SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-27718
NEOSE TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3549286
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 Witmer Road
Horsham, Pennsylvania 19044
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(Address of principal executive offices) (Zip Code)
(215) 441-5890
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 9,908,583 shares of common
stock, $.01 par value, were outstanding as of April 30, 1999.
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
INDEX
Page
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) at December 31, 1998 and
March 31, 1999........................................................ 3
Consolidated Statements of Operations (unaudited) for the three
months ended March 31, 1998 and 1999, and for the period from
inception through March 31, 1999...................................... 4
Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 1998 and 1999, and for the period from
inception through March 31, 1999...................................... 5
Notes to Unaudited Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk.......... 12
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds.......................... 12
Item 6. Exhibits and Reports on Form 8-K................................... 12
SIGNATURES................................................................... 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share amounts)
December 31, March 31,
Assets 1998 1999
------------ ---------
Current assets:
Cash and cash equivalents $ 9,484 $ 3,406
Marketable securities 22,539 25,217
Restricted funds 468 2,123
Prepaid expenses and other current assets 235 460
------- -------
Total current assets 32,726 31,206
Property and equipment, net 13,539 13,276
Acquired technology (See Note 3) -- 3,300
------- -------
Total assets $46,265 $47,782
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 617 $ 611
Accounts payable 45 100
Accrued expenses 1,290 1,531
------- -------
Total current liabilities 1,952 2,242
Long-term debt 8,300 8,300
------- -------
Total liabilities 10,252 10,542
------- -------
Stockholders' equity:
Preferred stock, $.01 par value,
5,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 30,000
shares authorized; 9,589 and
9,908 shares issued and outstanding 96 99
Additional paid-in capital 82,400 87,059
Deferred compensation (211) (564)
Unrealized gains on marketable securities 222 212
Deficit accumulated during the
development-stage (46,494) (49,566)
------- -------
Total stockholders' equity 36,013 37,240
------- -------
Total liabilities and stockholders' equity $46,265 $47,782
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Peiod from
Three months ended inception
March 31, (January 17, 1989)
------------------- to
1998 1999 March 31, 1999
------- ------- --------------
<S> <C> <C> <C>
Revenue from collaborative agreements $ 11 $ 125 $ 6,470
Operating expenses:
Research and development 2,715 2,471 43,375
General and administrative 715 1,003 17,716
------- ------- --------
Total operating expenses 3,430 3,474 61,091
------- ------- --------
Operating loss (3,419) (3,349) (54,621)
Interest income 571 384 7,377
Interest expense (138) (107) (2,322)
------- ------- --------
Net loss $(2,986) $(3,072) $(49,566)
======= ======= ========
Basic and diluted net loss per share $ (0.31) $ (0.31)
======= =======
Basic and diluted weighted-average
shares outstanding 9,532 9,860
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended Period from
March 31, inception
--------------------- (January 17, 1989)
1998 1999 to March 31, 1999
-------- ------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,986) $(3,072) $(49,566)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 379 404 5,609
Common stock issued for non-cash and other charges -- -- 35
Changes in operating assets and liabilities:
Restricted funds (128) (1,655) (2,052)
Prepaid expenses and other (64) (225) (460)
Accounts payable (181) 55 100
Accrued expenses (706) 241 849
-------- ------- --------
Net cash used in operating activities (3,686) (4,252) (45,485)
-------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment (201) (96) (16,620)
Proceeds from sale-leaseback of equipment -- -- 1,382
Purchases of marketable securities -- (24,593) (75,716)
Proceeds from sales of marketable securities 988 5,930 8,515
Proceeds from maturities of and other
changes in marketable securities -- 15,975 42,196
Purchase of intellectual property -- (3,300) (3,300)
-------- ------- --------
Net cash provided by (used in)
investing activities 787 (6,084) (43,543)
-------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of debt -- -- 11,955
Repayment of debt (119) (6) (4,341)
Proceeds from issuance of preferred stock, net -- -- 29,497
Proceeds from issuance of common stock, net 87 4,080 4,785
Proceeds from public offerings, net -- -- 49,466
Proceeds from exercise of stock options and warrants 3 184 1,144
Dividends paid -- -- (72)
-------- ------- --------
Net cash provided by (used in)
financing activities (29) 4,258 92,434
-------- ------- --------
Net increase (decrease) in cash and cash equivalents (2,928) (6,078) 3,406
Cash and cash equivalents, beginning of period 17,098 9,484 --
-------- ------- --------
Cash and cash equivalents, end of period $ 14,170 $ 3,406 $ 3,406
======== ======= ========
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 152 $ 111 $ 2,220
======== ======= ========
Non-cash financing activities:
Issuance of common stock for dividends $ -- $ -- $ 90
======== ======= ========
Issuance of common stock to employees in
lieu of cash compensation $ -- $ -- $ 44
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
We have used generally accepted accounting principles for interim financial
information to prepare unaudited consolidated financial statements:
o As of March 31, 1999;
o For the three months ended March 31, 1998 and 1999; and
o For the period from inception (January 17, 1989) to March 31, 1999.
These consolidated financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
consolidated financial statements. In our opinion, the unaudited information
includes all the normal recurring adjustments that are necessary for a fair
presentation of the financial position, results of operations, and cash flows
for the periods presented. You should not base your estimate of our results of
operations for 1999 solely on our results of operations for the three months
ended March 31, 1999. You should read these consolidated financial statements in
combination with:
o The other Notes in this section;
o "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing in the following section; and
o The Consolidated Financial Statements, including the Notes to the
Consolidated Financial Statements, included in our Annual Report on
Form 10-K for the year ended December 31, 1998.
2. Agreement with Johnson & Johnson
In 1997, we entered into a joint development agreement with McNeil
Specialty Products Company, a subsidiary of Johnson & Johnson, for the joint
development of novel technologies for the efficient large-scale manufacture of a
particular class of complex carbohydrates for a number of human healthcare
applications. In January 1999, the joint development agreement was extended and
expanded, and Johnson & Johnson Development Corporation, another subsidiary of
Johnson & Johnson, made a $4 million investment in our common stock. Under the
joint development agreement, we jointly contemplate building and operating a
manufacturing facility capable of producing at least one commercially promising
complex carbohydrate by early 2000. Either party may terminate the agreement
upon sixty days prior notice.
3. Acquisition of Intellectual Property from Cytel
On March 26, 1999, we acquired the carbohydrate manufacturing patents,
licenses, and other intellectual property of Cytel Corporation's Glytec business
unit. We paid $3.5 million in cash to Cytel and an additional $1.5 million in
cash into escrow, the release of which is conditioned on Cytel's satisfaction of
certain matters relating to the acquired patents and licenses. We may be
required to pay Cytel up to an additional $1.6 million in cash, contingent on
potential payments and
6
<PAGE>
revenues realized by us from certain future corporate collaborations. We have
capitalized $3.3 million of the amount paid to Cytel as developed technology,
which is classified on our Balance Sheet as Acquired Technology. This amount
will be amortized to our Statement of Operations over the estimated useful life
of the technology. We currently estimate the useful life of the technology to be
approximately seven to ten years. The remaining $200,000 was paid to Cytel from
an escrow account funded by us in 1998. This amount was expensed to our
Statement of Operations in 1998. We have recorded the $1.5 million placed into
escrow as Restricted Funds.
4. Net Loss Per Share
Basic and diluted net loss per share are presented in conformity with
Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic
loss per share is computed by dividing net loss by the weighted-average number
of common shares outstanding for the period. Diluted loss per share reflects the
potential dilution from the exercise or conversion of securities into common
stock. For the three months ended March 31, 1998 and 1999, the effects of the
following were antidilutive; accordingly, they were excluded from the
calculation of diluted earnings per share:
o The exercise of outstanding stock options and warrants; and
o The conversion of outstanding shares of convertible preferred stock
into common stock (as if converted into common stock on their dates of
issuance).
5. Comprehensive Loss
Our comprehensive loss for the three months ended March 31, 1998 and 1999
was $2,986,000 and $3,082,000, respectively. Comprehensive loss is comprised of
net loss and other comprehensive income or loss. Currently, our only source of
other comprehensive income or loss is unrealized gains and losses on our
marketable securities that are classified as available-for-sale.
6. Reclassifications
Some prior year amounts have been reclassified to conform to current year
presentation.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The statements in this Form 10-Q and the Exhibits that are not facts are
forward-looking statements. Forward-looking statements involve predictions. Our
actual results, performance, or achievements could differ materially from the
results expressed in, or implied by, these forward-looking statements. Potential
risks and uncertainties that could affect our actual results, performance, or
achievements include the "Risk Factors" in Item 1 of our Annual Report on Form
10-K for the year ended December 31, 1998, and general financial, economic,
regulatory, and political conditions affecting the biotechnology industry in
general. Given these uncertainties, you should not base your decision to invest
in our common stock on any forward-looking statements. In addition, we do not
have any obligation or intent to update any of these risk factors or
forward-looking statements to reflect future events or developments.
You should read this section in combination with the Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended December 31, 1998, included in our Annual Report on Form 10-K and in
our 1998 Annual Report to Stockholders.
Overview
Neose, a development-stage company, is developing synthetic processes to
manufacture oligosaccharides, or complex carbohydrates. We are using these
manufacturing processes to discover, develop, and commercialize complex
carbohydrates for pharmaceutical, nutritional, and consumer uses. Due to their
structural complexity, oligosaccharides are difficult and expensive to produce.
Accordingly their commercial development has been significantly limited. We
believe our proprietary technologies enable the rapid and cost-efficient
enzymatic production of naturally occurring oligosaccharides.
We have not generated any material revenues from operations, except for
interest income and revenues from collaborative agreements, including our
agreements with Abbott Laboratories. Under our agreements, Abbott has the
exclusive right to use our technology to manufacture and commercialize, for
nutritional purposes only, any complex carbohydrate naturally found in breast
milk. We have received approximately $11.2 million in contract payments, license
fees, milestone payments, and equity investments from Abbott. Under our
agreements, we will receive further payments from Abbott only if Abbott
commercializes a product manufactured using our technology.
We have incurred increasingly large losses each year. As of March 31, 1999,
we had an accumulated deficit of approximately $49.6 million. We expect
increased losses over at least the next several years as we expand research and
development efforts, conduct additional clinical trials, expand manufacturing
scale-up activities, and begin sales and marketing activities.
We have not yet commercialized any products or technologies. We do not know
if or when we will generate significant revenues from the commercialization of
our products or technologies. Before we can commercialize any of our products or
technologies, we must overcome many hurdles. Even if we commercialize one or
more of our products or technologies, we may not become profitable.
8
<PAGE>
Results of Operations
Revenues
Revenues from collaborative agreements for the three months ended March 31,
1999 increased to $125,000 from $11,000 for the corresponding period in 1998.
Revenues for the 1999 period were received under our agreement with
Bristol-Myers Squibb Company.
Operating Expenses
Research and development expenses for the three months ended March 31, 1999
decreased to $2,471,000 from $2,715,000 for the corresponding period in 1998.
The expenses for the 1998 period reflect our significant manufacturing campaign
to produce clinical trial material for NE-1530, our compound for the treatment
of pediatric ear infections, and NE-0080, our compound for the treatment of
gastritis and peptic ulcers caused by H. pylori infections. We did not conduct
such a campaign during the comparable 1999 period.
General and administrative expenses for the three months ended March 31,
1999 increased to $1,003,000 from $715,000 for the corresponding period in 1998.
The increase during the 1999 period was primarily attributable to increased
patent and general legal expenses associated with the acquisition of
intellectual property from Cytel Corporation.
Interest Income and Expense
Interest income for the three months ended March 31, 1999 decreased to
$384,000 from $571,000 for the corresponding period in 1998. The decrease was
due to lower average cash and marketable securities balances during the 1999
period.
Interest expense for the three months ended March 31, 1999 decreased to
$107,000 from $138,000 for the corresponding period in 1998. The decrease was
due to lower average loan balances outstanding during the 1999 period.
Net Loss
Our net loss for the three months ended March 31, 1999 increased to
$3,072,000, or $0.31 per share, from $2,986,000, or $0.31 per share, for the
corresponding period in 1998.
Liquidity and Capital Resources
We have incurred increasingly large losses each year since our inception.
As of March 31, 1999, we had a deficit accumulated during the development stage
of approximately $49.6 million. We have financed our operations through private
and public offerings of our securities and revenues from our collaborative
agreements. We had $28.6 million in cash and marketable securities as of March
31, 1999, compared to $32.0 million in cash and marketable securities as of
December 31, 1998. This decrease was attributable to our use of funds for the
acquisition of intellectual property from Cytel Corporation and for our
continuing operating activities. The decrease was partly offset by Johnson &
Johnson Development Corporation's $4.0 million investment in our common stock in
January 1999.
On March 26, 1999, we acquired the carbohydrate manufacturing patents,
licenses, and other intellectual property of Cytel Corporation's Glytec business
unit. We paid $3.5 million in cash to
9
<PAGE>
Cytel and an additional $1.5 million in cash into escrow, the release of which
is conditioned on Cytel's satisfaction of certain matters relating to the
acquired patents and licenses. We may be required to pay Cytel up to an
additional $1.6 million in cash, contingent on potential payments and revenues
realized by us from certain future corporate collaborations. We have capitalized
$3.3 million of the $3.5 million paid to Cytel as developed technology, which is
classified on our Balance Sheet as Acquired Technology. This amount will be
amortized to our Statement of Operations over the estimated useful life of the
technology. We currently estimate the useful life of the technology to be
approximately seven to ten years. The remaining $200,000 was paid to Cytel from
an escrow account funded by us in 1998. This amount was expensed to our
Statement of Operations in 1998. We have recorded the $1.5 million placed into
escrow as Restricted Funds.
In 1997, we issued, through the Montgomery County (Pennsylvania) Industrial
Development Authority, $9.4 million of taxable and tax-exempt bonds. The bonds
were issued to finance the purchase of our previously leased building and the
construction of a pilot-scale manufacturing facility within our building. The
bonds are supported by a AA-rated letter of credit, and a reimbursement
agreement between our bank and the letter of credit issuer. The interest rate on
the bonds will vary weekly, depending on market rates for AA-rated taxable and
tax-exempt obligations, respectively. As of March 31, 1999, the effective,
blended interest rate was 7.25% per annum, including letter-of-credit and other
fees. To provide credit support for this arrangement, we have given a first
mortgage on the land, building, improvements, and certain machinery and
equipment to our bank. In addition, we have agreed to maintain at least $20
million of cash and short-term investments. If we fail to comply with this
covenant, we are required to deposit with the lender cash collateral up to, but
not more than, the unpaid balance of the loan, which as of March 31, 1999 was
$8.9 million.
If the technology development program with Johnson & Johnson is successful,
the parties will have to reach agreement upon the structure and financing of a
large-scale manufacturing facility.
During the quarter ended March 31, 1999, we purchased approximately $96,000
of property, equipment, and building improvements.
We expect that our existing cash and short-term investments will be
adequate to fund our operations through late 2000; however, changes in our
collaborative relationships or our business, whether or not initiated by us, may
cause us to deplete our cash and short-term investments sooner than the above
estimate. The timing and amount of our future capital requirements and the
adequacy of available funds will depend on many factors, including:
o If or when any products covered by our existing collaborative
agreements are commercialized;
o The progress of our research and development activities, including our
pharmaceutical discovery and development programs;
o The safety and efficacy of our products in preclinical studies and
clinical trials;
o The costs involved in preparing, filing, prosecuting, maintaining, and
enforcing patent claims and other intellectual property rights;
o Competing technological and market developments;
o Changes in our existing collaborative relationships;
o Our ability to establish additional collaborative agreements;
o The cost of manufacturing scale-up; and
o Developing effective marketing activities and arrangements.
10
<PAGE>
We may need to sell additional stock, borrow additional money, or enter
into new collaborative agreements both to fund operations until we become
profitable and to make capital investments. The timing and amount of our future
capital requirements will depend on many factors including those discussed
above.
If we raise money by selling additional stock or borrowing additional
money, the terms may not be favorable and may be dilutive to our stockholders. A
debt financing may contain restrictive covenants, and, if we default, may
provide the lender with rights to some or all of our assets.
We may not be able to raise money when we need it. If we are unable to
obtain adequate funds when needed:
o We may delay or eliminate our research and development activities, or
other aspects of our business;
o We may have to license or sell our technologies on unfavorable terms;
or
o We may have to reduce or cease operations.
Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. In other
words, date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including an inability to
process transactions and information, operate certain laboratory and
manufacturing equipment, order raw materials, or engage in similar normal
business activities.
We do not believe we have a material exposure to the Year 2000 issue for
our information and non-information technology systems. We have reviewed these
existing systems and they either correctly define the Year 2000 or are expected
to be replaced before Year 2000 issues will arise. Each of our major vendors has
informed us that they are taking appropriate steps to remediate their own Year
2000 issues. Our business, financial condition, and results of operations may be
materially and adversely affected if our major vendors fail to remediate their
own Year 2000 issues. We have not yet developed any contingency plans to address
situations that may result if our operations are affected by Year 2000 issues
that are not remediated.
Our historical costs directly related to Year 2000 issue evaluation,
remediation, and validation have been immaterial as our systems have been on a
normal replacement schedule with only immaterial opportunity costs of personnel
to ensure new systems and third parties are Year 2000 compliant. We estimate
that the future expenses and capital expenditures necessary to complete our Year
2000 evaluation, remediation, and validation of all systems will not exceed
$200,000.
We are currently assessing the extent to which we would be vulnerable to
our vendors' failure to remediate any Year 2000 issues on a timely basis. We
plan to develop contingency plans if necessary during 1999. We have not deferred
any systems projects as a result of our efforts to evaluate, remediate, and
validate our systems for the Year 2000 issue.
11
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We do not hold any investments in market risk sensitive instruments.
Accordingly, we believe that we are not subject to any material risks arising
from changes in interest rates, foreign currency exchange rates, commodity
prices, equity prices or other market changes that affect market risk sensitive
instruments.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On January 13, 1999, we issued 286,097 shares of common stock to Johnson &
Johnson Development Corporation for $4 million. The shares were issued pursuant
to an exemption from registration under Section 4(2) of the Securities Act of
1933.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits:
10.1 Stock Purchase Agreement, dated as of January 13, 1999, by and
between Neose and Johnson & Johnson Development Corporation.
10.2* Asset Purchase Agreement, dated as of March 26, 1999, by and
between Neose and Cytel Corporation.
10.3* Escrow Agreement, dated as of March 26, 1999, by and among
Neose, Cytel Corporation, and Chase Manhattan Trust Company,
National Association.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
Explanation of Footnote to List of Exhibits
* We have intentionally omitted portions of the exhibit from this
filing. We have submitted an application for confidential treatment,
which includes the omitted portions, to the Securities and Exchange
Commission. Our application for confidential treatment was filed as
specified in Rule 24b-2 of the Securities Exchange Act of 1934.
12
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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 thereunto duly authorized.
NEOSE TECHNOLOGIES, INC.
Date: May 17, 1999 By: /s/ P. Sherrill Neff
-------------------------------------
P. Sherrill Neff
President and Chief Financial Officer
13
Exhibit 10.1
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made as of January 13,
1999, by and between NEOSE TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), and Johnson & Johnson Development Corporation, a New Jersey
corporation ("JJDC").
RECITAL:
WHEREAS, JJDC desires to purchase from the Company, and the Company desires
to sell to JJDC, shares of the Company's common stock, upon the terms and
subject to the conditions set forth herein and in connection with the execution
of Amendment No. 1 to Joint Development Agreement of even date herewith between
McNeil Specialty Products Company Division of McNeil-PPC, Inc. and the Company
(the "Development Agreement").
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. Purchase and Sale of Shares. (a) Subject to the terms and conditions of
this Agreement, at the Closing (as defined hereinafter), the Company shall sell
to JJDC and JJDC shall purchase from the Company, that number of shares (the
"Shares") of the Company's Common Stock, par value $.01 (the "Common Stock"),
determined by dividing four million dollars ($4,000,000) by the Share Price (as
defined below), for an aggregate purchase price (the "Purchase Price") of four
million dollars ($4,000,000). For the purposes hereof, "Share Price" shall mean
the arithmetic average of the closing prices of the Common Stock, as reported by
the principal securities exchange or market on which the Common Stock is then
traded, for the twenty (20) trading days period immediately preceding the
Closing Date; provided, however, that in the event that the Common Stock is not
traded on any trading day during such period, then the closing price of the
Common Stock on such day shall be deemed to be the closing price of the most
recent previous trading day on which the Common Stock was traded on such
exchange or market.
(b) The purchase and sale of the Shares shall take place at the
offices of the Company, at 10:00 a.m. Eastern time on such date (the "Closing
Date") as the parties shall mutually agree (the "Closing").
(c) At the Closing, the Company will deliver to JJDC a certificate
or certificates, registered in JJDC's name, representing the Shares, and JJDC
shall deliver an amount equal to the Purchase Price to the Company by certified
check payable to the Company or wire transfer of immediately available funds to
an account specified by the Company.
<PAGE>
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to JJDC that:
2.1 Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to do business as a foreign corporation in each
jurisdiction where failure to qualify would have a Material Adverse Effect on
the Company. For purposes of this Agreement, a "Material Adverse Effect" or
"Material Adverse Change" shall mean, with respect to the Company, any material
adverse effect on or change in the condition (financial or other), business,
results of operations, prospects, assets, liabilities or operations of the
Company or on the ability of the Company to consummate any of the transactions
contemplated hereby, or any event or condition that would, with or without the
passage of time, constitute a "Material Adverse Effect" or "Material Adverse
Change." The Company has all requisite corporate power and authority to own its
property, to carry on its business as presently conducted and to carry out the
transactions contemplated hereby. The copies of the Certificate of Incorporation
and Bylaws of the Company, as amended to date, which have been furnished to JJDC
by the Company, are correct and complete.
2.2 Authorization. The Company has all requisite corporate power to
execute, deliver and perform this Agreement. Each such agreement has been duly
executed and delivered by the Company and is the legal, valid and, assuming due
execution by the other parties hereto and thereto, binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally, and to general equitable principles. The
execution, delivery and performance of this Agreement, including the sale,
issuance and delivery of the Shares, and the Development Agreement, have been
duly authorized by all necessary corporate action of the Company.
2.3 Capitalization. When issued in accordance with the terms of this
Agreement, the Shares will be duly authorized, validly issued and outstanding,
fully paid and nonassessable, and will be issued in compliance with all
applicable federal and state securities laws. The Company's total authorized
capital stock consists of (i) 30,000,000 shares of Company Common Stock, and
(ii) 5,000,000 shares of Preferred Stock, par value $.01 per share, 300,000
shares of which are designated Series A Junior Participating Preferred Shares
(the "Series A Preferred Shares"). Of such authorized capital stock, the only
issued and outstanding shares as of the date hereof are 9,592,709 shares of
Common Stock and rights to acquire Series A Preferred Shares (the "Rights")
pursuant to the terms and conditions of the Rights Agreement dated as of
September 26, 1997 between the Company and American Stock Transfer & Trust
Company as rights agent. As of the date hereof, there are no existing options,
warrants, calls, commitments or other rights of any character (including
conversion or preemptive rights) relating to the acquisition of any issued or
unissued capital stock or other securities of the Company, other than (A) the
Rights and (B) options and warrants to purchase an aggregate of 1,914,888 shares
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of the Company's Common Stock and the Rights issuable upon the exercise of such
options and warrants. The Company has reserved 2,016,666 shares of Common Stock
under its stock option plans. The shares of Common Stock outstanding are duly
authorized, validly issued and outstanding, fully paid and nonassessable, and
were issued in compliance with all applicable federal and state securities laws.
No shares of Common Stock or preferred stock are held in the Company's treasury.
Except as set forth in Schedule 2.3, there are no outstanding securities,
warrants, rights of first refusal, options or other rights to purchase or
acquire, or exchangeable for or convertible into, any shares of Common Stock or
preferred stock. There are no preemptive rights with respect to the issuance or
sale by the Company of any of its securities. Upon consummation of the
transactions contemplated hereby, JJDC will acquire good and valid title to the
Shares, free and clear of any encumbrances, liens, claims, preemptive rights,
rights of first refusal, charges or assessments of any nature whatever.
2.4 Subsidiaries. The Company has no subsidiaries and no investments,
directly or indirectly, in any other corporation or business organization. The
Company is not a participant in any joint venture or partnership.
2.5 Financial Statements. The audited consolidated balance sheets and
statements of operations and cash flow for the Company included in the Public
Reports (as defined below)(collectively, the "Financial Statements") for the
years 1996, 1997 and 1998 are complete and correct in all material respects, are
in accordance with the books and records of the Company, have been prepared in
accordance with generally accepted accounting principles, consistently applied,
and fairly present the financial position of the Company as of each such date
and the results of operations for each such period then ended.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or stated in the Financial Statements, the Company has no debts,
liabilities or obligations of any nature, whether accrued or absolute, assigned
or otherwise, or whether due or to become due which, individually or in the
aggregate, are in excess of $100,000.
2.7 Absence of Certain Developments. Since the date of the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1998 (the
"10-Q"), (a) there has not been any Material Adverse Change with respect to the
Company, and (b) except as disclosed in the Public Reports, the Company has not
entered into any transaction except in the ordinary course of business and
consistent with past practice, or entered into any agreement (contingent or
otherwise) to do so.
2.8 Title to Properties. Except as disclosed in the Financial
Statements, the Company has good and marketable title to, or has a valid
leasehold interest in, or a valid license for, all of the properties and assets
reflected in the Financial Statements, free and clear of all mortgages, security
interests, liens, restrictions or encumbrances other than (i) the lien of
current taxes not yet due and payable and (ii) possible minor liens and
encumbrances which do not in any case, individually or in the aggregate,
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, would not result in the occurrence of a
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Material Adverse Change, and which have not arisen otherwise than in the
ordinary course of business.
2.9 Tax Matters.
All taxes, including, without limitation, income, excise, property,
sales, transfer, use, franchise, payroll, employees' income withholding and
social security taxes imposed or assessed by the United States or by any foreign
country or by any state, municipality, subdivision or instrumentality of the
United States or of any foreign country, or by any other taxing authority, which
are due or payable by the Company, and all interest, penalties and additions
thereon, whether disputed or not, have been paid in full; all tax returns or
other documents required to be filed in connection therewith have been
accurately prepared and duly and timely filed; and the Company is not the
beneficiary of any extension of time within which to file any such returns. The
Company has not been delinquent in the payment of any foreign or domestic tax,
assessment or governmental charge or deposit and has no tax deficiency or claim
outstanding, assessed or, to the best of its knowledge, proposed against it, and
there is no basis for any such deficiency or claim. To the best of the Company's
knowledge, no issues have been raised (or are currently pending) by the Internal
Revenue Service or any other taxing authority in connection with any of the
returns and reports referred to above, and no waivers of statutes of limitations
have been given or requested with respect to the Company in connection
therewith. The provisions for taxes in the Financial Statements are sufficient
for the payment of all accrued and unpaid federal, state, county and local taxes
of the Company.
2.10 No Defaults. The Company is not in violation of any term or
provision of (a) its Certificate of Incorporation or Bylaws, as amended to date,
or in any material respect any note, indenture, mortgage, lease, agreement,
contract, purchase order or other material instrument, document or agreement to
which the Company is a party or by which it or any of its properties or assets
is bound or affected or (b) any order, writ, injunction or decree of any court
or any federal, state, municipal or other governmental department, authority,
commission, board, bureau, agency or instrumentality, domestic or foreign. There
exists no condition, event or act which constitutes, or which after notice,
lapse of time or both, would constitute a material default under any of the
foregoing.
2.11 Intellectual Property. The Company owns or is the licensee of all
of the patents, patent applications, continuations, continuations-in-part and
extensions, know-how and other intellectual property used by it in the conduct
of its business, except where the failure to own or license such intellectual
property would not have a Material Adverse Effect. In addition, (A) all of the
Company's patents are owned or licensed by the Company free and clear of all
encumbrances, liens, charges, or claims except for those which would not,
individually or in the aggregate, have a Material Adverse Effect; (B) none of
the Company's rights in or use of such patents has been or, to the Company's
knowledge, is currently being threatened to be, challenged; and (C) the Company
has no notice, without making any inquiry other than those, if any, routinely
conducted by the Company in the ordinary course of business, that the use of the
Company's intellectual property would infringe the intellectual property of any
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other person, and the Company is not aware of any actual or threatened claim by
any person or entity alleging any such infringement by the Company.
2.12 Effect of Transactions. The execution, delivery and performance by
the Company of this Agreement and the transactions contemplated hereby, and
compliance with the provisions hereof by the Company, do not and will not, with
or without the passage of time or the giving of notice of both, (a) violate any
provision of law, statute, rule or regulation or any ruling, writ, injunction,
order, judgment or decree of any court, administrative agency or other
governmental body or (b) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default (or give rise to any
right of termination, cancellation 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 Company, under the Certificate of Incorporation or
Bylaws, as amended to date, of the Company or any material note, indenture,
mortgage, lease, agreement, contract, purchase order or other instrument,
document or agreement to which the Company is a party or by which it or any of
its properties or assets is bound or affected, except in any case where such
occurrence would not have a Material Adverse Effect on the Company.
2.13 No Governmental Consent or Approval Required. Based in part on the
representations made by JJDC in Section 3 of this Agreement, no authorization,
consent, approval or other order of, declaration to, or registration,
qualification, designation or filing with, any federal, state or local
governmental agency or body is required for or in connection with the valid and
lawful authorization, execution and delivery by the Company of this Agreement,
and the consummation of the transactions contemplated hereby, or for or in
connection with the valid and lawful authorization, issuance, sale and delivery
of the Shares, other than the qualification (or taking of such action as may be
necessary to secure an exemption from qualification if available) of the offer
and sale of the Shares under the applicable state securities laws, which filings
and qualifications, if required, will be accomplished in a timely manner so as
to comply with such qualification or exemption from qualification requirements.
2.14 Litigation. Except as disclosed in the 10-Q, there is no (a) claim,
arbitration, action, suit, proceeding or investigation at law or in equity or by
or before any governmental instrumentality or other agency pending, or to the
best knowledge of the Company, threatened against the Company, or (b) judgment,
decree, injunction or order of any court, governmental department, commission,
agency, instrumentality or arbitrator against the Company, nor, to the best
knowledge of the Company, does there exist any basis therefor.
2.15 Securities Laws. Assuming that JJDC's representations and
warranties contained in Section 3 of this Agreement are true and correct, the
offer, issuance and sale of the Shares pursuant to this Agreement are and will
be exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
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2.16 Business. The Company has complied in all material respects with
all Federal, state, local or foreign laws, ordinances, regulations or orders
applicable to the business of the Company as presently or previously conducted.
The Company has all material Federal, state, local and foreign governmental
licenses and permits that are required for the conduct of its business presently
or previously conducted by the Company, which licenses and permits are in full
force and effect, and no violations are outstanding or uncured with respect to
any such licenses or permits and no proceeding is pending or, to the best
knowledge of the Company, threatened to revoke or limit any thereof, other than
those which individually or in the aggregate would have a Material Adverse
Effect on the Company.
2.17 Brokerage. There are no claims for brokerage commissions or
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement made by or on behalf of
the Company and the Company agrees to indemnify and hold JJDC harmless against
any damages incurred as a result of any such claim.
2.18 Insurance. The Company maintains in full force such types and
amounts of insurance issued by issuers of recognized responsibility insuring the
Company, with respect to its liability, workers' compensation, business and
properties, in such amounts and against such losses and risks as are adequate
against risks usually insured against by Persons (as hereinafter defined)
operating similar businesses and properties.
2.19 Public Reports. The Company has provided to JJDC true and complete
copies of all reports, schedules, forms, statements and other documents (the
"Public Reports") filed by the Company with the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), since December 31, 1996.
The Public Reports include all the reports the Company has been required to file
under the Exchange Act since that date. As of their respective dates, (i) the
Public Reports complied in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder, and (ii) none
of the Public Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
2.20 Investment Company. The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, and will
not, as a result of the transactions contemplated hereby, become an "investment
company."
2.21 Registration Rights. Except as set forth herein and except as set
forth on Schedule 2.21, the Company is not under any contractual obligation to
register any of its currently outstanding securities or any of its securities
that may hereafter be issued.
2.22 Disclosure. The Company has provided JJDC with all the information
that it has requested for deciding whether to purchase the Shares at the
Closing. Neither the Financial Statements, this Agreement, nor any other written
document, certificate, instrument or statement furnished or made available in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which they were made, not misleading.
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3. Representations and Warranties and Other Agreements of JJDC.
3.1 Representations and Warranties. JJDC hereby represents and warrants
to the Company that:
a. Authorization. JJDC has full power and authority to execute,
deliver and perform this Agreement and to purchase the Shares. Assuming due
execution by the Company hereto, this Agreement constitutes the valid and
legally binding obligation of JJDC, enforceable against JJDC in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally, and to
general equitable principles.
b. Purchase Entirely for Own Account. The Shares to be received by
JJDC will be acquired for investment for JJDC's own account, not as a nominee or
agent and not with a view to the distribution of any part thereof. JJDC has no
present intention of selling, granting any participation in, or otherwise
distributing the same. JJDC does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer, or grant participation to such
person or to any third person, with respect to any of the Shares.
c. Restrictions on Disposition. JJDC covenants that in no event will
it dispose of any of the Shares (other than pursuant to Rule 144 promulgated
under the 1933 Act ("Rule 144") or pursuant to a registration statement filed
with the Securities and Exchange Commission (the "SEC") pursuant to the 1933
Act) unless and until (i) JJDC shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) if requested by the
Company, JJDC shall have furnished the Company with an opinion of JJDC's
counsel, reasonably satisfactory in form and substance to the Company and the
Company's counsel, to the effect that (a) such disposition will not require
registration under the 1933 Act or (b) appropriate action necessary for
compliance with the 1933 Act and any applicable state, local or foreign law has
been taken. The restrictions on transfer imposed by this Section 3.1(c) shall
cease and terminate as to the Shares when: (i) such Shares shall have been
effectively registered under the 1933 Act and sold by the holder thereof in
accordance with such registration, or (ii) an opinion of the kind described in
the preceding sentence states that all future transfers of such Shares by the
holder thereof would be exempt from registration under the 1933 Act. Each
certificate evidencing the Shares shall bear an appropriate restrictive legend
as set forth in Section 3.3 below, except that such certificate shall not be
required to bear such legend after a transfer thereof if the transfer was made
in compliance with Rule 144 or pursuant to a registration statement or, if the
opinion of counsel referred to above is issued and provides that such legend is
not required in order to establish compliance with any provisions of the 1933
Act.
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d. Receipt of Information. JJDC has been furnished access to the
business records of the Company and all such additional information and
documents as JJDC has requested and has been afforded an opportunity to ask
questions of and receive answers from representatives of the Company concerning
the terms and conditions of this Agreement and the purchase of the Shares.
e. Brokerage. There are no claims for brokerage commissions or
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of JJDC, and JJDC agrees to indemnify and hold the Company harmless
against any damages incurred as a result of any such claims.
3.2 Further Provisions Regarding Disposition.
a. Transfer to Affiliates. Notwithstanding the provisions of Section
3.1(c) above, no registration statement or opinion of counsel shall be necessary
for a transfer by JJDC of the Shares to a subsidiary, shareholder or Affiliate
(as such term is defined in the rules and regulations promulgated under the 1933
Act) of JJDC, if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if such transferee were JJDC hereunder.
b. New Certificates. Whenever the restrictions imposed by this
Section 3.2 shall terminate as herein provided, the holder of the Shares as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense, one or more new certificates not bearing restrictive
legends and not containing any reference to the restrictions imposed by this
Agreement.
3.3 Legends. It is understood that, subject to Sections 3.1(c) and
3.2(b), the certificates evidencing the Shares may bear substantially the
following legends:
(a) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
(b) Any legend required by the laws of any other applicable
jurisdiction.
4. Conditions to JJDC's Obligations at Closing. The obligations of
JJDC to purchase Shares at the Closing are subject to the fulfillment on or
prior to the Closing of each of the following conditions:
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(a) Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of the Closing Date.
(b) Performance. The Company shall have performed and complied with all
agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
(c) Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares to JJDC pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.
(d) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to JJDC
and JJDC's counsel, and they shall have received all such counterpart original
and certified or other copies of such documents as they may reasonably request.
(e) Development Agreement. The Development Agreement shall have been
executed and delivered by the Company and shall be in full force and effect.
(f) Opinion of Company Counsel. JJDC shall have received from Morgan,
Lewis & Bockius LLP, counsel for the Company, an opinion substantially in the
form attached hereto as Exhibit 4(f).
(g) Compliance Certificate. The Chief Executive Officer of the Company
shall deliver to JJDC at the Closing a certificate certifying that the
conditions specified in Sections 4.1(a), 4.1(b) and 4.1(c) hereof have been
fulfilled and stating that there has been no Material Adverse Change in the
Company since the date of the 10-Q.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company under Section 1 of this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and warranties
of JJDC contained in Section 3 shall be true on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of the Closing Date.
5.2 Performance. JJDC shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
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5.3 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares at the Closing to JJDC pursuant to this Agreement shall have been duly
obtained and shall be effective on and as of the date of the Closing.
6. Registration of Shares.
6.1 Definitions. Unless the context otherwise requires, the terms
defined in this Section 6 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined.
"Board" means the Board of Directors of the Company.
"Holder" of any security means the record or beneficial owner of
such security or any permitted assignee thereof.
"Holders of a Majority of the Registrable Securities" means the
Person or Persons who are the Holders of greater than 50% of the shares of
Registrable Securities then outstanding.
"Person" means any natural person, corporation, trust, association,
company, partnership, joint venture or other entity or any government,
governmental agency, instrumentality or political subdivision.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act, and the declaration for ordering of the
effectiveness of such registration statement.
"Registrable Securities" means (i) the shares of Common Stock of the
Company sold pursuant to this Agreement and (ii) any Common Stock issued or
issuable with respect to the Common Stock referred to in clause (i) above by way
of a stock dividend or stock split or in connection with a combination of
shares, reclassification, recapitalization, merger or consolidation or
reorganization; provided, however that such shares of Common Stock shall only be
treated as Registrable Securities if and so long as they have not been (x) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (y) sold in a transaction exempt from the
registration and prospectus delivery requirements of the 1933 Act pursuant to
Rule 144 thereunder so that all the transfer registrations and restrictive
legends with respect to such Common Stock are removed upon the consummation of
such sale and the Company receives an opinion of counsel for the Company (with a
copy to the seller of such Common Stock), which shall be in form and content
reasonably satisfactory to the Company, to the effect that such Common Stock in
the hands of the purchaser is freely transferable without restriction or
registration under the 1933 Act in any public or private transaction.
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"Registrable Securities then outstanding" means the number of shares
of Common Stock which are Registrable Securities and (i) are then issued and
outstanding or (ii) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
6.2 Required Registration.
(a) Pursuant to the terms and subject to the conditions hereof, if
at any time after the date hereof, the Company shall receive a written request
therefor from the Holders of at least thirty percent (30%) of the Registrable
Securities then outstanding, the Company agrees to prepare and file promptly a
registration statement under the 1933 Act covering the shares of Registrable
Securities which are the subject of such request and agrees to use its best
efforts to cause such registration statement to become effective as
expeditiously as possible. Upon the receipt of such request, the Company agrees
to give prompt written notice to all Holders of Registrable Securities that such
registration is to be effected. The Company agrees to include in such
registration statement such shares of Registrable Securities for which it has
received written request to register such shares by the Holders thereof within
twenty (20) days after the receipt by such Holders of written notice from the
Company.
(b) The Company shall be obligated to prepare, file and cause to
become effective only two registration statements pursuant to this Section 6.2.
A registration required to be effected by the Company pursuant to this Section
6.2 shall not be deemed to have been effected (i) unless a registration
statement with respect thereto has become effective, (ii) if, after it has
become effective, such registration is interfered with by any stop order,
injunction, or other order or requirement of the SEC or other governmental
agency or court, for any reason not attributable to the Holders initiating the
registration request hereunder (the "Initiating Holders") with respect to such
registration statement, and has not thereafter become effective or (iii) if the
conditions to closing specified in the underwriting agreement, if any, entered
into in connection with such registration are not satisfied or waived, other
than by reason of a failure on the part of the Initiating Holders with respect
to such registration statement.
(c) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they agree to
provide the Company with the name of the managing underwriter or underwriters
(the "managing underwriter") that a majority interest of the Initiating Holders
propose to employ, as part of their request made pursuant to this Section 6.2,
and the Company agrees to include such information in its written notice
referred to in Section 6.2(a). In such event, the right of any Holder to
registration pursuant to this Section 6.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
the Holders of a Majority of the Registrable Securities initiating such request
for registration and such Holder). All Holders proposing to distribute their
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securities through such underwriting agree to enter into (together with the
Company) an underwriting agreement with the underwriter or underwriters elected
for such underwriting, in the manner set forth above, provided that such
underwriting agreement is in customary form and is reasonably acceptable to the
Holders of a majority of the shares of Registrable Securities to be included in
such registration.
(d) Notwithstanding the foregoing, if the managing underwriter of an
underwritten distribution advises the Company and the Holders of Registrable
Securities participating in such registration in writing that in its good faith
judgment the number of shares of Registrable Securities and the other securities
requested to be included in such registration exceeds the number of shares of
Registrable Securities and the other securities which can be sold in such
offering, then (i) the other securities so requested to be included in such
registration shall initially be reduced and the number of shares of Registrable
Securities so requested to be included in such registration shall subsequently
be reduced, together to that number of shares which in the good faith judgment
of the managing underwriter can be sold in such offering and (ii) the reduced
number of Registrable Securities to be included in the underwriting shall be
allocated pro rata among all Holders of Registrable Securities. Those
Registrable Securities which are excluded from the underwriting by reason of the
managing underwriter's marketing limitation shall not be included in such
registration and shall be withheld from the market by the Holders thereof for a
period, not in excess of 120 days, which the managing underwriter reasonably
determines is necessary to effect the underwritten public offering.
6.3 "Piggyback" Registration.
(a) Each time the Company shall determine to file a registration
statement under the 1933 Act (other than pursuant to Section 6.2 hereof and
other than on Form S-4, S-8 or a registration statement on Form S-l (or any
successor form) covering solely any employee benefit plan) in connection with
the proposed offer and sale for money of any of its securities either for its
own account or on behalf of any other security holder, the Company agrees to
give promptly written notice of its determination to all Holders of Registrable
Securities. Upon the written request of a Holder of any shares of Registrable
Securities given within twenty (20) days after the receipt of such written
notice from the Company, the Company agrees to cause all such Registrable
Securities, the Holders of which have so requested registration hereof, to be
included in such registration statement and to use its best efforts to cause
such registration statement to become effective under the 1933 Act, all to the
extent requisite to permit the sale or other disposition by the prospective
seller or sellers of the Registrable Securities to be so registered. In the
event that the proposed registration by the Company is, in whole or in part, an
underwritten public offering of securities of the Company, any request pursuant
to this Section 6.3(a) to register Registrable Securities may specify that such
securities are to be included in the underwriting (i) on the same terms and
conditions as the shares of Common Stock, if any, otherwise being sold through
underwriters, under such registration, or (ii) on terms and conditions
comparable to those normally applicable to offerings of Common Stock in
reasonably similar circumstances in the event that no shares of Common Stock
other than Registrable Securities are being sold through underwriters in such
registration.
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(b) If the registration of which the Company gives written notice
pursuant to Section 6.3(a) is for a public offering involving an underwriting,
the Company agrees to so advise the Holders as a part of its written notice. In
such event the right of any Holder to registration pursuant to this Section 6.3
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting agree to enter into (together with the
Company and the other Holders distributing their securities through such
underwriting) an underwriting agreement with the underwriter or underwriters
selected for such underwriting by the Company.
(c) Notwithstanding any other provision of this Section 6.3, if the
managing underwriter of an underwritten distribution advises the Company and the
Holders of the Registrable Securities requesting participation in such
registration in writing that in its good faith judgment the number of shares of
Registrable Securities and the other securities requested to be registered under
this Section 6.3 exceeds the number of shares of Registrable Securities and
other securities which can be sold in such offering, then (i) the number of
shares of Registrable Securities and other securities so requested to be
included in the offering shall be reduced to that number of shares which in the
good faith judgment of the managing underwriter can be sold in such offering
(except for shares to be issued by the Company in a public offering, which shall
have priority over the Registrable Securities), and (ii) such reduced number of
shares shall be allocated among all participating Holders of Registrable
Securities and holders of other securities in proportion, as nearly as
practicable, to the respective number of shares of Registrable Securities and
other securities held by such Holders at the time of filing the registration
statement. All Registrable Securities and other securities which are excluded
from the underwriting by reason of the managing underwriter's marketing
limitation and all other Registrable Securities not originally requested to be
so included shall not be included in such registration and shall be withheld
from the market by the Holders thereof for a period, not in excess of 120 days,
which the managing underwriter reasonably determines is necessary to effect the
underwritten public offering.
6.4 Registration Expenses.
(a) The Company shall pay all expenses incurred in effecting the
registration of Registrable Securities pursuant to Section 6 including, without
limitation, all federal and state registration, qualification and filing fees,
printing expenses, fees and disbursements of counsel for the Company, reasonable
fees and disbursements of one counsel for the participating Holders together,
blue sky fees and expenses, and the expense of any special audits incident to or
required by any such registration, but not including underwriting discounts,
commissions and expenses.
(b) Notwithstanding the foregoing, in the event that a registration
pursuant to Section 6.2 is requested by the Initiating Holders and such request
is withdrawn prior to the filing of a registration statement by the Company, or
13
<PAGE>
such Holders cause the Company to withdraw a registration statement prior to its
effectiveness, then either (i) the Initiating Holders and other Holders
requesting inclusion of their shares in such registration shall bear pro rata
all fees, costs and expenses of the registration and preparation of the
registration statement or (ii) such requested registration shall be deemed to be
one of the registrations the Company is required to effect pursuant to Section
6.2 hereof. Notwithstanding the foregoing, however, if at the time of the
withdrawal, the Initiating Holders and the other Holders have learned of a
Material Adverse Change with respect to the Company from that known to such
Holders at the time of their request, then such Holders shall not be required to
pay any of such registration expenses and shall retain their rights pursuant to
Section 6.2.
6.5 Registration Procedures. If and whenever the Company is required
by the provisions of Section 6 to effect the registration of Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement which
includes the Registrable Securities and use its best efforts to cause such
registration statement to become and remain effective until the distribution
described in the registration statement has been completed;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the 1933 Act with respect to the sale or other
disposition of Registrable Securities covered by such registration statement
whenever a Holder shall desire to sell or otherwise dispose of the same;
(c) furnish to each participating Holder (and to each underwriter,
if any, of Registrable Securities) such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents, as such Holder may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Securities;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such state securities or
blue sky laws of such jurisdiction as each participating Holder shall reasonably
request and do any and all other acts and things which may be necessary under
such securities or blue sky laws to enable such Holder to consummate the public
sale or other disposition of the Registrable Securities in such jurisdictions,
except that the Company shall not for any purpose be required to consent
generally to service of process or qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(e) before filing the registration statement or prospectus or
amendments or supplements thereto, furnish to counsel selected by the
participating Holders copies of such documents proposed to be filed which shall
be subject to the reasonable approval of such counsel;
14
<PAGE>
(f) enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offer;
(g) notify the participating Holders at any time when a prospectus
relating to any Registrable Securities covered by such registration statement is
required to be delivered under the 1933 Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing and promptly
file such amendments and supplements as may be necessary so that, as thereafter
delivered to such Holders of such Registrable Securities, such prospectus shall
not include an 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
not misleading in light of the circumstances then existing and use its best
efforts to cause each such amendment and supplement to become effective;
(h) furnish at the reasonable request of the participating Holders
on the date that such Registrable Securities are delivered to the underwriters
for sale in connection with a registration pursuant to Section 6 (i) an opinion,
dated such date, of the counsel representing the Company, for purposes of such
registration, in form and substance as is customarily given by company counsel
to the underwriters in an underwritten public offering addressed to the
underwriters, if any, and to such Holders, and (ii) a letter dated such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters
and to such Holders; and
(i) use its best efforts to cause all such Registrable Securities to
be listed on the securities exchange, if any, on which the Common Stock is then
listed.
6.6 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliance as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
business days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
15
<PAGE>
registration, qualification or compliance pursuant to this Section 6.6: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than Seven Hundred and Fifty
Thousand Dollars ($750,000.00); (iii) if the Company shall furnish to the
Holders a certificate signed by the President or Chief Executive Officer of the
Company stating that in the good faith judgment of the Board, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 Registration Statement for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 6.6; provided, however, that the Company
shall not utilize this right more than twice in any 12-month period; (iv) if the
Company has, within the 12-month period preceding the date of such request,
already effected one registration on Form S-3 for the Holders pursuant to this
Section 6.6 and other similar provisions granting rights to registration on Form
S-3; or (v) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. Registrations effected pursuant to this Section 6.6 shall not be
counted as demands for registration effected pursuant to Section 6.2.
6.7 Indemnification. In the event Registrable Securities are
registered pursuant to this Section 6:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder of Registrable Securities which are included in a
registration statement pursuant to the provisions of this Agreement and any
underwriter (within the meaning of the 1933 Act) with respect to the Registrable
Securities, and each officer, director, employee and agent thereof and each
person, if any, who otherwise controls such Holder or underwriter (within the
meaning of the 1933 Act), against any losses or claims, damages, expenses or
liabilities, joint or several, to which they may become subject under the 1933
Act, the Exchange Act or other federal or state law, or otherwise, insofar as
such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or allegedly untrue statement
of any material fact contained in the registration statement for the Registrable
Securities, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or any document incident to
the registration or qualification of any Registrable Securities, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or allegedly necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading or arise out of any violation or alleged violation by the Company of
the 1933 Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the Exchange Act or any state
16
<PAGE>
securities law; and will reimburse such Holder, any underwriter, officer,
director, employee, agent or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 6.7(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, expense, liability or action
if such settlement is effected without the written consent of the Company, which
shall not be unreasonably withheld, nor shall the Company be liable under this
Section 6.7(a) to such Holder, such underwriter, officer, director, employee,
agent or controlling person for any such loss, claim, damage, expense, liability
or action to the extent that it arises out of, or is based upon, an untrue
statement or allegedly untrue statement or omission or alleged omission made in
connection with such registration statement, preliminary prospectus, final
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with information furnished in writing expressly for use in connection
with such registration by such Holder, such underwriter, officer, director,
employee, agent or such controlling person.
(b) To the extent permitted by law, each Holder of Registrable
Securities which are included in a registration statement pursuant to the
provisions of this Agreement will indemnify and hold harmless the Company, each
of its employees, agents, directors and officers, each person, if any, who
controls the Company within the meaning of the 1933 Act, and any underwriter
(within the meaning of the 1933 Act) against any losses, claims, damages, or
liabilities to which the Company or any such person or underwriter may become
subject, under the 1933 Act, the Exchange Act or other federal or state law or
otherwise, insofar as such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) arise out of, or are based upon any untrue or
allegedly untrue statement of any material fact contained in a registration
statement for the Registrable Securities, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
or any document incident to the registration or qualification of any Registrable
Securities, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or allegedly
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; in each case to the extent that such
untrue statement or allegedly untrue statement or omission or alleged omission
was made in such registration statement, preliminary prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with information
furnished in writing by such Holder expressly for use in connection with such
registration; provided, however, that the indemnity agreement contained in this
Section 6.7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, expense, liability or action if such settlement is effected
without the written consent of such Holder, which shall not be unreasonably
withheld; and such Holder will reimburse the Company or any such person or
underwriter for any legal or other expenses reasonably incurred by the Company
or any such person or underwriter in connection with investigating or defending
such loss, claim, damage, liability, expense or action.
(c) Promptly after receipt by an indemnified party under this
Section 6.7 of notice of the commencement of any action, such indemnified party
17
<PAGE>
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 6.7, notify the indemnifying party in writing of the
commencement thereof and generally summarize such action. The indemnifying party
shall have the right to participate in and to assume the defense thereof with
counsel mutually satisfactory to the parties. An indemnifying party shall not
have the right to direct the defense of such an action on behalf of an
indemnified party if such indemnified party has reasonably concluded that there
may be defenses available to it that are different from or additional to those
available to the indemnifying party; provided, however, that in such event, the
indemnifying party shall bear the fees and expenses of only one (1) separate
counsel for all indemnified parties. The failure to notify an indemnifying party
promptly of the commencement of any such action if prejudicial to the ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 6.7, but the omission so to notify the
indemnifying party will not relieve such party of any liability that such party
may have to any indemnified party otherwise than under this Section 6.7.
(d) To the extent permitted by law, the indemnification provided for
under this Section 6.7 will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling person (within the meaning of the 1933 Act) of such
indemnified party and will survive the transfer of any securities.
(e) If for any reason the foregoing indemnity is unavailable to, or
is insufficient to hold harmless an indemnified party, then the indemnifying
party shall contribute to the amount paid or payable by the indemnified party as
a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. Notwithstanding the foregoing, no underwriter, if any,
shall be required to contribute any amount in excess of the amount by which the
total price at which the securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The obligation of any underwriters to
contribute pursuant to this Section 6.7(e) shall be several in proportion to
their respective underwriting commitments and not joint.
6.8 Reports under Exchange Act. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the 1933 Act and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
Registrable Securities to the public without registration, and with a view to
making it possible for any such Holder to register the Registrable Securities
pursuant to a registration on Form S-3, the Company agrees to:
18
<PAGE>
(a) make and keep available public information, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Exchange Act; and
(c) furnish to a Holder owning any Registrable Securities upon
reasonable request (i) a written statement by the Company that it has complied
with the reporting requirements of Rule 144, the 1933 Act and the Exchange Act,
or that it qualifies as a registrant whose Registrable Securities may be resold
pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the
most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably required in availing any Holder of Registrable Securities of any rule
or regulation of the SEC which permits the selling of any such Registrable
Securities without registration or pursuant to such form.
6.9 Transferability. The right to cause the Company to register
Registrable Stock granted by the Company to the Holders under this Agreement may
be assigned by any Holder to a transferee or assignee of Registrable Securities;
provided that such transferee or assignee acquires no less than 20% of the
Registrable Securities then held by such transferring Holder; and, provided
further, that the Company must receive written notice prior to or at the time of
said transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such rights are being assigned.
6.10 Granting of Registration Rights. The Company shall not, without
the prior written consent of the Holders of at least 66.67% of the Registrable
Securities then outstanding, grant any rights to any Persons to register any
shares of capital stock or other securities of the Company if such rights could
reasonably be expected to conflict with the rights of the Holders of Registrable
Securities.
7. Miscellaneous.
7.1 Survival of Warranties. The warranties, representations,
agreements, covenants and undertakings of the Company or JJDC contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement and each Closing and shall in no way be affected by an investigation
of the subject matter thereof made by or on behalf of JJDC or the Company.
7.2 Incorporation by Reference. All Exhibits and Schedules appended to
this Agreement are herein incorporated by reference and made a part hereof.
19
<PAGE>
7.3 Successor and Assignees. All terms, covenants, agreements,
representations, warranties and undertakings in this Agreement made by and on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including transferees
of any Shares) whether so expressed or not, subject to Sections 6.9.
7.4 Amendments and Waivers. (a) Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by JJDC and the Company or, in the case of
a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by either party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
7.5 Governing Law. This Agreement shall be deemed a contract made under
the laws of the State of Delaware and, together with the rights or obligations
of the parties hereunder, shall be construed under and governed by the laws of
such State.
7.6 Notices. All notices, requests, consents and demands shall be in
writing and shall be deemed given when (i) personally delivered, (ii) mailed in
a registered or certified envelope, postage prepaid or (iii) sent by Federal
Express or another nationally recognized overnight delivery service (paid by
sender):
to the Company at:
Neose Technologies, Inc.
102 Witmer Road
Horsham, PA 19044
Fax: (215) 441-5896
Attention: Chief Executive Officer
with a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: (215) 963-5299
Attention: Debra Poul, Esq.
20
<PAGE>
or to JJDC at:
Johnson & Johnson Development Corporation
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Fax: (908) 247-5309
Attention: President
with a copy to:
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Fax: (908) 524-2788
Attention: Office of General Counsel
or such other address as may be furnished in writing by a party to the other
party hereto.
7.7 Counterparts. This Agreement may be executed in counterparts, all of
which together shall constitute one and the same instrument.
7.8 Effect of Headings. The section and paragraph headings herein are
for convenience only and shall not affect the construction hereof.
7.9 Entire Agreement. This Agreement, the Development Agreement and the
Exhibits and Schedules hereto and thereto constitute the entire agreement among
the Company and JJDC with respect to the subject matter hereof. There are no
representations, warranties, covenants or undertakings with respect to the
subject matter hereof other than those expressly set forth herein. This
Agreement supersedes all prior agreements between the parties with respect to
the Shares purchased hereunder and the subject matter hereof.
7.10 Publicity. Neither party shall originate any publicity, news
release or other public announcement, written or oral, whether relating to the
performance under this Agreement or the existence of any arrangement between the
parties, without the prior written consent of the other, except where such
publicity, news release or other public announcement is required by law;
provided that in such event, JJDC shall be consulted by the Company in
connection with any such publicity, news release or other public announcement
prior to its release and shall be provided with a copy thereof.
7.11 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written, by the duly authorized representatives of the parties
hereto.
NEOSE TECHNOLOGIES, INC.
By: /s/ P. Sherrill Neff
---------------------------
Name: P. Sherrill Neff
Title: President and CFO
JOHNSON & JOHNSON
DEVELOPMENT CORPORATION
By: /s/ Thomas M. Gorrie
---------------------------
Name: Thomas M. Gorrie
Title: Vice President
Exhibit 10.2
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND SUCH PORTIONS HAVE BEEN
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
ASSET PURCHASE AGREEMENT
between
NEOSE TECHNOLOGIES, INC.
(a Delaware corporation)
and
CYTEL CORPORATION
(a Delaware corporation)
March 26, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions........................................................... 1
2. Sale and Purchase..................................................... 6
2.1 Purchased Assets................................................ 6
2.2 Excluded Assets................................................. 7
2.3 Purchase Price and Payment...................................... 7
2.4 Contingent Consideration........................................ 8
2.5 Allocation of Purchase Price; Accounting Treatment..............10
2.6 Assumed Liabilities.............................................11
2.7 Excluded Liabilities............................................11
2.8 Employee Matters................................................11
3. Closing...............................................................12
3.1 Location, Date..................................................12
3.2 Deliveries......................................................12
3.3 Reasonable Steps................................................13
3.4 Further Assurances..............................................13
3.5 Technical Support...............................................13
4. Representations and Warranties of Cytel...............................14
4.1 Corporate Status................................................14
4.2 Authorization and Enforceability................................14
4.3 Consents and Approvals..........................................14
4.4 Financial Statements............................................15
4.5 Purchased Assets; Absence of Liens and Encumbrances.............15
4.6 Liabilities.....................................................15
4.7 Taxes and Tax Returns...........................................15
4.8 Litigation......................................................16
4.9 Compliance with Laws............................................16
4.10 Governmental Permits............................................16
4.11 Contracts.......................................................17
4.12 Intellectual Property...........................................17
4.13 Insurance.......................................................19
4.14 Employee Matters................................................19
4.15 Absence of Certain Changes......................................19
4.16 Finder's Fees...................................................19
4.17 No Third Party Options..........................................19
4.18 Fairness Opinion................................................20
4.19 Solvency........................................................20
4.20 Completeness and Accuracy of Information........................20
i
<PAGE>
5. Representations and Warranties of Neose...............................20
5.1 Corporate Status................................................20
5.2 Authorization and Enforceability................................20
5.3 Consents and Approvals..........................................21
5.4 Finder's Fees...................................................21
5.5 Litigation......................................................21
5.6 Accuracy of Information.........................................21
6. Covenants.............................................................21
6.1 Cytel Confidentiality...........................................21
6.2 Covenant Not to Compete.........................................21
6.3 Cytel Affiliates................................................22
6.4 Neose Injunctive Relief.........................................22
6.5 Neose Confidentiality...........................................22
6.6 Neose Affiliates................................................23
6.7 Cytel Injunctive Relief.........................................23
6.8 Bulk Transfer Laws..............................................23
6.9 Transfer Taxes..................................................23
6.10 Access to Information...........................................24
6.11 Enforcement of Certain Agreements...............................24
7. Indemnification.......................................................24
7.1 By Cytel........................................................24
7.2 By Neose........................................................24
7.3 General Procedure for Claims....................................25
7.4 Procedure for Third Party Claims................................25
7.5 Time Limitations................................................26
7.6 Limitations on Liability........................................26
7.7 Effect of Investigation or Knowledge............................27
7.8 Contingent Claims...............................................27
7.9 Other Remedies..................................................27
8. General...............................................................27
8.1 Expenses........................................................27
8.2 Publicity.......................................................27
8.3 Amendment, Severability, Parties in Interest and Assignment.....27
8.4 Waivers.........................................................28
8.5 Notices.........................................................28
8.6 Entire Agreement................................................29
8.7 Interpretation..................................................29
8.8 Governing Law...................................................29
8.9 Counterparts....................................................30
ii
<PAGE>
SCHEDULES
1A Cylexin Description
2.1 Permitted Encumbrances
2.1.1 Purchased Contracts
2.1.2 Patents, Trademarks and Copyrights
2.2 Certain Excluded Assets
2.4 Potential Collaborators
2.5 Allocation of Purchase Price
2.6.1 Certain Excluded Obligations under Purchased Contracts
2.8 Certain Cytel Employees
4.3 Required Consents
4.6 Liabilities
4.8 Cytel Litigation
4.12 Intellectual Property
4.15 Absence of Certain Changes
4.17 Third Party Options
6.2 Certain Non-Restricted Activities
EXHIBITS
A Form of Assignment of Patents and Patent Applications
B Form of Assignment of Trademarks, Service Marks, Registrations
and Applications
C Form of Escrow Agreement
D Form of Cylexin License Agreement
E Form of Glycosyltransferase Inhibitors Program License Agreement
F Form of Opinion of Counsel to Cytel
G Form of Opinion of Counsel to Neose
iii
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of March 26, 1999 by and between
NEOSE TECHNOLOGIES, INC., a Delaware corporation ("Neose"), and CYTEL
CORPORATION, a Delaware corporation ("Cytel"). Certain other terms used herein
are defined below in Section 1 or elsewhere in this Agreement.
Background
This Agreement sets forth the terms and conditions under which Neose is
purchasing from Cytel the carbohydrate manufacturing technology and related
assets (other than Excluded Assets, as hereinafter defined) of Cytel used by
Cytel in the conduct of its carbohydrate manufacturing and purification process
and technology development program and glycoprotein remodeling program.
Witnesseth:
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Definitions.
For convenience, certain terms used in more than one part of this Agreement
are listed in alphabetical order and defined or referred to below (such terms as
well as any other terms defined elsewhere in this Agreement shall be equally
applicable to both the singular and plural forms of the terms defined).
"Affiliates" means, with respect to a particular party, Persons
controlling, controlled by or under common control with that party, as well as
any officers, directors and majority-owned entities of that party, and any
Affiliates of any of the foregoing. For the purposes of the foregoing,
ownership, directly or indirectly, of 50% or more of the voting stock or other
equity interest shall be deemed to constitute control.
"Agreement" means this Agreement and the Exhibits and Schedules hereto.
"Assignment of Patents" means the Assignment of Patents and Patent
Applications in the form of Exhibit A hereto.
"Assignment of Trademarks" means the Assignment of Trademarks, Service
Marks, Registrations and Applications in the form of Exhibit B hereto.
"Assumed Liabilities" is defined in Section 2.6.1.
<PAGE>
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in Philadelphia, Pennsylvania are authorized or required
by Law to close.
"Carbohydrate Manufacturing Program" means Cytel's carbohydrate
manufacturing and purification process and technology development program and
glycoprotein remodeling program as in effect on the date hereof.
"Cash Consideration" is defined in Section 2.3.1.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, certificate of formation, operating agreement, joint
venture agreement or similar document governing the entity.
"Claim Notice" is defined in Section 7.3.1.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means all confidential or proprietary
information received by either party from the other party relating to any use,
process, method, compound, research project, work in process, future
development, scientific, engineering, manufacturing, marketing, business plan,
financial or personnel matter relating to the disclosing party, its present or
future products, research, process and technology development programs, sales,
suppliers, customers, employees, investors or business, whether in oral, graphic
or electronic form, and, with respect to Cytel, includes the Documentation.
"Confidentiality Agreement" is defined in Section 4.12.14.
"Contingent Consideration" is defined in Section 2.4.1.
"Contract" means any written or oral contract, agreement, license, lease,
instrument or other commitment that is binding on any Person or its property
under applicable Law.
"Copyrights" means all registered copyrights, copyright applications and
unregistered copyrights, and all applications for any of the foregoing which are
in the process of being prepared.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any Person or its property under applicable Law.
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"Cylexin" means the carbohydrate-based drug being developed by Cytel for
human therapeutic use, which drug is an analog of the carbohydrate structure
sialyl-Lewis X as more specifically described in Schedule 1A hereto.
"Cytel" is defined above in the preamble.
"Damages" is defined in Section 7.1.
"Default" means (i) a breach, default or violation, (ii) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation, or (iii) with respect to
any Contract, the occurrence of an event that with or without the passage of
time or the giving of notice, or both, would give rise to a right of
termination, renegotiation or acceleration or a right to receive damages or a
payment of penalties.
"Deposit" means any and all monies deposited by Neose with NationsBanc
Montgomery as escrow agent, and any and all interest accrued thereon or proceeds
thereof, in connection with Neose's evaluation of the Transactions and in
accordance with those certain Escrow Instructions Regarding Good Faith Deposit
by Neose With Regard to Due Diligence Investigation of Cytel dated as of July
29, 1998.
"Documentation" means all documentation relating to engineering,
production, assembly, design, installation and other technical drawings and
specifications, process and technology development, manufacturing, customer and
supplier records, working notes and memos, laboratory books, market studies,
consultants' reports, research, product plans, products, services plans,
services, marketing, distribution and sales methods and systems, technical and
laboratory data, clinical trial data, engineering prototypes, and any similar
documentation, used or useful, in whole or in part, directly or indirectly, in
the conduct of the Carbohydrate Manufacturing Program.
"Encumbrances" means any lien, mortgage, security interest, license right,
pledge, restriction on transferability, defect of title or other claim, charge
or encumbrance of any nature whatsoever on any property or property interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means Chase Manhattan Trust Company, National Association.
"Escrow Agreement" means the Escrow Agreement in the form of Exhibit C
hereto being entered into by Neose, Cytel and the Escrow Agent simultaneously
with the execution and delivery of this Agreement.
"Escrow Funds" is defined in Section 2.3.2.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" is defined in Section 2.2.
"Excluded Liabilities" is defined in Section 2.7.
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"GAAP" means generally accepted accounting principles of the United States
of America.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Governmental Permits" means any governmental permits, licenses,
registrations, certificates of occupancy, orders, approvals and other
governmental authorizations.
"Indemnified Cytel Party" is defined in Section 7.2.
"Indemnified Neose Party" is defined in Section 7.1.
"Indemnified Party" means any Indemnified Cytel Party or Indemnified Neose
Party.
"Indemnitor" is defined in Section 7.3.1.
"Intellectual Property" is defined in Section 2.1.2.
"Know-How" means all know-how, trade secrets, inventions, data, processes,
techniques, procedures, compositions, devices, methods, formulas, protocols and
information, which are not generally publicly known.
"Knowledge" and words of similar import means, (i) with respect to Cytel,
actual knowledge of a particular fact being known by any member of Cytel's Board
of Directors, Virgil Thompson, Dr. James C. Paulson (through the date of his
termination of employment by Cytel), Dr. Robert L. Roe, Jennifer L. Lorenzen,
Edward C. Hall (through the date of his termination of employment by Cytel),
Deborah Schueren, Shawn Defrees, Raymond Nathan or Kathryn J. Gregory, and (ii)
with respect to Neose, actual knowledge of a particular fact being known by any
director or executive officer of Neose.
"Law" means any statute, law, ordinance, regulation, order or rule of any
federal, state, local, foreign or other governmental agency or body or of any
other type of regulatory body (including common law), including, without
limitation, those covering environmental, pollution, energy, safety, health,
transportation, bribery, recordkeeping, zoning, antidiscrimination, antitrust,
wage and hour, and price and wage control matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, demand, loss, damage, deficiency, guaranty or
endorsement of or by any Person, absolute or contingent, accrued or unaccrued,
due or to become due, liquidated or unliquidated.
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"License Agreements" means the License Agreement in the form of Exhibit D
hereto and the License Agreement in the form of Exhibit E hereto, each of which
is being entered into by Neose and Cytel simultaneously with the execution and
delivery of this Agreement.
"Liquidated Claim Notice" is defined in Section 7.3.1.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means (i) with respect to Cytel, a material
adverse effect on the Purchased Assets or the prospects of the Carbohydrate
Manufacturing Program relating to the Purchased Assets, and (ii) with respect to
Neose, a material adverse effect on the assets, financial condition, results of
operations, liquidity or prospects of Neose.
"NASD" is defined in Section 4.3.
"NationsBanc Montgomery" means NationsBanc Montgomery Securities LLC.
"Neose" is defined above in the preamble.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practice (including with respect
to quantity and frequency).
"Patents" means all patents and patent applications, and all patents
issuing thereon (including utility, model and design patents and certificates of
invention), together with all reissue patents, patents of addition, divisions,
renewals, continuations, continuations-in-part, substitutions, additions,
extensions (including supplemental protection certificates), registrations,
confirmations, re-examinations and foreign counterparts of any of the foregoing,
and all applications for any of the foregoing which are in the process of being
prepared.
"Permitted Encumbrances" is defined in Section 2.1.
"Person" means any natural person, corporation, company, partnership,
proprietorship, trust or estate, joint venture, association or other legal
entity.
"Prime Rate" means the prime lending rate as published in The Wall Street
Journal from time to time as the base rate on corporate loans by at least a
certain portion of the largest banks in the United States.
"Purchased Assets" is defined in Section 2.1.
"Purchased Contracts" is defined in Section 2.1.1.
"Purchase Price" is defined in Section 2.3.1.
"Required Consents" is defined in Section 4.3.
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"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any corporation of which
securities having the power to elect a majority of that corporation's board of
directors (other than securities having that power only upon the happening of a
contingency that has not occurred) are held by such Person or one or more of its
Subsidiaries.
"Taxes" means any taxes, duties, charges, fees, levies or other assessments
imposed by any taxing authority, including, without limitation, income, gross
receipts, value-added, excise, withholding, personal property, real estate,
sale, use, ad valorem, license, lease, service, severance, stamp, transfer,
payroll, employment, customs, duties, alternative, add-on minimum, estimated and
franchise taxes (including any interest, penalties or additions attributable to
or imposed on or with respect to any such assessment).
"Trademarks" means all registered trademarks, registered service marks,
trademark and service mark applications, unregistered trademarks and service
marks, logos and trade names, and all applications for any of the foregoing
which are in the process of being prepared.
"Transaction Documents" means, collectively, this Agreement, the Escrow
Agreement, the License Agreements, the Assignment of Patents, the Assignment of
Trademarks and any other certificates, agreements and documents contemplated and
delivered hereby and thereby.
"Transactions" means the sale of the Purchased Assets and the other
transactions contemplated by the Transaction Documents.
"Unliquidated Claim" is defined in Section 7.3.1.
2. Sale and Purchase.
2.1 Purchased Assets. Subject to the terms and conditions of this
Agreement, Cytel hereby grants, sells, conveys, assigns, transfers and delivers
to Neose, free and clear of all Encumbrances whatsoever, other than permitted
Encumbrances set forth in Schedule 2.1 (the "Permitted Encumbrances"), and Neose
hereby purchases from Cytel in reliance upon the representations, warranties and
covenants of Cytel contained herein, all right, title and interest of Cytel in
and to the following assets, properties and rights of every kind and
description, real, personal and mixed, tangible and intangible (including all
causes of action, rights of action, contract rights and claims against third
parties), wherever situated constituting, generated by, or used or useful, in
whole or in part, directly or indirectly, in the conduct of, the Carbohydrate
Manufacturing Program (other than the Excluded Assets) as the same shall exist
on the date hereof (the "Purchased Assets"):
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2.1.1 Contracts Relating to the Carbohydrate Manufacturing Program. All
of the interest of Cytel in the Contracts relating to the Carbohydrate
Manufacturing Program listed in Schedule 2.1.1 (the "Purchased Contracts");
2.1.2 Intellectual Property. All Patents, Trademarks and Copyrights
relating to the Carbohydrate Manufacturing Program whether owned by, licensed to
or controlled by Cytel listed in Schedule 2.1.2 and all Know-How relating to the
Carbohydrate Manufacturing Program whether owned by, licensed to or controlled
by Cytel (collectively, the "Intellectual Property");
2.1.3 Biological Materials. All cell lines, genes, gene fragments,
vectors, plasmids, bacteria, fungi, yeast, viruses, bacteriophages, nucleotides,
RNA, DNA, tissue cultures and similar materials in the possession of Cytel or a
third party acting on behalf of Cytel which are useful in, or necessary for, the
practice of the Carbohydrate Manufacturing Program, whether owned by, licensed
to or controlled by Cytel; and
2.1.4 Carbohydrate Manufacturing Program Documentation. All
Documentation relating to the Carbohydrate Manufacturing Program, whether in
electronic form or otherwise.
2.2 Excluded Assets. Notwithstanding Section 2.1, all assets, properties
and rights of Cytel described in Schedule 2.2 (including all causes of action,
rights of action, contract rights and claims against third parties relating
thereto) (collectively, the "Excluded Assets") shall be excluded from this
Agreement and shall not be sold, assigned or transferred to Neose.
2.3 Purchase Price and Payment.
2.3.1 Purchase Price. The purchase price for the Purchased Assets (the
"Purchase Price"), payable in accordance with Sections 2.3.2 and 2.4, consists
of (a) $3,500,000 in cash (the "Cash Consideration"), (b) the consideration
payable to Cytel pursuant to the Escrow Agreement, and (c) the Contingent
Consideration.
2.3.2 Payment of Purchase Price. Subject to the terms and conditions of
this Agreement, at the Closing, Neose (a) shall pay the Cash Consideration, less
the Deposit previously paid by Neose, to Cytel (by a wire transfer of
immediately available funds in accordance with instructions provided by Cytel
prior to the date hereof), (b) shall cause the Deposit to be paid to Cytel by
NationsBanc Montgomery (by a wire transfer of immediately available funds in
accordance with instructions provided by Cytel prior to the date hereof), and
(c) shall deposit $1,500,000 (the "Escrow Funds") with the Escrow Agent for
disbursement in accordance with the Escrow Agreement.
2.4 Contingent Consideration.
2.4.1 Prior to the date hereof, Cytel delivered to Neose Schedule 2.4
setting forth the names (with specificity) of six companies with which Cytel
previously has had discussions or negotiations with respect to possible
collaborative agreements relating to the Carbohydrate
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Manufacturing Program. In the event that Neose, in its sole discretion, enters
into any written Contract with any Person involving or relating to [*] or with
one or more of the companies identified in Schedule 2.4 (any such Persons or
companies being referred to herein as "Potential Collaborators") during the
period beginning on the date hereof and ending at the close of business on the
first anniversary of the date of this Agreement (each, a "Collaborator
Contract"), pursuant to which Neose receives any Collaborator Payments (defined
below) during the period ending on the [*] of the date of this Agreement, or,
with respect to Collaborator Payments from Potential Collaborators [*], during
the period ending on the [*] of the date of this Agreement (each of such periods
being referred to herein as a "Contingency Period"), Neose shall pay to Cytel in
cash by wire transfer of immediately available funds within 30 days after
receipt by Neose of any such Collaborator Payments, subject to the limitations
set forth in this Section 2.4.1, the following amounts (the "Contingent
Consideration"):
2.4.1.1 [*] of any Split Payments (defined below), [*] of any Equity
Premiums (defined below) and [*] of any Collaborator Payments other than
Split Payments or Equity Premiums received by Neose during the applicable
Contingency Period pursuant to a Collaborator Contract (other than a
Collaborator Contract entered into by Neose with a Potential Collaborator
[*]), provided that the amount payable hereunder with respect to payments
received from [*] during the period beginning on the third anniversary of
the date of this Agreement and ending on the [*]hereof will be reduced by
[*]; and
2.4.1.2 [*] of any Collaborator Payments received by Neose during the
applicable Contingency Period pursuant to a Collaborator Contract entered
into by Neose with [*];
2.4.1.3 [*] upon the execution and delivery by both Neose and [*], by
no later than the close of business on the [*] of the date of this
Agreement, of a definitive collaborative agreement;
- ----------
* INDICATES PORTIONS OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS
HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
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provided, however, that Neose shall not be required to pay under Section 2.4.1.1
or 2.4.1.2 more than [*] per each Potential Collaborator; and, provided,
further, that all amounts payable pursuant to this Section 2.4.1, including the
payment specified under Section 2.4.1.3, shall not exceed $1,600,000 in value in
the aggregate. As used herein, "Collaborator Payments" means and includes
(subject to the limitation set forth below) any of the following that are
actually received by Neose during the applicable Contingency Period pursuant to
a Collaborator Contract to the extent not subject to any offset, rebate or
adjustment of any nature (provided, that any indemnification obligation of Neose
set forth in any Collaborator Contract entered into by Neose shall not be deemed
to be an offset, rebate or adjustment hereunder): [*], but specifically excludes
any payment or consideration of any type whatsoever received by Neose from a
Potential Collaborator with respect to [*]. As used herein, "Split Payments"
means and includes (a) that portion of any payment or consideration received by
Neose from a Potential Collaborator with respect to [*], (b) any [*], and (c)
any [*]. As used herein, "Equity Premiums" means the aggregate amount by which
the value of consideration received by Neose from a Potential Collaborator with
respect to the purchase by such Potential Collaborator of, or investment by such
Potential Collaborator in, any equity security of Neose exceeds the aggregate
Fair Market Value of the equity securities so purchased or otherwise acquired on
the date Neose receives such consideration. As used in the definitions of Split
Payments and Equity Premiums, "Fair Market Value" means either of the following:
(a) if a basis for the purchase price of Neose Common Stock or relevant equity
security (the "Basis") is specified by the terms of the relevant Collaborator
Contract document, such Basis shall be accepted as "Fair Market Value" so long
as the Basis is calculated by reference to (1) the opening or closing bid, asked
or sale price of a share of Neose Common Stock or relevant equity security on
the Nasdaq National Market ("Nasdaq") or other stock exchange on the trading day
immediately preceding the date of the Collaborator Contract or (2) the average
of the opening or closing bid, asked or sale price of a share of Neose Common
Stock or relevant equity security on Nasdaq or other stock exchange for a
successive range of trading days ending on a trading day not more than three
trading days prior to the date of the relevant Collaborator Contract, provided
that such range shall not be greater than 30 trading days, or (b) if a Basis is
not specified in the relevant Collaborator Contract document or the specified
Basis does not meet the criteria set forth in clause (a) of this definition,
"Fair Market Value" means the closing sale price of a share of Neose Common
Stock or relevant equity security on Nasdaq or other stock exchange on the
trading day immediately preceding the date of the relevant Collaborator
Contract.
2.4.2 In the event Cytel disputes the calculation of any Contingent
Consideration paid by Neose pursuant to Section 2.4.1 or its right to receive
any Contingent Consideration, then Cytel shall notify Neose in writing of such
dispute by no later than 15 Business Days after (a) payment by Neose to Cytel of
any Contingent Consideration, or (b) the date on which Neose receives Cytel's
written notice asserting that Cytel is entitled to payment of Contingent
Consideration and the reasons therefor. If Cytel fails to give notice to Neose
within such period, Cytel shall be deemed not
- ----------
* INDICATES PORTIONS OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS
HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
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to dispute the Contingent Consideration paid in accordance with Section 2.4.1.
If Cytel gives notice within such period, the parties shall then attempt to
reconcile their differences and any written resolution signed by them as to any
disputed amounts shall be final, binding and conclusive on the parties. If Cytel
and Neose are unable to reach a resolution to such effect within 30 days of
receipt by Neose of Cytel's written notice of such dispute, then the parties
shall submit in Chicago, Illinois the amounts remaining in dispute for
resolution to an independent accounting firm of national reputation mutually
appointed by Cytel and Neose (such independent accounting firm being referred to
as the "Accounting Firm"), which shall, within 30 days after such submission,
determine and report to the parties upon such remaining disputed amounts, and
such report shall be final, binding and conclusive on the parties. The parties
agree that any of the "big five" accounting firms that are not at such time
engaged by Neose or Cytel shall be acceptable to them. Cytel and Neose shall
each pay one-half of the fees and disbursements of the Accounting Firm incurred
in connection with resolving any such dispute; provided, however, that if the
final adjustment amount determined by the Accounting Firm is greater than 5% of
the disputed amount, then Neose shall pay all of the fees and disbursements of
the Accounting Firm and if the final adjustment amount determined by the
Accounting Firm is less than 5% of the disputed amount, then Cytel shall pay all
of the fees and disbursements of the Accounting Firm.
2.5 Allocation of Purchase Price; Accounting Treatment.
2.5.1 The Purchase Price shall be allocated based upon the fair market
values of the Purchased Assets conforming with the requirements of Section 1060
of the Code. At the Closing, Neose shall deliver to Cytel Schedule 2.5 setting
forth the allocation of the Purchase Price to the extent then allocable as
agreed to by the parties. Neither Cytel nor Neose will take a position on any
income tax return, before any Governmental Authority charged with the collection
of any income Tax or in any judicial proceeding that is in any way inconsistent
with the allocation set forth in Schedule 2.5, except to the extent such a
position is prohibited under applicable Law. If and to the extent that the
allocation of the Purchase Price provided for in Schedule 2.5 shall be dependent
upon the determinations made with respect to the Escrow Funds pursuant to the
Escrow Agreement, such allocation shall be adjusted and made in a manner
consistent with such determinations.
2.5.2 The parties acknowledge that (a) Neose intends to record the
purchase of the Purchased Assets as a purchase for accounting purposes and,
specifically, intends to take after the Closing a one-time charge-off of the
value of the Purchased Assets, in part, as acquired in-process research and
development, and (b) Cytel intends to treat the sale of the Purchased Assets as
gain or loss from the sale of assets. Cytel will not take any position before
any Governmental Authority or in any federal or state securities filing or
otherwise that is in any way inconsistent with the terms of this Section 2.5.2,
except to the extent such a position is prohibited under applicable Law or is
not in accordance with GAAP.
2.6 Assumed Liabilities.
2.6.1 Neose hereby acquires the Purchased Assets subject only to the
Permitted Encumbrances, and hereby agrees to undertake, assume, perform and
otherwise pay, satisfy and
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discharge any obligations to be performed from and after the Closing under the
Purchased Contracts for which the rights thereunder have been duly and
effectively assigned to Neose as of the Closing or thereafter (the "Assumed
Liabilities"); provided that Neose does not hereby assume and shall have no
responsibility for (a) any obligations arising from or relating to any breach by
Cytel of any provision of any Purchased Contract on or prior to the Closing
Date, (b) any obligations of Cytel to be performed on or prior to the Closing
Date under any Purchased Contract, or (c) the obligations listed in Schedule
2.6.1.
2.6.2 Cytel hereby agrees to undertake, assume, perform and otherwise
pay, satisfy and discharge (a) any obligations arising from or relating to any
breach by Cytel of any provision of any Purchased Contract on or prior to the
Closing Date, or (b) any obligations of Cytel to be performed on or prior to the
Closing Date under the Purchased Contracts.
2.7 Excluded Liabilities. Except for Permitted Encumbrances and as
otherwise explicitly provided in Section 2.6.1, Cytel hereby transfers the
Purchased Assets to Neose free and clear of all Encumbrances, and without any
assumption by Neose of Liabilities (other than the Assumed Liabilities), and
Neose does not hereby, by virtue of its purchase of the Purchased Assets, assume
or become responsible for under this Agreement, as of the Closing or at any
time, any Liabilities of Cytel except as explicitly provided in Section 2.6.1
(all such excluded Liabilities being referred to herein as "Excluded
Liabilities").
2.8 Employee Matters. Neose shall have no obligation whatsoever pursuant to
this Agreement or the other Transaction Documents or in connection with the
consummation of the Transactions or otherwise to offer employment to, or employ
or retain the services of, any present, former or future employee, consultant,
agent or independent contractor of Cytel or any Subsidiary or Affiliate of
Cytel, and shall incur no Liabilities of any nature whatsoever with respect
thereto. Notwithstanding the foregoing, at its sole discretion and upon such
terms and conditions as shall be deemed to be acceptable to Neose in its sole
discretion, Neose may, subsequent to the Closing Date and only upon the prior
written consent of Cytel, offer employment to, or otherwise retain the services
of, any employee of Cytel; provided, however, that the foregoing shall not
restrict Neose from offering employment to or retaining, without Cytel's
consent, any employee of Cytel who initiates contact with Neose after the date
of this Agreement or who is listed in Schedule 2.8. Cytel acknowledges, however,
that Neose has no current intention to do so and agrees that it will not make
any representations or inducements to its employees to the contrary.
3. Closing.
3.1 Location, Date. The closing for the Transactions (the "Closing") shall
be held at the offices of Morgan, Lewis & Bockius LLP in Philadelphia,
Pennsylvania, at 10:00 a.m., local time, on the date hereof (the "Closing
Date"), unless Neose and Cytel agree in writing to another date or place.
3.2 Deliveries. At the Closing:
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3.2.1 Neose shall pay to Cytel the amount of the Cash Consideration
less the Deposit by wire transfer of immediately available funds;
3.2.2 Neose shall cause the Deposit to be paid to Cytel by NationsBanc
Montgomery by wire transfer of immediately available funds;
3.2.3 Cytel and Neose shall execute and deliver to each other and to
the Escrow Agent the Escrow Agreement and Neose shall deposit with the Escrow
Agent the Escrow Funds;
3.2.4 Cytel and Neose shall execute and deliver to each other the
License Agreements;
3.2.5 Cytel shall execute and deliver to Neose the Assignment of
Patents and the Assignment of Trademarks;
3.2.6 Cytel shall deliver to Neose all Required Consents;
3.2.7 Cytel shall deliver to Neose a certificate, dated the date
hereof, of the Secretary of Cytel certifying that attached to the certificate
are true and complete copies of (a) the Charter Documents and bylaws of Cytel,
as in full force and effect as of the date hereof, and (b) the resolutions duly
adopted by the Board of Directors of Cytel evidencing the taking of all
corporate action necessary to authorize the execution, delivery and performance
of this Agreement and the other Transaction Documents and the consummation of
the Transactions;
3.2.8 Cytel shall deliver to Neose a certificate issued by the
Secretary of State of the State of Delaware with respect to Cytel as of a recent
date before the Closing (and in no event more than three Business Days prior
thereto) showing Cytel to be validly existing and in good standing;
3.2.9 Neose shall deliver to Cytel a certificate, dated the date
hereof, of the Secretary of Neose certifying that attached to the certificate
are true and complete copies of (a) the Charter Documents and bylaws of Neose,
as in full force and effect as of the date hereof, and (b) the resolutions duly
adopted by the Board of Directors of Neose evidencing the taking of all
corporate action necessary to authorize the execution, delivery and performance
of this Agreement and the other Transaction Documents and the consummation of
the Transactions;
3.2.10 Neose shall deliver to Cytel a certificate issued by the
Secretary of State of the State of Delaware with respect to Neose as of a recent
date before the Closing (and in no event more than three Business Days prior
thereto) showing Neose to be validly existing and in good standing;
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3.2.11 Cytel shall deliver to Neose a legal opinion of Cooley Godward
LLP, counsel to Cytel, in the form of Exhibit F hereto;
3.2.12 Neose shall deliver to Cytel a legal opinion of Morgan, Lewis &
Bockius LLP, counsel to Neose, in the form of Exhibit G hereto; and
3.2.13 Cytel shall execute and deliver to Neose such additional
instruments of conveyance and transfer as Neose may reasonably require in order
to more effectively vest in Neose, and put it in possession of, the Purchased
Assets.
3.3 Reasonable Steps. Cytel shall take such reasonable steps as may be
necessary or appropriate so that, upon the execution and delivery of this
Agreement, Neose shall be placed in actual possession and control of all of the
Purchased Assets. Without limiting the generality of the foregoing, Cytel shall
be solely responsible, at its sole cost and expense, for obtaining any and all
Required Consents referred to in Section 4.3 hereof prior to the Closing.
3.4 Further Assurances. From time to time after the Closing, Cytel and
Neose shall execute, acknowledge and deliver to each other any further
documents, assurances and other matters, and will take any other action
consistent with the terms of this Agreement, that may reasonably be requested by
a party and necessary or desirable to carry out the purpose of this Agreement.
In the event that any assets of Cytel that were intended to be included in the
Purchased Assets or any liabilities of Cytel that were intended to be included
in the Assumed Liabilities and transferred to Neose pursuant to this Agreement
have not been properly or fully transferred, Cytel shall take all commercially
reasonable steps to ensure that such assets and liabilities are promptly
transferred to Neose such that Neose has all right, title and interest in and to
such assets and all obligations under such liabilities.
3.5 Technical Support. In connection with the sale and transfer to Neose of
the Purchased Assets, Cytel shall provide technical support to Neose to assist
in the integration of the Purchased Assets with Neose's existing carbohydrate
manufacturing program in accordance with this Section 3.5. During the period of
90 days following the date of this Agreement, Cytel shall make reasonably
available to Neose, at times and places reasonably requested by Neose, but in
any event not to exceed a total of 20 work days per any one employee, such
technical support employees, not to exceed two persons at any one time, of Cytel
that Neose deems reasonably necessary to effect the transition of the Purchased
Assets to Neose; provided, however, that Neose shall bear (i) all reasonable
out-of-pocket costs and expenses of such Cytel employees incurred in connection
with providing such technical support (including travel, lodging and other
similar expenses incurred by such employees), and (ii) all costs of salaries and
benefits paid or owed by Cytel to, and reasonable out-of-pocket costs and
expenses (including travel, lodging and other similar expenses) of, such Cytel
employees incurred in connection with providing technical support services to
Neose in excess of 20 works days per employee; and provided, further, that Cytel
will cooperate with Neose in providing additional technical support to the
extent reasonably necessary for the integration of the Purchased Assets if the
limitations set forth in this Section 3.5 restrict Neose's ability to accomplish
such integration.
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4. Representations and Warranties of Cytel.
Cytel hereby represents and warrants to Neose on the Closing Date as
follows:
4.1 Corporate Status. Cytel is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Cytel is
qualified to do business as a foreign corporation in any jurisdiction where it
is required to be so qualified, except where the failure so to qualify would
not, individually or in the aggregate, have a Material Adverse Effect on Cytel.
The Charter Documents and bylaws of Cytel that have been delivered to Neose as
of the date hereof are true, correct and complete.
4.2 Authorization and Enforceability. Cytel has the corporate power and
authority to own its property and to carry on its business, including the
Carbohydrate Manufacturing Program, as now being conducted. Cytel has the
corporate power and authority to execute and deliver the Transaction Documents
to which it is a party and to perform the Transactions performed or to be
performed by it. Such execution, delivery and performance by Cytel have been
duly authorized by all necessary corporate action. Each Transaction Document
executed and delivered by Cytel has been duly executed and delivered by Cytel
and constitutes a valid and binding obligation of Cytel, enforceable against
Cytel in accordance with its terms, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights, and (ii) equitable
principles generally and limitations on the availability of equitable remedies.
4.3 Consents and Approvals. Except for the consents specified in Schedule
4.3 (the "Required Consents"), neither the execution and delivery by Cytel of
the Transaction Documents to which it is a party, nor the performance of the
Transactions performed or to be performed by Cytel, (i) require any filing,
consent or approval, conflict with, constitute a Default or cause any payment
obligation to arise under (a) any Law or Court Order to which Cytel or any of
the Purchased Assets is subject, (b) the Charter Documents or bylaws of Cytel,
or (c) any Contract or Governmental Permit to which Cytel is a party or by which
it or any of the Purchased Assets is bound, or (ii) will result in the creation
or imposition of any Encumbrance upon any of the Purchased Assets. Without
limiting the generality of the foregoing, no approval whatsoever of the
stockholders of Cytel is required for the performance of the Transactions by
Cytel under applicable Law, the Charter Documents or bylaws of Cytel, any
regulation or bylaw of the National Association of Securities Dealers, Inc.
("NASD") or any Contract to which Cytel is a party or by which it or any of its
properties or other assets is bound. Cytel has delivered to Neose all Required
Consents, none of the Required Consents has been modified or revoked and each
Required Consent remains in full force and effect.
4.4 Financial Statements. Cytel has delivered to Neose true and complete
copies of (i) audited consolidated balance sheets of Cytel and its Subsidiaries
at December 31, 1997 and 1996 and the related consolidated statements of income,
changes in stockholders' equity and statements of cash flow for the years then
ended, together with the notes thereto, audited by Ernst & Young LLP, and (ii)
unaudited consolidated balance sheets of Cytel and its Subsidiaries at December
31, 1998
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and the related consolidated statements of income, changes in stockholders'
equity and statements of cash flow for the year then ended, together with the
notes thereto, all of which have been prepared in accordance with GAAP
consistently applied. Such balance sheets, including the related notes, present
fairly in all material respects the consolidated financial position, assets and
liabilities of Cytel and its Subsidiaries at the dates indicated, and such
consolidated statements of income, changes in stockholders' equity and
statements of cash flow present fairly in all material respects the consolidated
results of operations, changes in stockholders' equity and cash flow of Cytel
and its Subsidiaries for the periods indicated in conformity with GAAP. The
unaudited consolidated financial statements as of and for the year ended
December 31, 1998 contain all adjustments, which are solely of a normal
recurring nature, necessary to present fairly the financial position of Cytel
and its Subsidiaries at December 31, 1998 and the results of operations and
changes in stockholders' equity and such financial position for the periods then
ended in conformity with GAAP.
4.5 Purchased Assets; Absence of Liens and Encumbrances. Cytel has good and
marketable title to all of the Purchased Assets, free from any Encumbrances,
other than Permitted Encumbrances. The use of the Purchased Assets is not
subject to any Encumbrances (other than Permitted Encumbrances), and Cytel's use
does not materially encroach on the property or rights of any other Person. The
Purchased Assets include all material rights and property, except for the
Excluded Assets, that are necessary to the conduct of the Carbohydrate
Manufacturing Program by Neose in the manner in which it is currently conducted
by Cytel.
4.6 Liabilities. Except as set forth in Schedule 4.6, none of the Purchased
Assets is subject to any Liabilities, except (i) as specifically disclosed in
the balance sheet of Cytel and its Subsidiaries as of September 30, 1998 and not
heretofore paid or discharged, (ii) Liabilities incurred in the ordinary course
of business since September 30, 1998 that, individually or in the aggregate, are
not material to the Carbohydrate Manufacturing Program or the Purchased Assets,
and (iii) those Liabilities arising after the Closing Date under the express
terms of the Purchased Contracts.
4.7 Taxes and Tax Returns. All federal, state, local and foreign tax
returns, reports, statements and other similar filings required to be filed with
respect to any federal, state, local or foreign Taxes of Cytel (the "Tax
Returns") have been timely filed with the appropriate Governmental Authorities
in all jurisdictions in which such Tax Returns are required to be filed, and all
such Tax Returns properly reflect the Liabilities of Cytel for Taxes for the
periods, property or events covered thereby. All Taxes, including, without
limitation, those which are called for by the Tax Returns, or heretofore or
hereafter claimed to be due by any taxing authority from Cytel, have been
properly accrued or paid. Cytel has not received any notice of assessment or
proposed assessment in connection with any Tax Returns and there are no pending
tax examinations of or tax claims asserted against Cytel or any of the Purchased
Assets. There are no tax liens on any of the Purchased Assets. Cytel has no
knowledge of any basis for any additional assessment of any Taxes. Cytel has
made all deposits required by Law to be made with respect to employees'
withholding and other employment Taxes, including, without limitation, the
portion of such deposits relating to Taxes imposed upon Cytel. Cytel has not
taken any action that would have the effect of deferring any Liabilities of
Cytel for Taxes affecting any of the Purchased Assets from a pre-Closing period
to any period commencing on or after the Closing Date.
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4.8 Litigation. Except as set forth in Schedule 4.8, Cytel has received no
notice of, and there is no Litigation in any court or before any Governmental
Authority or any arbitrator pending against or related to Cytel, the
Carbohydrate Manufacturing Program or any of the Purchased Assets or, to the
knowledge of Cytel, threatened against the Carbohydrate Manufacturing Program or
any of the Purchased Assets, or which seeks to enjoin or obtain damages in
respect of the consummation of the Transactions, nor does Cytel know of any
reasonably likely basis for any such Litigation. None of the Purchased Assets is
subject to the provisions of any judgment, order, writ, injunction, decree or
award of any Governmental Authority or any arbitrator, nor is there any Court
Order to which Cytel or any of the Purchased Assets is subject that might affect
the Transactions. There has been no Default with respect to any Court Order
applicable to any of the Purchased Assets.
4.9 Compliance with Laws. Cytel has been and is being operated in material
compliance with all Laws applicable to the Carbohydrate Manufacturing Program
(other than with respect to the Excluded Assets) and the Purchased Assets. There
has been no Default by Cytel under any Laws applicable to the conduct or
operation of the Carbohydrate Manufacturing Program (other than with respect to
the Excluded Assets) or the ownership or use of the Purchased Assets, except for
any Defaults that would not, individually or in the aggregate, have a Material
Adverse Effect on Cytel, and Cytel has not received any notice from any
Governmental Authority regarding any alleged Defaults under any such Laws. There
are no environmental liens on any of the Purchased Assets and no government
actions which could subject any of the Purchased Assets to such liens have been
taken, are pending or, to Cytel's knowledge, are threatened.
4.10 Governmental Permits. Cytel has all Governmental Permits of all
Governmental Authorities that are required to operate the Carbohydrate
Manufacturing Program (other than with respect to the Excluded Assets) and Cytel
is in compliance with the terms and conditions of such Governmental Permits,
except where the failure so to comply would not, individually or in the
aggregate, have a Material Adverse Effect on Cytel. All such Governmental
Permits are currently valid and in full force and effect. To Cytel's knowledge,
no suspension, revocation, cancellation or withdrawal of any such Governmental
Permit is threatened and no cause exists for such suspension, revocation,
cancellation or withdrawal.
4.11 Contracts. Schedule 2.1.1 lists each Purchased Contract, which are all
of the Contracts of Cytel used or useful in the Carbohydrate Manufacturing
Program, other than the Contracts between Cytel and Abbott Laboratories and
Cytel and Glycomed Incorporated, which are included in the Excluded Assets. No
Affiliate of Cytel is a party to any of the Purchased Contracts. Each Purchased
Contract is valid and enforceable in accordance with its terms and is in full
force and effect. Cytel is not in Default under any Purchased Contract and, to
Cytel's knowledge, none of the other parties to any Purchased Contract is in
Default thereunder. Schedule 4.3 identifies each Purchased Contract which
requires action on behalf of a third party to give Neose all rights under such
Purchased Contract following the consummation of the Transactions. Cytel has
made all payments to any Persons and all filings with any Governmental
Authorities or any other Persons required to be made pursuant to any Purchased
Contracts. Cytel has no further obligations or Liabilities of any nature
whatsoever relating to or affecting the Purchased Assets under any Contracts or
other agreements or arrangements with Abbott Laboratories or any Affiliate
thereof.
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4.12 Intellectual Property.
4.12.1 Except as set forth in Schedule 4.12, the Patents, Trademarks
and Copyrights listed in Schedule 2.1.2 constitute all of the Patents,
Trademarks and Copyrights that (a) are in use, or are under development for use,
in the operation of the Carbohydrate Manufacturing Program, or (b) are necessary
for the operation of the Carbohydrate Manufacturing Program as conducted by
Cytel prior to the Closing. Except as set forth in Schedule 4.12, the Know-How
included in the Intellectual Property constitutes all Know-How that (a) is in
use, or is under development for use, in the operation of the Carbohydrate
Manufacturing Program, or (b) is necessary for the operation of the Carbohydrate
Manufacturing Program as conducted by Cytel prior to the Closing. Except as set
forth in Schedule 4.12, the Documentation included in the Purchased Assets
constitutes all Documentation that (a) is in use, or is under development for
use, in the operation of the Carbohydrate Manufacturing Program, or (b) is
necessary for the operation of the Carbohydrate Manufacturing Program as
conducted by Cytel prior to the Closing.
4.12.2 Except as set forth in Schedule 4.12, Cytel owns or has the
lawful right and license to use pursuant to a Purchased Contract, free and clear
of all Encumbrances (other than Permitted Encumbrances), all of the Intellectual
Property.
4.12.3 Cytel has the lawful right to assign and transfer to Neose all
of the Intellectual Property, including, without limitation, all rights relating
thereto under the Purchased Contracts.
4.12.4 Except as set forth in Schedule 4.12, Cytel has not received
any notice of and there are no pending, and Cytel otherwise has no knowledge of
any threatened, claims by any Person contesting the validity, enforceability,
use or ownership of any of the Intellectual Property.
4.12.5 Except as set forth in Schedule 4.12, Cytel has not received
any notice of, and Cytel otherwise has no knowledge of, the infringement or
misappropriation by any Person of the Intellectual Property.
4.12.6 Except as set forth in Schedule 4.12, Cytel's use of the
Intellectual Property does not infringe upon or otherwise violate any rights or
interests owned or claimed by any other Person.
4.12.7 Except as set forth in Schedule 4.12, none of the Patents is
the subject of any reissue, reexamination, interference, opposition or similar
proceeding.
4.12.8 Except as set forth in Schedule 4.12, none of the Trademarks is
the subject of any opposition, cancellation or similar proceeding.
4.12.9 Except as set forth in Schedule 4.12, Cytel has not, in
connection with the Carbohydrate Manufacturing Program (other than solely with
respect to the Excluded Assets), entered into any agreement to indemnify any
Person against any charge of infringement of any intellectual property.
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4.12.10 Except as set forth in Schedule 4.12, to Cytel's knowledge,
there are no third party patent applications which, if issued, would materially
adversely affect the right of Cytel to use the Patents included in the
Intellectual Property.
4.12.11 Except as set forth in Schedule 4.12, there have been no, and
Cytel has no reason to believe that there will be any, inventorship challenges
with respect to any of the Patents included in the Intellectual Property.
4.12.12 Schedule 4.12 sets forth a schedule of all maintenance fees or
annuities for each of the Patents included in the Intellectual Property paid,
or, to Cytel's knowledge, payable, by Cytel between January 1, 1996 and February
28, 1999. All such fees due prior to the date hereof have been paid by Cytel or
will be paid by Cytel upon receipt of invoices therefor in accordance with the
payment terms of such fees.
4.12.13 Schedule 4.12 sets forth a listing of all Litigation relating
to the Intellectual Property brought by or against Cytel whether or not
currently pending during the past three years and, to the knowledge of Cytel,
during the five years prior thereto.
4.12.14 All employees and consultants of Cytel who are involved in the
design, review, evaluation or development of Intellectual Property and
Documentation included within the Purchased Assets have executed a nondisclosure
and assignment of inventions agreement ("Confidentiality Agreement")
substantially in the form attached to Schedule 4.12. To Cytel's knowledge, (a)
none of the Confidential Information relating to the Purchased Assets has been
used, divulged or appropriated for the benefit of any Person other than Cytel or
otherwise to the detriment of Cytel, (b) no employee or consultant of Cytel has
used any other Person's trade secrets or other information that is confidential
in the course of his or her work for Cytel, and (c) no employee or consultant of
Cytel is in Default under any term of any employment Contract relating to such
Intellectual Property or Documentation, any Confidentiality Agreement or any
other Contract or any restrictive covenant relating to such Intellectual
Property or Documentation, or the development or exploitation thereof. Cytel is
in compliance with the provisions of applicable Law relating to the
assignability of inventions.
4.13 Insurance. Cytel maintains such policies of insurance with such
amounts of coverage relating to the Carbohydrate Manufacturing Program (other
than with respect to the Excluded Assets) and the Purchased Assets as management
reasonably believes are adequate in relation to the Carbohydrate Manufacturing
Program and the Purchased Assets and reasonable and customary in the industry in
which Cytel operates, and all of such insurance policies are in full force and
effect.
4.14 Employee Matters. There has been no "mass layoff" or "plant closing"
as defined in the Worker Adjustment and Retraining Notification Act, 29 U.S.C.
ss.ss. 2101 et seq. that is attributable to the Transactions, and Cytel does not
contemplate that there will be a "mass layoff" or "plant closing" in the future
that is attributable to the Transactions.
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4.15 Absence of Certain Changes. Except as disclosed in Schedule 4.15,
since September 30, 1998, Cytel has conducted the Carbohydrate Manufacturing
Program in the ordinary course and there has not been:
4.15.1 any material adverse change in any of the Purchased Assets or
the Carbohydrate Manufacturing Program (except any such change affecting only
the Excluded Assets);
4.15.2 any transfer or grant of any rights to any Intellectual
Property;
4.15.3 any sale, assignment or transfer of any of the Purchased Assets
or any agreements entered into with respect to the foregoing, other than those
made in the ordinary course of business; or
4.15.4 any waiver or release of any claim or right or cancellation of
any substantial debt or claim relating to the Carbohydrate Manufacturing Program
(except with respect to the Excluded Assets), other than in the ordinary course
of business.
4.16 Finder's Fees. No Person retained by Cytel is or will be entitled to
any commission or finder's or similar fee in connection with the Transactions,
other than BT Alex. Brown Incorporated, which commission or fees shall be paid
solely by Cytel.
4.17 No Third Party Options. Except as disclosed in Schedule 4.17, there
are no existing agreements, options, commitments or rights with, of or to any
Person to acquire, or obtain any rights with respect to, any of the Purchased
Assets.
4.18 Fairness Opinion. Immediately prior to the execution of this
Agreement, Cytel has received and delivered to Neose a written opinion of BT
Alex. Brown Incorporated to the effect that the Transactions, including the
Purchase Price, are fair, from a financial point of view, to Cytel.
4.19 Solvency. Immediately after the consummation of the Transactions, (i)
the fair value of the assets of Cytel will exceed its debts and liabilities,
subordinated, contingent or otherwise, (ii) the present fair saleable value of
the property of Cytel will be greater than the amount that will be required to
pay the probable obligations of its debts and other liabilities, subordinated,
contingent or otherwise, as such debts and other liabilities become absolute and
matured, and (iii) Cytel will be able to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured.
4.20 Completeness and Accuracy of Information. All information set forth in
any Schedule prepared by Cytel and delivered in connection herewith is correct
and complete. No representation or warranty by Cytel in any Transaction
Document, and no information contained therein or otherwise delivered by or on
behalf of Cytel in connection with the Transactions, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading.
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5. Representations and Warranties of Neose.
Neose hereby represents and warrants to Cytel on the Closing Date as
follows:
5.1 Corporate Status. Neose is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
qualified to do business as a foreign corporation in any jurisdiction where it
is required to be so qualified, except where the failure so to qualify would
not, individually or in the aggregate, have a Material Adverse Effect on Neose.
The Charter Documents and bylaws of Neose that have been delivered to Cytel as
of the date hereof are true, correct and complete.
5.2 Authorization and Enforceability. Neose has the corporate power and
authority to own its property and to carry on its business as now being
conducted. Neose has the corporate power and authority to execute and deliver
the Transaction Documents to which it is a party and to perform the Transactions
performed or to be performed by it. Such execution, delivery and performance by
Neose have been duly authorized by all necessary corporate action. Each
Transaction Document executed and delivered by Neose has been duly executed and
delivered by Neose and constitutes a valid and binding obligation of Neose,
enforceable against Neose in accordance with its terms, except as limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general applicability relating to or affecting creditors' rights, and (ii)
equitable principles generally and limitations on the availability of equitable
remedies.
5.3 Consents and Approvals. Neither the execution and delivery by Neose of
the Transaction Documents to which it is a party, nor the performance of the
Transactions performed or to be performed by Neose, require any filing, consent
or approval, conflict with or constitute a Default under (i) any Law or Court
Order to which Neose is subject, (ii) the Charter Documents or bylaws of Neose,
or (iii) any Contract, Governmental Permit or other document to which Neose is a
party or by which the properties or other assets of Neose may be subject.
5.4 Finder's Fees. No Person retained by Neose is or will be entitled to
any commission or finder's or similar fee in connection with the Transactions.
5.5 Litigation. Neose has received no notice of, and there is no Litigation
in any court or before any Governmental Authority or any arbitrator pending or,
to the knowledge of Neose, threatened against or related to Neose which seeks to
enjoin or obtain damages in respect of the consummation of the Transactions, nor
does Neose know of any reasonably likely basis for any such Litigation. There is
no judgment, order, writ, injunction, decree or award of any Governmental
Authority or any arbitrator, nor is there any Court Order to which Neose is
subject, that might affect the Transactions.
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5.6 Accuracy of Information. All information set forth in any Schedule
prepared by Neose and delivered in connection herewith is correct and complete.
No representation or warranty by Neose in any Transaction Document, and no
information contained therein or otherwise delivered by or on behalf of Neose to
Cytel in writing in connection with the Transactions, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading.
6. Covenants.
6.1 Cytel Confidentiality. Cytel recognizes and acknowledges that it has
had access to Confidential Information relating to the Carbohydrate
Manufacturing Program, the Purchased Assets and the Transactions. Cytel
acknowledges that such Confidential Information is a valuable and unique asset
of Neose and covenants that Cytel will not, except as otherwise permitted under
the License Agreements and except with respect to Confidential Information
solely relating to the Excluded Assets, disclose, communicate or use in any way
any such Confidential Information for any reason whatsoever from the Closing and
indefinitely thereafter, without the prior written consent of Neose, unless such
information (i) is in the public domain through no wrongful act of any party
hereto, (ii) has been rightfully received from a third party without restriction
and without breach of this Agreement, or (iii) except as may be required by
applicable Law, Court Order, or the regulations or bylaws of the NASD. In the
event that Cytel believes that it is required to disclose any such Confidential
Information pursuant to any applicable Law or Court Order, Cytel shall give
timely written notice to Neose so that Neose may have an opportunity to obtain a
protective order or other appropriate relief.
6.2 Covenant Not to Compete. Cytel shall not, without the prior written
consent of Neose, at any time within the Restricted Period (defined below),
directly or indirectly, engage, or have any interest on behalf of itself or
others in any Person (whether as an agent, security holder, creditor, partner,
joint venturer, investor, consultant or otherwise) that engages within the
Restricted Territory (defined below) in any of the business activities relating
to the Carbohydrate Manufacturing Program and the Purchased Assets, except with
respect to those business activities specifically contemplated by the License
Agreements and those specifically described in Schedule 6.2. In furtherance of
the foregoing, during the Restricted Period, Cytel shall not contact any of the
employees of Neose for the purpose of hiring or retaining any of such employees
for employment, consulting or similar purposes. The term "Restricted Period"
means the three-year period immediately following the Closing Date. The term
"Restricted Territory" means the area comprising the entire United States of
America, Canada and those other areas of the world in which Cytel has engaged in
the Carbohydrate Manufacturing Program (except solely with respect to the
Excluded Assets) at any time since its inception.
6.3 Cytel Affiliates. The terms of Sections 6.1, 6.2 and 6.4 shall apply to
Cytel and any of its Affiliates to the same extent as if they were parties
hereto, and Cytel shall take whatever actions may be necessary to cause its
Affiliates to adhere to the terms of such Sections.
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6.4 Neose Injunctive Relief. Cytel specifically acknowledges and agrees
that the provisions of Sections 6.1 and 6.2 are reasonable and necessary to
protect the interests of Neose, that any violation of Section 6.1 or 6.2 will
result in an irreparable injury to Neose and that the remedy at law for any
breach of such Sections will be inadequate. In the event of any breach or
threatened breach by Cytel (or any other Person specified in Section 6.3) of any
provision of Section 6.1 or 6.2, Neose, in addition to any other relief
available to it, shall be entitled to temporary and permanent injunctive or
other equitable relief, restraining such Person from using or disclosing any
Confidential Information in whole or in part, or from engaging in conduct that
would constitute a breach of the obligations under such Sections, without the
necessity of proving actual damages or posting a bond or other security and to
an equitable accounting of all earnings, profits and other benefits arising out
of any violation of such Sections. Such relief shall be in addition to and not
in lieu of any other remedies that may be available, including an action for the
recovery of damages. In the event of Litigation involving this Agreement, if a
court of competent jurisdiction determines that the scope of Section 6.1 or 6.2
is too broad in any respect, then the scope shall be deemed to be reduced or
narrowed to such scope as is found lawful and reasonable by such court. Cytel
acknowledges, however, that Sections 6.1 and 6.2 have been negotiated by the
parties and that the geographic and time limitations, as well as the limitation
on activities, are reasonable in light of the circumstances pertaining to the
Transactions. Cytel acknowledges and understands that Neose is and will be
relying upon the agreements made by Cytel in Sections 6.1 through 6.4 in
entering into this Agreement and consummating the Transactions.
6.5 Neose Confidentiality. Neose recognizes and acknowledges that it has
had access to Confidential Information relating to certain aspects of the
business and operations of Cytel, including the Excluded Assets and the
Transactions. Neose acknowledges that such Confidential Information is a
valuable and unique asset of Cytel and covenants that Neose will not, except as
otherwise permitted under the License Agreements and except with respect to
Confidential Information relating to the Purchased Assets, disclose, communicate
or use in any way any such Confidential Information for any reason whatsoever
from the Closing and indefinitely thereafter, without the prior written consent
of Cytel, unless such information (i) is in the public domain through no
wrongful act of any party hereto, (ii) has been rightfully received from a third
party without restriction and without breach of this Agreement, or (iii) except
as may be required by applicable Law, Court Order, or the regulations or bylaws
of the NASD. In the event that Neose believes that it is required to disclose
any such Confidential Information pursuant to any applicable Law or Court Order,
Neose shall give timely written notice to Cytel so that Cytel may have an
opportunity to obtain a protective order or other appropriate relief.
6.6 Neose Affiliates. The terms of Sections 6.5 and 6.7 shall apply to
Neose and any of its Affiliates to the same extent as if they were parties
hereto, and Neose shall take whatever actions may be necessary to cause its
Affiliates to adhere to the terms of such Sections.
6.7 Cytel Injunctive Relief. Neose specifically acknowledges and agrees
that the provisions of Section 6.5 are reasonable and necessary to protect the
interests of Cytel, that any violation of Section 6.5 will result in an
irreparable injury to Cytel and that the remedy at law for any breach of such
Section will be inadequate. In the event of any breach or threatened breach by
Neose (or any other Person specified in Section 6.6) of any provision of Section
6.5, Cytel, in addition to any other relief available to it, shall be entitled
to temporary and permanent injunctive or other
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equitable relief, restraining such Person from using or disclosing any
Confidential Information in whole or in part, or from engaging in conduct that
would constitute a breach of the obligations under such Section, without the
necessity of proving actual damages or posting a bond or other security and to
an equitable accounting of all earnings, profits and other benefits arising out
of any violation of such Section. Such relief shall be in addition to and not in
lieu of any other remedies that may be available, including an action for the
recovery of damages. In the event of Litigation involving this Agreement, if a
court of competent jurisdiction determines that the scope of Section 6.5 is too
broad in any respect, then the scope shall be deemed to be reduced or narrowed
to such scope as is found lawful and reasonable by such court. Neose
acknowledges, however, that Section 6.5 has been negotiated by the parties and
that the time limitations, as well as the limitation on activities, are
reasonable in light of the circumstances pertaining to the Transactions. Neose
acknowledges and understands that Cytel is and will be relying upon the
agreements made by Neose in Sections 6.5 through 6.7 in entering into this
Agreement and consummating the Transactions.
6.8 Bulk Transfer Laws. Except as otherwise provided in Section 6.9, Neose
hereby waives compliance by Cytel with the provisions of any and all Laws
relating to bulk transfer in connection with the sale of the Purchased Assets.
6.9 Transfer Taxes. Cytel and Neose shall each bear one-half of and shall
pay at the Closing all state and local sales, documentary and other transfer
Taxes (including, without limitation, any sales Tax required under the Laws of
the State of California), if any, due as a result of the purchase, sale or
transfer of the Purchased Assets hereunder.
6.10 Access to Information. At all times after the Closing Date, each party
will permit the others and its representatives (including its counsel and
auditors) during normal business hours, for a proper purpose to have reasonable
access to and examine and make copies, at the expense of the copying party, of
all books, records, files and documents in its possession which relate to the
Purchased Assets prior to the Closing Date.
6.11 Enforcement of Certain Agreements. At Neose's request, Cytel shall use
commercially reasonable efforts at Neose's expense to enforce the provisions of
any Confidentiality Agreements and agreements with respect to noncompetition
existing as of the Closing Date with any present or former employees, agents,
consultants or independent contractors of Cytel that relate to the Carbohydrate
Manufacturing Program (except solely with respect to the Excluded Assets);
provided, however, that the obligation of Cytel to enforce any such
Confidentiality Agreement or agreement with respect to noncompetition described
in this Section 6.11 shall terminate as of the date on which such agreement has
terminated or expired in accordance with its terms.
7. Indemnification.
7.1 By Cytel. From and after the Closing Date, Cytel shall indemnify and
hold harmless Neose, its successors and assigns, and its officers, directors,
employees, stockholders, agents, Affiliates and any Person who controls any of
such Persons within the meaning of the Securities Act or the Exchange Act (each,
an "Indemnified Neose Party") from and against any (i) loss, liability, claim,
obligation, damage or deficiency, and (ii) all actions, judgments, costs and
expenses
23
<PAGE>
(including without limitation interest, penalties and reasonable attorneys',
consultants' and other professional fees) relating to the foregoing
(collectively, "Damages") that such Indemnified Neose Party may suffer arising
out of or resulting from (A) any breach of the representations and warranties
set forth in Section 4, (B) the nonfulfillment of any agreement or obligation on
the part of Cytel (including, without limitation, Cytel's obligations to
discharge certain liabilities pursuant to Section 2.6.2) contained in this
Agreement or as a result of noncompliance with any bulk transfer Law (except to
the extent that any such Damages arise out of any failure of Neose to pay any
liability or perform any obligations assumed by Neose pursuant to Section
2.6.1), (C) except for the Assumed Liabilities, any act, omission, occurrence or
Liabilities arising out of Cytel's ownership, maintenance and operation of its
business prior to Closing, (D) the Excluded Liabilities, and (E) any claim by
any Person who owned or owns any securities of Cytel or any successor thereto,
including any claim against Cytel or any such successor with respect to any of
the Transactions.
7.2 By Neose. From and after the Closing Date, Neose shall indemnify and
hold harmless Cytel, its successors and assigns, and its officers, directors,
employees, stockholders, agents, Affiliates and any Person who controls any of
such Persons within the meaning of the Securities Act or the Exchange Act (each
an "Indemnified Cytel Party") from and against any Damages that such Indemnified
Cytel Party may suffer arising out of or resulting from (A) any breach of the
representations and warranties set forth in Section 5, (B) the nonfulfillment of
any agreement or obligation on the part of Neose contained in this Agreement
(including, without limitation, Neose's obligations to discharge certain
liabilities pursuant to Section 2.6.1), and (C) any failure by Neose to pay or
discharge the Assumed Liabilities.
7.3 General Procedure for Claims.
7.3.1 An Indemnified Party that desires to seek indemnification under
any part of this Section 7 (unless for a third party claim which is covered by
Section 7.4) shall give notice (a "Claim Notice") to each party responsible or
alleged to be responsible for indemnification hereunder (an "Indemnitor"). Such
notice shall briefly explain the nature of the claim and the parties known to be
involved, and shall specify the amount thereof. If the matter to which a claim
relates has not been resolved as of the date of the Claim Notice, the
Indemnified Party shall estimate the amount of the claim in the Claim Notice,
but also specify therein that the claim has not yet been liquidated (an
"Unliquidated Claim"). If an Indemnified Party gives a Claim Notice for an
Unliquidated Claim, the Indemnified Party shall also give a second Claim Notice
(the "Liquidated Claim Notice") within 60 days after the matter giving rise to
the claim becomes finally resolved, and the Second Claim Notice shall specify
the amount of the claim. Each Indemnitor to which a Claim Notice is given shall
respond to any Indemnified Party that has given a Claim Notice (a "Claim
Response") within 20 days (the "Response Period") after the later of (a) the
date that the Claim Notice is given, or (b) if a Claim Notice is first given
with respect to an Unliquidated Claim, the date on which the Liquidated Claim
Notice is given. Any Claim Notice or Claim Response shall be given in accordance
with the notice requirements hereunder, and any Claim Response shall specify
whether or not the Indemnitor giving the Claim Response disputes the claim
described in the Claim Notice. If any Indemnitor fails to give a Claim Response
within the Response Period, such Indemnitor shall be deemed not to dispute the
claim described in the related Claim Notice. If any Indemnitor elects
24
<PAGE>
not to dispute a claim described in a Claim Notice, whether by failing to give a
timely Claim Response or otherwise, then the amount of such claim shall be
conclusively deemed to be an obligation of such Indemnitor. Any failure to give
prompt notice under this Section 7.3 shall not bar an Indemnified Party's right
to claim indemnification under this Section 7, except to the extent that an
Indemnitor shall have been harmed by such failure.
7.3.2 If any Indemnitor is obligated to indemnify an Indemnified Party
hereunder, such Indemnitor shall pay to such Indemnified Party within 30 days
after the last day of the Claim Response Period the amount to which such
Indemnified Party is entitled. If there is a dispute as to the amount or manner
of indemnification under this Section 7, the Indemnified Party may pursue
whatever legal remedies may be available for recovery of the Damages claimed
from any Indemnitor. If any Indemnitor fails to pay all or part of any
indemnification obligation when due, then such Indemnitor shall also be
obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate
equal to the Prime Rate plus 2%, and the Prime Rate in effect on the first
Business Day of each calendar quarter shall apply to the amount of the unpaid
obligation during such calendar quarter.
7.4 Procedure for Third Party Claims. An Indemnified Party that desires to
seek indemnification under any part of this Section 7 with respect to any
actions, suits or other administrative or judicial proceedings (each, an
"Action") that may be instituted by a third party shall give each Indemnitor
prompt notice of a third party's institution of such Action. After such notice,
solely to the extent requested by such Indemnified Party, any such Indemnitor
shall participate in such Action or assume the defense thereof, with counsel
satisfactory to such Indemnified Party; provided, however, that such Indemnified
Party shall have the right to participate at its own expense in the defense of
such Action; and provided, further, that the Indemnitor shall not consent to the
entry of any judgment or enter into any settlement, except with the written
consent of such Indemnified Party (which consent shall not be unreasonably
withheld), that (i) fails to include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
Liability in respect of any such Action, or (ii) grants the claimant or
plaintiff any injunctive relief against the Indemnified Party. If the
Indemnified Party elects to assume the defense of such Action, any such
Indemnitor shall have the right to participate at its own expense in the defense
of such Action. Any failure to give prompt notice under this Section 7.4 shall
not bar an Indemnified Party's right to claim indemnification under this Section
7, except to the extent that an Indemnitor shall have been harmed by such
failure.
7.5 Time Limitations. Except as otherwise provided in this Section 7.5, the
indemnification set forth in Section 7.1(A) and all representations and
warranties made by Cytel hereunder will expire on the first anniversary of the
Closing Date, and Cytel will have no liability under the indemnification
provisions of Section 7.1(A) unless Neose gives written notice to Cytel of its
claim for any such liability before the expiration of such period. With respect
to claims for indemnification under Sections 7.1(B), (C), (D) and (E), there
shall be no time limitation for indemnification on claims with respect thereto.
Except as otherwise provided in this Section 7.5, the indemnification set forth
in Section 7.2(A) and all representations and warranties made by Neose hereunder
will expire on the first anniversary of the Closing Date, and Neose will have no
liability
25
<PAGE>
under the indemnification provisions of Section 7.2(A) unless Cytel gives
written notice to Neose of its claim for any such liability before the
expiration of such period. With respect to claims for indemnification under
Sections 7.2(B) and (C), there shall be no time limitation for indemnification
on claims with respect thereto. Except as otherwise provided in this Section
7.5, the limitations of this Section 7.5 shall apply to any other action taken
by a party as contemplated by Section 7.9.
7.6 Limitations on Liability. Notwithstanding any other provision of this
Section 7, the aggregate of all Damages payable by Cytel under this Section 7
shall not exceed the Purchase Price, and an Indemnified Party shall be entitled
to indemnification hereunder only when the aggregate of all Damages incurred by
such Indemnified Party exceeds [*] (the "Threshold Amount"); provided, that in
the event that the aggregate amount of such Damages exceeds the Threshold
Amount, the Indemnified Party shall be entitled to [*]. The limitations of this
Section 7.6, however, shall not apply to any covenants or agreements to be
performed by an Indemnitor prior to or after the Closing, including, without
limitation, with respect to Excluded Liabilities and with respect to
confidentiality and noncompetition as provided in Section 6. Except as otherwise
provided in this Section 7.6, the limitations of this Section 7.6 shall apply to
any other action taken by a party as contemplated by Section 7.9.
7.7 Effect of Investigation or Knowledge. Any claim by an Indemnified Neose
Party for indemnification shall not be adversely affected by any investigation
by or opportunity to investigate afforded to Neose. Each party shall be deemed
to be relying on the representations and warranties of any other party set forth
herein regardless of any investigation or audit conducted before or after the
Closing Date or the decision of any party to consummate the Transactions
contemplated hereby and complete the Closing.
7.8 Contingent Claims. Nothing herein shall be deemed to prevent an
Indemnified Party from making a claim hereunder for potential or contingent
claims or demands provided the Claim Notice sets forth the specific basis for
any such potential or contingent claim to the extent then feasible and the
Indemnified Party has reasonable grounds to believe that such a claim or demand
may be made.
7.9 Other Remedies. None of the specific remedies provided in this
Agreement for any party is the exclusive remedy of such party for any breach of
this Agreement. In addition to any specific remedy provided herein, any party
shall be entitled to such rights and remedies as such party may have at law or
in equity or otherwise for any breach of this Agreement, including the right to
seek specific performance, rescission or restitution, none of which rights or
remedies shall be affected or diminished by the remedies provided hereunder. The
indemnification rights under this Section 7 are independent of, and in addition
to and not in limitation of, the foregoing rights and remedies.
- ----------
* INDICATES PORTIONS OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS
HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
26
<PAGE>
8. General.
8.1 Expenses. Except as otherwise provided in this Agreement, Neose and
Cytel shall each pay their own fees, expenses and disbursements, including the
fees and expenses of their respective counsel, accountants and other experts, in
connection with the subject matter of this Agreement and all other costs and
expenses incurred in performing and complying with all conditions to be
performed under this Agreement.
8.2 Publicity. The parties hereto will consult with each other before
issuing any press release or making any public statement with respect to this
Agreement and the Transactions and, except as may be required by applicable Law
or any stock exchange regulations, no party shall issue any such press release
or make any such public statement without the consent of the other party hereto.
8.3 Amendment, Severability, Parties in Interest and Assignment. This
Agreement may be amended, modified or supplemented only by a written instrument
duly executed by each of the parties hereto. If any provision of this Agreement
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective legal representatives, successors and permitted
assigns of the parties hereto. Nothing in this Agreement, express or implied, is
intended to confer on any Person other than the parties hereto, or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement. No Party hereto shall assign
or otherwise transfer this Agreement or any right, benefit or obligation
hereunder (whether by operation of Law or otherwise) to any other Person without
the prior written consent of the other party; provided, however, that (i) Neose
may (a) assign or otherwise transfer any or all of its rights and interests
hereunder to one or more of its Affiliates, and (b) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of which cases
Neose nonetheless shall remain responsible for the performance of all of its
obligations hereunder), and (ii) either party may assign or otherwise transfer
any or all of its rights and interests hereunder in connection with the sale of
all or substantially all of its assets or business, whether by way of merger,
sale of stock, sale of assets or other similar transaction (in any or all of
which cases such party nonetheless shall remain responsible for the performance
of all of its obligations hereunder).
8.4 Waivers. Any term or provision of this Agreement may be waived at any
time by the party entitled to the benefit thereof by a written instrument duly
executed by such party. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any provision of this
Agreement in one or more instances shall operate or be construed as a waiver of
any other condition or subsequent breach.
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<PAGE>
8.5 Notices. All notices that are required or permitted hereunder shall be
in writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number (with
such receipt being confirmed by the sender) set forth below, unless such address
or fax number is changed by notice to the other parties hereto:
8.5.1 If to Neose:
Neose Technologies, Inc.
102 Witmer Road
Horsham, PA 19044
FAX: (215) 441-5896
Attention: Chief Executive Officer
with a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Fax: (215) 963-5299
Attention: David R. King, Esquire
8.5.2 If to Cytel:
Cytel Corporation
9393 Towne Centre Drive
San Diego, CA 92121
Fax: (619) 552-3025
Attention: Chief Executive Officer
with a copy to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Fax: (619) 453-3555
Attention: L. Kay Chandler, Esquire
8.6 Entire Agreement. This Agreement (including the Exhibits and Schedules
hereto), together with the other Transaction Documents, sets forth the entire
agreement and understanding of the parties hereto with respect to the
Transactions and the other matters set forth herein and
28
<PAGE>
supersedes all prior agreements or understandings, oral or written, between the
parties regarding those matters, including, without limitation, the letter
agreement between Neose and Cytel dated April 22, 1998 relating to certain
confidential information.
8.7 Interpretation. Unless the context of this Agreement clearly requires
otherwise, (i) references to the plural include the singular, the singular the
plural, the part the whole, (ii) references to any gender include all genders,
(iii) "or" has the inclusive meaning frequently identified with the phrase
"and/or," (iv) "including" has the inclusive meaning frequently identified with
the phrase "but not limited to," and (v) references to "hereunder" or "herein"
relate to this Agreement. The section and other headings contained in this
Agreement are for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, Schedule and Exhibit references are to this Agreement
unless otherwise specified. Each accounting term used herein that is not
specifically defined herein shall have the meaning given to it under GAAP.
29
<PAGE>
8.8 Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware without regard to its
provisions concerning conflict of laws.
8.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
NEOSE TECHNOLOGIES, INC.
By: /s/ P. Sherrill Neff
--------------------------------------------
Name: P. Sherrill Neff
Title: President and Chief Financial Officer
CYTEL CORPORATION
By: /s/ Virgil Thompson
--------------------------------------------
Name: Virgil Thompson
Title: President and Chief Executive Officer
30
Exhibit 10.3
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND SUCH PORTIONS HAVE BEEN
FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of March 26,
1999 by and among NEOSE TECHNOLOGIES, INC., a Delaware corporation ("Neose"),
CYTEL CORPORATION, a Delaware corporation ("Cytel"), and CHASE MANHATTAN TRUST
COMPANY, NATIONAL ASSOCIATION (the "Escrow Agent").
Background
At the Closing today under the Asset Purchase Agreement dated as of the
date hereof (the "Asset Purchase Agreement"), Neose is purchasing the Purchased
Assets, including the Patents that are the subject of this Escrow Agreement.
This Escrow Agreement is being entered into pursuant to the Asset
Purchase Agreement. Unless otherwise defined herein, terms are used herein as
defined in the Asset Purchase Agreement.
Witnesseth
NOW, THEREFORE, in consideration of the respective covenants contained
herein and in the Asset Purchase Agreement and intending to be legally bound,
the parties hereto agree as follows:
1. Appointment and Acceptance of Escrow Agent.
Neose and Cytel hereby appoint the Escrow Agent as their agent
hereunder to serve in accordance with the terms and conditions of this Escrow
Agreement. The Escrow Agent hereby accepts such appointment and agrees to act in
accordance with such terms and conditions.
2. Escrow Funds.
2.1 Simultaneously with the execution hereof, Neose shall deposit with
the Escrow Agent a portion of the Purchase Price in the amount of $1,500,000
(the "Escrow Funds"), the receipt of which is hereby acknowledged by the Escrow
Agent.
2.2 The Escrow Funds shall be held and disbursed by the Escrow Agent as
hereinafter provided. The Escrow Funds shall not be subject to lien or
attachment by any creditor of any party hereto and shall be used solely for the
purpose set forth in this Escrow Agreement.
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<PAGE>
2.3 The Escrow Funds shall be invested exclusively in (i) any money
market mutual fund that invests exclusively in obligations of the United States
Government, or any agencies or instrumentalities thereof or any combination of
the foregoing, (ii) short-term obligations issued by the United States Treasury,
and (iii) such other government securities as may be approved jointly in writing
from time to time by Neose and Cytel. Any interest income or other investment
proceeds earned on the Escrow Funds ("Investment Income") shall be distributed
as provided in Section 4.1 and/or Section 4.2.
3. Required Actions for Certain Patent Matters.
3.1 Cytel shall use commercially reasonable efforts to complete, by no
later than [*] (the "Completion Date"), the following actions set forth in
subsections 3.1.1, 3.1.2 and 3.1.3 hereof ("Required Actions") with respect to
certain Patents included in the Purchased Assets in accordance with the
applicable standard specified below (the "Applicable Standard"):
3.1.1 With respect to the Patents more specifically described
in Section 3.1.1 of Exhibit A hereto [*], by the Completion Date Cytel
shall provide documentation reasonably satisfactory to Neose that (a)
[*] associated with [*] listed in the [*], and [*] associated with the
[*] listed in the [*], respectively, all of each such [*], at no
additional cost, obligation or burden to Neose, and (b) either [*] has
been [*], at no additional cost, obligation or burden to Neose, or [*]
have entered into an [*] in the [*], at no additional cost, obligation
or burden to Neose.
3.1.2 With respect to the Patents more specifically described
in Section 3.1.2 of Exhibit A hereto (the [*]), by the Completion Date
Cytel shall provide documentation reasonably satisfactory to Neose that
each [*] of the [*] by the [*] and each of [*], at no additional cost,
obligation or burden to Neose, [*] of such [*], respectively, to the
[*].
- ----------------------
* INDICATES PORTION OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE
BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
2
<PAGE>
3.1.3 With respect to [*], by the Completion Date Cytel shall
provide documentation reasonably satisfactory to Neose that [*] have
been [*] at no additional cost, obligation or burden to Neose, and in a
manner that [*] and its [*], if any, [*] that were the [*] at no
additional cost, obligation or burden to [*]. A grant by [*] to the
other party to the [*] in connection with the [*] of a [*] from the [*]
that were the [*] to be at [*].
3.2 Upon receipt of documentation identified in writing as final
("final documentation") with respect to a Required Action under any subsection
of Section 3.1, Neose shall have 30 days to determine if such final
documentation satisfies the Applicable Standard with respect to any such
Required Action. If Neose does not provide a Dispute Notice (as defined in
Section 3.3) to Cytel within such 30-day period, the Required Action for which
Cytel submitted final documentation shall be deemed to have been completed. In
the case of Sections 3.1.1 and 3.1.2 above, Cytel may submit to Neose for its
review and approval in advance the proposed documentation to be submitted to the
applicable parties for signature in order to satisfy the Applicable Standard
with respect to the applicable Required Action. If Neose approves the form of
such proposed documentation prior to its execution, then Neose shall be deemed
to have determined that such documentation, when signed by the relevant parties
and submitted as final documentation by Cytel, satisfies the Applicable Standard
with respect to the applicable Required Action.
3.3 If Neose determines that the final documentation provided by Cytel
with respect to a Required Action does not satisfy the relevant Applicable
Standard, Neose shall provide written notice to Cytel of such determination (the
"Dispute Notice") within 30 days after receipt of the documentation from Cytel.
Following receipt of the Dispute Notice, Cytel may take either of the following
actions:
3.3.1 provide written notice to Neose within 15 days after its
receipt of the Dispute Notice that it does not intend to provide any
further documentation with respect to such disputed Required Action and
request in such notice that the parties promptly (and in any event
within 10 days) submit the dispute to patent counsel at a law firm of
national reputation mutually appointed by Neose and Cytel (which
counsel and firm do not then represent and have not previously
represented either Neose or Cytel or any of their Affiliates) (the "IP
Firm") for a determination in accordance with Section 3.5 of whether
the Applicable Standard has been satisfied with respect to the disputed
Required Action; or
3.3.2 at any time on or prior to the Completion Date, provide
further documentation to Neose to show compliance with the Applicable
Standard with respect to such Required Action accompanied by written
notice to Neose whether or not Cytel reserves the right to provide
additional further documentation with respect to such Required Action
on or prior to the Completion Date.
- ----------------------
* INDICATES PORTION OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE
BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
3
<PAGE>
3.4 If, pursuant to Section 3.3.2, Cytel provides further documentation
to Neose with respect to a disputed Required Action, Neose shall have 15 days
after its receipt of the documentation to provide a Dispute Notice to Cytel. If
Neose does not provide a Dispute Notice to Cytel within such 15-day period, the
Required Action at issue shall be deemed to have been completed. If Neose
provides a Dispute Notice to Cytel within such 15-day period and Cytel's notice
to Neose pursuant to Section 3.3.2 did not reserve the right to provide
additional further documentation to Neose with respect to such Required Action,
the parties shall promptly (and in any event within 10 days) submit the dispute
to the IP Firm for a determination in accordance with Section 3.5 of whether the
Applicable Standard has been satisfied with respect to the disputed Required
Action.
3.5 Within 30 days after a submission by Neose and Cytel for resolution
of a disputed Required Action, the IP Firm shall determine and report to the
parties whether Cytel has satisfied the Applicable Standard with respect to such
disputed Required Action, and such report shall be final, binding and conclusive
on the parties. Neose and Cytel shall each pay one-half of the fees and
disbursements of the IP Firm incurred in connection with resolving any such
dispute.
3.6 Upon a final determination that Cytel has satisfied the Applicable
Standard with respect to a Required Action, either by (i) Neose failing to
provide a Dispute Notice to Cytel with respect to such Required Action by the
end of the 30-day period specified in Section 3.2, or (ii) Neose failing to
provide a Dispute Notice to Cytel with respect to such Required Action by the
end of the 15-day period specified in Section 3.4, or (iii) by the issuance by
the IP Firm of a report to Neose and Cytel that Cytel has satisfied the
Applicable Standard with respect to such Required Action, Neose and Cytel shall,
within five days of the event specified in clauses (i), (ii) or (iii) above,
issue a joint written statement to the Escrow Agent that such relevant Required
Action has been completed (each, a "Completion Statement"). The Completion
Statement shall clearly identify which Required Action has been completed by
reference to the relevant subsection number of Section 3.1.
4. Payment of Escrow Funds and Investment Income; Termination of Escrow.
4.1 Upon its receipt of the first Completion Statement, if any, for a
Required Action under Section 3.1, the Escrow Agent shall promptly deliver to
Cytel from the Escrow Funds the
4
<PAGE>
amount of [*], plus all Investment Income thereon, by cashier's check. Upon its
receipt of the second Completion Statement, if any, for a Required Action under
Section 3.1, the Escrow Agent shall promptly deliver to Cytel from the Escrow
Funds the amount of [*], plus all Investment Income thereon, by cashier's check.
Upon its receipt of the third and final Completion Statement, if any, for a
Required Action under Section 3.1, the Escrow Agent shall promptly deliver to
Cytel from the Escrow Funds [*], plus all Investment Income thereon, by
cashier's check.
4.2 If Cytel shall have failed to complete all Required Actions under
Section 3.1 prior to the Completion Date, as evidenced by the Escrow Agent's
failure to receive a Completion Statement for each of the Required Actions under
Sections 3.1.1, 3.1.2 and 3.1.3 on or prior to [*], then promptly after such
date the Escrow Agent shall deliver to Neose by cashier's check all remaining
Escrow Funds, plus all Investment Income thereon, that have not been disbursed
by the Escrow Agent to Cytel pursuant to Section 4.1.
4.3 Upon the delivery by the Escrow Agent of all Escrow Funds and
Investment Income pursuant to Section 4.1 and/or Section 4.2, this Escrow
Agreement shall terminate. All rights and obligations of the parties hereto
arising prior to the termination of this Escrow Agreement shall survive any such
termination.
5. Expenses.
All expenses and fees (including reasonable attorneys' fees) of the
Escrow Agent shall be paid in equal amounts by Neose and Cytel. The Escrow
Agent's fee schedule is attached hereto as Exhibit B and incorporated herein. To
the extent the Escrow Agent requires the advance payment of any expenses and
fees, Neose and Cytel each shall pay one-half of such expenses and fees
simultaneously with the execution hereof and the deposit of the Escrow Funds.
Neose and Cytel shall each bear their own expenses in connection with the
resolution of any Required Action or other dispute with respect to this Escrow
Agreement, except as otherwise expressly provided herein or in the Asset
Purchase Agreement.
6. Notices.
- ----------------------
* INDICATES PORTION OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE
BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
5
<PAGE>
All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number (with
such receipt being confirmed by the sender) set forth below, unless such address
or fax number is changed by notice to the other parties hereto:
6.1 If to Neose:
Neose Technologies, Inc.
102 Witmer Road
Horsham, PA 19044
FAX: (215) 441-5896
Attention: Chief Executive Officer
with a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Fax: (215) 963-5299
Attention: David R. King, Esquire
6.2 If to Cytel:
Cytel Corporation
9393 Towne Centre Drive
San Diego, CA 92121
Fax: (619) 552-3025
Attention: Chief Executive Officer
with a copy to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Fax: (619) 453-3555
Attention: L. Kay Chandler, Esquire
6.3 If to the Escrow Agent:
6
<PAGE>
Chase Manhattan Trust Company, National Association
Corporate Trust Department
1600 Market Street
30th Floor
Philadelphia, Pennsylvania 19103
Attn.: Stuart P. Papavassiliou, Asst. Vice President
Fax: (215) 585-8872
7. Liability of Escrow Agent.
7.1 Neose and Cytel, jointly and severally, shall indemnify the Escrow
Agent and hold it harmless from and against any losses, liabilities, expenses
(including reasonable attorneys' fees and expenses), claims or damages arising
out of or in connection with the performance of its obligations in accordance
with the provisions of this Escrow Agreement, except for losses, liabilities,
expenses, claims or damages resulting from the gross negligence or willful
misconduct of the Escrow Agent. These indemnities shall survive the resignation
of the Escrow Agent and the termination of this Escrow Agreement.
7.2 The Escrow Agent shall have no duties except those specifically set
forth in this Escrow Agreement and shall not be subject to, nor have any
liability or responsibility under, any other agreement or document the parties
hereto may be responsible for, even if same is referenced herein.
7.3 The Escrow Agent shall be protected in acting upon written
instructions from Neose and Cytel if it, in good faith, believes such written
instructions to be genuine and what they purport to be.
7.4 The Escrow Agent may confer with legal counsel, including its own
in-house counsel, in the event of any dispute or questions as to the
construction of any of the provisions hereof, or its duties hereunder, and it
shall incur no liability and be fully protected in acting in accordance with the
opinions of such counsel except to the extent of any willful misconduct or gross
negligence of the Escrow Agent.
7.5 If a dispute arises between or among any of the parties to this
Escrow Agreement, the Escrow Agent shall be entitled, at its option, and upon
written notice to Neose and Cytel, to tender into the custody of any court of
competent jurisdiction in Delaware the Escrow Funds, any Investment Income and
all materials that the Escrow Agent may be holding under this Escrow Agreement
and to begin such legal proceedings as the Escrow Agent deems appropriate. After
taking such actions, the Escrow Agent shall then be discharged from any further
duties and liability under this Escrow Agreement except to the extent of any
prior willful misconduct or gross negligence of the Escrow Agent.
7
<PAGE>
8. Resignation and Removal of Escrow Agent.
The Escrow Agent may resign at any time and for any reason upon notice
to Neose and Cytel given at least 30 days prior to the effective date of such
resignation. During such 30-day period, Neose and Cytel shall endeavor to agree
upon a successor Escrow Agent. If Neose and Cytel fail to agree on a successor
Escrow Agent within such 30-day period, the Escrow Agent shall deliver the
Escrow Funds, any Investment Income and all materials that it may then be
holding to a court in accordance with Section 7.5 above. If the Escrow Agent
becomes unable to fulfill its duties hereunder, or if for any reason, Neose and
Cytel desire to remove the Escrow Agent hereunder, Neose and Cytel may jointly
appoint a successor Escrow Agent for the purposes of this Escrow Agreement. Upon
the appointment of any successor Escrow Agent under this Escrow Agreement, the
successor Escrow Agent shall have all the rights, duties and powers that applied
to the original Escrow Agent hereunder. Upon any resignation or removal of the
Escrow Agent under this Section 8, all amounts paid or to be paid to the Escrow
Agent shall be prorated from the date of this Agreement through the effective
date of such resignation or removal.
9. General.
9.1 This Escrow Agreement shall be construed and enforced in accordance
with the laws of the State of Delaware without regard to its provisions
concerning conflict of laws.
9.2 The parties hereto agree to execute and deliver any and all papers
and documents necessary to complete the actions contemplated hereby.
9.3 This Escrow Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective legal representatives,
successors and permitted assigns of the parties hereto. Nothing in this Escrow
Agreement, express or implied, is intended to confer on any person other than
the parties hereto, or their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Escrow
Agreement. Neither Neose nor Cytel shall assign or otherwise transfer this
Escrow Agreement or any right, benefit or obligation hereunder (whether by
operation of law or otherwise) to any other person without the prior written
consent of the other party; provided, however, that (i) Neose may (a) assign or
otherwise transfer any or all of its rights and interests hereunder to one or
more of its Affiliates, and (b) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases Neose
nonetheless shall remain responsible for the performance of all of its
obligations hereunder), and (ii) either party may assign or otherwise transfer
any or all of its rights and interests hereunder in connection with the sale of
all or substantially all of its assets or business, whether by way of merger,
sale of stock, sale of assets or other similar transaction (in any or all of
which cases such party nonetheless shall remain responsible for the performance
of all of its obligations hereunder).
8
<PAGE>
9.4 This Agreement may be amended, modified or supplemented only by a
written instrument duly executed by each of the parties hereto. This Agreement
(including the Exhibits hereto), together with the Asset Purchase Agreement,
sets forth the entire agreement and understanding of the parties hereto with
respect to the matters set forth herein and supersedes all prior agreements or
understandings, oral or written, between the parties regarding those matters.
9.5 This Escrow Agreement may be executed in two or more counterparts,
each of which shall be binding as the date first written above, all of which
shall constitute one and the same instrument. Each such copy shall be deemed an
original, and it shall not be necessary in making proof of this Escrow Agreement
to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow
Agreement as of the date first written above.
NEOSE TECHNOLOGIES, INC.
By: /s/ P. Sherrill Neff
--------------------------------
P. Sherrill Neff
President and Chief Financial Officer
CYTEL CORPORATION
By: /s/ Virgil Thompson
--------------------------------
Virgil Thompson
President and Chief Executive Officer
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION,
as Escrow Agent
By: /s/ Stuart P. Papavassiliou
------------------------------
Stuart P. Papavassiliou
Assistant Vice President
9
<PAGE>
EXHIBIT A
Section 3.1.1
[*], and all [*], of any of the foregoing, and any [*] from any of the
foregoing.
Section 3.1.2
[*], any related [*] and all [*], of any of the foregoing, and any [*] from any
of the foregoing.
- --------
* INDICATES PORTIONS OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE
BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,406
<SECURITIES> 25,217
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,206
<PP&E> 18,120
<DEPRECIATION> 4,844
<TOTAL-ASSETS> 47,782
<CURRENT-LIABILITIES> 2,242
<BONDS> 8,300
0
0
<COMMON> 99
<OTHER-SE> 37,141
<TOTAL-LIABILITY-AND-EQUITY> 47,782
<SALES> 0
<TOTAL-REVENUES> 125
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> (3,072)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,072)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,072)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
