ accountants, attorneys and
other representatives or advisors in connection with any Representative
Action, the performance of the Paying Agent Responsibilities and any
dispute, defense or settlement regarding any controversy related to the
Agreement (any costs and expenses so incurred by the Target
Stockholders Representative, "Professional Expenses").
4. Costs and Expenses of Target Stockholders Representative. The Target
Stockholders Representative shall be entitled to reimbursement out of
the Target Stockholders Representative Escrow Fund (to the extent of
the balance therein), prior to the claims of the Target Stockholders
and the holders of Options, for all of the reasonable costs and
expenses incurred by it in connection with carrying out its
responsibilities under the Agreement and the Exhibits thereto,
including without limitation all Professional Expenses, all costs and
expenses incurred in connection with taking any Representative Action
and performing the Paying Agent Responsibilities and any fees payable
by it to the Target Stockholders Representative Escrow Agent pursuant
to this Exhibit F or to the Merger Consideration Escrow Agent pursuant
to Exhibit D to the Agreement. In addition, Henry Kuehn (or his
successor) shall be entitled to compensation as provided in the
definition of Target Stockholders Representative in the Agreement.
5. Directions to Target Stockholders Representative Escrow
Agent/Distributions.
(i) Whenever the Target Stockholders and holders of Options are
entitled pursuant to the terms of the Agreement or this
Exhibit G to receive an amount from the Target Stockholders
Representative Escrow Fund, the Target Stockholders
Representative shall direct the Target Stockholders
Representative Escrow Agent to distribute such amounts to the
Target Stockholders and the holders of Options, as applicable.
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(ii) The Target Stockholders Representative may direct from time to
time the Target Stockholders Representative Escrow Agent to
distribute to it amounts to which it is entitled to
reimbursement pursuant to Section 4.
(iii) In the event that, at any time prior to the final distribution
from the Target Stockholders Escrow Fund, the Target
Stockholders Escrow Fund shall include any asset other than
cash or permitted investments, the Target Stockholders
Representative shall propose to the Target Stockholders
Representative Escrow Agent an amendment to the Target
Stockholders Representative Escrow Agreement to deal with such
asset in accordance with the intent reflected in this
Exhibit G.
6. Limitation of Responsibility. In acting or refraining from acting,
including without limitation in determining whether to take or not take
any Representative Action and performing the Paying Agent
Responsibilities, except to the extent otherwise provided in this
Exhibit G, the Target Stockholders Representative shall have complete
discretion provided the Target Stockholders Representative acts in good
faith. No Target Stockholder or holder of an Option shall have any
claim against the Target Stockholders Representative for any act or
failure to act except for any such act or failure to act that
constitutes gross negligence or wilful misconduct.
7. Target Stockholders. For purposes of this Exhibit G, Target
Stockholders shall include their successors, permitted assigns, heirs,
executors and legal representatives.
8. Action by Target Stockholders Representative. The Target Stockholders
Representative shall be authorized to act as provided under the
definition of "Target Stockholders Representative" in the Agreement.
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EXHIBIT G
ESCROW AGREEMENT
(Target Stockholders Representative)
ESCROW AGREEMENT dated _______________, 1997 (this
"Agreement"), by and between Henry Kuehn, Joel E. Bernstein, M.D. and Jeremy H.
Silverman (including any successors thereto pursuant to that certain Agreement
of Merger (the "Merger Agreement") dated as of December 1, 1997 between Medicis
Pharmaceutical Corporation, Medicis Acquisition Corporation and GenDerm
Corporation, the "Target Stockholder Representative"), and First Trust National
Association (including any successor thereto, the "Escrow Agent").
1. Escrow. Simultaneously with the execution and delivery hereof, the
Escrow Agent is receiving good funds in the amount of $2.25 million
Additional good funds may hereafter be delivered to the Escrow Agent.
The Escrow Agent agrees that all such funds, together with any proceeds
of the investment thereof pursuant to this Agreement received by the
Escrow Agent (collectively, the "Escrow Fund"), shall be held,
invested, administered and distributed in accordance with the terms of
this Agreement.
2. Investment of Escrow Fund. Subject to the terms and conditions set
forth below, the Escrow Agent shall keep the Escrow Fund invested in
direct obligations of the United States of America for the payment of
which its full faith and credit is pledged or obligations of a person
controlled or supervised by and acting as an agency or instrumentality
of the United States of America the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States
of America (or in any mutual fund substantially all of which is
invested in such obligations) and/or in First American Fund Treasury
Obligations, Corporate Trust Class D, an open-end diversified
management investment company (a mutual fund) investing in short-term
U.S. Treasury obligations ("Class D") as directed in writing from time
to time by the Target Stockholders Representative; provided that any
cash which is from time to time in the Escrow Fund (other than cash
held for imminent distribution out of the Escrow Fund) shall be
promptly invested by the Escrow Agent in Class D until such time as the
Target Stockholders Representative directs such funds to be otherwise
invested in accordance with the first clause of this sentence. Upon the
written request of the Target Stockholders Representative, the Escrow
Agent shall promptly determine the value of the assets in the Escrow
Fund and inform the Target Stockholders Representative of such value.
3. Distributions. The Escrow Agent shall make distributions from the
Escrow Fund as directed in writing by the Target Stockholders
Representative. Otherwise, except as provided in paragraph 10 below,
the Escrow Agent shall make no distributions from the Escrow Fund. Each
distribution from the Escrow Fund shall be made in cash. Unless
otherwise directed
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in writing by the Target Stockholders Representative, the Escrow Agent
shall determine the investments, if any, to be liquidated in order to
make each distribution from the Escrow Fund.
4. Compensation. All fees of the Escrow Agent, as provided on Exhibit A
attached hereto, and all reasonable expenses, disbursements and
advances incurred or paid by the Escrow Agent (including, without
limitation, reasonable attorneys' fees and expenses) shall be paid out
of the Escrow Fund.
5. Legal Counsel. If the Escrow Agent is joined into any litigation
involving the Escrow Fund, the Escrow Agent shall have the right to
retain counsel and the Escrow Agent shall be entitled to reimbursement
out of the Escrow Fund for any and all costs, attorneys' fees, charges,
disbursements and expenses reasonably incurred in connection with such
litigation.
6. Resignation. The Escrow Agent reserves the right to resign at any time
by giving at least thirty (30) days' advance written notice of
resignation to the Target Stockholders Representative, specifying the
effective date of such resignation. Within thirty (30) days after
receiving such notice, the Target Stockholders Representative shall
appoint a successor escrow agent to which the Escrow Agent will
distribute the property then held hereunder. If a successor escrow
agent has not been appointed and has not accepted such appointment by
the end of the thirty (30) day period, the Escrow Agent may apply to a
court of competent jurisdiction for the appointment of a successor
Escrow Agent, and the costs, expenses and reasonable attorneys' fees
which are incurred in connection with such a proceeding shall be paid
out of the Escrow Fund. The Escrow Agent shall continue to serve as
escrow agent hereunder (and will continue to accept any payments into
the Escrow Fund) until its successor accepts the escrow and receives
the Escrow Fund.
7. Liability. The Escrow Agent undertakes to perform only such duties as
are specifically set forth herein. The Escrow Agent, acting or
refraining from acting in good faith, shall not be liable for any
mistake of fact or error in judgment by it or for any acts or omissions
by it of any kind unless caused by its willful misconduct or gross
negligence, and shall be entitled to rely conclusively upon (i) any
written notice, instrument or signature believed by it to be genuine
and to have been signed or presented by the proper party or parties
duly authorized to do so and (ii) the advice of counsel (other than
counsel to the other party hereto) retained by it. The Escrow Agent
shall be entitled to indemnification out of amounts in the Escrow Fund
for any damages it incurs for its acting or refraining from acting in
good faith hereunder, which damages were not caused by its willful
misconduct or gross negligence. The Escrow Agent is not responsible for
any of the terms and/or conditions of any agreement other than this
Agreement, including without limitation the Merger Agreement, and may
rely exclusively on the directions of the Target Stockholders
Representative to satisfy its role as Escrow Agent, including with
respect to investment of the Escrow Fund as provided in Section 2. If
multiple individuals are at any time acting as the Target Stockholders
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Representative, the Escrow Agent may rely exclusively on directions
signed by a majority of such individuals. If only one individual is
serving as the Target Stockholders Representative, the Escrow Agent
may rely exclusively on the directions of the Target Stockholders
Representative signed by such individual.
8. Tax Reporting. The Escrow Agent and the Target Stockholders
Representative acknowledge that for federal income tax purposes the
Escrow Fund shall be treated as a grantor trust and the Target
Stockholders and holders of Options shall be treated as the owners of
all assets held in the Escrow Fund according to their respective
interests in the Escrow Fund. The Target Stockholders Representative
shall be responsible for providing the Target Stockholders and holders
of Options with the information required by them for income tax
reporting with regard to the Escrow Fund and, on behalf of the Escrow
Agent, shall timely file Forms 1099 with respect to any investments of
the Escrow Fund pursuant to Section 2.
9. Discharge of the Escrow Agent. The Target Stockholders Representative
may at any time remove the Escrow Agent as escrow agent hereunder, and
substitute a bank or trust company therefor, in which event, upon
receipt of written notice thereof and payment out of the Escrow Fund of
any accrued but unpaid amounts due the Escrow Agent hereunder, the
Escrow Agent shall account for and deliver to such substituted escrow
agent the Escrow Fund held by it, and the Escrow Agent shall thereafter
be discharged from all liability hereunder.
10. Court Orders. If the Escrow Fund shall be attached, garnished or levied
upon pursuant to any court order, or the delivery of the Escrow Fund
shall be mandated, ordered, stayed or enjoined by any court order
(including a court order pursuant to Section 8(l) of the Merger
Agreement), or any court order shall be made or entered into affecting
the Escrow Fund, or any part thereof, the Escrow Agent is hereby
expressly authorized, in its sole discretion, to obey and comply with
any court order so entered or issued, which it is advised by legal
counsel of its own choosing (other than counsel to one of the other
parties hereto) is binding upon it, whether with or without
jurisdiction, and in case the Escrow Agent obeys or complies with any
such court order, it shall not be liable to any of the parties hereto
or to any other person, firm or corporation, by reason of such
compliance notwithstanding such court order be subsequently reversed,
modified, annulled, set aside or vacated. The Escrow Agent shall
promptly notify the Target Stockholders Representative of any such
attachment, garnishment or levy and of any service of process or court
order on it related to the Escrow Fund. Nothing in this Section 10
shall relieve the Target Stockholders Representative of its agreements
or obligations regarding Section 8(l) of the Merger Agreement.
11. Amendments. This Agreement may not be amended or modified except by a
writing executed by each of the parties hereto. The Escrow Agent shall
not refuse to execute a written amendment or modification proposed by
the other party that does not aversely affect the Escrow Agent.
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12. Directions. All directions to the Escrow Agent from the other party
hereto and notices to the other party hereto from the Escrow Agent
shall be in writing and shall be addressed as follows:
If to the Escrow Agent, to it at:
111 East Wacker Drive
Suite 3000
Chicago, Illinois 60601
Attention: Frank Layo, Trust Officer
Facsimile No.: (312) 228-9402
If to the Target Stockholders Representative, to them at:
Henry Kuehn
2407 Bennett
Evanston, Illinois 60201
Facsimile No.: (847) 869-7393
and to
Joel E. Bernstein, M.D.
615 Brierhill
Deerfield, Illinois 60015
Facsimile No.: (847) 945-9599
and to
Jeremy H. Silverman
Frontenac Company
135 S. LaSalle Street
Suite 3800
Chicago, Illinois 60603
Facsimile No.: (312) 368-9520
or, in each case, to such other address (or to the attention of such
other person) as the intended recipient shall have specified to the
other parties by such written notice. Such directions and notices shall
be effective only upon receipt by the intended recipients.
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13. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and both of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has hereunto
subscribed on this the date first written above.
FIRST TRUST NATIONAL
ASSOCIATION, as Escrow Agent
By:________________________________
Its: ______________________________
Target Stockholders Representative:
___________________________________
Henry Kuehn
___________________________________
Joel E. Bernstein, M.D.
___________________________________
Jeremy H. Silverman
<PAGE> 128
Exhibit A
Acceptance Fee - $167 payable upon execution and delivery
Annual Escrow Fee - $1,500 payable in advance; completely
non-refundable notwithstanding termination of Escrow Agreement during
the year for which paid
Annual Out-Of-Pocket Expenses Fee (in lieu of specific charges for
postage related to distributions and for other ordinary out-of-pocket
expenses; any expenses related to tax reporting would be extra) - $90
payable in advance; completely non-refundable notwithstanding
termination of Escrow Agreement during the year for which paid
Investment Management Fee - None apart from the Annual Escrow Fee
Investment Transaction Fee - $90 per transaction, excluding
transactions involving a mutual fund. There will be no investment fee
or additional charge for transactions involving a mutual fund.
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EXHIBIT H
See attached.
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Form of Non-Competition, Non-Disclosure and
Confidentiality Agreement
This NON-COMPETITION, NON-DISCLOSURE AND CONFIDENTIALITY AGREEMENT
(this "Agreement") is entered into as of November 26, 1997 by and between Joel
E. Bernstein ("Bernstein") and Medicis Pharmaceutical Corporation, a Delaware
corporation ("Medicis").
WHEREAS, Bernstein owns _______ of the issued and outstanding shares of
Common Stock, par value $0.01 per share, and all of the issued and outstanding
shares of Series D Preferred Stock, no par value (collectively, the "Shares"),
of GenDerm Corporation, a Delaware corporation (the "Company").
WHEREAS, the Company, Medicis and Medicis Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Medicis (the "Transitory
Subsidiary"), have entered into that certain Agreement of Merger, dated as of
December 1, 1997 (the "Merger Agreement"), whereby such parties have agreed
that, among other things, the Transitory Subsidiary will be merged with and into
the Company, all on the terms and conditions stated in the Merger Agreement.
WHEREAS, as a result of the transactions contemplated by the Merger
Agreement, the Shares shall be converted into the right to receive cash and
contingent rights to receive additional cash pursuant to the terms of the Merger
Agreement.
WHEREAS, Medicis and the Transitory Subsidiary have required Bernstein
to enter into this Agreement as a condition precedent to their consummation of
the transactions contemplated by the Merger Agreement.
WHEREAS, the promise of Bernstein to execute and perform his obligation
under this Agreement was a condition to the obligation of Medicis to consummate
the transactions contemplated by the Merger Agreement and Medicis is
consummating such transactions partly in reliance upon the execution of this
Agreement by Bernstein and his undertakings herein; and
WHEREAS, Bernstein recognizes and agrees with the need of Medicis to
protect itself from competition in the manner set forth in this Agreement in
order to protect the value and goodwill of the business and assets acquired
through the Merger.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
a. "Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of such particular Person whether through the
ownership of voting securities, contract or otherwise.
b. "Confidential Information" means all tangible and
intangible knowledge, existing processes, existing inventions, technology,
computer programs, existing original works of authorship, designs, formulas,
discoveries, patents, copyrights, trade secret information and all
<PAGE> 131
improvements to the Product during the term hereof and rights and claims related
to the foregoing, including, without limitation, (i) all information of the
Company or any of its existing or prior Subsidiaries that relates to the
intellectual property utilized in the products sold or marketed or in
development by the Company as of the date hereof (to the extent, but only to the
extent, such information is actually being so utilized by the Company or any of
its existing or prior Subsidiaries in such products as of the date hereof); and
(ii) all the confidential business information of the Company or any of its
existing or prior Subsidiaries. Notwithstanding the foregoing, "Confidential
Information" shall not include any information which (i) has been published by
others or the Company or becomes generally available to the public through no
fault of Bernstein and through lawful means or (ii) Bernstein receives from a
third party not having an obligation of confidentiality with respect thereto
that is known to Bernstein.
c. "Person" means an individual, a partnership, a corporation,
a limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity (or any
department, agency or political subdivision thereof).
d. "Products" means (i) all products sold or marketed by the
Company at or prior to the Closing Date of the Merger Agreement, including
without limitation, Zostrix, Zostrix-HP, Zostrix Sport, Zonalon, Novacet,
Occlusal, Occlusal-HP, Dolorac, Pentrax, Pentrax Gold, Salac, Texacort,
Pramegel, Meted, Step-2, A-Fil, Packer's Pine Tar Soap, Papulex Quine Prox,
Atoplex and Occlucort, (ii) all products in development by the Company at the
closing date of the Merger Agreement, including without limitation, Atroplex
(barrier lipid complex in cream or lotion), Psoricap (nutritional supplement for
psoriasis), Zonacort (doxepin and corticosteroid), Diabetic cream (dimethicone
cream) and Selenium disulfide cream, (iii) all products sold, marketed or
developed at or prior to the closing date of the Merger Agreement that utilize
any of the patents owned by or licensed (in the field of use) to the Company as
of the closing date of the Merger Agreement or under the License Agreement,
dated as of November 26, 1997, by and between Bernstein and the Company relating
to cis-capsaicin with respect to the Territory (other than those products
related solely to products previously under development, or manufactured, sold
or marketed by the Company which have been discontinued by the Company and are
not being developed, manufactured, sold or marketed by the Company as of the
Closing Date), (iv) Ovide lotion and Ovide cream and (v) any improved versions
or variations of any of the foregoing (the parties acknowledge, however, that
the use of a trademark with respect to any product shall not in and of itself be
determinative of whether such product is improved version or variation of any of
the foregoing).
e. "Subsidiary" means any corporation with respect to which a
specified Person (and/or one or more Subsidiaries thereof) owns a majority of
the common stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
2. Non-Competition.
a. Period and Scope of Non-Competition. During the
period of 24 months from and after the date hereof
(the "Non-Competition Period"), Bernstein shall not,
directly or indirectly:
i. engage, carry on or participate in, or assist,
consult or advise, any Person in engaging,
carrying on, or participating in, anywhere in
the United States or the world, the
manufacture, sale, distribution or marketing
of any ethical
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dermatological products and/or topical
analgesic products which directly compete with
any of the Products; or
ii. engage, carry on or participate in, or assist
or advise any Person in engaging or
participating in, anywhere in the United
States or the world, research and development
concerning any ethical dermatological products
and/or topical analgesic products which
contain the active ingredients or the salts of
the active ingredients contained (as of the
date hereof) in: (A) Ovide lotion or Ovide
cream; (B) the products manufactured, sold or
marketed or which are in development by the
Company as of the date hereof; or (C) the
products heretofore manufactured, sold or
marketed by the Company which have been
discontinued as of the date hereof.
Bernstein acknowledges that it shall be deemed an act of
competition for Bernstein to (i) divert or attempt to divert
from Medicis or its subsidiaries any of its clients or
customers for competing products or to solicit employment for,
or induce termination of employment by, any present or future
employees of Medicis or the Company. The foregoing
notwithstanding, Bernstein's ownership of up to 5% of the
issued capital stock or other equity interests of any publicly
traded Person shall not be prohibited.
b. Modification of Period; Acknowledgments. In the event of any
material breach of paragraph (a) of this Section 2 by
Bernstein, the Non-Competition Period shall be extended for
the period of such breach. Bernstein recognizes that the
territorial, time and scope limitations set forth in this
Section 2 are reasonable and are required for the protection
of Medicis and its Affiliates. In the event that any such
territorial, time or scope limitation is deemed to be
unreasonable by a court of competent jurisdiction, Medicis and
Bernstein agree to the reduction of any of said territorial,
time or scope limitations to such an area, period or scope as
a court shall deem reasonable under the circumstances to
enable Medicis to obtain the benefits of this Agreement to the
fullest extent permissible. Bernstein represents, warrants and
acknowledges that he has available to him sufficient other
means of support so that observance of the covenants contained
in Section 2 shall not deprive him of his ability to earn a
livelihood or support his dependents.
3. Non-Disclosure and Confidentiality. Bernstein recognizes that he has
occupied a position of trust and confidence with the Company as to
Confidential Information. As an inducement to Medicis to consummate the
transactions contemplated by the Merger Agreement, Bernstein therefore
agrees as follows:
a. Period and Extent of Confidentiality. During the period of 5
years from and after the date hereof, Bernstein shall hold in
the strictest confidence and shall not (other than as required
by law or pursuant to court order or the rules and regulations
of any governmental agency or body, provided, Bernstein
provides prior notice to Medicis about the necessity of such
disclosure and provides Medicis a reasonable opportunity to
review and/or participate in such disclosure, as appropriate),
without the prior written consent of Medicis, disclose to any
Person other than Medicis, the Company and their respective
Affiliates and employees, use, sell, copy, publish, summarize
or otherwise exploit any Confidential Information.
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<PAGE> 133
b. Return of Confidential Information. Bernstein shall promptly
provide to Medicis upon its request, without retaining copies,
all copies and embodiments of Confidential Information in his
possession or control; provided that Bernstein may retain
copies of any of the foregoing that relates both to
Confidential Information (not relating to business
information) and to information that is not Confidential
Information provided, further that Bernstein holds such
information in strict confidence and maintains adequate
mechanisms and processes to keep such information
confidential.
4. Concurrent Obligations and Rights. Notwithstanding any other provision
of this Agreement, any action of Bernstein taken to satisfy any of the
obligations of him or Elorac, Ltd. under the respective licenses, dated
June 10, 1997, granted by them to Bioglan Pharma Plc. shall not
constitute a violation of any of the provisions of this Agreement. In
addition, Medicis acknowledges and agrees that Bernstein is the
licensor, or an equity holder in a Person that is the licensor, under
certain licenses of intellectual property to the Company and that,
notwithstanding any other provision of this Agreement: (i) any action
of Bernstein or such Person taken pursuant to a right or obligation of
Bernstein or such Person under any such license shall not constitute a
violation of any provision of this Agreement; and (ii) in the event any
such license is terminated by Bernstein or such Person prior to its
scheduled expiration date on account of breach by the Company or
failure of the Company to pay any threshold level of payments stated
therein, subsequent activities of Bernstein or such Person with respect
to the proprietary rights that are the subject of such license that are
not otherwise in direct violation of this Agreement shall not
constitute a violation of any provision of this Agreement. Further, in
any event, Bernstein has the right to grant licenses to others for any
uses not licensed to Medicis or the Company, except for such
intellectual property as are described or resulted from or are directly
related to any research or development sponsored or funded by the
Company unless the intellectual property utilized related solely to a
product previously under development, or manufactured, sold, or
marketed by the Company which has been discontinued by the Company and
is not being developed, manufactured, sold or marketed by the Company
as of the date hereof.
5. Injunctive Relief. Bernstein specifically recognizes that any breach of
Section 2 or 3 above will cause irreparable injury to Medicis and its
Affiliates and that actual damages may be difficult to ascertain, and
in any event, may be inadequate. Accordingly (and without limiting the
availability of legal or equitable, including injunctive, remedies
under any other provisions of this Agreement), Bernstein agrees that in
the event of any such breach, Medicis shall be entitled to restraining
orders, specific performance and/or preliminary, temporary or permanent
injunctive relief in addition to such other legal and equitable
remedies that may be available, in law or equity without the necessity
of posting bond or proving actual damages.
6. Geographic Scope. The parties acknowledge and agree that the
geographical scope of the covenants contained herein represent the
present and potential geographical markets, manufacturing sales and
distribution markets of the business of Company and Medicis and that
the geographical scope of the covenant is reasonable and necessary to
protect the value and goodwill of the business and assets acquired by
Medicis.
7. Waiver. The failure in any one or more instances of a party to insist
upon performance of any of the terms, covenants or conditions of this
Agreement or to exercise any right or privilege in this Agreement
conferred, or the waiver by said party of any breach of any of the
terms, covenants or conditions of this Agreement, shall not be
construed as a subsequent waiver of any such terms, covenants,
conditions, rights or privileges, but the same shall continue and
remain in full force
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<PAGE> 134
and effect as if no such forbearance or waiver had occurred. No waiver
shall be effective unless it is in writing and signed by Bernstein or
an authorized representative of Medicis, as the case may be.
8. Notices. All notices required or permitted to be given hereunder shall
be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier or by United States mail. Notices shall be
deemed given when actually received. All notices shall be addressed as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
If to Medicis, to it at: If to Bernstein, to him at:
Medicis Pharmaceutical 615 Brierhill
Corporation Deerfield, Illinois 60015
4343 East Camelback Road Fax: (847) 945-9599
Suite 250
Phoenix, Arizona 85018-2700
Fax: (602) 808-3875
Attn: Jonah Shacknai,
Chairman and CEO
With copies to: With copies to:
Bryan Cave LLP Jones, Day, Reavis & Pogue
21st Floor 77 West Wacker Drive
2800 North Central Avenue Chicago, Illinois 60601
Phoenix, Arizona 85004-1098
Fax: (602) 266-5938 Fax: (312) 782-8585
Attn: Frank M. Placenti Attn: Ronald Sandler
</TABLE>
or to such other address as any party shall specify by written notice
so given.
9. Complete Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings, agreements
or representations by or between the parties, written or oral, to the
extent they related in any way to the subject matter hereof.
10. Amendment. The provisions of this Agreement may be amended only by a
writing signed by Bernstein and an authorized representative of
Medicis.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Arizona without
giving effect to any choice or conflict of law provision or rule
(whether of the State of Illinois or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the
State of Arizona.
12. Severability. It is the desire and intent of the parties to this
Agreement that the terms and provisions of this Agreement be enforced
to the fullest extent permissible under the law and public policy of
any jurisdiction in which enforcement is sought. Any term or provision
of this Agreement that is invalid or unenforceable in any situation in
any jurisdiction shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or enforce
ability of the offending term or provision in any other situation or in
any other jurisdiction.
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<PAGE> 135
13. Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but both of which together will
constitute one and the same instrument.
[Intentionally Left Blank]
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<PAGE> 136
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the day and year first above written.
MEDICIS PHARMACEUTICAL
CORPORATION
By: _______________________________
Name:
Title:
___________________________________
Joel E. Bernstein, M.D.
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<PAGE> 137
EXHIBIT I
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
200 East Randolph Drive
Chicago, Illinois 60601
To Call Writer Direct: 312 861-2000 Facsimile:
312 861-2000 312 861-2200
December 3, 1997
Medicis Pharmaceutical Corporation
4343 East Camelback Road
Suite 250
Phoenix, Arizona 85018-2700
Gentlemen:
We are issuing this opinion letter in our capacity as special legal
counsel to GenDerm Corporation, a Delaware corporation ("GenDerm"), in response
to the requirement in Section 6(b)(viii) of the Agreement of Merger dated as of
December 1, 1997 by and among you, Medicis Acquisition Corporation and GenDerm
(the "Transaction Agreement"). The merger of Medicis Acquisition Corporation
with and into GenDerm contemplated by the Transaction Agreement is referred to
herein as the "Merger."
Subject to the assumptions, qualifications, exclusions and other
limitations which are identified in this letter and in the schedules attached to
this letter, we advise you that:
1. GenDerm is a corporation existing and in good standing under the
General Corporation Law of the State of Delaware.
2. GenDerm is qualified to do business and is in good standing in the
States of Illinois and Texas.
3. GenDerm's authorized capital stock consists of 25,000,000 shares of
Common Stock, par value $0.01 per share ("Common Stock"), 181,818
shares of Series C Preferred Stock, no par value, and 69,964 shares of
Series D Preferred Stock, no par value.
4. GenDerm has the corporate power to own and lease the assets and
property owned and leased by it, and to conduct the business conducted
by it, in each case as described in Parts A-E of Section III ("Business
Description") of the GenDerm Descriptive Memorandum of May 1996
circulated by Lehman Brothers, after giving effect to changes in such
assets and property and such business that to our knowledge have
occurred since
London Los Angeles New York
<PAGE> 138
the date thereof.
5. GenDerm's Board of Directors has adopted by requisite vote, and
GenDerm's stockholders have adopted by requisite written consent, the
resolutions necessary to authorize GenDerm's execution and delivery of
and performance of its obligations under the Transaction Agreement,
including consummation of the Merger. Such resolutions constitute all
necessary corporate action on the part of GenDerm for such
authorization.
6. GenDerm has the corporate power to execute, deliver and perform its
obligations under the Transaction Agreement, including to consummate
the Merger. GenDerm has duly executed and delivered the Transaction
Agreement. The Transaction Agreement is the valid and binding
obligation of GenDerm and is enforceable against GenDerm in accordance
with its terms.
7. GenDerm's execution and delivery of, and performance of its obligations
under, the Transaction Agreement (including consummation of the Merger)
(i) do not violate its Certificate of Incorporation or Bylaws, (ii)
after giving effect to the consents delivered by Joel E. Bernstein
pursuant to Section 6(a)(iii) of the Transaction Agreement, do not
breach, or result in a default under, any existing obligation of
GenDerm under any of the contracts, leases, commitments, plans,
agreements and licenses designated an "Identified Contract" on Section
3(t) (ii) of the Target Disclosure Schedule delivered pursuant to the
Transaction Agreement (the "Identified Contracts") and (iii) are not
prohibited by any statute or regulation covered by this letter and do
not subject GenDerm to any material fine, penalty or similar sanction
under any statute or regulation covered by this letter. Our opinion in
this paragraph does not address any impact GenDerm's actions may have
under financial covenants or tests, any consequences a default by
GenDerm under the Transaction Agreement may have under any of the
Identified Contracts or any cross default provisions in the Identified
Contracts.
8. GenDerm was not required to obtain any consent, approval, authorization
or order from, or to make any filing with, the Securities and Exchange
Commission or any other governmental agency in order to obtain the
right to enter into the Transaction Agreement or to take any of the
actions taken today by GenDerm to consummate the Closing under the
Transaction Agreement, which has not been obtained or filed.
In preparing this letter, we have relied without any independent
verification upon the assumptions recited in Schedule B to this letter and upon:
(i) information contained in certificates obtained from governmental
authorities; (ii) factual information represented to be true in the Transaction
Agreement; (iii) factual information provided to us in a Support Certificate
signed on behalf of GenDerm; (iv) factual information provided to us in a
Certificate signed on behalf of GenDerm by its Controller; and (v) factual
information we have obtained from such other sources as we have deemed
reasonable. We have assumed without investigation that there
<PAGE> 139
KIRKLAND & ELLIS
Medicis Pharmaceutical Corporation
December 3, 1997
Page 3
has been no relevant change or development between the dates as of which the
information cited in the preceding sentence was given and the date of this
letter and that the information upon which we have relied is accurate and does
not omit disclosures necessary to prevent such information from being
misleading. For purposes of each opinion in paragraph 1 or 2, we have relied
exclusively upon a certificate issued by a governmental authority, and such
opinion is not intended to provide any conclusion or assurance beyond that
conveyed by that certificate.
While we have not conducted any independent investigation to determine
facts upon which our opinions are based or to obtain factual information about
which this letter advises you, we confirm that we do not have any knowledge (i)
which has caused us to conclude that our reliance and assumptions cited in the
preceding paragraph are unwarranted or that any information supplied in this
letter is wrong or (ii) except that we have been advised by former counsel to
GenDerm that the consideration paid to GenDerm upon the exercise of warrants to
purchase Common Stock was less than the par value of such Common Stock, that the
representation and warranty of the Target in Section 3(b) of the Transaction
Document regarding its outstanding capital stock being fully paid and
nonassessable is wrong. The term "knowledge" whenever it is used in this letter
with respect to our firm means conscious awareness at the time this letter is
delivered on the date it bears by the following Kirkland & Ellis lawyers who
have had significant involvement with negotiation or preparation of the
Transaction Agreement (herein called "our Designated Transaction Lawyers"):
Melvin S. Adess, P.C., Brian D. Hogan, and Donald E. Batterson.
Our opinion on every legal issue addressed in this letter
(collectively, "our opinions") is based exclusively on such internal law of
Illinois or such federal law of the United States which, in each case, is in our
experience normally applicable to general business corporations not engaged in
regulated business activities and to transactions of the type contemplated by
the Transaction Agreement (but without our having made any special investigation
as to any other laws), except that the opinions in paragraphs 3,4,5 and the
first two sentences of paragraph 6 are based exclusively on the Delaware General
Corporation Law and the opinion in paragraph 7 is based in part on the Delaware
General Corporation Law and except that we express no opinion as to any law
identified on Schedule C. We advise you that issues addressed by this letter may
be governed in whole or in part by other laws, but we express no opinion as to
whether any relevant difference exists between the laws upon which our opinions
are based and any other laws which may actually govern. We note, for example,
that the Transaction Agreement provides that it is to
<PAGE> 140
KIRKLAND & ELLIS
Medicis Pharmaceutical Corporation
December 3, 1997
Page 4
be governed by and construed in accordance with the domestic laws of the State
of Arizona. Accordingly, our opinions with respect to the Transaction Agreement
are given on the basis of, and as if the Transaction Agreement were governed by
and construed in accordance with, the internal law of Illinois, notwithstanding
that other law (as to which we express no opinion) may actually govern. Our
opinions are subject to all qualifications in Schedule A and do not cover or
otherwise address any law or legal issue which is identified in Schedule C or
any provision in the Transaction Agreement of any type identified in Schedule D.
Provisions in the Transaction Agreement which are not excluded by Schedule D or
any other part of this letter or its attachments are called the "Relevant
Agreement Terms".
Our advice on each legal issue addressed in this letter represents our
opinion as to how that issue would be resolved were it to be considered by the
highest court of the jurisdiction upon whose law our opinion on that issue is
based. The manner in which any particular issue would be treated in any actual
court case would depend in part on facts and circumstances particular to the
case, and this letter is not intended to guarantee the outcome of any legal
dispute which may arise in the future. It is possible that some Relevant
Agreement Terms may not prove enforceable for reasons other than those cited in
this letter should an actual enforcement action be brought, but (subject to all
the exceptions, qualifications, exclusions and other limitations contained in
this letter) such unenforceability would not in our opinion prevent you from
realizing the principal benefits purported to be provided by the Relevant
Agreement Terms.
This letter speaks as of the time of its delivery on the date it bears.
We do not assume any obligation to provide you with any subsequent opinion or
advice by reason of any fact about which our Designated Transaction Lawyers did
not have actual knowledge at that time, by reason of any change subsequent to
that time in any law covered by any of our opinions, or for any other reason.
The attached schedules are an integral part of this letter, and any term defined
in this letter or any schedule has that defined meaning wherever it is used in
this letter or in any schedule to this letter.
You may rely upon this letter only for the purpose served by the
provision in the Transaction Agreement cited in the initial paragraph of this
letter in response to which it has been delivered. Without our written consent:
(i) no person other than you may rely on this letter for any purpose; (ii) this
letter may not be cited
<PAGE> 141
KIRKLAND & ELLIS
Medicis Pharmaceutical Corporation
December 3, 1997
Page 5
or quoted in any financial statement, prospectus, private placement memorandum
or other similar document; (iii) this letter may not be cited or quoted in any
other document or communication which might encourage reliance upon this letter
by any person or for any purpose excluded by the restrictions in this paragraph;
and (iv) copies of this letter may not be furnished to anyone for purposes of
encouraging such reliance. Your successors may rely on this letter as of the
time of its delivery on the date it bears as if this letter were addressed to
them.
Sincerely,
Kirkland & Ellis
<PAGE> 142
SCHEDULE A
GENERAL QUALIFICATIONS
All of our opinions in the letter to which this Schedule is attached
("our letter") are subject to each of the qualifications set forth in this
Schedule.
1. Bankruptcy and Insolvency Exception. Each of our opinions is subject to
the effect of bankruptcy, insolvency, reorganization, receivership,
moratorium and other similar laws. This exception includes:
a. the Federal Bankruptcy Code and thus comprehends, among
others, matters of turn-over, automatic stay, avoiding powers,
fraudulent transfer, preference, discharge, conversion of a
non-recourse obligation into a recourse claim, limitations on
ipso facto and anti-assignment clauses and the coverage of
pre-petition security agreements applicable to property
acquired after a petition is filed;
b. all other Federal and state bankruptcy, insolvency,
reorganization, receivership, moratorium, arrangement and
assignment for the benefit of creditors laws that affect the
rights of creditors generally or that have reference to or
affect only creditors of specific types of debtors;
c. state fraudulent transfer and conveyance laws; and
d. judicially developed doctrines in this area, such as
substantive consolidation of entities and equitable
subordination.
2. Equitable Principles Limitation. Each of our opinions is subject to the
effect of general principles of equity, whether applied by a court of
law or equity. This limitation includes principles:
a. governing the availability of specific performance, injunctive
relief or other equitable remedies, which generally place the
award of such remedies, subject to certain guidelines, in the
discretion of the court to which application for such relief
is made;
b. affording equitable defenses (e.g., waiver, laches and
estoppel) against a party seeking enforcement;
c. requiring good faith and fair dealing in the performance and
enforcement of a contract by the party seeking its
enforcement;
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<PAGE> 143
d. requiring reasonableness in the performance and enforcement of
an agreement by the party seeking enforcement of the contract;
e. requiring consideration of the materiality of (i) a breach and
(ii) the consequences of the breach to the party seeking
enforcement;
f. requiring consideration of the impracticability or
impossibility of performance at the time of attempted
enforcement (other than with respect to the required payment
of money pursuant to the provisions of applicable agreements);
and
g. affording defenses based upon the unconscionability of the
enforcing party's conduct after the parties have entered into
the contract.
3. Other Common Qualifications. Each of our opinions is subject to the
effect of rules of law that:
a. limit or affect the enforcement of provisions of a contract
that purport to waive, or to require waiver of, the
obligations of good faith, fair dealing, diligence and
reasonableness;
b. provide that forum selection (and not choice of law) clauses
in contracts are not necessarily binding on the court(s) in
the forum selected;
c. limit the availability of a remedy under certain circumstances
where another remedy has been elected;
d. provide a time limitation after which a remedy may not be
enforced;
e. limit the right of a creditor to use force or cause a breach
of the peace in enforcing rights;
f. relate to the sale or disposition of collateral by a secured
creditor or the requirements of a commercially reasonable
sale;
g. limit the enforceability of provisions releasing, exculpating
or exempting a party from, or requiring indemnification of a
party for, liability for its own action or inaction, to the
extent the action or inaction involves negligence,
recklessness, willful misconduct, unlawful conduct or
violation of public policy, or for strict product liability or
for liabilities arising under the securities laws, or which
limit the enforceability of provisions requiring
indemnification of a party with respect to litigation between
such party and another party from whom indemnification is
sought which is determined adversely to the party seeking
indemnification;
h. may, where less than all of a contract may be unenforceable,
limit the
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<PAGE> 144
enforceability of the balance of the contract to circumstances
in which the unenforceable portion is not an essential part of
the agreed exchange;
i. govern and afford judicial discretion regarding the
determination of damages and entitlement to attorneys' fees
and other costs;
j. may permit a party that has materially failed to render or
offer performance required by the contract to cure that
failure unless (i) permitting a cure would unreasonably hinder
the aggrieved party from making substitute arrangements for
performance, or (ii) it was important in the circumstances to
the aggrieved party that performance occur by the date stated
in the contract; and
k. may render guarantees unenforceable under circumstances where
your actions, failures to act or waivers, amendments or
replacement of the Transaction Agreement (i) so radically
change the essential nature of the terms and conditions of the
guaranteed obligations and the related transactions that, in
effect, a new relationship has arisen between you and GenDerm
which is substantially and materially different from that
presently contemplated by the Transaction Agreement or (ii)
release the primary obligor or (iii) impair the guarantor's
recourse against the primary obligor.
4. Referenced Provision Qualification. In addition, our opinions, insofar
as they relate to the validity, binding effect or enforceability of a
provision of the Transaction Agreement requiring GenDerm to perform its
obligations under, or to cause any other person to perform its
obligations under, any other provision (a "Referenced Provision") of
the Transaction Agreement are subject to the same qualifications as the
corresponding opinion in this letter relating to the validity, binding
effect and enforceability of such Referenced Provision. Requirements in
the Transaction Agreement that provisions therein may only be waived or
amended in writing may not be enforceable to the extent that an oral
agreement or an implied agreement by trade practice or course of
conduct has been created modifying any such provision.
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SCHEDULE B
ASSUMPTIONS
For purposes of our letter, we have relied, without investigation, upon
each of the following assumptions:
1. The Transaction Agreement constitutes valid and binding obligations of
each of the parties thereto other than GenDerm (collectively, the
"Non-GenDerm Parties") and is enforceable against each of the
Non-GenDerm Parties in accordance with its terms.
2. Each of the Non-GenDerm Parties has complied with all legal
requirements pertaining to its status as such status relates to its
rights to enforce the Transaction Agreement against GenDerm.
3. Each document submitted to us for review is accurate and complete, each
such document that is an original is authentic, each such document that
is a copy conforms to an authentic original, and all signatures
(including those of or on behalf of GenDerm) on each such document are
genuine; the document identified to us by GenDerm as the minutes of the
most recent annual meeting of its stockholders, the document identified
to us by GenDerm as the subsequent resignation of Thomas G. Cigarran
and the document identified to us by GenDerm as the minutes of the
subsequent meeting of its directors at which Laura P. Pearl was elected
a director of GenDerm correctly describe actions taken thereat or
thereby; and the documents identified to us by GenDerm as the minutes
of the most recent meeting of its Board of Directors, or written
consent of its Board of Directors, with respect to the election of its
officers correctly describes action taken thereat or therein.
4. There has not been any mutual mistake of fact or misunderstanding,
fraud, duress or undue influence.
5. The conduct of the parties to the Transaction Agreement has complied
with any requirement of good faith and fair dealing.
6. Each of the Non-GenDerm Parties has acted in good faith and without
notice of any defense against the enforcement of any rights created by,
or adverse claim to any property or security interest transferred or
created as part of, the transaction effected under the Transaction
Agreement (herein called the "Transaction").
7. There are no agreements or understandings among the parties to the
Transaction Agreement, written or oral (other than the Transaction
Agreement), and there is no usage of trade or course or prior dealing
among the parties that would, in either case, define, supplement or
qualify the terms of the Transaction Agreement.
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8. The constitutionality or validity of a relevant statute, rule,
regulation or agency action is not in issue.
9. All parties to the Transaction Agreement (other than GenDerm) will act
in accordance with, and will refrain from taking any action that is
forbidden by, the terms and conditions of the Transaction Agreement.
10. GenDerm will not in the future take any discretionary action (including
a decision not to act) permitted under the Transaction Agreement that
would result in a violation of law or constitute a breach or default
under any other agreements or court orders to which GenDerm may be
subject.
11. Except to the extent paragraph 8 of our letter addresses the issue,
GenDerm has obtained (and will in the future obtain) all permits and
governmental approvals required, and has taken (and will in the future
take) all actions required, relevant to the consummation of the
Transaction or performance of the Transaction Agreement.
12. All information required to be disclosed by you in connection with any
consent or approval by GenDerm's Board of Directors and all other
information required to be disclosed in connection with any issue
relevant to our opinions has in fact been fully and disclosed to all
persons to whom it is required to be disclosed.
13. All factual information in or included with GenDerm's Notification and
Report Form with respect to the Transaction filed pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 is correct and
complete.
14. GenDerm's Certificate of Incorporation and Bylaws, all amendments
thereto and all resolutions adopted establishing classes or series of
equity interests thereunder have been adopted in accordance with all
applicable legal requirements.
15. The Identified Contracts would be enforced as written.
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SCHEDULE C
EXCLUDED LAW AND LEGAL ISSUES
None of the opinions or advice contained in our letter covers or
otherwise addresses any of the following laws, regulations or other governmental
requirements or legal issues:
1. Except to the extent paragraph 8 of our letter addresses the Securities
Act of 1933, securities laws and regulations (including without
limitation the Securities Act of 1933, the Securities Exchange Act of
1934, and all other laws and regulations administered by the United
States Securities and Exchange Commission), state "Blue Sky" laws and
regulations, and laws and regulations relating to commodity (and other)
futures and indices and other similar instruments;
2. Federal Reserve Board margin regulations;
3. Federal and state antitrust and unfair competition laws and
regulations;
4. the statutes and ordinances, the administrative decisions and the rules
and regulations of counties, towns, municipalities and special
political subdivisions (whether created or enabled through legislative
action at the Federal, state or regional level -- e.g., water agencies,
joint power districts, turnpike and tollroad authorities, rapid transit
districts or authorities, and port authorities) and judicial decisions
to the extent that they deal with any of the foregoing;
5. fraudulent transfer and fraudulent conveyance laws;
6. Federal and state environmental laws and regulations;
7. Federal and state land use and subdivision laws and regulations;
8. Federal and state tax laws and regulations;
9. Federal and state laws and regulations relating to the review,
approval, licensing or permitting of, or to the contents or labeling
of, products (e.g., FDA);
10. Federal patent, trademark and copyright, state trademark, and other
Federal and state intellectual property laws and regulations;
11. Federal and state racketeering laws and regulations (e.g., RICO);
12. Federal and state health and safety laws and regulations (e.g., OSHA);
13. Except to the extent paragraph 8 of our letter addresses the Worker
Adjustment and
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Retraining Notification Act of 1988, Federal and state labor laws and
regulations;
14. Federal and state laws, regulations and policies concerning (i)
national and local emergency, (ii) possible judicial deference to acts
of sovereign states, and (iii) criminal and civil forfeiture laws;
15. other Federal and state statutes of general application to the extent
they provide for criminal prosecution (e.g., mail fraud and wire fraud
statutes), other than any usury laws of the State of Illinois;
16. any laws, regulations, directives and executive orders that prohibit or
limit the enforceability of obligations based on attributes of the
party seeking enforcement (e.g., the Trading with the Enemy Act and the
International Emergency Economic Powers Act); and
17. the effect of any law, regulation or order which hereafter becomes
effective.
We have not undertaken any research for purposes of determining whether
GenDerm or the Transaction is subject to any law or other governmental
requirement other than to those laws and requirements which in our experience
would generally be recognized as applicable in the absence of research by
lawyers in the State of Illinois, and none of our opinions covers any such law
or other requirement unless (i) one of our Designated Transaction Lawyers had
actual knowledge of its applicability at the time our letter was delivered on
the date it bears and (ii) it is not excluded from coverage by other provisions
in our letter or in any Schedule to our letter.
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SCHEDULE D
EXCLUDED PROVISIONS
None of the opinions in the letter to which this Schedule is attached
covers or otherwise addresses any of the following types of provisions which may
be contained in the Transaction Agreement:
1. Choice of law provisions.
2. Indemnification for negligence, willful misconduct or other wrongdoing
or strict product liability or any indemnification for liabilities
arising under securities laws.
3. Waivers of (i) legal or equitable defenses, (ii) rights to damages,
(iii ) rights to counter claim or set off, (iv) statutes of
limitations, (v) rights to notice, (vi) the benefits of statutory,
regulatory, or constitutional rights, unless and to the extent the
statute, regulation, or constitution explicitly allows waiver, (vii)
broadly or vaguely stated rights, and (viii) other benefits to the
extent they cannot be waived under applicable law.
4. Provisions providing for forfeitures or the recovery of amounts deemed
to constitute penalties, or for liquidated damages or acceleration of
future amounts due (other than principal) without appropriate discount
to present value.
5. Time-is-of-the-essence clauses.
6. Provisions which provide a time limitation after which a remedy may not
be enforced.
7. Agreements to submit to the jurisdiction of any particular court or
other governmental authority (either as to personal jurisdiction and
subject matter jurisdiction); provisions restricting access to courts;
waiver of the right to jury trial; waiver of service of process
requirements which would otherwise be applicable; and provisions
otherwise purporting to affect the jurisdiction and venue of courts.
8. Provisions that attempt to change or waive rules of evidence or fix the
method or quantum of proof to be applied in litigation or similar
proceedings.
9. Except to the extent Section 9(b) of the Transaction Agreement
incorporates the final two sentences of paragraph 3 of the Letter of
Intent referred to therein, provisions in the Transaction Agreement
requiring GenDerm to perform its obligations under, or to cause any
other person to perform its obligations under, or stating that any
action will be taken as provided in or in accordance with, any
agreement or other document that is not the Transaction Agreement.
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10. Provisions, if any, which are contrary to the public policy of State of
Arizona to an extent that they are also contrary to the pubic policy of
the State of Illinois.
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EXHIBIT J
Form of Opinion of Counsel
to the Buyer and the Transitory Subsidiary
1. Each of the Buyer and the Transitory Subsidiary is a corporation
existing and in good standing under the laws of the jurisdiction of its
incorporation.
2. The Board of Directors of the Buyer has adopted by requisite vote the
resolutions necessary to authorize the execution, delivery and
performance of the Agreement of Merger by the Buyer. No approval of the
Merger by the stockholders of the Buyer is required.
3. The Board of Directors and the sole stockholder of the Transitory
Subsidiary have adopted by requisite vote the resolutions necessary to
authorize the execution, delivery and performance of the Agreement of
Merger by the Transitory Subsidiary.
4. The Buyer and the Transitory Subsidiary have corporate power to enter
into and perform their obligations under the Agreement of Merger. The
Buyer and the Transitory Subsidiary have duly executed and delivered
the Agreement of Merger. The Agreement of Merger is the valid and
binding obligation of the Buyer and the Transitory Subsidiary and is
enforceable against the Buyer and the Transitory Subsidiary in
accordance with its terms.
5. The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware.
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EXHIBIT K
Pre-merger Charter Amendment
Section 6.5(d) of the certificate of incorporation of the Target is
amended in accordance with Section 242 of the Delaware Corporation Law to add
the following as a new final paragraph of such Section:
Notwithstanding the foregoing provisions of this Section 6.5(d), if the
first Sale of the Corporation is the merger contemplated by the Agreement of
Merger dated as of December 1, 1997 by and among Medicis Pharmaceutical
Corporation, Medicis Acquisition Corporation and the Corporation, the shares of
Series D Preferred Stock shall not be converted into Common Stock in connection
with the consummation of such merger but shall instead, at and as of the
effective time of such merger, be converted automatically and without any action
on the part of the holder thereof into the rights into which Target Shares of
Series D Preferred Stock are converted at and as of the Effective Time (as
defined in such Agreement of Merger) pursuant to Section 2(d)(v) of such
Agreement of Merger.
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EXHIBIT L
Form of License Agreement
See attached.
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LICENSE AGREEMENT
This LICENSE AGREEMENT ("Agreement") is made and entered into
as of this ____ day of November, 1997, by and among Winston Laboratories,
L.L.C., a limited liability corporation organized under the laws of the state of
Delaware, having its principal offices at 600 Knightsbridge Parkway,
Lincolnshire, Illinois 60069 (hereinafter "Licensor"), GenDerm Corporation, a
Delaware corporation having its principal offices at 600 Knightsbridge Parkway,
Lincolnshire, Illinois 60069 (hereinafter "Licensee") and Joel E. Bernstein,
M.D., an individual residing at Deerfield, Illinois ("Bernstein"). The effective
date of this Agreement shall be the effective date of the Merger contemplated
under the Agreement of Merger, dated December 1, 1997, between Licensee and
Medicis Pharmaceutical Corporation.
W I T N E S S E T H:
WHEREAS, Licensor is the owner of all right, title and
interest in an invention relating to cis-capsaicin (also known as civamide) for,
among other things, topical products for application to the skin and Licensor
and Bernstein have developed a treatment for certain conditions in which the
application of this invention provides beneficial results;
WHEREAS, Licensee wishes to obtain exclusive rights from
Licensor throughout the Territory in and to the Patents and Know-how in order to
develop, market, make, have made, produce, use, offer for sale, sell, import and
distribute the Licensed Products (each as hereinafter defined) ("Sell the
Licensed Products").
NOW, THEREFORE, in consideration of the premises and the
faithful performance of the covenants herein contained, it is agreed as follows:
ARTICLE I. - DEFINITIONS
1.1. "Affiliates" shall mean any person, firm, corporation or
other business entity, directly or indirectly controlling, controlled by or
under direct or indirect common control with another person. A person shall be
deemed to control a corporation if such person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through ownership of voting securities, by
contract or otherwise.
1.2. "Approval" shall mean marketing approval from the United
States FDA for Licensed Products.
1.3. "Exclusive License" shall mean a license whereby
Licensee's rights in the Licensed Products and to the Patents and Know-how
related to the Licensed Products shall be sole and entire and shall operate to
exclude all others in the Territory for the field of use of the Licensed
Products, including Licensor.
1.4. "Licensed Products" shall mean the topical pharmaceutical
products for application to the skin (but not limited to dermatological
products) containing cis-capsaicin (also known as civamide) as claimed in the
Patents identified in Section 1.7 and the Know-how, and only such products,
together with any and all new developments by Licensor and Bernstein intended to
enhance the performance of such topical products, and all other developed or to
be developed formulations of the Licensed Products if covered by the Patents.
<PAGE> 155
1.5. "Know-how" shall mean all present and future technical
and other propriety information, know-how, inventions, ideas, technology and
trade secrets which relate to the Patents and the Licensed Products and shall
include, without limitation, all chemical, pharmacological, toxicological,
clinical, assay, control data known to Licensor and any other information
relating to the Patents and the Licensed Products and useful for the development
and commercialization of Licensed Products, including packaging and labeling
materials, detailing and marketing data.
1.6. "Net Sales" shall mean the gross amount invoiced by
Licensee and/or its sublicensees to Third Parties on all sales of Licensed
Products, less deductions for: (i) sales, value-added and excise taxes, tariffs,
import or export duties, and duties paid or allowed by a selling party and any
other governmental charges imposed upon the production, importation, use or sale
of such Licensed Products (except income taxes of Licensee and sublicensees);
(ii) customary trade, quantity and cash discounts allowed; (iii) rebates and
adjustments required by governmental entities and made pursuant to governmental
or private third-party health or medical insurance programs, (iv)
transportation, bulk packaging, handling and freight charges where such are
separately stated as part of the sales price, and (v) allowances or credits to
customers on account of rejection or return of Licensed Product. Sales between
or among Licensee and its Affiliates or sublicensees shall be excluded from the
computation of Net Sales, but Net Sales shall include the subsequent sales to
Third Parties by such Affiliates or sublicensees. For purposes of determining
Net Sales, a sale shall be deemed to have occurred when the Licensed Products
have been shipped by Licensee or a sublicensee.
1.7. "Patents" shall mean all patents and patent applications
owned or controlled by Licensor or Bernstein in the Territory with claims
covering the Licensed Products, as currently set forth in Appendix A hereto.
Included within the definition of Patents are any continuations,
continuations-in-part, divisions, patents of addition, reissues, reexaminations,
renewals or extensions thereof. Also included within the definition of Patents
are any patents or patent applications which claim any improvements on Licensed
Products, or intermediates or manufacturing processes required or useful for
production of Licensed Products, which are developed by Licensor or Bernstein
during the term of this Agreement and which fall within the scope of the
licensed field of use of any claim of a Patent as set forth in Appendix A,
together with any and all foreign counterparts to any of those patents and
applications within the Territory.
1.8. "Royalty Year" shall mean the period of one (1) calendar
year of commercial sales beginning each January 1 and ending each December 31
for the term of this Agreement. Royalty year one will begin on the date in which
first commercial sales on the Licensed Products by the Licensee begin and
Licensed Products have been shipped by Licensee or a sublicensee.
1.9. "Territory" shall mean the United States and Canada, and
their respective territories and possessions.
1.10. "Third Party(ies)" shall mean any party other than a
party to this Agreement or an Affiliate of such party.
1.11. "Valid Claim" shall mean any claim in an unexpired
patent included in the Patents in respect of a Licensed Product, which claim has
not been held invalid or unenforceable by the decision of a tribunal of
competent jurisdiction (provided, that all rights of review and appeal have been
taken, or the decision is unappealable, or the Licensee and/or Licensor, as
applicable, in its reasonable discretion, determines in good faith and
consistent with sound business judgment, not to appeal) and any
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claim in a patent application included in the Patents that has not been pending
for more than four (4) years.
ARTICLE II. - GRANTS
2.1. Grant. Licensor and Bernstein hereby grant to Licensee an
exclusive license during the term of this Agreement under the Patents and
Know-how to Sell the Licensed Products described herein and improvements thereon
in the Territory, subject to the terms and conditions of this Agreement.
2.2. Sublicense. Licensee shall have the right to sublicense
all or part of its rights under this Agreement. It shall be a condition of any
sublicense of all or any part of Licensee rights hereunder that Licensee shall
secure from each sublicensee its written assent to abide by and be subject to
the terms and conditions of this Agreement as if it were a party hereto.
Licensee shall be responsible for each sublicensee's adherence to the terms and
conditions of, and the standards set forth in, this Agreement, to the extent
applicable.
2.3. No Other Licenses. Neither the Licensor nor Bernstein has
granted any licenses for the field of use licensed hereunder for any Patents,
Know-how or the Licensed Products in the Territory except under this Agreement,
and the Licensor and Bernstein each agree not to license any right to Sell the
Licensed Products or (i) any process relating solely to Licensed Products within
the scope of the Patents in the Territory or (ii) any process relating to
Licensed Products within the scope of the Patents in the Territory unless
Licensor secures from any such licensee its acknowledgment of and agreement to
honor the exclusive rights of Licensee granted under this Agreement.
ARTICLE III. - ROYALTIES AND OTHER FEES
3.1. Royalty. As consideration for the license granted to
Licensee under this Agreement, during the term of this Agreement, Licensee shall
pay to Licensor the following royalties and other fees:
3.1.1 Within thirty (30) days of the effectiveness of
this Agreement, Licensee agrees to pay to Licensor a sign up fee of Seventy-Five
Thousand Dollars ($75,000.00).
3.1.2 Within eighteen (18) months of the
effectiveness of this Agreement, Licensee agrees to pay to Licensor an
additional fee of Seventy-Five Thousand Dollars ($75,000.00).
3.1.3 Within thirty (30) days of the receipt of
Approval, Licensee agrees to pay Licensor an approval fee of Five Hundred
Thousand Dollars ($500,000.00).
3.1.4 Where a Valid Claim by Licensor exists for the
Licensed Products, Licensee or its sublicensee shall pay to Licensor royalties
of 7% of all Net Sales of any such Licensed Products for the first year of
commercial sales and each year thereafter for the life of the Patent, including
any extension of such granted by agencies or departments of the U.S. and/or
Canadian governments. No royalty will be payable for sales in a country after
expiration of the Patents in that country, or expiration of any extension
granted for such patents, for such Licensed Products. In the case of
invalidation of the Patents in a country, the royalty paid on Net Sales in that
country will then revert to that provided where no Valid Claim exists. Said
reduced royalty payments shall only be due for a period
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of ten (10) years, from which period, however, will be deducted the period for
which royalty payments were made during the existence of a Valid Claim in that
country.
3.1.5 If Licensee, its Affiliate(s) or
sublicensee(s), sells the Licensed Products in the Territory where no Valid
Claim exists, Licensee or its sublicensee shall pay to Licensor royalties of
3.5% of all Net Sales for any such Licensed Products for the first year of
commercial sales, and each year thereafter, for a period of ten (10) total years
of commercial sales, subject to Section 3.1.4.
3.1.6 If the royalties payable to Licensor under
Sections 3.1.4 and 3.1.5 shall fail to amount to One Hundred Fifty Thousand
Dollars ($150,000.00) per year for Royalty Years one and two, or Two Hundred
Fifty Thousand Dollars ($250,000.00) per year for each of Royalty Years three
and four, or Five Hundred Thousand Dollars ($500,000.00) per year for Royalty
Years five and six, and One Million Dollars ($1,000,000.00) for any subsequent
Royalty Year after the sixth year, then Licensor may, at its sole option, upon
written notice to Licensee terminate this Agreement pursuant to Section 6.2 and
the license and rights herein granted to Licensee and its Affiliate(s), unless
Licensee shall within 60 days pay to Licensor an amount such that the total
royalty paid to Licensor under Paragraph 3.1 during said Royalty Year in
question is either One Hundred Fifty Thousand Dollars ($150,000.00) in Royalty
Years one and two, Two Hundred Fifty Thousand Dollars ($250,000.00) per year in
Royalty Years three and four, Five Hundred Thousand Dollars ($500,000.00) in
Royalty Years five and six or One Million Dollars ($1,000,000.00) in all Royalty
Years thereafter.
3.1.7 Notwithstanding anything to the contrary, if
any country restricts the royalty rate or amount payable on account of sales of
Licensed Products in such country, the royalties payable thereunder on such
sales shall not exceed the maximum amount payable under the applicable laws,
regulations or administrative rulings of such country.
3.1.8 In the event that during a determination of the
validity of a claim in the Patents by a tribunal of competent jurisdiction, a
third party infringes on such Patents and Licensee brings an infringement action
against such third party, if Licensee is unsuccessful in the infringement suit
due to the failure of Licensee to have a Valid Claim, Licensee shall have the
right to deduct from any royalties to be paid to Licensor such amounts as are
equal to the difference in the total amount of royalties paid to Licensor at 7%
from the 3.5% which would otherwise have been paid to Licensor during the time
period of the determination of the validity of the claim in the Patents, unless
there shall remain other valid claims in the Patents and Licensee (or its
sublicensee, if applicable) still has the exclusive license from Licensor to
Sell the Licensed Products in the Territory.
ARTICLE IV. - REPORTS, PAYMENTS AND RECORDS
4.1. Payments. In exchange for the exclusive right to Sell the
Licensed Products in the Territory, including providing copies of all data,
results, figures and materials now available, Licensee shall furnish to Licensor
within forty-five (45) days from the last day of each calendar quarter (the last
days of March, June, September, and December), a written royalty report giving
the amount of Licensed Products sold, the gross selling price and the Net Sales
by Licensee, its Affiliates and sublicensees, during the preceding quarter and
the amount of royalties due, and to accompany such report with a payment in
United States Dollars of the royalties accruing hereunder, at the Licensor's
address for notices specified in this Agreement or such other place as the
Licensor shall designate by written notice. If no royalties are due, Licensee
shall so advise Licensor. The information contained in the royalty reports shall
be subject to Licensor's confidentiality obligations.
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4.2. Records and Audit. Licensee shall keep and require its
Affiliates and sublicensees to keep complete and accurate records of all sales
of Licensed Products under the Agreement herein. Licensor shall have the right,
at Licensor's expense (except as provided below), through a certified public
accountant or like person reasonably acceptable to Licensee, to examine such
relevant records during regular business hours during the life of this Agreement
and for two years after its termination to verify the calculation of any royalty
payment reflected in such report; provided, however that such examination shall
not take place more often than twice a year for each audit subject and shall not
cover such records for more than the preceding two (2) years. If Licensor does
not agree that any such accounting correctly states Licensee's Net Sales or the
applicable royalty payment, it shall not later than thirty (30) days after the
delivery of such accounting give notice to Licensee of any exceptions thereto.
If Licensee and Licensor reconcile their differences, the accounting shall be
adjusted accordingly and shall thereupon become final and binding upon the
parties hereto. If Licensee and Licensor are unable to reconcile their
differences in writing within twenty (20) days after written notice of
exceptions is received by Licensee, the items in dispute shall be submitted to
an accounting firm selected by Licensor from among the six largest accounting
firms in the United States in terms of gross revenues (the "Arbitrator"),
provided that such firm shall not be performing accounting services for Licensor
or Licensee, for final determination and the accounting shall be deemed adjusted
in accordance with the determination of the Arbitrator and shall become final
and binding upon all of the parties hereto. The Arbitrator shall be instructed
to act within thirty (30) days to resolve all items in dispute. In the event
that any such examination shall reveal an underpayment of royalties to Licensor,
Licensee shall pay to Licensor the amount of the underpayment and interest at
the prevailing prime rate during such period (as set forth in the New York
edition of the Wall Street Journal). If the underpayment is seven and one-half
percent (7.5%) or more with respect to the period or periods under examination,
the fees and expenses of such examination (including Licensor's initial audit)
will be paid by Licensee. In the event that any such examination shall reveal an
overpayment, Licensor shall credit from any royalties owed to the Licensor the
amount of such overpayment and interest.
4.3. Taxes. Any and all taxes paid or required to be paid by
Licensor on account of or related to the royalties payable to Licensor under
this Agreement shall be the sole and exclusive responsibility of Licensor.
4.4. Currency Conversion. Monetary conversions from the
currency of a foreign country, in which Licensed Products are sold, into U.S.
currency shall be determined using the Average Exchange Rate. The "Average
Exchange Rate" shall be the average of the official exchange rate in force in
that country for financial transactions on the first and last business day of
the calendar quarter for which the royalties are being paid. If there is no such
official exchange rate, the conversion shall be made at the rate for such
remittances on the date as published in The New York edition of The Wall Street
Journal.
ARTICLE V. - CERTAIN UNDERTAKINGS OF LICENSEE
5.1. Trademarks. Licensee, at its expense, shall be
responsible, for the selection, registration and maintenance of the brand names
to be used by it with respect to the Licensed Products (the "Trademarks") and
shall own and control such Trademarks.
5.2. Patent Marking. Licensee agrees to mark all Licensed
Products sold by its under this Agreement with the world "Patent" or "Patents"
and the number or numbers of the Patents applicable thereto. Licensee agrees to
require its Affiliates and sublicensees to likewise mark all Licensed Products.
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5.3. Development Effort.
(a) During the term of this Agreement, Licensee will
undertake to initiate within ten (10) months of the effective date of this
Agreement, laboratory and controlled clinical studies in the United States of
the Licensed Products. If Licensee does not begin clinical studies within that
time, the technology and patent rights will revert to Licensor pursuant to
Section 6.4, except in the event that any regulatory agencies do not permit the
commencement of such clinical trials. In such event, this time requirement shall
be tolled until such time as such regulatory agencies permit such clinical
investigation with such Licensed Product. Reversion to Licensor pursuant to this
Section shall occur only after Licensor gives Licensee thirty (30) days prior
written notice to this effect in accordance with this Agreement, after which
Licensee will have ninety (90) days to cure the relevant omission and retain
rights to the invention.
(b) Upon the Licensees determination to undertake
such clinical studies, during the term of this Agreement, Licensee will
exercise, at its expense, its reasonable efforts and diligence consistent with
sound business and medical judgment of Licensee in developing and
commercializing Licensed Products, and in undertaking at its expense, all
investigations and actions required to obtain appropriate governmental approvals
as deemed necessary to market Licensed Products. At Licensee's expense, Licensor
will cooperate in conducting studies along with others to support Licensed
Products which are reasonable in scope for Licensor to conduct and Licensor will
supply to Licensee reasonable technical assistance in undertaking such
investigations and actions.
(c) If Licensee elects to pursue the
commercialization of Licensed Product beyond the studies set forth above,
Licensee shall seek marketing approval from the United States FDA including if
necessary, the filing of a New Drug Application ("NDA") with the United States
Food and Drug Administration prior to January 31, 2002. If Licensee does not
file a NDA within that time and thereafter, diligently seek Approval consistent
with the sound business and medical judgment of Licensee, the Patents and
Know-how will revert to Licensor pursuant to Section 6.4, provided, however,
that at the sole option of Licensee, Licensee may extend this time period by two
(2) years by paying the Licensor an extension fee of $250,000. Reversion to
Licensor pursuant to this provision shall occur only after Licensor gives
Licensee thirty (30) days prior written notice to this effect in accordance with
this Agreement, after which Licensee will have ninety (90) days to cure the
relevant omission and retain licensed rights to the invention.
5.4. Foreign Registration. Licensee agrees to register this
Agreement in the Territory with foreign governmental agency whenever required to
do so by the foreign country's law, and Licensee agrees to pay all costs and
legal fees in connection therewith.
5.5. Governmental Approvals and Marketing of Licensed
Products. Licensee shall have sole discretion, and be responsible for obtaining
all necessary governmental approvals for the development, production,
distribution and use of any Licensed Product in the Territory, at Licensee
expense in those countries where it elects to sell Licensed Products, including
without limitation, any safety studies including all perquisites to marketing,
such as, label approval and manufacturing facility approval. Licensee shall have
sole discretion and responsibility for any warning labels, packaging,
instructions as to use, and quality control as to any Licensed Product in the
Territory. Licensee will consult with Licensor on matters involving clinical
investigations, and cooperate with Licensor to develop appropriate protocols for
such investigations. It is understood that Licensee shall retain ultimate
control of the format and conduct of such investigations.
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5.6. Requirement to Market. Upon successful completion of the
development of the Licensed Product to a commercially saleable product, Licensee
shall use reasonable and diligent efforts, at its sole discretion, consistent
with good business and medical judgment, to market to the Licensed Products in
the United States. Licensee shall also at its sole discretion, use reasonable
and diligent efforts consistent with good business and medical judgment to
market Licensed Products in other countries in the Territory, once it has
elected to and obtained regulatory approvals in those countries in the
Territory.
ARTICLE VI. - TERM AND TERMINATION
6.1. Term. This Agreement shall continue in effect until the
earlier of (i) twenty (20) years from the effective date of this Agreement or
(ii) the date of the last-to-expire patent within the Patents, including any
extension of patent(s) granted by agencies or departments of the U.S. and
Canadian governments.
6.2. Termination. Either party may terminate this Agreement
within one hundred twenty (120) days of prior written notice if the other party
fails to fulfill its obligations hereunder, provided, however, that the
defaulting party shall have been notified by registered mail, return receipt
requested, of such default, and shall have failed to cure such default within
ninety (90) business days following receipt of such notice, provided, that if
the Licensee fails to pay royalties due to Licensor, the Licensor may within
sixty (60) days prior written notice to Licensee, terminate this Agreement
unless Licensee undertakes to pay such royalties prior to the expiration of such
sixty (60) day period.
6.3. Rights Upon Termination. In the event of such
termination:
(a) trademarks belonging to Licensee will remain the
property of Licensee;
(b) agreements between Licensee and Licensee's
sublicensees will remain intact if sublicensees are fulfilling their
obligation(s), provided, that the provisions of this Agreement shall survive
termination and the sublicensee attorns to the Licensor (or whomever Licensor
shall designate as the new licensee);
(c) if a NDA has been approved, transfer of
Licensee's drug application(s) in any terminated country to Licensor will be
negotiated by Licensee and Licensor in good faith and in a reasonable manner to
provide Medicis with the appropriate payments for such transfer; and
(d) if a NDA has not been approved, transfer of
Licensee's drug application(s) in any terminated country will be immediately
effected; and
(e) in the event of a transfer of patent or drug
application to Licensor, Licensor may assume the cost of maintaining them.
6.4. Effects of Termination. In case of such termination, all
rights hereunder are returned to Licensor in full, subject to Section 6.3, and
neither party shall have any further claims against the other except as set
forth in this Agreement. Licensor shall have the right, subject to claims by
Licensee as contemplated in this Agreement and except as otherwise expressly
required by Section 3.1 hereof, to retain any sum already paid by Licensee
hereunder, and Licensee shall pay all sums accrued hereunder which are then due,
as provided in Article III.
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6.5. Continuation of Certain Rights. Upon termination of this
Agreement in its entirety or with respect to any country, Licensee shall notify
Licensor of the amount of Licensed Products that Licensee and its sublicensees
and distributors then have on hand, the sale of which would be possible but for
the termination, and be subject to royalty. Then Licensee and its sublicensees
and distributors shall thereupon be permitted to sell within the expiration date
of such Licensed Product that amount of Licensed Product, provided that Licensee
shall pay the royalty thereon at the times herein provided.
6.6. Duties Upon Termination. Termination of this Agreement
shall terminate all outstanding obligations and liabilities between the parties
arising from this Agreement except those described in Article III and IX and
Sections 7.4 and 7.8 (with regard to amounts and/or obligations which accrue on
a prior to the date of such termination) and Sections 6.3, 6.4, 6.5, 6.6 and
8.2, which shall survive the termination of the Agreement.
ARTICLE VII. - PATENT MAINTENANCE, PROSECUTION AND LITIGATION
7.1. Patents. Licensee shall provide and be responsible for
patent filings, prosecutions, extension of patent term and maintenance in the
Territory, including the expense thereof. Licensee shall promptly inform
Licensor or Licensor's attorney of all actions taken by any patent office and
all actions taken by Licensee with regard to prosecution of any patent
application. Licensor and Bernstein agree to reasonably cooperate in this
effort. Any such costs relating to the Territory shall be born entirely by
Licensee. Should Licensee elect not to file patent applications in the
Territory, to maintain any Patent or elect not to further prosecute such
application once filed, Licensee shall notify Licensor in sufficient time for
Licensor, at its option, to file, maintain or continue to prosecute such
applications, and Licensee's rights with respect to that patent or patents shall
terminate.
7.2. Infringement by Licensed Product. In the event of the
institution of any suit in the Territory by a Third Party against Licensor or
Licensee or its sublicensees for patent infringement involving the manufacture,
use, sale, distribution or marketing of Licensed Products, the party sued shall
promptly notify the other party in writing. Licensee shall have the right to
defend such suit at its expense. Each party shall assist and cooperate in any
such litigation without expense to the other party.
7.3. Infringement by Others. In the event that Licensor or
Licensee become aware of actual or threatened infringement of a Patent, that
party shall promptly notify the other party and confirm it in writing. Licensee
shall have the first right to bring, at its own expense, an infringement action
against any Third Party and to use Licensor's name in connection therewith,
holding Licensor harmless in such event. If Licensee does not commence a
particular infringement action within six (6) months, Licensor after notifying
Licensee in writing, shall be entitled to bring such infringement action at its
own expense. The party conducting such action shall have full control over its
conduct. In any event, Licensor and Licensee shall assist one another and
cooperate in any such litigation at the other's request without expense to the
requested party.
7.4. Recovery. Licensor and Licensee shall recover their
respective actual out-of-pocket expenses, or equitable proportions thereof,
associated with any litigation or settlement thereof from any recovery made by
any party ("Expenses"). Any excess amounts (after Expenses) shall be the sole
and exclusive property of the party who brought and financed the infringement
action, provided, that the Licensor or Licensee as the other party shall be paid
a royalty of 6% (or if the other party is Licensor and there is no Valid Claim,
3%) for the amount of such excess (as if the excess was the amount of Net Sales
for such period).
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7.5. Status. The parties shall keep one another informed of
the status of and of their respective activities regarding any litigation or
settlement thereof concerning Licensed Products. Licensee may not settle any
such infringement action if the settlement adversely impacts on the validity or
scope of any Patent without the prior written consent of Licensor (which consent
shall not unreasonably withheld or delayed).
7.6. Agent. Licensor and Bernstein each authorize Licensee to
act as agent for the Licensor or Bernstein, as applicable, for the purpose of
making any application for any extensions of the term of Patents throughout the
Territory as permitted under Title 35 of the United States Code and in other
countries and Licensee assumes the duties and responsibilities as agent in
accordance with the terms of this Agreement.
7.7. Other Third Party Infringement. During the time Licensee
has an approved New Drug Application from the FDA, Licensor shall authorize
Licensee to take all appropriate action under the provisions of U.S. Public Law
98-417, at Licensee expense, to bring a patent infringement action if Licensee
is notified that a Third Party has filed an application for Licensed Product
under Sections 5.5(b) and 5.5(j) of the U.S. Food, Drug and Cosmetic Act.
Licensee shall consult with and keep Licensor fully advised of all its
activities under this Section. Like authorizations by Licensor to Licensee shall
be imputed in other countries in the Territory where analogous statutory or
regulatory structures exist.
7.8. Third Party Licenses. If, during the term of this
Agreement, Licensee and Licensor deem it necessary to seek a license from any
Third Party under any patent in order to avoid infringement during the exercise
of the license herein granted (but not in the event such need is triggered
solely by Licensee's addition of another component to the Licensed Products),
fifty percent (50%) of any royalties or other fees paid to such Third Party
under such license shall be deducted from royalties otherwise due Licensor for
the applicable Licensed Product in the affected territory under this Agreement.
Notwithstanding the foregoing, if Licensee shall determine not to seek a license
from a Third Party and such Third Party shall thereafter obtain a ruling from a
court or other tribunal directing the payment of royalties to such Third Party
(but not in the event such need is triggered solely by Licensee's addition of
another component to the Licensed Products), then 50% of all such royalties paid
pursuant to such judicial order shall be deducted from royalties otherwise due
Licensor for the applicable Licensed Product under this Agreement. If Licensee
and Licensor are in disagreement as to the necessity of seeking such a license
from a Third Party, the matter shall be referred for binding arbitration to the
American Arbitration Association as provided in paragraph 10.9 of the Agreement.
ARTICLE VIII. - EXCHANGE OF INFORMATION AND CONFIDENTIALITY
8.1. Exchange of Information. During the term of this
Agreement, Licensor and Bernstein shall promptly disclose to Licensee and/or
supply Licensee with all Know-how regarding Licensed Products and new
information regarding the Patents, including any information that it obtains or
develops regarding the utility and safety of Licensed Products or improvements
thereon, but not including any information obtained by Licensor or Bernstein
from any Third Party. Licensor and Bernstein shall have no obligation to improve
any Patents or develop formulations for any Licensed Products.
8.2. Confidentiality. During the term of this Agreement and
for three (3) years thereafter, Licensor and Licensee shall not reveal to Third
Parties or use any confidential information received from the other party under
this Agreement without first obtaining the written consent of the disclosing
party, except as may be otherwise provided herein, or as may be required for
purposes of
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investigating, manufacturing and marketing Licensed Product in the Territory,
for securing essential or desirable authorizations, privileges or rights from
governmental agencies, or as required to be disclosed to a government agency or
is necessary to file or prosecute Patents concerning Licensed Products to carry
out any litigation concerning Licensed Products, or as required to be disclosed
pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934
(collectively, the "Securities Laws"). This confidentiality obligation shall not
apply to such information which is or becomes a matter of public knowledge
through no fault of either party, or is already in the possession of Licensee or
Licensor, as applicable, or is disclosed to the other party by a Third Party
having the right to do so. The parties shall take reasonable measures to assure
that no unauthorized use of disclosure is made by others to whom access to such
information is granted.
8.3. Right to Disclose. Nothing herein shall be construed as
preventing Licensee from disclosing any information received from Licensor to an
Affiliate or to a sublicensee or potential sublicensee who has a need to know
such information, provided the Affiliate or sublicensee has undertaken a similar
obligation of confidentiality with respect to the confidential information.
ARTICLE IX. - LIABILITY
9.1. Product Liability Indemnity. Licensee hereby agrees to
indemnify and defend Licensor and Bernstein from and against any and all claims,
proceedings, costs, damages and expenses (including, without limitation,
reasonable attorneys' fees) arising from any product liability claim asserted by
any party as to any Licensed Product or the use of any Know-how covered by this
Agreement. Licensee shall have Licensor and Bernstein named as additional
insured party on any product liability insurance policy maintained by Licensee
applicable to each Licensed Product. Licensor shall reasonably cooperate with
Licensee in the defense or settlement thereof at Licensee's expense.
9.2. Licensee Indemnity. Licensee hereby indemnifies and
agrees to hold the Licensor harmless from and against any and all claims,
proceedings, costs, damages and expenses (including, without limitation
reasonable attorneys' fees) based upon, arising out of or in connection with the
fraud or knowing material misrepresentation of Licensee.
9.3. Licensor Indemnity. Licensor hereby indemnifies and
agrees to hold the Licensee harmless form and against any and all claims,
proceedings, costs, damages and expenses (including without limitation
reasonable attorneys' fees) based upon, arising out of or in connection with the
fraud or knowing material misrepresentation of Licensor.
9.4. Resolving Indemnity Disputes. If Licensee and Licensor
disagree as to indemnification, the matter shall be referred for binding
arbitration to the American Arbitration Association, as provided for in Section
10.9 of this Agreement.
ARTICLE X. - GENERAL PROVISIONS
10.1. Warranties and Representations.
(a) Licensor warrants that it owns the entire right,
title and interest in Patents and Know-how, and has the right to enter into this
Agreement, and that to the best of its current knowledge, the products made
pursuant to the current Patents and Know-how would not, and the Patents and
Know-how do not, infringe the patent, trade secret or other intellectual
property rights of others, nor does Licensor know of any threatened action by a
third party in connection with Licensed Products,
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Patents and Know-how claiming infringement or conversion. Licensor makes no
express or implied warranty of merchantability or fitness for a particular
purpose as to any Licensed Products.
(b) Each of Licensor and Licensee represents and
warrants to the other that they have full corporate power and authority to enter
into this Agreement and to carry out the transaction contemplated hereby, and
the execution and deliver of this Agreement has been approved by all required
corporate action by Licensee and Licensor.
10.2. Force Majeure. If the performance of any part of this
Agreement by either party, or of any obligation under this Agreement, is
prevented, restricted, interfered with or delayed by reason of any cause beyond
the reasonable control of the party liable to perform, including strikes, riots,
war, acts of God, invasion, fire, explosions, floods, delays of carrier,
shortage or failure in the supply of materials, energy shortage, acts of
government, or governmental agencies and instrumentalities, unless conclusive
evidence to the contrary is provided, the party so affected shall, upon giving
immediate written notice to the other party, be excused from such performance to
the extent of such prevention, restriction, interference or delay. Upon
cessation of any such event preventing performance by the party, that party
shall promptly resume performance hereunder. Each party shall promptly advise
the other of any force majeure of which it has knowledge.
10.3. Governing Law. This Agreement shall be deemed to have
been made in the State of Arizona and its form, execution, validity,
construction and effect shall be determined in accordance with the laws of the
State of Arizona.
10.4. Severability. In the event any portion of this Agreement
shall be held illegal, void or ineffective, the remaining portions hereof shall,
remain in full force and effect. If any of the terms or provisions of this
Agreement are in conflict with any applicable statute or rule of law, then such
terms or provisions shall be deemed inoperative to the extent that they may
conflict therewith and shall be deemed to be modified to conform with such
statute or rule of law. In the event that the terms and conditions of this
Agreement are materially altered as a result of Section 10.4, the parties will
renegotiate the terms and conditions of this Agreement to resolve any inequities
in an attempt to carry out to the extent legally permissible the severed or
altered portion.
10.5. Entire Agreement. This Agreement constitutes the entire
agreement between the parties relating to the subject matter hereof and
supersedes all previous writings and understandings. No terms or provisions of
this Agreement shall be varied or modified by any prior or subsequent statement,
conduct or act of either of the parties, except that the parties may amend this
Agreement by written instruments specifically referring to and executed in the
same manner as this Agreement.
10.6. Waiver. Any waiver must be explicitly in writing. A
waiver of any breach of, or failure to enforce, any of the terms or conditions
of this Agreement shall not in any way affect, limit or waive a party's rights
at any time to enforce strict compliance thereafter with ever other term or
condition of this Agreement.
10.7. Notice. Any notice required or permitted under this
Agreement shall be sent by certified mail, return receipt requested, or by
nationally recognized express overnight courier to the following addressed of
the parties or to such other addresses as may be provided by a party by like
notice:
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To Licensee:
GenDerm Corporation
600 Knightsbridge Parkway
Lincolnshire, Illinois 66061
To Licensor:
Winston Laboratories, LLC
600 Knightsbridge Parkway
Lincolnshire, Illinois 66069
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attention: Ron Sandler, Esq.
To Bernstein:
615 Brierhill
Deerfield, Illinois 60015
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attention: Ron Sandler, Esq.
Fax: (312) 782-8585
Any notice required or permitted to be given concerning this Agreement shall be
effective upon receipt by the party to whom it is addressed.
10.8. Assignment. This Agreement and the rights and licenses
herein granted shall accrue to Licensor and its successors, and this Agreement
shall be binding upon and inure to the benefit of Licensee, and its successors
in interest. This Agreement or any interest hereunder shall not be assignable by
Licensee without the written consent of Licensor, provided, however, that
Licensee may assign this Agreement to any subsidiary or Affiliate or to any
corporation with which it may merge or consolidate, or to which it may transfer
all or substantially all of its assets to which this Agreement relates, without
obtaining the consent of Licensor. No such assignment shall relieve either party
of its obligations hereunder. Prompt notification of any assignment shall be
given to the other party by the assigning party.
10.9. Arbitration. Any dispute arising from or relating to
this Agreement shall be finally and bindingly settled by arbitration in
accordance with the then commercial arbitration rules of the American
Arbitration Association by one or three arbitrators designated in conformity
with those rules at a site mutually agreed upon by the parties, or, if there is
no such agreement, then in Phoenix,
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Arizona, and judgment upon any award thereunder may be entered in any court
having jurisdiction thereof. Neither party shall commence any action in court to
remedy any claimed breach of this Agreement except to confirm or enforce an
arbitrator's final ruling or to avoid the expiration of the statute of
limitations in the absence of a tolling agreement between the parties. In any
arbitration, all of the reasonable costs and expenses of the successful party
(including reasonable attorney's fees) and the costs of the arbitrator shall be
borne by the losing party in such arbitration. The "successful party" and the
"losing party" shall be determined by the arbitrator based on the relative
success and failure of each party to such arbitration.
[Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties, through their authorized
officers, have executed this Agreement as of the date first written above.
GENDERM CORPORATION
By:________________________________
Name:
Title:
WINSTON LABORATORIES, L.L.C.
By:________________________________
Name: Joel E. Bernstein, M.D.
Title:
Only for purposes of Articles I and II and Sections 7.5, 7.6, 8.1, 8.2,
9.1, 10.3, 10.4, 10.5, 10.6, 10.7 and 10.8 of this Agreement.
___________________________________
Joel E. Bernstein, M.D.
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APPENDIX A
PATENT APPLICATIONS AND PATENTS
U.S. Patent Number 5,063,060
(filed 12/19/89; issued 1/5/91; expiration (without extension)
12/19/2009).
Canadian Patent Number 207 0 685
(filed 6/28/90; issued 11/1/94; expiration (without extention
6/28/2010).
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EXHIBIT M
Form of Certificate of Joel E. Bernstein, M.D.
See attached.
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<PAGE> 170
CERTIFICATE REGARDING
LICENSE AGREEMENT
Joel E. Bernstein, M.D., personally and in his capacity as an officer,
general partner and/or director of GenDerm Corporation, Winston Laboratories,
L.L.C. and Elorac, Ltd. (each a "Related Party") for and on behalf of himself
and each Related Party, hereby certifies as follows:
1. Attached is a complete and accurate schedule of all relevant License
Agreements granted by me or any Related Party as scheduled in Section 3(s)(i)(5)
of the Agreement of Merger dated as of December 1, 1997 ("Merger Agreement") and
the License Agreement, dated as of November 26, 1997, between Winston
Laboratories, Inc. and GenDerm Corporation relating to cis-capsaicin (each a
"License Agreement" and collectively, the "License Agreement").
2. Each Licensor under each such License Agreement is the sole and
exclusive owner and has all power and authority to grant the licenses granted
under such License Agreements.
3. Licensor has not granted, assigned, transferred or licensed to any
other party any intellectual property subject to each such License Agreements
for the uses and for the territories covered thereby.
4. Each Licensee has performed all of their respective obligations
under the applicable License Agreements and no amounts are due or owing except
those that are not yet due or payable under such License Agreements. There is no
other event, fact or circumstance which constitutes, or with the giving of
notice or the passage of time would constitute, a breach or default under any
License Agreements.
5. The transactions contemplated by the Merger Agreement will not
violate the terms of any of the License Agreements. No consent is required under
any License Agreements to the Merger Agreement, or the consummation of any
transaction contemplated thereby.
DATED this ____ day of ________________, 1997.
___________________________________
Dr. Joel E. Bernstein
WINSTON LABORATORIES L.L.C.
By:________________________________
Joel E. Bernstein, M.D.
Its:____________________________
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ELORAC, LTD.
By:________________________________
Joel E. Bernstein, M.D.
Its:____________________________
-2-
