<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 15, 2000
AXYS PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2969941
(STATE OR OTHER JURISDICTION OF INCORPORATION) (IRS EMPLOYER
IDENTIFICATION NO.)
(COMMISSION FILE NUMBER)
180 KIMBALL WAY
SOUTH SAN FRANCISCO, CA 94080
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 829-1000
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 28, 2000, Axys Pharmaceuticals, Inc. ("Axys") completed the
sale of its Axys Advanced Technologies, Inc. ("AAT") business unit, a subsidiary
of Axys that produces and markets novel compound diversity libraries for drug
screening to a privately held company - Discovery Partners International, Inc.
("DPI"). The sale was completed pursuant to the terms of a merger agreement
dated April 11, 2000 between AAT and DPI. In conjunction with the merger, Axys
received $50,000 in cash, $550,000 in the form of a note receivable, 7,425,000
shares of common stock (valued at $8 per share), and a warrant to purchase
200,000 additional shares of DPI at $8 per share. Axys will account for its
investment in DPI under the equity method of accounting.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 2000.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the three months ended March 31, 2000 and the fiscal year ended
December 31, 1999.
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(c) Exhibits
<PAGE> 3
AXYS PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
-------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 48,484 50 (a) $ 48,534
Accounts receivable, net 4,861 (4,637)(a) 224
Inventories 2,072 (2,072)(a) --
Prepaid expenses and other current assets 2,239 (67)(a) 2,172
------------------------------------------
Total current assets 57,656 (6,726) 50,930
Property, plant and equipment, net 18,254 (3,025)(a) 15,229
Equity investment in affiliate -- (39,793)(a) 39,793
Other long term investments 1,500 -- 1,500
Note receivable from sale of AAT -- 550 (a) 550
Note receivable from officer 480 -- 480
Other assets 949 (76)(a) 873
------------------------------------------
Total assets $ 78,839 $ 30,516 $ 109,355
==========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,337 $ (398)(a) $ 1,939
Accrued compensation 2,657 (378)(a) 2,279
Other accrued liabilities 3,592 (322)(a) 3,270
Deferred revenue 1,327 (1,105)(a) 222
Current portion of capital lease and debt
obligations 26,392 -- 26,392
------------------------------------------
Total current liabilities 36,305 (2,203) 34,102
Capital lease and debt obligations 42 -- 42
Minority interest in joint venture 2,665 -- 2,665
Stockholders' Equity
Preferred stock -- -- --
Common stock 325,601 (10)(a) 325,591
Accumulated other comprehensive loss (71) -- (71)
Retained earnings (deficit) (285,703) 32,729(a) (252,974)
------------------------------------------
Total stockholders' equity 39,827 32,719 72,546
------------------------------------------
Total liabilities and stockholders' equity $ 78,839 $ 30,516 $ 109,355
==========================================
</TABLE>
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AXYS PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
-------------------------------------
<S> <C> <C> <C>
Revenues
Collaborative and licensing revenues $ 25,329 $ (1,244)(b) $ 24,085
Product revenues 12,928 (12,042)(b) 886
-------------------------------------
Total Revenues 38,257 (13,286) 24,971
Operating expenses:
Cost of sales 2,698 (2,698)(b) --
Research and development 65,504 (5,262)(b) 60,242
General and administrative 14,093 (1,320)(b) 12,773
Restructuring charge 5,175 -- 5,175
-------------------------------------
Total operating expenses 87,470 (9,280) 78,190
-------------------------------------
Operating loss (49,213) (4,006) (53,219)
Interest income 2,346 44 (b) 2,390
Interest expense (2,086) -- (2,086)
Equity interest in affiliates (836) (1,503)(b) (2,339)
Minority interest 1,879 -- 1,879
Other (expense) (853) -- (853)
-------------------------------------
Net loss $(48,763) $ (5,465) $(54,228)
=====================================
Basic and diluted net loss per share $ (1.60) $ (1.78)
======== ========
Weighed average number of shares 30,385 30,385
======== ========
</TABLE>
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AXYS PHARMACEUTICALS, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------------------------------------
<S> <C> <C> <C>
Revenues
Collaboration and licensing revenue $ 1,931 $ (533)(b) $ 1,398
Product revenues 5,060 (4,807)(b) 253
--
--------------------------------------
Total Revenues 6,991 (5,340) 1,651
Operating expenses:
Cost of sales 1,124 (1,124)(b) --
Research and development 11,301 (1,482)(b) 9,819
General and administrative 3,888 (617)(b) 3,271
Restructuring charge (545) -- (545)
--------------------------------------
Total operating expenses 15,768 (3,223) 12,545
--------------------------------------
Operating loss (8,777) (2,117) (10,894)
Interest income 161 11 (b) 172
Interest expense (284) -- (284)
Equity interest in affiliate -- (384)(b) (384)
Minority interest 408 -- 408
--------------------------------------
Net loss $ (8,492) $ (2,490) $(10,982)
======================================
Basic and diluted net loss per share $ (0.26) $ (0.34)
======== ========
Weighed average number of shares 32,067 32,067
======== ========
</TABLE>
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AXYS PHARMACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS:
The pro forma condensed consolidated balance sheet assumes that the sale
of Axys Advanced Technologies, Inc. ("AAT") to Discovery Partners International,
Inc. ("DPI") occurred as of March 31, 2000. Assumptions and adjustments
included in the unaudited pro forma condensed consolidated balance sheet are
summarized as follows:
(a) Cash received of $50.
Note receivable of $550. A three-year note with interest due at
8% per annum, interest payable only. Note is due immediately upon
completion of an initial public offering by DPI.
Valuation of 7,425,000 shares in stock received from DPI at $8.00
per share.
Valuation of warrant for 200,000 shares of common stock.
Elimination of all AAT accounts
Recording of the investment in DPI was calculated in accordance
with APB 18, and reflects Axys' 43% ownership interest at the
close of the AAT sales transaction net of the book value of AAT.
The pro forma condensed combined statement of operations assumes that
the sale of Axys Advanced Technologies, Inc. ("AAT") to Discovery Partners
Internationals, Inc. ("DPI") occurred as of January 1, 1999. Assumptions and
adjustments included in the unaudited pro forma condensed statement of
operations are summarized as follows:
(b) Interest income on note receivable.
Elimination of all AAT accounts.
Recorded the change in equity interest in affiliates.
The unaudited pro forma statements do not include any impact of the gain
on disposal or costs related to the sale. In future public filings, historical
results will be restated from those previously filed to reflect results of AAT
as discontinued operations in accordance with Accounting Principles Board
Opinion No. 30.
<PAGE> 7
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
2.1+ Agreement and Plan of Merger among us DPII Newco, LLC, Axys
Pharmaceuticals, Inc., and Axys Advanced Technologies, Inc., dated April
11, 2000.
- - ------------
+ Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text. This Exhibit has been filed separately with
the Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under the rules of the
Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
Axys Pharmaceuticals, Inc.
Date: May 15, 2000 By /s/ WILLIAM J. NEWELL
-------------------------------
Senior Vice President
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DISCOVERY PARTNERS INTERNATIONAL, INC.,
DPII NEWCO, LLC,
AXYS ADVANCED TECHNOLOGIES, INC.
AND
AXYS PHARMACEUTICALS, INC.
DATED APRIL 11, 2000
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TABLE OF CONTENTS
<TABLE>
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Article I DEFINITIONS....................................................................... 1
1.1 Defined Terms................................................................ 1
1.2 Construction of Certain Terms and Phrases.................................... 10
Article II MERGER; CLOSING.................................................................. 10
2.1 The Merger................................................................... 10
2.2 Effective Time............................................................... 10
2.3 Certificate of Incorporation................................................. 10
2.4 Bylaws....................................................................... 11
2.5 Directors.................................................................... 11
2.6 Officers..................................................................... 11
2.7 Conversion of Stock.......................................................... 11
2.8 Exchange of Company Shares and Mergersub Shares in the Merger................ 12
2.9 Options and Warrants......................................................... 12
2.10 Dissenting Shares............................................................ 13
2.11 Contribution of Assets by Axys............................................... 13
2.12 Intentionally Left Blank .................................................... 13
2.13 Intentionally Left Blank..................................................... 13
2.14 Closing...................................................................... 13
2.15 Further Assurances........................................................... 16
Article III REPRESENTATIONS AND WARRANTIES OF AXYS.......................................... 17
3.1 Organization of the Company.................................................. 17
3.2 Capital Stock of the Company................................................. 17
3.3 Ownership of Shares.......................................................... 17
3.4 Authority of Axys............................................................ 17
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
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3.5 Authority of the Company..................................................... 18
3.6 No Conflicts................................................................. 18
3.7 Consents and Governmental Approvals and Filings.............................. 19
3.8 Books and Records............................................................ 19
3.9 Financial Statements......................................................... 19
3.10 Absence of Changes........................................................... 20
3.11 No Undisclosed Liabilities................................................... 20
3.12 Tangible Personal Property................................................... 20
3.13 Benefit Plans; ERISA......................................................... 20
3.14 Real Property................................................................ 21
3.15 Intellectual Property Rights................................................. 22
3.16 Proprietary Information of Third Parties..................................... 24
3.17 Litigation................................................................... 24
3.18 Compliance with Law.......................................................... 24
3.19 Contracts.................................................................... 25
3.20 Environmental Matters........................................................ 26
3.21 Inventory.................................................................... 28
3.22 Plants, Buildings, Structures, Facilities and Equipment...................... 28
3.23 Insurance.................................................................... 28
3.24 Taxes........................................................................ 29
3.25 Labor and Employment Relations............................................... 31
3.26 Certain Employees............................................................ 31
3.27 Absence of Certain Changes................................................... 32
</TABLE>
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TABLE OF CONTENTS
(Continued)
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3.28 Customers/Supplier........................................................... 34
3.29 Necessary Property........................................................... 34
3.30 Bank Accounts................................................................ 34
3.31 Permits...................................................................... 35
3.32 Brokers...................................................................... 35
3.33 Year 2000 Compliance......................................................... 35
3.34 Insider Interests and Affiliate Transactions................................. 36
3.35 Material Misstatements and Omissions......................................... 36
3.36 Investment Intent............................................................ 36
Article IV REPRESENTATIONS AND WARRANTIES OF DPII........................................... 36
4.1 Organization of the Company.................................................. 37
4.2 Capital Stock of DPII........................................................ 37
4.3 [RESERVED]................................................................... 37
4.4 [RESERVED]................................................................... 37
4.5 Authority of DPII............................................................ 37
4.6 No Conflicts................................................................. 38
4.7 Consents and Governmental Approvals and Filings.............................. 38
4.8 Books and Records............................................................ 38
4.9 DPII Financial Statements.................................................... 39
4.10 Absence of Changes........................................................... 39
4.11 No Undisclosed Liabilities................................................... 39
4.12 Tangible Personal Property................................................... 40
4.13 Benefit Plans; ERISA......................................................... 40
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
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Page
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4.14 Real Property................................................................ 41
4.15 Intellectual Property Rights................................................. 41
4.16 Proprietary Information of Third Parties..................................... 43
4.17 Litigation................................................................... 43
4.18 Compliance with Law.......................................................... 44
4.19 Contracts.................................................................... 44
4.20 Environmental Matters........................................................ 45
4.21 Inventory.................................................................... 46
4.22 Plants, Buildings, Structures, Facilities and Equipment...................... 47
4.23 Insurance.................................................................... 47
4.24 Taxes........................................................................ 47
4.25 Labor and Employment Relations............................................... 49
4.26 Certain Employees............................................................ 50
4.27 Absence of Certain Changes................................................... 50
4.28 Customers/Supplier........................................................... 52
4.29 Necessary Property........................................................... 52
4.30 [reserved]................................................................... 52
4.31 Permits...................................................................... 52
4.32 Brokers...................................................................... 53
4.33 Year 2000 Compliance......................................................... 53
4.34 Insider Interests and Affiliate Transactions................................. 53
4.35 Material Misstatements and Omissions......................................... 53
4.36 Investment Intent............................................................ 54
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
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Article V CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND AXYS............................. 54
5.1 Representations, Warranties and Covenants.................................... 54
5.2 No Proceedings............................................................... 54
5.3 Consents..................................................................... 54
5.4 Closing Deliveries........................................................... 54
Article VI CONDITIONS TO THE OBLIGATIONS OF DPII AND MERGERSUB.............................. 54
6.1 Representations, Warranties and Covenants.................................... 55
6.2 No Proceedings............................................................... 55
6.3 Consents..................................................................... 55
6.4 Closing Deliveries........................................................... 55
Article VII COVENANTS OF THE PARTIES........................................................ 55
7.1 Covenants by Axys and DPII................................................... 55
7.2 Covenants of the Company and Axys............................................ 58
7.3 Covenants of DPII............................................................ 61
7.4 Covenants of DPII and Mergersub.............................................. 63
Article VIII ACTIONS BY THE PARTIES AFTER THE CLOSING....................................... 64
8.1 Survival of Representations, Warranties, Etc................................. 64
8.2 Indemnification.............................................................. 64
8.3 [reserved]................................................................... 69
8.4 Further Assurances........................................................... 69
8.5 Audited Financials .......................................................... 69
8.6 Payments Received............................................................ 70
Article IX CERTAIN TAX MATTERS.............................................................. 70
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
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9.1 Not Tax Free................................................................. 70
9.2 Allocation of Merger Consideration........................................... 70
9.3 Forms........................................................................ 70
9.4 Modification; Revocation..................................................... 71
9.5 Consistent Treatment......................................................... 71
9.6 Expenses Resulting from Section 338(h)(10) Elections......................... 71
9.7 Tax Sharing Agreements....................................................... 71
9.8 Tax Indemnity................................................................ 71
9.9 Mutual Cooperation........................................................... 73
9.10 Contests..................................................................... 73
9.11 Resolution of Disagreements Between Axys and DPII............................ 73
9.12 Survival of Obligations...................................................... 74
Article X MISCELLANEOUS..................................................................... 74
10.1 Termination.................................................................. 74
10.2 Notices...................................................................... 75
10.3 Entire Agreement............................................................. 76
10.4 Waiver....................................................................... 76
10.5 Amendment.................................................................... 76
10.6 No Third Party Beneficiary................................................... 76
10.7 No Assignment; Binding Effect................................................ 76
10.8 Headings..................................................................... 77
10.9 Severability................................................................. 77
10.10 Governing Law................................................................ 77
</TABLE>
VI
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TABLE OF CONTENTS
(Continued)
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10.11 Consent to Jurisdiction and Forum Selection.................................. 77
10.12 Expenses..................................................................... 78
10.13 Construction................................................................. 78
10.14 Counterparts................................................................. 78
</TABLE>
EXHIBITS
Exhibit A - Certificate of Incorporation
Exhibit B - Note
Exhibit C - Axys and Company Officer's Certificate
Exhibit D - DPII Officer's Certificate
vii
<PAGE> 9
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made and entered into
as of April 11, 2000, by and among Discovery Partners International, Inc., a
California corporation ("DPII"), DPII Newco, LLC, a Delaware limited liability
company and a wholly-owned subsidiary of DPII ("Mergersub"), Axys Advanced
Technologies, Inc., a Delaware corporation (the "Company"), and Axys
Pharmaceuticals, Inc., a Delaware corporation ("Axys").
RECITALS
WHEREAS, the Company and Axys are engaged in the combinatorial chemistry
business, including the design, production and sale of compounds and libraries
produced through combinatorial chemistry methods and various activities in
connection with such business (the "Business");
WHEREAS, DPII owns all of the issued and outstanding member interests of
Mergersub consisting of 1,000 "shares" (the "Mergersub Stock");
WHEREAS, Axys owns 10,000,000 shares (the "Axys AAT Stock") out of the
10,006,250 shares of issued and outstanding common stock of the Company, $0.001
par value per share, which is the sole class of Company capital stock (the
"Company Stock");
WHEREAS, the Boards of Directors of Axys, the Company, DPII and
Mergersub each have determined that it is in the best interests of their
respective shareholders for Mergersub to merge (the "Merger") with and into the
Company upon the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following defined
terms have the meanings indicated below:
"AFFILIATE" means, with respect to any Person, another Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person.
"AFFILIATED GROUP" has the meaning set forth in Section 3.24(h).
"AGREEMENT" has the meaning set forth in the preamble hereto.
<PAGE> 10
"AKKADIX CLAIMS" has the meaning set forth in Section 8.2(a).
"ASSETS AND PROPERTIES" and "ASSETS OR PROPERTIES" of any Person each
means all assets and properties of every kind, nature, character and description
(whether real, personal or mixed, whether tangible or intangible, whether
absolute, accrued, contingent, fixed or otherwise and wherever situated),
including the goodwill related thereto, owned or leased by such Person,
including, without limitation, cash, cash equivalents, accounts and notes
receivable, chattel paper, documents, contract rights, instruments, general
intangibles, real estate, equipment, inventory, goods and Intellectual Property.
"AXYS" has the meaning set forth in the preamble hereto.
"AXYS AAT STOCK" has the meaning set forth in the third recital of this
Agreement.
"AXYS GROUP" has the meaning set forth in Section 8.2(b).
"BENEFIT PLAN" means any Plan established, arranged or maintained by the
Company or any corporate group of which the Company is or was a member, existing
at the Closing Date or prior thereto, to which the Company contributes or has
contributed, or under which any employee, officer, director or former employee,
officer or director of the Company or any beneficiary thereof is covered, is
eligible for coverage or has benefit rights.
"BOOKS AND RECORDS" of any Person means all files, documents,
instruments, papers, books, accounts, ledgers, other financial information,
computer files (including but not limited to files stored on a computer's hard
drive or on floppy disks), electronic files and records in any other medium
relating to the business, operations or condition of such Person.
"BUSINESS" has the meaning set forth in the first recital of this
Agreement.
"BUSINESS DAY" means a day other than Saturday, Sunday or any day on
which banks located in the State of California or New York are authorized or
obligated to close.
"BYLAWS" has the meaning set forth in Section 2.4.
"CASH" has the meaning set forth in Section 2.7(b).
"CERTIFICATE OF INCORPORATION" has the meaning set forth in Section 2.3.
"CLOSING" has the meaning set forth in Section 2.14(a).
"CLOSING DATE" has the meaning set forth in Section 2.14(a).
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"COMPANY" has the meaning set forth in the preamble hereto.
2
<PAGE> 11
"COMPANY ASSETS AND PROPERTIES" and "COMPANY ASSETS OR PROPERTIES" means
all Assets and Properties that are used, held for use or presently contemplated
for use in the Business by the Company or Axys or any of its Affiliates, and are
owned or leased by the Company or Axys or any of its Affiliates, including,
without limitation, (i) all business plans, lists of customers and leads,
employee evaluations, laboratory notebooks and other Intellectual Property and
Confidential Information relating to the Business; (ii) all fixed assets, "on
hand" assets that have been expensed under the Company's policies (hand tools,
etc.), and leasehold improvements that are currently used by Company personnel
relating to the Business; (iii) all chemical compound inventory and other
inventory held by the Company or any Affiliate as of the Closing relating to the
Business; (iv) any prepaid revenue relating to the Business; and (v) those
patents and patent applications set forth on the Disclosure Schedule.
"COMPANY INTELLECTUAL PROPERTY" means any Intellectual Property relating
to the Company and the Business that is owned by or licensed to the Company or
Axys or any of its Affiliates relating to the Business.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" has the meaning set forth in
Section 3.15(a).
"COMPANY SHARES" has the meaning set forth in Section 2.7(b).
"COMPANY STOCK" has the meaning set forth in the third recital of this
Agreement.
"COMPOUND SUPPLY AGREEMENT" has the meaning set forth in Section
2.14(b)(vii).
"COMPUTER SYSTEMS" shall have the meaning set forth in Section 3.33.
"CONFIDENTIAL INFORMATION" means all of the following (whether or not
reduced to writing and whether or not patentable or protected by copyright): (i)
any and all trade secrets concerning the business and affairs of a Person,
product specifications, data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions and ideas,
past, current and planned research and development, current and planned
manufacturing and distribution methods and processes, customer lists, current
and anticipated customer requirements, price lists, market studies, business
plans, compounds, strains, molecules, proteins, computer software and programs
(including object code and source code), computer software and database
technologies, systems, structures and architectures (and related processes,
formulae, compositions, improvements, derivatives, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and information) of a
Person and any other information, however, documented, of a Person that is a
trade secret within the meaning of any and all applicable state and federal
trade secret laws; (ii) any and all information concerning the business and
affairs of a Person (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel and personnel
training and techniques and materials), however documented; and (iii) any and
all notes, analysis, compilations, studies, summaries, and
3
<PAGE> 12
other material prepared by or for a Person containing or based, in whole or in
part, on any information included in the foregoing.
"CONSULTATION NOTICE" has the meaning set forth in Section 9.11.
"CONTRIBUTION AGREEMENT" has the meaning set forth in Section 2.11.
"DAMAGES" has the meaning set forth in Section 8.2(a).
"DATE DATA" has the meaning set forth in Section 3.33.
"DEFINED BENEFIT PLAN" means each Benefit Plan which is subject to Part
3 of Title I of ERISA, Section 412 of the Code or Title IV of ERISA.
"DGCL" has the meaning set forth in Section 2.1.
"DISCLOSURE SCHEDULE" means the disclosure schedule which sets forth the
exceptions to the representations and warranties contained in Article III hereof
and certain other information called for by this Agreement delivered to DPII no
later than the day of the signing of the Agreement.
"DISSENTING SHARES" has the meaning set forth in Section 2.10.
"DPII" has the meaning set forth in the preamble hereto.
"DPII ASSETS AND PROPERTIES" means Assets and Properties that are used,
held for use or presently contemplated for use in or related to the DPII
Business by DPII or any of its Affiliates, that are owned or leased by DPII or
any of its Affiliates, including, without limitation, all business plans, lists
of customers and leads, employee evaluations, laboratory notebooks and other
Intellectual Property and Confidential Information relating to the DPII
Business.
"DPII BUSINESS" means all business operations of DPII.
"DPII DISCLOSURE SCHEDULE" means the disclosure schedule which sets
forth the exceptions to the representations and warranties contained in Article
IV hereof and certain other information called for by this Agreement delivered
to Axys no later than the day of the signing of the Agreement.
"DPII EMPLOYEE LETTER" has the meaning set forth in Section 4.26.
"DPII ENVIRONMENTAL PERMITS" has the meaning set forth in Section
4.20(a).
"DPII FINANCIAL STATEMENTS" means (i) the audited statements of income
of DPII for the fiscal years ended December 31, 1998 and December 31, 1999, (ii)
the unaudited statement of income of DPII for the three-month period ended March
31, 2000, and (iii) the Interim DPII Balance Sheet (as defined below).
4
<PAGE> 13
"DPII GROUP" has the meaning set forth in Section 8.2(a).
"DPII INTELLECTUAL PROPERTY" means Intellectual Property (as defined
below) owned or licensed in DPII).
"DPII MATERIAL CONTRACT" has the meaning set forth in Section 4.19(a).
"DPII REAL PROPERTY" has the meaning set forth in Section 4.14.
"DPII REGISTERED INTELLECTUAL PROPERTY" has the meaning set forth in
Section 4.15(a).
"EFFECTIVE TIME" has the meaning set forth in Section 2.2.
"ELECTION FORMS" has the meaning set forth in Section 9.3.
"EMPLOYEE LETTER" has the meaning set forth in Section 3.26.
"ENCUMBRANCES" means any mortgage, pledge, assessment, security
interest, deed of trust, lease, lien, adverse claim, levy, charge or other
encumbrance of any kind, or any conditional sale or title retention agreement or
other agreement to give any of the foregoing in the future.
"ENVIRONMENT" has the meaning set forth in Section 3.20(g)(i).
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 3.20(g)(iii).
"ENVIRONMENTAL NOTICE" has the meaning set forth in Section 3.20(g)(ii).
"ENVIRONMENTAL PERMITS" has the meaning set forth in Section 3.20(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" means any entity which is a member of a "controlled
group of corporations" or which is or was under "common control" with the
Company as defined in Section 414 of the Code.
"ESTOPPEL CERTIFICATE" has the meaning set forth in Section
2.14(b)(viii).
"FACILITIES AGREEMENT" has the meaning set forth in Section 2.14(b)(v).
"FINAL ALLOCATION" has the meaning set forth in Section 9.2.
"FINANCIAL STATEMENTS" means (i) the quarterly unaudited statements of
income of the Business for the fiscal quarters ended March 31, June 30,
September 30 and December 31, 1998 and the quarterly unaudited statements of
income of the Business for the fiscal quarters ended
5
<PAGE> 14
March 31, June 30, September 30, and December 31, 1999, and the three-month
period ended March 31, 2000, and (ii) the Interim Balance Sheet (as defined
below) for the Company.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"GOVERNMENTAL OR REGULATORY AUTHORITY" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States or other country, any state, county, city or other political
subdivision.
"IRS" means the United States Internal Revenue Service, or any successor
agency.
"INDEMNITY ESCROW AGREEMENT" has the meaning set forth in Section
2.14(b)(iv).
"INDEMNITY ESCROW AMOUNT" has the meaning set forth in Section
2.14(c)(ii).
"INTELLECTUAL PROPERTY" means (i) inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions and
reexaminations thereof; (ii) trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations and renewals in connection
therewith, copyrightable works, all copyrights and all applications,
registrations and renewals in connection therewith; (iii) trade secrets and
confidential business information (including product specifications, data,
know-how, formulae, compositions, processes, designs, sketches, photographs,
graphs, drawings, samples, inventions and ideas, past, current and planned
research and development, current and planned research and distribution
methodologies and processes, customer lists, current and anticipated customer
requirements, price lists, market studies, business plans), however documented;
(iv) proprietary computer software and programs (including object code and
source code) and other proprietary rights and copies and tangible embodiments
thereof (in whatever form or medium); (v) database technologies, systems,
structures and architectures (and related processes, formulae, compositions,
improvements, devices, know-how, inventions, discoveries, concepts, ideas,
designs, methods and information) and any other related information, however,
documented; (vi) all industrial designs and any registrations and applications
therefor; (vii) all databases and data collections and all rights therein; and
(viii) any similar or equivalent rights to any of the foregoing anywhere in the
world.
"INTERIM BALANCE SHEET" means the unaudited balance sheet of the Company
as of March 31, 2000.
"INTERIM DPII BALANCE SHEET" means the unaudited balance sheet of DPII
as of March 31, 2000.
"INTERIM PERIOD" has the meaning set forth in Section 9.8(a).
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<PAGE> 15
"INVESTORS' RIGHTS AGREEMENT AMENDMENT" has the meaning set forth in
Section 2.14(b)(ix).
"KNOWLEDGE OF AXYS AND/OR THE COMPANY" or "KNOWN TO AXYS AND/OR THE
COMPANY" or any similar phrase or construction means the knowledge of John
Walker, Bill Newell, Kathy Stafford, Dan Hoth, Mike Venuti or Bob Reed.
"KNOWLEDGE OF DPII or "KNOWN TO DPII" or any similar phrase or
construction means the knowledge of Riccardo Pigliucci, Jack Fitzpatrick, Rick
Brown, David Coffen or John Lillig.
"LIABILITIES" means any liability (whether known or unknown, whether
asserted, or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including but not limited to any liability for Taxes (as defined below).
"LICENSE AGREEMENT" has the meaning set forth in Section 2.11.
"MATERIAL" has the meaning set forth in Section 3.20(g)(iv).
"MATERIAL ADVERSE EFFECT" means, for any Person, a material adverse
effect whether individually or in the aggregate (a) on the business, operations,
financial condition, Assets and Properties, Liabilities or prospects of such
Person, or (b) on the ability of such Person to consummate the transactions
contemplated hereby.
"MATERIAL CONTRACTS" has the meaning set forth in Section 3.19(a).
"MATERIALITY TERMS" has the meaning set forth in Section 8.2(e)(iv).
"MERGER" has the meaning set forth in the fourth recital hereto.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.7(b).
"MERGERSUB" has the meaning set forth in the preamble hereto.
"MERGERSUB SHARES" has the meaning set forth in Section 2.7(a).
"MERGERSUB STOCK" has the meaning set forth in the second recital
hereto.
"NON-COMPETITION AGREEMENT" has the meaning set forth in Section
2.14(b)(ii) .
"NOTE" has the meaning set forth in Section 2.7(b).
"ORDER" means any writ, judgment, decree, injunction or similar order of
any Governmental or Regulatory Authority (in each such case whether preliminary
or final).
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<PAGE> 16
"ORDINARY COURSE OF BUSINESS" means the action of a Person that is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person.
"PERMITS" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations and similar consents granted or issued
by any Governmental or Regulatory Authority.
"PERMITTED ENCUMBRANCE" means (a) any Encumbrance for Taxes not yet due
or delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP, (b) any
minor imperfection of title or similar Encumbrance which individually or in the
aggregate with other such Encumbrances does not materially impair the value of
the property subject to such Encumbrance or the use of such property in the
conduct of the Business and (c) zoning and other land use restrictions that do
not impair the value of the property or the use thereof.
"PERSON" means any natural person, corporation, general partnership,
limited partnership, limited liability company, proprietorship, other business
organization, trust, union, association or Governmental or Regulatory Authority.
"PLAN" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workers' compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA, and any employment,
severance, consulting or other similar arrangement entered into between the
Company or any ERISA Affiliate and any director or employee or former director
or employee of the Company in his capacity as such.
"PRE-CLOSING PERIODS" has the meaning set forth in Section 9.8(a).
"PROCEEDING" means any action, suit, proceeding, claims arbitration,
Order (as defined above), inquiry, hearing, assessment with respect to fines or
penalties or litigation (whether civil, criminal, administrative, investigative
or informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental or Regulatory Authority (as defined above).
"QUALIFIED PLAN" means each Benefit Plan which is intended to qualify
under Section 401 of the Code.
"REAL PROPERTY" has the meaning set forth in Section 3.14.
"SECTION 338(h)(10) ELECTION" has the meaning set forth in Section 9.1.
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<PAGE> 17
"SHAREHOLDERS' AGREEMENT AMENDMENT" has the meaning set forth in Section
2.14(b)(x).
"STANDSTILL AGREEMENT" has the meaning set forth in Section
2.14(b)(xii).
"STRADDLE PERIOD" has the meaning set forth in Section 9.8(a).
"SUBLEASE" has the meaning set forth in Section 2.14(b)(vi).
"SURVIVING CORPORATION" has the meaning set forth in Section 2.1.
"SURVIVING CORPORATION STOCK" has the meaning set forth in Section 2.3.
"TAX" and "TAXES" mean (i) any federal, state, local or foreign income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by the
Taxing Authority responsible for the imposition of any such tax, (ii) any
Liability for payment of any amounts of the type described in clause (i) as a
result of being or having been at any time a member of an affiliated,
consolidated, combined, unitary or other group for any taxable period and (iii)
any Liability for the payment of any amounts of the type described in clause (i)
or (ii) as a result of any express or implied obligation to indemnify any other
Person.
"TAX RETURN" means any return, report, information return, claim for
refund, schedule, statement or other document (including any related or
supporting information) filed or required to be filed with respect to any Taxing
Authority in connection with the determination, assessment or collection of any
Tax (whether or not such Tax is imposed on the Company or any of its
subsidiaries) or the administration of any laws, regulations or administrative
requirements relating to any Tax, or any statement required to be furnished to
any Person under any Tax law.
"TAXING AUTHORITY" means any Governmental or Regulatory Authority
exercising any authority to impose, regulate or administer the imposition of
Taxes.
"THRESHOLD AMOUNT" has the meaning set forth in Section 8.2(e)(i);
"TREASURY REGULATIONS" means the income tax regulations promulgated
under the Code.
"VOTING AGREEMENT AMENDMENT" has the meaning set forth in Section
2.14(b)(xi).
"YEAR 2000 COMPLIANCE" has the meaning set forth in Section 3.33.
"YEAR 2000 COMPLIANT" has the meaning set forth in Section 3.33.
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<PAGE> 18
1.2 Construction of Certain Terms and Phrases.
Unless the context of this Agreement otherwise requires, (a) words of
any gender include each other gender; (b) words using the singular or plural
number also include the plural or singular number, respectively; (c) the terms
"hereof," "herein," "hereby" and derivative or similar words refer to this
entire Agreement; (d) the terms "Article" or "Section" refer to the specified
Article or Section of this Agreement; (e) the term "or" has, except where
otherwise indicated, the inclusive meaning represented by the phrase "and/or";
and (f) "including" means "including without limitation." Whenever this
Agreement refers to a number of days, such number shall refer to calendar days
unless Business Days are specified. All accounting terms used herein and not
expressly defined herein shall have the meanings given to them under GAAP.
ARTICLE II
MERGER; CLOSING
2.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 2.2), Mergersub and the Company
shall consummate the Merger in which (a) Mergersub shall be merged with and into
the Company and the separate limited liability company existence of Mergersub
shall thereupon cease, (b) the Company shall be the successor or surviving
corporation in the Merger and shall continue to be governed by the laws of the
State of Delaware and (c) the separate corporate existence of the Company with
all its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger. The corporation surviving the Merger is sometimes
hereinafter referred to as the "Surviving Corporation." The Merger shall have
the effects set forth in the General Corporation Law of the State of Delaware
(the "DGCL").
2.2 Effective Time. Mergersub and the Company will file a certificate of
merger on the date of the Closing (or on such other date as Mergersub and the
Company may agree in writing) with the Secretary of State of the State of
Delaware as provided in the DGCL, and shall make all other filings or recordings
required by the DGCL in connection with the Merger. The Merger shall become
effective at such time as the certificate of merger is duly filed with the
Secretary of State of the State of Delaware or such later time as is specified
in the certificate of merger, and such time is hereinafter referred to as the
"Effective Time."
2.3 Certificate of Incorporation. The Certificate of Incorporation of
the Company, in effect immediately prior to the Effective Time, shall be amended
and restated to read as of the Effective Time as set forth in Exhibit A attached
hereto (the "Certificate of Incorporation"), and, as so amended and restated,
shall be the Certificate of Incorporation of the Surviving Corporation until
amended in accordance with applicable law. The Certificate of Incorporation
shall provide that the authorized capital stock of the Surviving Corporation
shall consist of 1,000 shares of common stock, par value $0.001 per share
("Surviving Corporation Stock").
2.4 Bylaws. The Bylaws of the Company, in effect immediately prior to
the Effective
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<PAGE> 19
Time, shall be the Bylaws of the Surviving Corporation until amended in
accordance with applicable law.
2.5 Directors. The directors of the Company shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
2.6 Officers. The officers of the Company shall, from and after the
Effective Time, be the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
2.7 Conversion of Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of the Company, DPII or Mergersub or the
holders of any outstanding shares of capital stock of the Company or the holders
of any outstanding member interests of Mergersub:
(a) Each "share" of Mergersub Stock ("Mergersub Shares"), issued
and outstanding immediately prior to the Effective Time shall be converted into
the right to receive one newly issued share of Surviving Corporation Stock.
(b) Except as provided pursuant to Section 2.10 and subject to
Section 2.7(c), each share of Company Stock ("Company Shares") issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive the Merger Consideration (as defined below), payable to the
holder thereof, without interest, upon surrender of the certificate formerly
representing such share of Company Stock in the manner provided in Section 2.8
hereof. All such shares of Company Stock, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance with
Section 2.8 hereof, without interest, or to perfect any rights of appraisal as a
holder of Dissenting Shares (as hereinafter defined) that such holder may have
pursuant to Section 262 of the DGCL. "Merger Consideration" shall mean (i)
0.7425 shares of DPII Common Stock, (ii) a promissory note, in the form of
Exhibit B attached hereto (a "Note") with a principal amount equal to $0.055 per
Company Share, and (iii) cash in an amount equal to $0.005 per Company Share
(the "Cash").
(c) At the Effective Time, each share of capital stock of the
Company held in treasury of the Company shall be cancelled and retired without
payment of any consideration therefor and cease to exist.
2.8 Exchange of Company Shares and Mergersub Shares in the Merger. The
manner of making exchange of Company Shares and Mergersub Shares in the Merger
shall be as follows: At the Effective Time, the Surviving Corporation shall make
available for the benefit of
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DPII a certificate representing the aggregate number of Surviving Corporation
Shares issuable pursuant to Section 2.7(a). DPII shall be entitled to receive
for each of the Mergersub Shares one share of Surviving Corporation Common
Stock. At the Effective Time, Mergersub (or DPII on behalf of Mergersub) shall
make available for the benefit of the holders of the Company Shares the Merger
Consideration applicable to the Company Shares upon surrender of certificates
formerly representing Company Shares. Upon surrender of certificates formerly
representing Company Shares for cancellation to the Surviving Corporation, the
holder of such certificate shall be entitled to receive for each of the Company
Shares represented by such certificate, the Merger Consideration and the
certificates so surrendered shall forthwith be cancelled. Until so surrendered,
such certificates shall represent solely the right to receive the Merger
Consideration with respect to each of the Company Shares represented thereby. In
the event that any certificate has been lost, stolen or destroyed, the Surviving
Corporation shall issue in exchange for such lost, stolen or destroyed
certificate, promptly following the Surviving Corporation's receipt of an
affidavit as to that fact in form and substance acceptable to the Surviving
Corporation made by the registered owner of the shares represented by such
certificate, as shown on the Company's stock records immediately before the
Effective Time, the consideration to which such registered owner would be
entitled to receive pursuant to Section 2.7; provided, however, that the
Surviving Corporation shall, as a condition precedent to the delivery of such
consideration require such registered owner of such lost, stolen or destroyed
certificate(s) to execute a customary indemnification agreement and/or post an
indemnity bond against any claim that may be made against the Surviving
Corporation with respect to the certificate(s) alleged to have been lost, stolen
or destroyed.
2.9 Options and Warrants. Each unexpired and unexercised option or right
to purchase Company Stock issued and outstanding at the Effective Time and set
forth in Section 2.9 of the Disclosure Schedule (such schedule to be updated at
Closing to reflect the addition of new employee Company Stock options offered in
accordance with Section 7.2(a)(xiv) after the date hereof), whether or not then
exercisable, shall be assumed by DPII, and shall become an option to purchase
shares of DPII Common Stock, subject to adjustment as follows: (a) the number of
shares of DPII Common Stock, for which such option or right is exercisable
immediately after the Merger shall be equal to the number of shares of Company
Stock for which such option or right is exercisable immediately prior to the
Merger, multiplied by 0.75, rounded down to the nearest whole share, and (b) the
exercisable price per share of DPII Common Stock for which such option or right
is exercisable immediately after the Merger shall be equal to the exercise price
per share of Company Stock for which such option or right is exercisable
immediately prior to the Merger, divided by 0.75, rounded up to the newest whole
cent. The parties hereto acknowledge that (i) after such assumption, the power
of each holder of such an option or right, to purchase Company Stock of the
Company by exercising such options or rights is terminated and (ii) DPII shall
have no obligation to continue the employment of any of the Company's employees
after the Closing. Axys shall cause any other derivative securities, options,
warrants or other rights to acquire any Company capital stock to be terminated
before the Closing.
2.10 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Company Shares outstanding immediately prior to the Effective Time
and held by a holder (other than Axys or any of its Affiliates) who has not
voted in favor of the Merger or consented thereto in writing and who has
demanded appraisal for such Company Shares in accordance with the DGCL
("Dissenting Shares") shall not be converted into a right to receive the Merger
Consideration, but such holder shall be entitled to receive such consideration
as shall be
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<PAGE> 21
determined pursuant to the DGCL; provided, however, that if, after the Effective
Time, such holder fails to perfect or withdraws or loses his right to appraisal,
such Company Shares shall be treated as if they had converted as of the
Effective Time into a right to receive the Merger Consideration, without
interest thereon and such shares shall no longer be Dissenting Shares. Axys (on
behalf of itself and its Affiliates) hereby consents to and approves the Merger
and waives any and all rights to dissent from the Merger and demand appraisal
for its Company Shares.
2.11 Contribution of Assets by Axys. Prior to the Closing Date, Axys has
either contributed or agrees to, and cause its Affiliates to, contribute (by
assignment or license, as applicable) all Company Assets and Properties held by
Axys or any Affiliate of Axys (other than the Company) to the Company pursuant
to the Common Stock Purchase and Asset Contribution Agreement dated November 17,
1999, by and between Axys and the Company, previously delivered to DPII (the
"Contribution Agreement"), and a Technology Assignment and License Agreement by
and between Axys and the Company, in the form to be mutually agreed to by DPII
and Axys and the Company (the "License Agreement").
2.12 Intentionally Left Blank.
2.13 Intentionally Left Blank.
2.14 Closing.
(a) Time and Place. The consummation of the Merger and the
transactions contemplated hereby (the "Closing") shall take place at the offices
of Brobeck Phleger & Harrison LLP, 12390 El Camino Real, San Diego, California,
at 10:00 a.m. on April 21, 2000, or at such time and in such manner as the
parties mutually agree (the "Closing Date").
(b) Closing Deliveries by the Company and Axys. At the Closing, the
Company and Axys shall have delivered or caused to be delivered to DPII:
(i) the certificate of merger as filed by the Company as
provided in Section 2.2.
(ii) the original stock certificates representing the Axys
AAT Shares in appropriate form for surrender to the Surviving Corporation;
(iii) the Non-Competition and Non-Disclosure Agreement by
and between DPII and Axys, in the form mutually agreed to by DPII and Axys (the
"Non-Competition Agreement"), duly executed by Axys;
(iv) the Indemnity Escrow Agreement by and among DPII, Axys
and the escrow agent, in the form mutually agreed to by DPII and Axys (the
"Indemnity Escrow Agreement"), duly executed by Axys;
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<PAGE> 22
(v) the fully executed Contribution Agreement and the fully
executed License Agreement;
(vi) the License Agreement Concerning Shared Space and
between DPII and Axys, in the form mutually agreed to by DPII and Axys (the
"Facilities Agreement"), duly executed by Axys;
(vii) the fully executed Amendment to Sublease Agreement
between Axys and the Company, in the form mutually agreed to by DPII and Axys
and the Company (the "Sublease Amendment");
(viii) the Compound Supply Agreement by and between DPII and
Axys, in the form mutually agreed to by DPII and Axys (the "Compound Supply
Agreement"), duly executed by Axys;
(ix) the amended and restated Investors' Rights Agreement by
and among DPII, Axys and others, in the form mutually agreed to by DPII and Axys
(the "Investors' Rights Agreement Amendment"), duly executed by Axys;
(x) the amended and restated Shareholders' Agreement by and
among DPII, Axys and others, in the form mutually agreed to by DPII and Axys
(the "Shareholders Agreement Amendment"), duly executed by Axys;
(xi) the amended and restated Voting Agreement by and among
DPII, Axys and others, in the form mutually agreed to by DPII and Axys (the
"Voting Agreement Amendment"), duly executed by Axys;
(xii) the Standstill Agreement by and between Axys and DPII,
in the form mutually agreed to by Axys and DPII (the "Standstill Agreement"),
duly executed by Axys;
(xiii) the Estoppel Certificate and Consent to Assignment by
the landlord or landlords, as the case may be, of the Real Property, in the form
mutually agreed to by DPII and Axys, duly executed by such landlord(s);
(xiv) a certificate of an officer of the Company and of
Axys, respectively, substantially in the form of Exhibit C attached hereto, duly
executed by each of the Company and Axys;
(xv) certificates of the Secretary of the Company and Axys,
respectively, certifying as of the Closing Date (A) a true and complete copy of
the organizational documents of the Company or Axys, as the case may be,
certified as of a recent date by the Secretary of State of Delaware, (B) a true
and complete copy of the resolutions of the board of directors of the Company
and Axys, respectively, and the resolutions of the stockholders of the Company,
each authorizing the execution, delivery and performance of this Agreement by
Axys and the Company and the consummation of the transactions contemplated
hereby (C) a
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<PAGE> 23
certificate of each appropriate Secretary of State certifying the good standing
of each of Axys and the Company in its state of incorporation or organization
and, with respect to the Company, all states in which such corporation is
qualified to do business and (D) incumbency matters;
(xvi) an affidavit under Section 1445(b)(2) of the Code that
will exempt the payment of the Merger Consideration contemplated by this
Agreement from withholding under Section 1445 of the Code;
(xvii) all documents evidencing the contribution of Company
Assets and Properties by Axys and its Affiliates pursuant to Section 2.11 or
Section 7.1(g) in form and substance reasonably satisfactory to DPII; and
(xviii)such other documents as DPII may reasonably request
for the purpose of facilitating the consummation of the transactions
contemplated herein.
(c) Closing Deliveries By DPII and Mergersub. At the Closing, DPII
and Mergersub shall have delivered or caused to be delivered to (or for the
benefit of) Axys:
(i) the Cash, a Note and stock certificate representing the
Merger Consideration that Axys shall be entitled to receive pursuant to Section
2.7(b) and Section 2.8, less the Indemnity Escrow Amount (as defined below),
(ii) a stock certificate made out in favor of Axys
representing *** shares of DPII Common Stock (the "Indemnity Escrow Amount")
to the Escrow Agent to be held in an escrow account pursuant to the Indemnity
Escrow Agreement and subject to the terms of this Agreement.
(iii) the Non-Competition Agreement, duly executed by DPII;
(iv) the Indemnity Escrow Agreement, duly executed by DPII
and the escrow agent;
(v) [RESERVED];
(vi) the Facilities Agreement, duly executed by DPII;
(vii) [RESERVED];
(viii) the Compound Supply Agreement, duly executed by DPII;
(ix) the Investors' Rights Agreement Amendment, duly
executed by DPII;
(x) the Shareholders' Agreement Amendment, duly executed by
DPII;
(xi) the Voting Agreement Amendment, duly executed by DPII;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
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(xii) the Standstill Agreement, duly executed by DPII;
(xiii) a certificate of an officer of DPII,
substantially in the form of Exhibit D attached hereto, duly executed by DPII;
and
(xiv) a certificate of the Secretary of DPII and
Mergersub, respectively, certifying as of the Closing Date, (A) a true and
complete copy of the organizational documents of DPII or Mergersub, as the case
may be, certified as of a recent date by the Secretary of State of the State of
California or Delaware, as the case may be, (B) a true and complete copy of the
resolutions of the board of directors or managers of DPII and Mergersub,
respectively, and the resolutions of the member of Mergersub, each authorizing
the execution, delivery and performance of this Agreement by DPII and Mergersub,
respectively, and the consummation of the transactions contemplated hereby, (C)
a certificate of each appropriate Secretary of State certifying the good
standing of each of DPII and Mergersub in its state of incorporation or
organization and (D) incumbency matters.
2.15 Further Assurances. If, at any time after the Effective Time, any
further action is necessary or desirable to consummate the Merger, to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Mergersub, the officers and directors of Axys,
Mergersub, the Company and DPII are fully authorized in the name of their
respective corporation or otherwise to take, and will take, all such lawful and
necessary action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AXYS
Axys represents and warrants to DPII, except for the matters set forth
on the Disclosure Schedule furnished to DPII, which matters shall be deemed
exceptions to such representations and warranties as if made hereunder, as
follows:
3.1 Organization of the Company.
The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware. The Company is duly
authorized to conduct business and is in good standing in each jurisdiction
where such qualification is required except for any jurisdiction where failure
so to qualify would not have a Material Adverse Effect upon the Company. The
Company has full power and authority, and holds all Permits and authorizations
necessary to carry on its Business and to own and use the Company Assets and
Properties owned and used by the Company except where the failure to have such
power and authority or to hold such Permit or authorization would not have a
Material Adverse Effect on the Business. The Company has delivered to DPII
correct and complete copies of its charter documents and organizational
documents, each as amended to date.
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3.2 Capital Stock of the Company.
The authorized capital stock of the Company consists of Twelve Million
(12,000,000) shares of common stock, par value $.001 per share, of which
10,006,250 shares are issued and outstanding as of the date of this Agreement,
and no shares are in treasury. No shares of the Company's capital stock have
been issued since March 31, 2000. The Company Stock is duly authorized, validly
issued, fully paid and nonassessable. There are no outstanding subscriptions,
options, warrants, calls, commitments or other rights of any kind for the
purchase or acquisition of, nor any securities convertible or exchangeable for,
any capital stock of the Company or any agreements or offers to issue any such
subscriptions, options, warrants, calls, commitments or other rights.
3.3 Ownership of Shares.
Axys owns beneficially and of record 10,000,000 shares of the Company
Stock, free and clear of all Encumbrances, and has good and valid title to such
shares.
3.4 Authority of Axys.
Axys has the right, power and authority to enter into this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
hereunder and thereunder and no other proceedings on the part of Axys are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. No vote of, or consent by, the holders of any class or
series of capital stock or indebtedness issued by Axys is necessary to authorize
the execution and delivery by Axys of this Agreement or the consummation of this
Agreement. This Agreement (and at Closing all exhibits referenced herein) have
been duly and validly executed and delivered by Axys and each constitutes a
legal, valid and binding obligation of Axys enforceable against Axys in
accordance with its respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
3.5 Authority of the Company.
The Company has all necessary power and authority and has taken all
action necessary to enter into this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations hereunder and no other
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. The vote of, or consent
by, the holders of each class or series of capital stock or indebtedness issued
by the Company necessary to authorize the execution and delivery by the Company
of this Agreement or the consummation of this Agreement has been obtained. This
Agreement has been duly and validly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by
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laws relating to the availability of specific performance, injunctive relief or
other equitable remedies.
The Company does not, directly or indirectly, beneficially own or own of
record any equity securities of or any other equity interest in, any other
Person or have any other equity investment or other ownership interest in any
other Person.
3.6 No Conflicts.
The execution and delivery by Axys and the Company of this Agreement
does not, and the performance by Axys and the Company of their respective
obligations under this Agreement and the consummation of the transactions
contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the charter documents, bylaws or other
organizational documents of the Company or Axys;
(b) conflict with or result in a violation or breach of any term or
provision of any law, Order, Permit, statute, rule or regulation applicable to
Axys, the Company or the Business, Company Assets or Properties;
(c) result in a breach of, or default under (or give rise to right
of termination, cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement, lease
or other similar instrument or obligation to which the Company, any of its
Company Assets and Properties or the Company Stock may be bound, except for such
breaches or defaults as set forth on the Disclosure Schedule as to which
requisite waivers or consents will have been obtained by the Closing Date; or
(d) result in an imposition or creation of any Encumbrance on the
Business, the Company Assets or Properties or the Company Stock.
3.7 Consents and Governmental Approvals and Filings.
No consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority or other Persons on the part of Axys or the
Company is required in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby or
to enable the Company to conduct the Business after the Closing Date in a manner
consistent with that in which the Business is presently conducted.
3.8 Books and Records.
The minute books and other corporate records of the Company and Axys, to
the extent they relate to the Business, contain a true and complete record, in
all material respects, of all actions taken at all meetings and by all written
consents in lieu of meetings of the stockholders, the boards of directors and
committees of the boards of directors of the Company and Axys. The
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stock transfer ledgers and other similar records of the Company and Axys, to the
extent they relate to the Business, accurately reflect all issuances and record
transfers in the capital stock of the Company. The books and records of the
Company and Axys, to the extent they relate to the Business, taken as a whole,
fairly reflect all of their respective transactions, properties, assets and
liabilities. Except as specifically noted therein and except for revenue items
from customers that may be non-recurring, there have been no material, special
or non-recurring items of income or expense with respect to the Company and
Axys, to the extent they relate to the Business, during the periods covered by
the Financial Statements, and the Interim Balance Sheet does not reflect any
write-up or revaluation increasing the book value of any assets of the Company
and Axys, to the extent they relate to the Business, except as specifically
disclosed in the Financial Statements or in the notes thereto. Except as
specifically noted therein, the Financial Statements reflect all adjustments
necessary for a fair presentation of the financial condition and results of
operations of the Company and Axys, to the extent they relate to the Business.
The other Books and Records of the Company and the Axys, to the extent they
relate to the Business, are in all material respects true and correct and, taken
as a whole, are complete.
3.9 Financial Statements.
The Company has previously delivered to DPII the Financial Statements.
Such Financial Statements (i) are true, correct and complete, (ii) have been
prepared in accordance with the Books and Records of the Company in a consistent
manner throughout all of the periods indicated, (iii) have been prepared in
conformity with GAAP, consistently applied, and (iv) fairly present the
financial condition and results of operations of the Company as of the
respective dates thereof and for the periods covered thereby; provided, that the
Interim Balance Sheet is subject to normal year-end adjustments and lack
footnotes and certain other presentation items.
3.10 Absence of Changes.
Except for the execution and delivery of this Agreement and the
transactions to take place pursuant hereto on or prior to the Closing Date,
since the Interim Balance Sheet Date, there has not been any material adverse
change, or any event or development which, individually or together with other
such events, could reasonably be expected to result in a Material Adverse Effect
on the Company or the Business and since the Interim Balance Sheet Date, neither
the Company nor Axys has taken any action which if taken after the date of this
Agreement, without DPII's consent, would violate Section 7.2 hereof.
3.11 No Undisclosed Liabilities.
Except as disclosed in the Financial Statements, there are no
Liabilities, nor any basis for any claim against the Company for any such
Liabilities, relating to or affecting the Company or any of its Company Assets
and Properties, other than Liabilities incurred after the end of the period
covered by the Interim Financial Statements in the Ordinary Course of Business
which have not had, and could not reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect on the Company.
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3.12 Tangible Personal Property.
The Company is in possession of and has good and marketable title to, or
has valid leasehold interests in or valid rights under written agreements to
use, all Company Assets and Properties constituting tangible personal property
(including inventory) reflected on the Interim Balance Sheet and any tangible
personal property acquired since that date other than tangible personal property
disposed of since such date in the Ordinary Course of Business. All such Company
Assets and Properties are (if it has a cost or fair market value above $1,000)
listed in Section 3.12 of the Disclosure Schedule and are free and clear of all
Encumbrances, other than Permitted Encumbrances.
3.13 Benefit Plans; ERISA.
(a) The Disclosure Schedule lists each Benefit Plan together with a
brief description of the type of plan and benefit provided thereunder. The
Company has made no commitment, proposal, or communication to employees
regarding the creation of an additional Plan or any increase in benefits under
any Benefit Plan. The Company has provided to DPII (i) a copy of each Benefit
Plan (including amendments) or, where substantially similar arrangements exist,
a sample copy and a list of persons participating in such arrangement, (ii) the
three (3) most recent annual reports on the Form 5500 series for each Benefit
Plan required to file such report, (iii) the most recent IRS determination
letter with respect to each Qualified Plan and (iv) the most recent trustee's
report for each Benefit Plan funded through a trust.
(b) Neither the Company, an ERISA Affiliate nor predecessor thereof
has ever maintained, contributed to or been obligated to contribute to any
Defined Benefit Plan or multiemployer plan (as defined in Section (3)(37) or
4001(a)(3) of ERISA) and no condition exists that presents a material risk to
the Company or an ERISA Affiliate of incurring a liability under Title IV of
ERISA.
(c) Each Benefit Plan has been operated and administered in
accordance with its terms and, as of the Closing Date, will be in full
compliance, in form and operation, with all applicable laws (including but not
limited to ERISA and the Code) except to the extent a failure to do so would not
have a Material Adverse Effect.
(d) Each Qualified Plan has received a determination letter from
the Internal Revenue Service confirming that it qualifies under Section 401(a)
of the Code and nothing has occurred since the issuance of that letter which
would adversely affect such qualified status or the plan sponsor's ability to
rely on such determination letter.
(e) No Benefit Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of the Company or any ERISA Affiliate beyond their termination
of service (other than (i) coverage mandated by applicable law, (ii) benefits
under a Qualified Plan, (iii) deferred compensation benefits accrued as
liabilities on the books of the Company or any ERISA Affiliate or (iv)
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benefits the full cost of which is borne by any current or former employee (or
his or her beneficiary)).
(f) The consummation of the transactions contemplated by this
Agreement will not, either immediately or upon the occurrence of any event
thereafter, (i) entitle any current or former employee or officer or director of
the Company or any ERISA Affiliate to severance pay, unemployment compensation
or any other payment, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation otherwise due any such individual.
(g) There are no pending or, to the Knowledge of Axys and the
Company, anticipated or threatened claims by or on behalf of any Benefit Plan,
by any employee or beneficiary covered under any such Benefit Plan, or otherwise
involving any such Benefit Plan (other than routine claims for benefits).
3.14 Real Property.
Neither Axys nor the Company owns any real property related to the
Business. The Disclosure Schedule contains a complete and accurate legal
description of (i) each parcel of real property leased by the Company (as lessee
or lessor) (the "Real Property") and (ii) all Encumbrances (other than Permitted
Encumbrances) relating to or affecting the Real Property. The Company has a
valid leasehold interest in all real property used in or relating to the conduct
of the Business, free and clear of all Encumbrances other than Permitted
Encumbrances. The Company has rights of ingress and egress with respect to the
Real Property, and all buildings, structures, facilities, fixtures and other
improvements thereon material for the operation of the Business. There is no
pending or, to the Knowledge of Axys or the Company, threatened condemnation of
any of the respective parcels of Real Property or any part thereof. To the
Knowledge of Axys and the Company, none of such Real Property, buildings,
structures, facilities, fixtures or other improvements, or the use thereof,
contravenes or violates any building, zoning, fire protection, administrative,
occupational safety and health or other applicable law, rule, or regulation .
Each lease with respect to the Real Property is a legal, valid and binding
agreement of the Company subsisting in full force and effect enforceable in
accordance with its terms, and there is no, and the Company has not received
notice of any, default (or any condition or event which, after notice or lapse
of time or both, would constitute a default) thereunder. The Company does not
owe any brokerage commissions with respect to any such Real Property.
3.15 Intellectual Property Rights.
(a) Section 3.15(a) of the Disclosure Schedule lists (i) all those
United States, international and foreign (A) patents and patent applications
(including provisional applications), (B) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks and (C) registered copyrights and
applications for copyright registration that are owned by the Company or Axys
and are used in or currently contemplated to be used in the Business
(collectively, the "Company Registered Intellectual Property") and (ii) all
licenses, sublicenses and other agreements to use Intellectual Property
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rights owned by any third party which are not generally commercially available
and are currently used by the Company in the conduct of its Business. The
Company has delivered to DPII complete and accurate copies of each agreement,
registration and other material documents relating to the Company Registered
Intellectual Property set forth in Section 3.15(a) of the Disclosure Schedule.
(b) The Company owns or possesses adequate and enforceable
licenses, trade secrets, know-how, patents, copyrights, trademarks, service
marks, brand names and trade names, and other rights of every kind, and all
applications for any of the foregoing, necessary for, or used in the operation
of, the Business as now conducted, and such ownership, possession or license
does not conflict with or infringe on the rights of third parties with respect
to the Company Intellectual Property. Entry into this Agreement and consummation
of the transactions contemplated hereby will not impair the Company's ownership
or use of the Company Intellectual Property. No Person has a right to receive a
royalty or similar payment directly or indirectly from the Company in respect of
any item of Company Intellectual Property pursuant to any contractual
arrangements entered into by the Company. Neither the Company nor Axys has
received any notice that its or any third party's use of any item of Company
Intellectual Property is infringing upon or otherwise violating the rights of
the Company or Axys or any third party in or to such Company Intellectual
Property, and no notices have been received by, and to the knowledge of Axys and
the Company, no proceedings have been instituted against, the Company or Axys
alleging that use or proposed use of any item of the Company Intellectual
Property by the Company or any third party infringes upon or otherwise violates
any rights of the Company or a third party in or to such Company Intellectual
Property.
(c) With respect to (i) each item of Company Registered
Intellectual Property, necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property have been made and
all necessary documents and certificates in connection with such Company
Registered Intellectual Property have been filed with the relevant patent
authorities in the United States for the purposes of maintaining such Company
Registered Intellectual Property and (ii) those patents set forth in Section
3.15(a) of the Disclosure Schedule, no information material to patentability
under applicable law has been knowingly withheld from the examining office in a
manner that would constitute fraud or inequitable conduct. The Company owns and
has good and exclusive title free and clear of any Encumbrance to all Company
Registered Intellectual Property listed in Section 3.15(a) of the Disclosure
Schedule.
(d) To the extent that any work, invention, or material has been
developed or created by a third party for the Company, the Company has a written
agreement with such third party with respect thereto and the Company thereby has
obtained ownership of, and is the exclusive owner of, or has a valid license to
use, all Company Intellectual Property in such work, material or invention by
operation of law or by valid assignment or by agreement, as the case may be.
(e) Section 3.15(e) of the Disclosure Schedule lists all contracts,
licenses and agreements to which the Company is a party that are currently in
effect (i) with respect to
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Company Intellectual Property licensed (or subject to an option or similar right
to license) to any third party; or (ii) pursuant to which a third party has
licensed or transferred any Company Intellectual Property to the Company other
than customary confidentiality agreements and material transfer agreements
entered into in the Ordinary Course of Business of the Company.
(f) The contracts, licenses and agreements listed in Section
3.15(a) and (e) are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, cancellation, termination, or suspension of such
contracts, licenses and agreements listed in Section 3.15(a) and (e) of the
Disclosure Schedule. The Company is in material compliance with, and has not
materially breached any term any of such contracts, licenses and agreements
listed in Section 3.15(a) and (e) of the Disclosure Schedule and, to the
Knowledge of Axys and the Company, all other parties to such contracts, licenses
and agreements are in compliance with, and have not breached any term of, such
contracts, licenses and agreements. Following the Closing Date, the Company will
be permitted to exercise all of the Company's rights under the contracts,
licenses and agreements listed in Sections 3.15(a) and (e) of the Disclosure
Schedule to the same extent the Company would have been able to had the
transactions contemplated by this Agreement not occurred and without the payment
of any additional funds other than ongoing fees, royalties or payments which the
Company would otherwise be required to pay under existing agreements.
(g) Section 3.15(g) lists all contracts, licenses and agreements
between the Company and any third party wherein or whereby the Company has
agreed to, or assumed, any obligation or duty to warrant, indemnify, hold
harmless or otherwise assume or incur any obligation or liability with respect
to the infringement or misappropriation by the Company or such third party of
the Intellectual Property of any third party.
3.16 Proprietary Information of Third Parties.
Neither Axys nor the Company has received notice from a third party
claiming nor, to the knowledge of the Company or Axys does any third party have
reason to claim that any person employed by or affiliated with the Company in
connection with and during the Company's ownership and operation of its Business
has (i) violated or may be violating any of the terms or conditions of such
person's employment, non-competition or non-disclosure agreement with such third
party, (ii) disclosed or may be disclosing or utilized or may be utilizing any
trade secret or proprietary information or documentation of such third party, or
(iii) interfered or may be interfering in the employment relationship between
such third party and any of its present or former employees. No third party has
requested information from Axys or the Company which suggests that such a claim
might be contemplated. To the Knowledge of Axys and the Company, no person
employed by or affiliated with the Company in connection with and during the
Company's ownership and operation of its Business has employed or proposes to
employ any trade secret or any information or documentation proprietary to any
former employer and no person employed by or affiliated with the Company in
connection with and during the Company's ownership and operation of its Business
has violated any confidential relationship
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which such person may have had with any third party, in connection with the
Business, and Axys and the Company have no reason to believe there will be any
such employment or violation.
3.17 Litigation.
There are no Proceedings, including bankruptcy proceedings, pending or,
to the Knowledge of Axys and the Company, there are no investigations or
Proceedings threatened or anticipated against, relating to or affecting (i) the
Company, its Company Assets and Properties or the Business, (ii) Axys and its
business and properties to the extent the same could be reasonably expected to
adversely effect the ability of Axys to consummate the transactions contemplated
hereby, or (iii) the transactions contemplated by this Agreement. To the
Knowledge of Axys and the Company, the Company is not in default with respect to
any Order, and there are no unsatisfied judgments against the Company.
3.18 Compliance with Law.
Except as otherwise provided in Section 3.20 below, the Company is in
compliance with all applicable laws, statutes, Orders, ordinances and
regulations, whether federal, state, local or foreign, except where the failure
to comply, in each instance and in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect on the Company. Neither the
Company nor Axys has received any written notice to the effect that, or
otherwise has been advised that, the Company is not in compliance with any of
such laws, statutes, Orders, ordinances or regulations, where the failure to
comply could reasonably be expected to result in a Material Adverse Effect on
the Company.
3.19 Contracts.
(a) Section 3.19(a) of the Disclosure Schedule contains a true and
complete list of each of the following written or oral contracts, agreements or
other arrangements (each, a "Material Contract") to which the Company is a party
or by which any of its Company Assets and Properties are bound (and, to the
extent oral, accurately describes the terms of such contracts, agreements and
arrangements):
(i) all collective bargaining or similar labor agreements;
(ii) all contracts for the employment of any officer,
employee or other person or entity on a full time, part time, consulting or
other basis;
(iii) all loan agreements, indentures, debentures, notes or
letters of credit relating to the borrowing of money or to mortgaging, pledging
or otherwise placing a lien on any material asset or material group of assets of
the Company;
(iv) all guarantees of any obligation;
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(v) all leases or agreements under which the Company is
lessee or lessor of, or holds, or operates, any property, real or personal,
owned by any other party;
(vi) all commitments, contracts, sales contracts, purchase
orders, mortgage agreements or groups of related agreements with the same party
or any group or affiliated parties which require or may in the future require
payment of any consideration by the Company of an amount in excess of $25,000
and which cannot be terminated within thirty (30) days after giving notice of
termination without resulting in any cost or penalty to the Company;
(vii) all license agreements, distribution agreements or any
other agreements involving any Company Intellectual Property;
(viii) all subscription or registration rights agreements or
any other agreements related to the equity ownership of the Company;
(ix) all contracts or commitments that in any way restrict
the Company from carrying on its Business anywhere in the world; and
(x) all other contracts and agreements that (A) involve the
payment or potential payment, pursuant to the terms of any such contract or
agreement, by the Company or the other party of an amount in excess of $25,000
and (B) cannot be terminated within thirty (30) days after giving notice of
termination without resulting in any cost or penalty to the Company.
(b) Each contract, agreement or other arrangement disclosed in
Section 3.19(a) of the Disclosure Schedule is in full force and effect and
constitutes a legal, valid and binding agreement, enforceable by the Company in
accordance with its terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
and (b) rules of law and equity governing specific performance, injunctive
relief and other equitable remedies. The Company has performed all of its
required material obligations under, and is not materially in violation or
breach of or default under, any such contract, agreement or arrangement. To the
Knowledge of Axys and the Company, the other parties to any such contract,
agreement or arrangement are not in violation or breach of or default under any
such contract, agreement or arrangement. None of the present employees,
officers, directors or shareholders of the Company is, and none of the former
employees, officers or directors of the Company while providing services for the
Company was, a party to any oral or written contract or agreement prohibiting
any of them from freely competing with other parties or engaging in the
Company's Business as now operated.
3.20 Environmental Matters.
(a) As of the Effective Date the Company is in material compliance
with all applicable "Environmental Laws" (as defined below). The Company has not
received any written communication, whether from a Governmental or Regulatory
Authority or citizen group, that alleges that the Company or any of the Company
Assets or Properties used in the Business are not in material compliance with
Environmental Laws. All Permits and other governmental
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authorizations currently held by the Company or under which it operates pursuant
to Environmental Laws (collectively, "Environmental Permits") are identified,
together with their respective expiration dates, in Section 3.20(a) of the
Disclosure Schedule and, to the knowledge of Axys and the Company, currently
represent all Environmental Permits necessary for the conduct of the Business as
currently conducted. Neither the Company nor Axys has not been notified by any
relevant Governmental or Regulatory Authority that any Environmental Permit will
be modified, suspended or revoked or cannot be renewed in the Ordinary Course of
Business, and, to the Knowledge of Axys and the Company, no Environmental Permit
will be modified, suspended or revoked, or cannot be renewed in the Ordinary
Course of Business of the Company.
(b) As of the Effective Date, there is no "Environmental Notice"
(as defined below) that is (i) pending or, to the Knowledge of Axys and the
Company, threatened in writing against the Company or (ii) to the Knowledge of
Axys and the Company, pending or threatened in writing against any Person whose
liability for such Environmental Notice may have been retained or assumed by or
could reasonably be imputed or attributed to the Company.
(c) To the Knowledge of Axys and the Company there are no past or
present actions, activities, circumstances, conditions, events or incidents
arising from the operation, ownership or use of any property currently or
formerly owned, operated or used by the Company (or any entity formerly an
Affiliate of the Company), including, without limitation, the release, emission,
discharge or disposal of any "Material" (as defined below) into the
"Environment" (as defined below), that (i) could reasonably be expected to
result in the incurrence by the Company of significant costs under Environmental
Laws or (ii) could reasonably be expected to form the basis of any Environmental
Notice against or with respect to the Company or against any Person whose
liability for any Environmental Notice may have been retained or assumed by or
could be imputed or attributed to the Company.
(d) Without in any way limiting the generality of the foregoing,
(i) all underground storage tanks, and the capacity and contents of such tanks,
located on property at any time owned, leased or used by the Company are
identified in Section 3.20(d) of the Disclosure Schedule, (ii) to the knowledge
of Axys and the Company there is no asbestos contained in or forming part of any
building, building component, structure or office space owned, leased or used by
the Company, (iii) to the knowledge of Axys and the Company no polychlorinated
biphenyls (PCB's) are used, disposed of or stored on any property owned, leased
or used by the Company and (iv) all locations currently or formerly owned,
leased or used by the Company (or any former Affiliate of the Company) are
identified and described in Section 3.20(d) of the Disclosure Schedule.
(e) The Company and Axys have heretofore delivered to DPII correct
and complete copies of all environmental studies, assessments, reports, results
of investigations and audits of the Company's Assets and Properties of the
Business, and made available similar information that is in the possession of
the Company and Axys regarding environmental matters
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pertaining to the operations of the Business or the environmental condition of
real property currently or previously owned, leased or operated by the Company
or used in the Business.
(f) By virtue of the transactions set forth herein and contemplated
hereby, or as a condition to the effectiveness of any transactions contemplated
hereby, neither the Company nor Axys is required under any Environmental Laws to
undertake (i) the performance of a site assessment for Materials, (ii) the
removal or remediation of Materials, (iii) the giving of notice to or receiving
the approval of any Governmental Authority, or (iv) the recording or delivery to
other persons of any disclosure document or statement pertaining to
environmental matters.
(g) For purposes of this Section 3.20:
(i) "Environment" means any surface water, ground water,
drinking water supply, land surface or subsurface strata, natural resources
ambient air and any indoor workplace.
(ii) "Environmental Notice" means any civil, criminal or
administrative action, suit, written demands, written claims, hearing, notice of
violation, written notice of investigation, proceeding, demand letter or written
notice seeking redress by any Person alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental costs, harm or damages to person, property, natural resources or
other fines or penalties) arising out of, based on or resulting from (a) the
presence, emission, discharge, disposal, release or threatened release in or
into the Environment of any Material prior to the Effective Date or (b)
circumstances arising prior to the Effective Date and forming the basis of any
violation, or alleged violation, of any applicable Environmental Law.
(iii) "Environmental Laws" means all national, state, local
and foreign laws, codes, regulations, common law, requirements, directives,
Orders, and administrative or judicial interpretations thereof relating to
pollution, the protection of the Environment or the emission, discharge,
disposal, release or threatened release of Materials in or into the Environment.
(iv) "Material" means pollutants, contaminants or chemical,
industrial, hazardous or toxic materials or wastes, including, without
limitation, petroleum and petroleum products.
3.21 Inventory.
The inventory of the Company is in good and merchantable condition, and
suitable and usable at its carrying value in the Ordinary Course of Business for
the purposes for which intended and the value of such inventory is accurately
reflected in the books and records of the Company in accordance with GAAP in a
consistent manner through all relevant periods. To the knowledge of the Company,
there is no material adverse condition affecting the supply of materials
available to the Company. To the Knowledge of Axys and the Company, no supplier
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of the Company is in violation of any federal, state, local or foreign law,
ordinance, regulation or Order, which violation has a Material Adverse Effect on
such supplier's ability to produce or supply the Company or Axys with any
product necessary for the operations of the Business.
3.22 Plants, Buildings, Structures, Facilities and Equipment.
(a) All plants, buildings, structures, facilities and equipment
used by the Company in the conduct of its business are structurally sound with
no known material defects and are in good operating condition and repair
(subject to normal wear and tear) so as to permit the operation of its Business
as presently conducted;
(b) No such plant, building, structure, facility or equipment is in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs which are not material in nature or cost; and
(c) With respect to each plant, building, structure, facility or
item of equipment, the Company has not received notification that it is in
violation, in any material respect, of any applicable building, zoning,
subdivision, fire protection, health or other law, Order, ordinance or
regulation and no such violation exists.
3.23 Insurance.
Set forth in Section 3.23 of the Disclosure Schedule is a complete and
accurate list of all primary, excess and umbrella policies, bonds and other
forms of insurance currently owned or held by or on behalf of and/or providing
insurance coverage to the Company or the Company Assets and Properties of the
Company (or any of the Company's directors, officers, salespersons, agents or
employees), including the following information for each such policy: type(s) of
insurance coverage provided; per occurrence and annual aggregate deductibles or
self-insured retentions; per occurrence and annual aggregate limits of liability
and the extent, if any, to which the limits of liability have been exhausted.
All policies, bonds and other forms of insurance set forth in Section 3.23 of
the Disclosure Schedule are in full force and effect, and with respect to such
policies, all premiums currently payable or previously due have been paid, and
no notice of cancellation or termination has been received with respect to any
such policy. All such policies, bonds and other forms of insurance are
sufficient for compliance with all requirements of law and all agreements to
which the Company is a party or otherwise bound, and are valid, outstanding,
collectible and enforceable policies and, to the Knowledge of Axys and the
Company, provide adequate insurance coverage for the Company and the Business
and Company Assets and Properties of the Company.
3.24 Taxes.
(a) Axys and the Company have timely filed with the appropriate
Taxing Authorities all income and franchise Tax Returns and all other Tax
Returns relating to the Company, Company Assets and Properties and Tax
withholding obligations of the Company required to be filed by or with respect
to them (taking into account applicable extensions). Each
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such Tax Return was correct and complete in all material respects when filed.
Each of Axys and the Company has paid in full (or had paid on its behalf), or
has made provision in the Financial Statements for, all Taxes which are due or
claimed to be due by any Taxing Authority (whether or not shown as due on any
Tax Return), and has made (or has had made on its behalf) all required estimated
payments of Taxes (in the case of Axys, Taxes related to the Company and the
Company Assets and Properties). The Company has not incurred any liability for
Taxes other than in the Ordinary Course of Business since the date of the most
recent Financial Statements. There are no liens for Taxes upon the Company
Assets and Properties except for statutory liens for current Taxes not yet due.
(b) None of Axys, the Company or any subsidiaries of the Company
has requested any extension of time within which to file any Tax Return, which
Tax Return has not since been filed, or waived any statute of limitations for,
or agreed to any extension of time with respect to, the assessment of Taxes. The
Company was formed on June 11, 1999 and has never filed, and has never been
required to file, any federal or state income or other material Tax Returns.
Neither the Company nor any of its subsidiaries has received any notice of
deficiency or assessment from any Taxing Authority with respect to liabilities
for Taxes which have not been fully paid or finally settled. Further, no state
of facts exists or has existed which would constitute grounds for the assessment
of any liability for Taxes of or with respect to the Company or any of its
subsidiaries for periods prior to the Closing Date which have not been audited
by any Taxing Authority. None of the Company, its officers or directors, any
subsidiary of the Company, its officers or directors, or Axys, its officers or
directors is aware of any information which has caused or should cause any of
them to believe that an audit by any Taxing Authority of Taxes of or with
respect to the Company or any of its subsidiaries may be forthcoming. No claim
has ever been made by an authority in a jurisdiction where the Company or any of
its subsidiaries does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction.
(c) The Company and each of its subsidiaries has withheld and paid
over to the appropriate Taxing Authorities all Taxes required to have been so
withheld and paid over with respect to amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other Person for all periods
under all applicable laws relating to the withholding of Taxes.
(d) Neither the Company nor any of its subsidiaries has any
liability for the Taxes of any other Person (i) under Treasury Regulations
Section 1.1502-6 (or any similar provision of state, local, or foreign law)
other than as a member of the Axys affiliated group, (ii) as a transferee or
successor, (iii) by contract, or (iv) otherwise.
(e) Neither the Company nor any of its subsidiaries has filed or
will file prior to the Closing a consent under Section 341(f) of the Code.
Neither the Company nor any of its Subsidiaries is obligated to make any
payments, or is a party to any agreement (whether written or oral) that could
obligate it to make any payments that will not be deductible under Section
162(m) or Section 280G of the Code, whether paid prior to or after the Closing.
Neither the
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Company, nor any of its Subsidiaries is or has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code.
(f) Neither the Company nor any of its subsidiaries has agreed, and
the Company or such subsidiary is not required, to make any adjustment pursuant
to Section 481(a) of the Code (or any predecessor provision) by reason of any
change in any accounting method or change in basis for determining the reserves
of the Company or such subsidiary or otherwise, and neither the Company nor any
of its subsidiaries has any application pending with any Taxing Authority
requesting permission to make any changes in any accounting method or in the
basis for determining its reserves. The IRS has not proposed any such adjustment
or change in accounting method or in the basis of determining its reserves.
(g) Neither the Company nor any of its subsidiaries has any
outstanding balances of deferred gain or loss accounts related to any
"intercompany transactions" (as defined in Treasury Regulations Section
1.1502-13(b)) to which the Company or any of its subsidiaries was a party.
(h) Axys will file for the Pre-Closing Period, as a common parent
corporation of an "affiliated group" within the meaning of Section 1504(a) of
the Code (such group, an "Affiliated Group"), a consolidated return for federal
income tax purposes on behalf of itself and the Company, and the Company will be
an "includible corporation" (within the meaning of Section 1504(b) of the Code)
in such Affiliated Group.
(i) There is no power of attorney given by or binding upon the
Company or any of its subsidiaries with respect to Taxes for any period for
which the applicable statute of limitations (including any waivers or
extensions) has not expired as of the date of this Agreement or will not have
expired by the Closing Date.
(j) Neither the Company nor any of its subsidiaries is a party to
or otherwise subject to any arrangement entered into in anticipation of the
Closing, which is not in accordance with past practice and not required by this
Agreement and (i) which has the effect of or gives rise to the recognition of a
deduction or loss before the Closing Date and a corresponding recognition of
taxable income or gain after the Closing Date, or (ii) would reasonably be
expected to have the effect of or give rise to the recognition of taxable income
or gain by the Company or such subsidiary after the Closing Date without the
receipt of or entitlement to a corresponding amount of cash.
3.25 Labor and Employment Relations.
To the Knowledge of Axys and the Company, no officer, key employee or
group of ten (10) or more employees of the Company has or have any plans to
terminate his, her or their employment with the Company. The Company is not a
party to or bound by any collective bargaining agreement with any labor
organization, group or association covering any of its employees, and to the
Knowledge of Axys and the Company, there are no attempts to organize any of the
Company's employees by any person, unit or group seeking to act as their
bargaining
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agent. The Company has complied in all material respects with all applicable
laws relating to the employment of labor, including provisions thereof relating
to wages, hours, equal opportunity, collective bargaining, discrimination
against race, color, national origin, religious creed, physical or mental
disability, sex, age, ancestry, medical condition, marital status or sexual
orientation, and the withholding and payment of social security and other taxes.
There are no pending or, to the Knowledge of Axys and the Company, threatened
charges (by employees, their representatives or governmental authorities) of
unfair labor practices or of employment discrimination or of any other wrongful
action with respect to any aspect of employment of any person employed or
formerly employed by the Company. No union representation elections relating to
the Company's employees have been scheduled by any Governmental or Regulatory
Authority, no organizational effort is being made with respect to any of such
employees, and to the Knowledge of Axys and the Company, there is no
investigation of the Company's employment policies or practices by any
Governmental or Regulatory Authority pending or threatened. The Company is not
currently, and in the past has not been, involved in labor negotiations with any
unit or group seeking to become the bargaining unit for any employees of the
Company. The Company has never experienced any work stoppages and to the
Knowledge of Axys and the Company, no work stoppage has been threatened or is
planned.
3.26 Certain Employees.
The Company has provided to DPII under cover of a letter dated as of the
date hereof, a list of the names of the Company's employees and consultants as
of the date hereof involved in the senior management of the Business, together
with the title or job classification of each such person and the total
compensation (with wages and bonuses, if any, separately detailed) paid in 1998
and 1999 and to date in 2000 (if applicable) and the current rate of pay for
each such person on the date of this Agreement (the "Employee Letter"). The
Employee Letter shall specifically indicate the employees and consultants hired
or retained since June 30, 1999 or which the Company has agreed to hire or
retain. None of such persons has an employment agreement or understanding,
whether oral or written, with the Company which is not terminable on notice by
the Company without cost or other liability to the Company. From December 31,
1999, to the date hereof, inclusive, the Company has not fired, terminated or
otherwise discharged any employee or consultant with total expected annual
compensation (including bonus potential) in excess of $30,000, or entered into
(or agreed to enter into) any employment, consulting or similar agreement with a
value in excess of $30,000.
3.27 Absence of Certain Changes. Since December 31, 1999 Axys and the
Company have conducted the Business in the ordinary and usual course consistent
with past practice, and there has not been any of the following:
(a) any change or amendment to the certificate or articles of
incorporation, bylaws or other organizational documents of the Company;
(b) any issuance or sale or purchase or redemption of any equity
securities or of any derivative securities of the Company, other than pursuant
to this Agreement;
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(c) any dividend or other distribution declared, set aside, paid or
made with respect to its equity securities or any direct or indirect redemption,
purchase or other acquisition of such equity securities by the Company;
(d) any acquisition or disposition of assets by the Company having
a fair value or for a purchase price in excess of $100,000, in the aggregate,
other than acquisitions or dispositions made in the ordinary course of business
consistent with past practice;
(e) any incurrence of any Liabilities except Liabilities incurred
in the ordinary course of business and consistent with past practice, none of
which, in any case or in the aggregate, are material to the financial condition
or operating results of the Company;
(f) any payment, discharge or satisfaction of any Liabilities other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of Liabilities and obligations reflected or
reserved against in the Financial Statements or incurred in the ordinary course
of business and consistent with past practice;
(g) any commitment, agreement, settlement or transaction entered
into, amended, or terminated (or any waiver of any rights or remedies under any
of the foregoing), other than in the ordinary course of business consistent with
past practice;
(h) any amendment of any mortgage, Encumbrance, lease agreement,
Permit, loan agreement, indenture or other agreement, instrument or document,
other than in the ordinary course of business consistent with past practice;
(i) any default, event of default or breach (or any event which,
with notice or the passage of time or both, would constitute a default, event of
default or breach) by the Company or Axys with respect to the Business of any
credit, financing or other agreement or instrument relating to any material
Indebtedness;
(j) any sale, assignment, transfer or license of any patents,
patent applications, designs, logos, trademarks, trademark applications,
servicemarks, servicemark applications, trade names, Internet domain names,
copyrights, trade secrets, licenses, know-how, formulae, models, information,
software and processes;
(k) any damage, destruction, theft or other casualty loss that is
reasonably likely to have a Material Adverse Effect;
(l) any entry into or amendment of any Material Contract;
(m) any entry into or amendment of any employment or severance
compensation agreement or consulting or similar agreement with, or any increase
in the compensation or benefits payable or to become payable by the Company to
any employee of the Company (other than agreements terminable without penalty or
similar payment by the Company, as the case may be, on not more than 30 days'
notice and any other increases in
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compensation payable or to become payable to employees (other than directors or
officers) in the ordinary course of business consistent with past practice);
(n) any write down or write up in the value of any inventories
(including write-downs by reason of shrinkage or mark-down), any change, other
than in the ordinary course of business consistent with past practice, in the
standard costs utilized in determining the value of any inventories or any
failure to replenish any inventories in a normal and customary manner consistent
with its prior practice and prudent business practices prevailing in the
industry, or made any purchase commitment in excess of the normal, ordinary and
usual requirements of its business or at any price in excess of the then current
market price or upon terms and conditions more onerous than those usual and
customary in the industry, or made any change in its selling, pricing,
advertising or personnel practices inconsistent with its prior practice and
prudent business practices prevailing in the industry;
(o) any change in the financial or tax accounting methods,
principles or practices of the Company or Axys with respect to the Business for
financial or tax accounting purposes, except as required by GAAP or applicable
law;
(p) any adoption of a plan of or any agreement or arrangement with
respect to or resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of the Company;
(q) any change, condition, occurrence, circumstance or other event
that, individually or in the aggregate, has had or is reasonably likely to have
a Material Adverse Effect;
(r) any settlement of any material Tax audit, the making or
changing of any material Tax election or the filing of any amended Tax Return;
or
(s) any commitment or agreement to do any of the foregoing, except
as otherwise required or expressly permitted by this Agreement.
3.28 Customers/Supplier.
The Company has previously provided to DPII a true and correct list of
the Company's ten largest customers and gross revenues from such customers
during the 1998 fiscal year and the 1999 fiscal year and for the three-month
period ended March 31, 2000 (measured by revenues to the Business). Since
January 1, 1999, no such customer has stopped doing business with the Company,
and to the Knowledge of Axys and the Company, no such customer has advised Axys
or the Company that it is not continuing, or is terminating, or is making an
adverse change with respect to, its business with the Company and to the
Knowledge of Axys and the Company the consummation of the transactions
contemplated by the Agreement will not adversely affect any such relationships.
To the Knowledge of Axys and the Company, the Company and the Business are not
dependent upon any single vendor or group of affiliated vendors such that the
discontinuance of supply or service from such vendor or vendors would
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have, or could be reasonably expected to have, a Material Adverse Effect on the
Company or the Business.
3.29 Necessary Property.
All of the Real Property and Company Assets and Properties owned or
leased by the Company and the Company Intellectual Property listed on the
Disclosure Schedule owned by or licensed to the Company constitute all of the
property reasonably necessary for the conduct of the Business in the manner and
to the extent presently conducted by Axys through the Company or otherwise.
3.30 Bank Accounts
Section 3.30 of the Disclosure Schedule contains a complete and accurate
list of each deposit account or asset maintained by or on behalf of the Company
with any bank, brokerage house or other financial institution, specifying with
respect to each the name and address of the institution, the name under which
the account is maintained, the account number, and the name and title or
capacity of each Person authorized to have access thereto.
3.31 Permits.
Section 3.31 of the Disclosure Schedule contains a true and complete
list of all Permits used in, and material to, individually or in the aggregate,
the Business. All such Permits are currently effective and valid and have been
validly issued. No additional Permits are necessary to enable the Company to
conduct the Business in material compliance with all applicable federal, state
and local laws. Neither the execution, delivery or performance of this Agreement
nor the mere passage of time will have any effect on the continued validity or
sufficiency of the Permits, nor will any additional Permits be required by
virtue of the execution, delivery or performance of this Agreement to enable the
Company to conduct the Business as now operated. To the Knowledge of Axys and
the Company, there is no pending Proceeding by any Governmental or Regulatory
Authority which could affect the Permits or their sufficiency for the current
conduct of the Business or of the conduct of the Business after the Closing. The
Company has provided DPII with true and complete copies of all Permits listed in
the Disclosure Schedule.
3.32 Brokers.
Neither Axys nor the Company has retained any broker in connection with
the transactions contemplated hereunder. DPII has, and will have, no obligation
to pay any broker's, finder's, investment banker's, financial advisor's or
similar fee in connection with this Agreement or the transactions contemplated
hereby by reason of any action taken by or on behalf of Axys or the Company.
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3.33 Year 2000 Compliance.
All material Computer Systems owned, licensed or used by the Company or
Axys as they relate to the Business are Year 2000 Compliant. "Computer Systems"
means, with respect to any Person, the computer software, firmware, hardware
(whether general or special purpose), and other similar or related items of
automated, computerized or software system(s) that are owned by or licensed to
such Person. To the extent material to the operation of the Business, the
Company and Axys have obtained representations or assurances from each entity
that (x) provides data of any type that includes date information or which is
otherwise derived from, dependent on or related to date information ("Date
Data") to the Company or Axys, (y) processes in any way Date Data for the
Company or Axys, or (z) otherwise provides any material product or service to
the Company or Axys that is dependent on Year 2000 Compliance, that all of such
entity's Date Data and related software and systems that are used for, or on
behalf of, the Company or Axys and are related to the Business are Year 2000
Compliant. "Year 2000 Compliant" and "Year 2000 Compliance" mean for all dates
and times, including, without limitation, dates and times after December 31,
1999 and in the multi-century scenario, when used on a stand-alone system or in
combination with other Year 2000 Compliant software or systems: (i) the
application system functions and receives and processes dates and times
correctly without abnormal results; (ii) all date-related calculations are
correct (including, without limitation, age calculations, duration calculations
and scheduling calculations); (iii) all manipulations and comparisons of
date-related data produce correct results for all valid date values within the
scope of the application; (iv) there is no century ambiguity; (v) all reports
and displays are sorted correctly; and (vi) leap years are accounted for and
correctly identified (including, without limitation, that 2000 is recognized as
a leap year); provided, that the foregoing shall not related to output, results,
errors or abnormal terminations not attributable to date specific data. The
costs of becoming Year 2000 Compliant will not have a Material Adverse Effect on
the Business or on the operations or financial condition of the Company.
3.34 Insider Interests and Affiliate Transactions.
There are no (i) suppliers or customers of the Business in which a
stockholder holding 5% or more of any class of securities of Axys or a director,
officer or management employee of Axys or the Company holds, directly or
indirectly, a significant ownership or other interest, (ii) intercompany
liabilities or obligations between the Company, on the one hand and, Axys or any
of its Affiliates, on the other hand, that are not eliminated in the Company's
consolidated financial reporting or (iii) other material business relationships
between the Company, on the one hand, and any current or former stockholder,
director, officer or employee, on the other hand, other than in such Person's
capacity as a stockholder, director, officer or employee in the ordinary course
of business.
3.35 Material Misstatements and Omissions.
To the Knowledge of Axys and the Company, the representations and
warranties of the Company and Axys contained in this Agreement (including the
exhibits and schedules hereto) do not contain and will not contain any untrue
statement of a material fact and do not and will not
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omit to state a material fact necessary to make the statements or facts
contained herein or therein, in this context and under the circumstances in
which such statements or facts appear, not misleading.
3.36 Investment Intent.
Axys is acquiring its DPII Common Stock and its Note for its own account
and for investment, and not with a view to, or for sale in connection with any
distribution of such DPII Common Stock and its Note. Axys acknowledges that such
DPII Common Stock and its Note constitute "restricted securities" which cannot
be resold absent a registration statement for such resale under the Securities
Act of 1933 (and blue sky equivalents) or an exemption from the registration
requirements thereof. Axys acknowledges that the DPII Common Stock and Note it
receives will be subject to Rule 145, that Axys was an affiliate of the Company,
and that after the Merger Axys will be an affiliate of DPII for Rule 144
purposes.
Article IV
REPRESENTATIONS AND WARRANTIES OF DPII
DPII represents and warrants to Axys, except for the matters set forth
on the DPII Disclosure Schedule furnished to Axys, which matters shall be deemed
exceptions to such representations and warranties as if made hereunder, as
follows:
4.1 Organization of the Company.
DPII is a corporation duly organized, validly existing, and in good
standing under the laws of the State of California. DPII is duly authorized to
conduct business and is in good standing in each jurisdiction where such
qualification is required except for any jurisdiction where failure so to
qualify would not have a Material Adverse Effect upon DPII. DPII has full power
and authority, and holds all Permits and authorizations necessary to carry on
the DPII Business and to own and use the DPII Assets and Properties except where
the failure to have such power and authority or to hold such Permit or
authorization would not have a Material Adverse Effect on the DPII Business.
DPII has delivered to Axys correct and complete copies of its charter documents
and organizational documents, each as amended to date.
4.2 Capital Stock of DPII.
The authorized capital stock of DPII consists of 12,000,000 shares of
common stock, of which 1,789,068 shares are issued and outstanding, 2,500,000
shares of Series A Preferred Stock, of which 2,000,000 are issued and
outstanding, 2,000,000 shares of Series B Preferred Stock, of which 2,000,000
are issued and outstanding, 333,333 shares of Series C Preferred Stock, of which
333,333 are issued and outstanding, 2,500,000 shares of Series D Preferred
Stock, of which 2,228,945 are issued and outstanding, and 1,700,000 shares of
Series E Preferred Stock, 1,392,503 of which are issued and outstanding. The
outstanding shares of DPII capital stock are duly authorized, validly issued,
fully paid and nonassessable. There are no outstanding
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subscriptions, options, warrants, calls, commitments or other rights of any kind
for the purchase or acquisition of, nor any securities convertible or
exchangeable for, any capital stock of DPII or any agreements or offers to issue
any such subscriptions, options, warrants, calls, commitments or other rights.
4.3 [RESERVED].
4.4 [RESERVED].
4.5 Authority of DPII.
DPII has all necessary power and authority and has taken all action
necessary to enter into this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations hereunder and no other
proceedings on the part of DPII are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. The vote of, or consent by, the
holders of each class or series of capital stock or indebtedness issued by DPII
necessary to authorize the execution and delivery by DPII of this Agreement or
the consummation of this Agreement has been obtained. This Agreement has been
duly and validly executed and delivered by DPII and constitutes a legal, valid
and binding obligation of DPII enforceable against DPII in accordance with its
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
DPII does not, directly or indirectly, beneficially own or own of record
any equity securities of or any other equity interest in, any other Person or
have any other equity investment or other ownership interest in any other
Person.
4.6 No Conflicts.
The execution and delivery by DPII of this Agreement do not, and the
performance by DPII of its obligations under this Agreement and the consummation
of the transactions contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the charter documents, bylaws or other
organizational documents of DPII;
(b) conflict with or result in a violation or breach of any term or
provision of any law, Order, Permit, statute, rule or regulation applicable to
DPII, the DPII Business, or the DPII Assets and Properties;
(c) result in a breach of, or default under (or give rise to right
of termination, cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement, lease
or other similar instrument or obligation to which
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DPII, any of its DPII Assets and Properties or any shares of DPII's capital
stock may be bound, except for such breaches or defaults as set forth on the
DPII Disclosure Schedule as to which requisite waivers or consents will have
been obtained by the Closing Date; or
(d) result in an imposition or creation of any Encumbrance on the
DPII Business, the DPII Assets and Properties or any DPII capital stock.
4.7 Consents and Governmental Approvals and Filings.
No consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority or other Persons on the part of DPII is
required in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby or to
enable DPII to conduct the DPII Business after the Closing Date in a manner
consistent with that in which the DPII Business is presently conducted.
4.8 Books and Records.
The minute books and other corporate records of DPII contain a true and
complete record, in all material respects, of all actions taken at all meetings
and by all written consents in lieu of meetings of the stockholders, the board
of directors and committees of the board of directors of DPII. The stock
transfer ledgers and other similar records of DPII accurately reflect all
issuances and record transfers in the capital stock of DPII. The books and
records of DPII, taken as a whole, fairly reflect all of its transactions,
properties, assets and liabilities. Except as specifically noted therein and
except for revenue items from customers that may be non-recurring, there have
been no material, special or non-recurring items of income or expense with
respect to DPII, during the periods covered by the DPII Financial Statements,
and the Interim DPII Balance Sheet does not reflect any write-up or revaluation
increasing the book value of any assets of DPII, except as specifically
disclosed in the DPII Financial Statements or in the notes thereto. Except as
specifically noted therein, the DPII Financial Statements reflect all
adjustments necessary for a fair presentation of the financial condition and
results of operations of DPII. The other Books and Records of DPII are in all
material respects true and correct and, taken as a whole, are complete.
4.9 DPII Financial Statements.
DPII has previously delivered to Axys the DPII Financial Statements.
Such DPII Financial Statements (i) are true, correct and complete, (ii) have
been prepared in accordance with the Books and Records of DPII in a consistent
manner throughout all of the periods indicated, (iii) have been prepared in
conformity with GAAP, consistently applied, and (iv) fairly present the
financial condition and results of operations of DPII as of the respective dates
thereof and for the periods covered thereby; provided, that the Interim DPII
Balance Sheet is subject to normal year-end adjustments and lack footnotes and
certain other presentation items.
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4.10 Absence of Changes.
Except for the execution and delivery of this Agreement and the
transactions to take place pursuant hereto on or prior to the Closing Date,
since the Interim Balance Sheet Date, there has not been any material adverse
change, or any event or development which, individually or together with other
such events, could reasonably be expected to result in a Material Adverse Effect
on DPII or the DPII Business and since the Interim Balance Sheet Date, DPII has
not taken any action which if taken after the date of this Agreement, without
Axys' consent, would violate Section 7.3 hereof.
4.11 No Undisclosed Liabilities.
Except as disclosed in the DPII Financial Statements, there are no
Liabilities, nor any basis for any claim against DPII for any such Liabilities,
relating to or affecting DPII or any of the DPII Assets and Properties, other
than Liabilities incurred after the end of the period covered by the Interim
DPII Financial Statements in the Ordinary Course of Business which have not had,
and could not reasonably be expected to result in, individually or in the
aggregate, a Material Adverse Effect on DPII.
4.12 Tangible Personal Property.
DPII is in possession of and has good and marketable title to, or has
valid leasehold interests in or valid rights under written agreements to use,
all DPII Assets and Properties constituting tangible personal property
(including inventory) reflected on the Interim DPII Balance Sheet and any
tangible personal property acquired since that date other than tangible personal
property disposed of since such date in the Ordinary Course of Business. All
such DPII Assets and Properties are (if it has a cost or fair market value above
$1,000) listed in Section 4.12 of the DPII Disclosure Schedule and are free and
clear of all Encumbrances, other than Permitted Encumbrances.
4.13 Benefit Plans; ERISA.
(a) The DPII Disclosure Schedule lists each Benefit Plan together
with a brief description of the type of plan and benefit provided thereunder.
DPII has made no commitment, proposal, or communication to employees regarding
the creation of an additional Plan or any increase in benefits under any Benefit
Plan. DPII has provided to Axys (i) a copy of each Benefit Plan (including
amendments) or, where substantially similar arrangements exist, a sample copy
and a list of persons participating in such arrangement, (ii) the three (3) most
recent annual reports on the Form 5500 series for each Benefit Plan required to
file such report, (iii) the most recent IRS determination letter with respect to
each Qualified Plan and (iv) the most recent trustee's report for each Benefit
Plan funded through a trust.
(b) Neither DPII, an ERISA Affiliate nor predecessor thereof has
ever maintained, contributed to or been obligated to contribute to any Defined
Benefit Plan or multiemployer plan (as defined in Section (3)(37) or 4001(a)(3)
of ERISA) and no condition
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exists that presents a material risk to DPII or an ERISA Affiliate of incurring
a liability under Title IV of ERISA.
(c) Each Benefit Plan has been operated and administered in
accordance with its terms and, as of the Closing Date, will be in full
compliance, in form and operation, with all applicable laws (including but not
limited to ERISA and the Code) except to the extent a failure to do so would not
have a Material Adverse Effect.
(d) Each Qualified Plan has received a determination letter from
the Internal Revenue Service confirming that it qualifies under Section 401(a)
of the Code and nothing has occurred since the issuance of that letter which
would adversely affect such qualified status or the plan sponsor's ability to
rely on such determination letter.
(e) No Benefit Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of DPII or any ERISA Affiliate beyond their termination of
service (other than (i) coverage mandated by applicable law, (ii) benefits under
a Qualified Plan, (iii) deferred compensation benefits accrued as liabilities on
the books of DPII or any ERISA Affiliate or (iv) benefits the full cost of which
is borne by any current or former employee (or his or her beneficiary)).
(f) The consummation of the transactions contemplated by this
Agreement will not, either immediately or upon the occurrence of any event
thereafter, (i) entitle any current or former employee or officer or director of
DPII or any ERISA Affiliate to severance pay, unemployment compensation or any
other payment, or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation otherwise due any such individual.
(g) There are no pending or, to the Knowledge of DPII, anticipated
or threatened claims by or on behalf of any Benefit Plan, by any employee or
beneficiary covered under any such Benefit Plan, or otherwise involving any such
Benefit Plan (other than routine claims for benefits).
4.14 Real Property.
DPII does not own any real property related to the DPII Business. The
DPII Disclosure Schedule contains a complete and accurate legal description of
(i) each parcel of DPII Real Property leased by DPII (as lessee or lessor) (the
"DPII Real Property") and (ii) all Encumbrances (other than Permitted
Encumbrances) relating to or affecting the DPII Real Property. DPII has a valid
leasehold interest in all real property used in or relating to the conduct of
the DPII Business, free and clear of all Encumbrances other than Permitted
Encumbrances. DPII has rights of ingress and egress with respect to the DPII
Real Property, and all buildings, structures, facilities, fixtures and other
improvements thereon material for the operation of the DPII Business. There is
no pending or, to the Knowledge of DPII, threatened condemnation of any of the
respective parcels of DPII Real Property or any part thereof. To the Knowledge
of DPII, none of such DPII Real Property, buildings, structures, facilities,
fixtures or other improvements, or the use thereof, contravenes or violates any
building, zoning, fire protection,
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administrative, occupational safety and health or other applicable law, rule, or
regulation. Each lease with respect to the DPII Real Property is a legal, valid
and binding agreement of DPII subsisting in full force and effect enforceable in
accordance with its terms, and there is no, and DPII has not received notice of
any, default (or any condition or event which, after notice or lapse of time or
both, would constitute a default) thereunder. DPII does not owe any brokerage
commissions with respect to any such DPII Real Property.
4.15 Intellectual Property Rights.
(a) Section 4.15(a) of the DPII Disclosure Schedule lists (i) all
those United States, international and foreign (A) patents and patent
applications (including provisional applications), (B) registered trademarks,
applications to register trademarks, intent-to-use applications, or other
registrations or applications related to trademarks and (C) registered
copyrights and applications for copyright registration that are owned by DPII
and are used in or currently contemplated to be used in the DPII Business
(collectively, the "DPII Registered Intellectual Property") and (ii) all
licenses, sublicenses and other agreements to use Intellectual Property rights
owned by any third party which are not generally commercially available and are
currently used by DPII in the conduct of its DPII Business. DPII has delivered
to Axys complete and accurate copies of each agreement, registration and other
material documents relating to the DPII Registered Intellectual Property set
forth in Section 4.15(a) of the DPII Disclosure Schedule.
(b) DPII owns or possesses adequate and enforceable licenses, trade
secrets, know-how, patents, copyrights, trademarks, service marks, brand names
and trade names and other rights of every kind, and all applications for any of
the foregoing, necessary for, or used in the operation of, the DPII Business as
now conducted, and such ownership, possession or license does not conflict with
or infringe on the rights of third parties with respect to the DPII Intellectual
Property. Entry into this Agreement and consummation of the transactions
contemplated hereby will not impair DPII's ownership or use of DPII Intellectual
Property. No Person has a right to receive a royalty or similar payment directly
or indirectly from DPII in respect of any item of DPII Intellectual Property
pursuant to any contractual arrangements entered into by DPII. DPII has not
received any notice that its or any third party's use of any item of DPII
Intellectual Property is infringing upon or otherwise violating the rights of
DPII or any third party in or to such DPII Intellectual Property, and no notices
have been received by, and to the knowledge of DPII, no proceedings have been
instituted against, DPII alleging that use or proposed use of any item of DPII
Intellectual Property by DPII or any third party infringes upon or otherwise
violates any rights of DPII or a third party in or to such DPII Intellectual
Property.
(c) With respect to (i) each item of DPII Registered Intellectual
Property, necessary registration, maintenance and renewal fees in connection
with such DPII Registered Intellectual Property have been made and all necessary
documents and certificates in connection with such DPII Registered Intellectual
Property have been filed with the relevant patent authorities in the United
States for the purposes of maintaining such DPII Registered Intellectual
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Property and (ii) those patents set forth in Section 4.15(a) of the DPII
Disclosure Schedule, no information material to patentability under applicable
law has been knowingly withheld from the examining office in a manner that would
constitute fraud or inequitable conduct. DPII owns and has good and exclusive
title free and clear of any Encumbrance to all DPII Registered Intellectual
Property listed in Section 4.15(a) of the DPII Disclosure Schedule.
(d) To the extent that any work, invention, or material has been
developed or created by a third party for DPII, DPII has a written agreement
with such third party with respect thereto and DPII thereby has obtained
ownership of, and is the exclusive owner of, or has a valid license to use, all
DPII Intellectual Property in such work, material or invention by operation of
law or by valid assignment or by agreement, as the case may be.
(e) Section 4.15(e) of the DPII Disclosure Schedule lists all
contracts, licenses and agreements to which DPII is a party that are currently
in effect (i) with respect to DPII Intellectual Property licensed (or subject to
an option or similar right to license) to any third party; or (ii) pursuant to
which a third party has licensed or transferred any DPII Intellectual Property
to DPII other than customary confidentiality agreements and material transfer
agreements entered into in the Ordinary Course of Business of DPII.
(f) The contracts, licenses and agreements listed in Section
4.15(a) and (e) are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, cancellation, termination, or suspension of such
contracts, licenses and agreements listed in Section 4.15(a) and (e) of the DPII
Disclosure Schedule. DPII is in material compliance with, and has not materially
breached any term any of such contracts, licenses and agreements listed in
Section 4.15(a) and (e) of the DPII Disclosure Schedule and, to the Knowledge of
DPII, all other parties to such contracts, licenses and agreements are in
compliance with, and have not breached any term of, such contracts, licenses and
agreements. Following the Closing Date, DPII will be permitted to exercise all
of DPII's rights under the contracts, licenses and agreements listed in Sections
4.15(a) and (e) of the DPII Disclosure Schedule to the same extent DPII would
have been able to had the transactions contemplated by this Agreement not
occurred and without the payment of any additional funds other than ongoing
fees, royalties or payments which DPII would otherwise be required to pay under
existing agreements.
(g) Section 4.15(g) lists all contracts, licenses and agreements
between DPII and any third party wherein or whereby DPII has agreed to, or
assumed, any obligation or duty to warrant, indemnify, hold harmless or
otherwise assume or incur any obligation or liability with respect to the
infringement or misappropriation by DPII or such third party of the Intellectual
Property of any third party.
4.16 Proprietary Information of Third Parties.
DPII has not received notice from a third party claiming nor, to the
Knowledge of DPII does any third party have reason to claim that any person
employed by or affiliated with DPII in connection with and during DPII's
ownership and operation of the DPII Business has (i) violated
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or may be violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement with such third party, (ii)
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party, or (iii)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from DPII which suggests that such a claim might be
contemplated. To the Knowledge of DPII, no person employed by or affiliated with
DPII in connection with and during DPII's ownership and operation of the DPII
Business has employed or proposes to employ any trade secret or any information
or documentation proprietary to any former employer and no person employed by or
affiliated with DPII in connection with and during DPII's ownership and
operation of the DPII Business has violated any confidential relationship which
such person may have had with any third party, in connection with the DPII
Business, and DPII has no reason to believe there will be any such employment or
violation.
4.17 Litigation.
There are no Proceedings, including bankruptcy proceedings, pending or,
to the Knowledge of DPII, there are no investigations or Proceedings threatened
or anticipated against, relating to or affecting (i) DPII or the DPII Assets and
Properties, (ii) DPII and its business and properties to the extent the same
could be reasonably expected to adversely effect the ability of DPII to
consummate the transactions contemplated hereby, or (iii) the transactions
contemplated by this Agreement. To the Knowledge of DPII, DPII is not in default
with respect to any Order, and there are no unsatisfied judgments against DPII.
4.18 Compliance with Law.
(a) Except as otherwise provided in Section 4.20 below, DPII is in
compliance with all applicable laws, statutes, Orders, ordinances and
regulations, whether federal, state, local or foreign, except where the failure
to comply, in each instance and in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect on DPII. DPII has not received
any written notice to the effect that, or otherwise has been advised that, DPII
is not in compliance with any of such laws, statutes, Orders, ordinances or
regulations, where the failure to comply could reasonably be expected to result
in a Material Adverse Effect on DPII.
4.19 Contracts.
(a) Section 4.19(a) of the DPII Disclosure Schedule contains a true
and complete list of each of the following written or oral contracts, agreements
or other arrangements (each, a "DPII Material Contract") to which DPII is a
party or by which any of the DPII Assets and Properties are bound (and, to the
extent oral, accurately describes the terms of such contracts, agreements and
arrangements):
(i) all collective bargaining or similar labor agreements;
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(ii) all contracts for the employment of any officer,
employee or other person or entity on a full time, part time, consulting or
other basis;
(iii) all loan agreements, indentures, debentures, notes or
letters of credit relating to the borrowing of money or to mortgaging, pledging
or otherwise placing a lien on any material asset or material group of assets of
DPII;
(iv) all guarantees of any obligation;
(v) all leases or agreements under which DPII is lessee or
lessor of, or holds, or operates, any property, real or personal, owned by any
other party;
(vi) all commitments, contracts, sales contracts, purchase
orders, mortgage agreements or groups of related agreements with the same party
or any group or affiliated parties which require or may in the future require
payment of any consideration by DPII of an amount in excess of $25,000 and which
cannot be terminated within thirty (30) days after giving notice of termination
without resulting in any cost or penalty to DPII;
(vii) all license agreements, distribution agreements or any
other agreements involving any DPII Intellectual Property;
(viii) all subscription or registration rights agreements or
any other agreements related to the equity ownership of DPII;
(ix) all contracts or commitments that in any way restrict
DPII from carrying on the DPII Business anywhere in the world; and
(x) all other contracts and agreements that (A) involve the
payment or potential payment, pursuant to the terms of any such contract or
agreement, by DPII or the other party of an amount in excess of $25,000 and (B)
cannot be terminated within thirty (30) days after giving notice of termination
without resulting in any cost or penalty to DPII.
(b) Each contract, agreement or other arrangement disclosed in
Section 4.19(a) of the DPII Disclosure Schedule is in full force and effect and
constitutes a legal, valid and binding agreement, enforceable by DPII in
accordance with its terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
and (b) rules of law and equity governing specific performance, injunctive
relief and other equitable remedies. DPII has performed all of its required
material obligations under, and is not materially in violation or breach of or
default under, any such contract, agreement or arrangement. To the Knowledge of
DPII, the other parties to any such contract, agreement or arrangement are not
in violation or breach of or default under any such contract, agreement or
arrangement. None of the present employees, officers, directors or shareholders
of DPII is, and none of the former employees, officers or directors of DPII
while providing services for DPII was, a party to any oral or written contract
or agreement prohibiting any of them from freely competing with other parties or
engaging in the DPII Business as now operated.
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4.20 Environmental Matters.
(a) As of the Effective Date DPII is in material compliance with
all applicable Environmental Laws. DPII has not received any written
communication whether from a Governmental or Regulatory Authority or citizen
group, that alleges that DPII or any of the DPII Assets and Properties used in
the DPII Business are not in material compliance with Environmental Laws. All
Permits and other governmental authorizations currently held by DPII or under
which it operates pursuant to Environmental Laws (collectively, "DPII
Environmental Permits") are identified, together with their respective
expiration dates, in Section 4.20(a) of the DPII Disclosure Schedule and, to the
knowledge of DPII, currently represent all DPII Environmental Permits necessary
for the conduct of the DPII Business as currently conducted. DPII has not been
notified by any relevant Governmental or Regulatory Authority that any DPII
Environmental Permit will be modified, suspended or revoked or cannot be renewed
in the Ordinary Course of Business, and, to the Knowledge of DPII, no DPII
Environmental Permit will be modified, suspended or revoked, or cannot be
renewed in the Ordinary Course of Business of DPII.
(b) As of the Effective Date there is no Environmental Notice that
is (i) pending or, to the Knowledge of DPII, threatened in writing against DPII
or (ii) to the Knowledge of DPII, pending or threatened in writing against any
Person whose liability for such Environmental Notice may have been retained or
assumed by or could reasonably be imputed or attributed to DPII.
(c) To the Knowledge of DPII there are no past or present actions,
activities, circumstances, conditions, events or incidents arising from the
operation, ownership or use of any property currently or formerly owned,
operated or used by DPII (or any entity formerly an Affiliate of DPII),
including, without limitation, the release, emission, discharge or disposal of
any Material into the Environment, that (i) could reasonably be expected to
result in the incurrence by DPII of significant costs under Environmental Laws
or (ii) could reasonably be expected to form the basis of any Environmental
Notice against or with respect to DPII or against any Person whose liability for
any Environmental Notice may have been retained or assumed by or could be
imputed or attributed to DPII.
(d) Without in any way limiting the generality of the foregoing,
(i) all underground storage tanks, and the capacity and contents of such tanks,
located on property at any time owned, leased or used by DPII are identified in
Section 4.20(d) of the DPII Disclosure Schedule, (ii) to the Knowledge of DPII
there is no asbestos contained in or forming part of any building, building
component, structure or office space owned, leased or used by DPII, (iii) to the
Knowledge of DPII no polychlorinated biphenyls (PCB's) are used, disposed of or
stored on any property owned, leased or used by DPII and (iv) all locations
currently or formerly owned, leased or used by DPII (or any former Affiliate of
DPII) are identified and described in Section 4.20(d) the DPII Disclosure
Schedule.
(e) DPII has heretofore delivered to Axys correct and complete
copies of all environmental studies, assessments, reports, results of
investigations and audits of the DPII
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Assets and Properties, and made available similar information that is in the
possession of DPII regarding environmental matters pertaining to the operations
of the DPII Business or the environmental condition of real property currently
or previously owned, leased or operated by DPII or used in the DPII Business.
(f) By virtue of the transactions set forth herein and contemplated
hereby, or as a condition to the effectiveness of any transactions contemplated
hereby, DPII is not required under any Environmental Laws to undertake (i) the
performance of a site assessment for Materials, (ii) the removal or remediation
of Materials, (iii) the giving of notice to or receiving the approval of any
Governmental Authority, or (iv) the recording or delivery to other persons of
any disclosure document or statement pertaining to environmental matters.
4.21 Inventory.
The inventory of DPII is in good and merchantable condition, and
suitable and usable at its carrying value in the Ordinary Course of Business for
the purposes for which intended and the value of such inventory is accurately
reflected in the books and records of DPII in accordance with GAAP in a
consistent manner through all relevant periods. To the knowledge of DPII, there
is no material adverse condition affecting the supply of materials available to
DPII. To the Knowledge of DPII, no supplier of DPII is in violation of any
federal, state, local or foreign law, ordinance, regulation or Order, which
violation has a Material Adverse Effect on such supplier's ability to produce or
supply DPII with any product necessary for the operations of the DPII Business.
4.22 Plants, Buildings, Structures, Facilities and Equipment.
(a) All plants, buildings, structures, facilities and equipment
used by DPII in the conduct of its business are structurally sound with no known
material defects and are in good operating condition and repair (subject to
normal wear and tear) so as to permit the operation of the DPII Business as
presently conducted;
(b) No such plant, building, structure, facility or equipment is in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs which are not material in nature or cost; and
(c) With respect to each plant, building, structure, facility or
item of equipment, DPII has not received notification that it is in violation,
in any material respect, of any applicable building, zoning, subdivision, fire
protection, health or other law, Order, ordinance or regulation and no such
violation exists.
4.23 Insurance.
(a) Set forth in Section 4.23 of the Disclosure Schedule is a
complete and accurate list of all primary, excess and umbrella policies, bonds
and other forms of insurance currently owned or held by or on behalf of and/or
providing insurance coverage to DPII or the
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DPII Assets and Properties (or any of DPII's directors, officers, salespersons,
agents or employees), including the following information for each such policy:
type(s) of insurance coverage provided; per occurrence and annual aggregate
deductibles or self-insured retentions; per occurrence and annual aggregate
limits of liability and the extent, if any, to which the limits of liability
have been exhausted. All policies, bonds and other forms of insurance set forth
in Section 4.23 of the DPII Disclosure Schedule are in full force and effect,
and with respect to such policies, all premiums currently payable or previously
due have been paid, and no notice of cancellation or termination has been
received with respect to any such policy. All such policies, bonds and other
forms of insurance are sufficient for compliance with all requirements of law
and all agreements to which DPII is a party or otherwise bound, and are valid,
outstanding, collectible and enforceable policies and, to the Knowledge of DPII,
provide adequate insurance coverage for DPII and the DPII Business and DPII
Assets and Properties.
4.24 Taxes.
(a) DPII has timely filed with the appropriate Taxing Authorities
all income and franchise Tax Returns and all other Tax Returns relating to DPII,
DPI Assets and Properties and Tax withholding obligations of DPII required to be
filed by or with respect to it (taking into account applicable extensions). Each
such Tax Return was correct and complete in all material respects when filed.
DPII has paid in full (or had paid on its behalf), or has made provision in the
DPII Financial Statements for, all Taxes which are due or claimed to be due by
any Taxing Authority (whether or not shown as due on any Tax Return), and has
made (or has had made on its behalf) all required estimated payments of Taxes.
DPII has not incurred any liability for Taxes other than in the Ordinary Course
of Business since the date of the most recent DPII Financial Statements. There
are no liens for Taxes upon DPII Assets and Properties except for statutory
liens for current Taxes not yet due.
(b) None of DPII or any subsidiaries of DPII has requested any
extension of time within which to file any Tax Return, which Tax Return has not
since been filed, or waived any statute of limitations for, or agreed to any
extension of time with respect to, the assessment of Taxes. DPII was formed on
March 22, 1995. Neither DPII nor any of its subsidiaries has received any notice
of deficiency or assessment from any Taxing Authority with respect to
liabilities for Taxes which have not been fully paid or finally settled.
Further, no state of facts exists or has existed which would constitute grounds
for the assessment of any liability for Taxes of or with respect to DPII or any
of its subsidiaries for periods prior to the Closing Date which have not been
audited by any Taxing Authority. None of DPII, its officers or directors, any
subsidiary of DPII, its officers or directors, is aware of any information which
has caused or should cause any of them to believe that an audit by any Taxing
Authority of Taxes of or with respect to DPII or any of its subsidiaries may be
forthcoming. No claim has ever been made by an authority in a jurisdiction where
DPII or any of its subsidiaries does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction.
(c) DPII and each of its subsidiaries has withheld and paid over to
the appropriate Taxing Authorities all Taxes required to have been so withheld
and paid over with
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respect to amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other Person for all periods under all applicable laws
relating to the withholding of Taxes.
(d) Neither DPII nor any of its subsidiaries has any liability for
the Taxes of any other Person (i) under Treasury Regulations Section 1.1502-6
(or any similar provision of state, local, or foreign law) other than as a
member of the DPII affiliated group, (ii) as a transferee or successor, (iii) by
contract, or (iv) otherwise.
(e) Neither DPII nor any of its subsidiaries has filed or will file
prior to the Closing a consent under Section 341(f) of the Code. Neither DPII
nor any of its subsidiaries is obligated to make any payments, or is a party to
any agreement (whether written or oral) that could obligate it to make any
payments that will not be deductible under Section 162(m) or Section 280G of the
Code, whether paid prior to or after the Closing. Neither DPII, nor any of its
subsidiaries is or has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code.
(f) Neither DPII nor any of its subsidiaries has agreed, and DPII
or such subsidiary is not required, to make any adjustment pursuant to Section
481(a) of the Code (or any predecessor provision) by reason of any change in any
accounting method or change in basis for determining the reserves of DPII or
such subsidiary or otherwise, and neither DPII nor any of its subsidiaries has
any application pending with any Taxing Authority requesting permission to make
any changes in any accounting method or in the basis for determining its
reserves. The IRS has not proposed any such adjustment or change in accounting
method or in the basis of determining its reserves.
(g) Neither DPII nor any of its subsidiaries has any outstanding
balances of deferred gain or loss accounts related to any "intercompany
transactions" (as defined in Treasury Regulations Section 1.1502-13(b)) to which
DPII or any of its subsidiaries was a party.
(h) DPII will file for the Post-Closing Period, as a common parent
corporation of an Affiliated Group, a consolidated return for federal income tax
purposes on behalf of itself and the Company, and the Company will be an
"includible corporation" (within the meaning of Section 1504(b) of the Code) in
such Affiliated Group.
(i) There is no power of attorney given by or binding upon DPII or
any of its subsidiaries with respect to Taxes for any period for which the
applicable statute of limitations (including any waivers or extensions) has not
expired as of the date of this Agreement or will not have expired by the Closing
Date.
(j) Neither DPII nor any of its subsidiaries is a party to or
otherwise subject to any arrangement entered into in anticipation of the
Closing, which is not in accordance with past practice and not required by this
Agreement and (i) which has the effect of or gives rise to the recognition of a
deduction or loss before the Closing Date and a corresponding recognition of
taxable income or gain after the Closing Date, or (ii) would reasonably be
expected to have the
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effect of or give rise to the recognition of taxable income or gain by DPII or
such subsidiary after the Closing Date without the receipt of or entitlement to
a corresponding amount of cash.
4.25 Labor and Employment Relations.
To the Knowledge of DPII , no officer, DPII key employee or group of ten
(10) or more employees of DPII has or have any plans to terminate his, her or
their employment with DPII. DPII is not a party to or bound by any collective
bargaining agreement with any labor organization, group or association covering
any of its employees, and to the Knowledge of DPII, there are no attempts to
organize any of DPII's employees by any person, unit or group seeking to act as
their bargaining agent. DPII has complied in all material respects with all
applicable laws relating to the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining,
discrimination against race, color, national origin, religious creed, physical
or mental disability, sex, age, ancestry, medical condition, marital status or
sexual orientation, and the withholding and payment of social security and other
taxes. There are no pending or, to the Knowledge of DPII , threatened charges
(by employees, their representatives or governmental authorities) of unfair
labor practices or of employment discrimination or of any other wrongful action
with respect to any aspect of employment of any person employed or formerly
employed by DPII. No union representation elections relating to DPII's employees
have been scheduled by any Governmental or Regulatory Authority, no
organizational effort is being made with respect to any of such employees, and
to the Knowledge of DPII, there is no investigation of DPII's employment
policies or practices by any Governmental or Regulatory Authority pending or
threatened. DPII is not currently, and in the past has not been, involved in
labor negotiations with any unit or group seeking to become the bargaining unit
for any employees of DPII. DPII has never experienced any work stoppages and to
the Knowledge of DPII, no work stoppage has been threatened or is planned.
4.26 Certain Employees.
DPII has provided to Axys under cover of a letter dated as of the date
hereof, a list of the names of DPII's employees and consultants as of the date
hereof involved in the senior management of the DPII Business, together with the
title or job classification of each such person and the total compensation (with
wages and bonuses, if any, separately detailed) paid in 1998 and 1999 and to
date in 2000 (if applicable) and the current rate of pay for each such person on
the date of this Agreement (the "DPII Employee Letter"). The DPII Employee
Letter shall specifically indicate the employees and consultants hired or
retained since June 30, 1999 or which DPII has agreed to hire or retain. None of
such persons has an employment agreement or understanding, whether oral or
written, with DPII which is not terminable on notice by DPII without cost or
other liability to DPII. From December 31, 1999, to the date hereof, inclusive,
DPII has not fired, terminated or otherwise discharged any employee or
consultant with total expected annual compensation (including bonus potential)
in excess of $30,000, or entered into (or agreed to enter into) any employment,
consulting or similar agreement, with a value in excess of $30,000.
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4.27 Absence of Certain Changes. Since December 31, 1999 DPII has
conducted the DPII Business in the ordinary and usual course consistent with
past practice, and there has not been any of the following:
(a) any change or amendment to the certificate or articles of
incorporation, bylaws or other organizational documents of DPII;
(b) any issuance or sale or purchase or redemption of any equity
securities or of any derivative securities of DPII, other than pursuant to this
Agreement;
(c) any dividend or other distribution declared, set aside, paid or
made with respect to its equity securities or any direct or indirect redemption,
purchase or other acquisition of such equity securities by DPII;
(d) any acquisition or disposition of assets by DPII having a fair
value or for a purchase price in excess of $100,000, in the aggregate, other
than acquisitions or dispositions made in the ordinary course of business
consistent with past practice;
(e) any incurrence of any Liabilities except Liabilities incurred
in the ordinary course of business and consistent with past practice, none of
which, in any case or in the aggregate, are material to the financial condition
or operating results of DPII;
(f) any payment, discharge or satisfaction of any Liabilities other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of Liabilities and obligations reflected or
reserved against in the DPII Financial Statements or incurred in the ordinary
course of business and consistent with past practice;
(g) any commitment, agreement, settlement or transaction entered
into, amended, or terminated (or any waiver of any rights or remedies under any
of the foregoing), other than in the ordinary course of business consistent with
past practice;
(h) any amendment of any mortgage, Encumbrance, lease agreement,
Permit, loan agreement, indenture or other agreement, instrument or document,
other than in the ordinary course of business consistent with past practice;
(i) any default, event of default or breach (or any event which,
with notice or the passage of time or both, would constitute a default, event of
default or breach) by DPII of any credit, financing or other agreement or
instrument relating to any material Indebtedness;
(j) any sale, assignment, transfer or license of any patents,
patent applications, designs, logos, trademarks, trademark applications,
servicemarks, servicemark applications, trade names, Internet domain names,
copyrights, trade secrets, licenses, know-how, formulae, models, information,
software and processes;
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(k) any damage, destruction, theft or other casualty loss that is
reasonably likely to have a Material Adverse Effect;
(l) any entry into or amendment of any Material Contract;
(m) any entry into or amendment of any employment or severance
compensation agreement or consulting or similar agreement with, or any increase
in the compensation or benefits payable or to become payable by DPII to any
employee of DPII (other than agreements terminable without penalty or similar
payment by DPII on not more than 30 days' notice and any other increases in
compensation payable or to become payable to employees (other than directors or
officers) in the ordinary course of business consistent with past practice);
(n) any write down or write up in the value of any inventories
(including write-downs by reason of shrinkage or mark-down), any change, other
than in the ordinary course of business consistent with past practice, in the
standard costs utilized in determining the value of any inventories or any
failure to replenish any inventories in a normal and customary manner consistent
with its prior practice and prudent business practices prevailing in the
industry, or made any purchase commitment in excess of the normal, ordinary and
usual requirements of its business or at any price in excess of the then current
market price or upon terms and conditions more onerous than those usual and
customary in the industry, or made any change in its selling, pricing,
advertising or personnel practices inconsistent with its prior practice and
prudent business practices prevailing in the industry;
(o) any change in the financial or tax accounting methods,
principles or practices of DPII for financial or tax accounting purposes, except
as required by GAAP or applicable law;
(p) any adoption of a plan of or any agreement or arrangement with
respect to or resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of DPII;
(q) any change, condition, occurrence, circumstance or other event
that, individually or in the aggregate, has had or is reasonably likely to have
a Material Adverse Effect;
(r) any settlement of any material Tax audit, the making or
changing of any material Tax election or the filing of any amended Tax Return;
or
(s) any commitment or agreement to do any of the foregoing, except
as otherwise required or expressly permitted by this Agreement.
4.28 Customers/Supplier.
DPII has previously provided to Axys a true and correct list of DPII's
ten largest customers and gross revenues from such customers during the 1998
fiscal year and the 1999
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fiscal year and for the three-month period ended March 31, 2000 (measured by
revenues to the DPII Business). Since January 1, 1999, no such customer has
stopped doing business with DPII, and to the Knowledge of DPII, no such customer
has advised DPII that it is not continuing, or is terminating, or is making an
adverse change with respect to its business with DPII and to the Knowledge of
DPII, the consummation of the transactions contemplated by the Agreement will
not adversely affect any such relationships. To the Knowledge of DPII, DPII and
the DPII Business are not dependent upon any single vendor or group of
affiliated vendors such that the discontinuance of supply or service from such
vendor or vendors would have, or could be reasonably expected to have, a
Material Adverse Effect on DPII or the DPII Business.
4.29 Necessary Property.
All of the DPII Real Property and DPII Assets and Properties owned or
leased by DPII and the DPII Intellectual Property listed on the DPII Disclosure
Schedule owned by or licensed to DPII constitute all of the property reasonably
necessary for the conduct of the DPII Business in the manner and to the extent
presently conducted by DPII.
4.30 [reserved]
4.31 Permits.
Section 4.31 of the DPII Disclosure Schedule contains a true and
complete list of all Permits used in, and material to, individually or in the
aggregate, the DPII Business. All such Permits are currently effective and valid
and have been validly issued. No additional Permits are necessary to enable DPII
to conduct the DPII Business in material compliance with all applicable federal,
state and local laws. Neither the execution, delivery or performance of this
Agreement nor the mere passage of time will have any effect on the continued
validity or sufficiency of the Permits, nor will any additional Permits be
required by virtue of the execution, delivery or performance of this Agreement
to enable DPII to conduct the Business as now operated. To the Knowledge of
DPII, there is no pending Proceeding by any Governmental or Regulatory Authority
which could affect the Permits or their sufficiency for the current conduct of
the Business or of the conduct of the DPII Business after the Closing. DPII has
provided Axys with true and complete copies of all Permits listed in the DPII
Disclosure Schedule.
4.32 Brokers.
DPII has not retained any broker in connection with the transactions
contemplated hereunder. Axys has, and will have, no obligation to pay any
broker's, finder's, investment banker's, financial advisor's or similar fee in
connection with this Agreement or the transactions contemplated hereby by reason
of any action taken by or on behalf of DPII.
4.33 Year 2000 Compliance.
All material Computer Systems owned, licensed or used by DPII as they
relate to the DPII Business are Year 2000 Compliant. To the extent material to
the operation of the DPII
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Business, DPII has obtained representations or assurances from each entity that
(x) provides Date Data to DPII, (y) processes in any way Date Data for DPII, or
(z) otherwise provides any material product or service to DPII that is dependent
on Year 2000 Compliance, that all of such entity's Date Data and related
software and systems that are used for, or on behalf of, DPII, and are related
to the DPII Business are Year 2000 Compliant. The costs of becoming Year 2000
Compliant will not have a Material Adverse Effect on the DPII Business or on the
operations or financial condition of DPII.
4.34 Insider Interests and Affiliate Transactions.
There are no (i) suppliers or customers of the Business in which a
stockholder holding 5% or more of any class of securities of DPII or a director,
officer or management employee of holds, directly or indirectly, a significant
ownership or other interest, (ii) intercompany liabilities or obligations
between DPII, on the one hand and, any of its Affiliates, on the other hand,
that are not eliminated in DPII's consolidated financial reporting or (iii)
other material business relationships between DPII, on the one hand, and any
current or former stockholder, director, officer or employee, on the other hand,
other than in such Person's capacity as a stockholder, director, officer or
employee in the ordinary course of business.
4.35 Material Misstatements and Omissions.
To the Knowledge of DPII, the representations and warranties of DPII
contained in this Agreement (including the exhibits and schedules hereto) do not
contain and will not contain any untrue statement of a material fact and do not
and will not omit to state a material fact necessary to make the statements or
facts contained herein or therein, in this context and under the circumstances
in which such statements or facts appear, not misleading.
4.36 Investment Intent.
DPII is acquiring the Axys AAT Stock for its own account and for
investment, and not with a view to, or for sale in connection with any
distribution of such Company Shares. DPII acknowledges that such Company Shares
constitute "restricted securities" which cannot be resold absent a registration
statement for such resale under the Securities Act of 1933 (and blue sky
equivalents) or an exemption from the registration requirements thereof.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND AXYS
The obligations of the Company and Axys to effect the transactions
contemplated hereby are subject to the satisfaction, at or before the Closing,
of each of the following conditions:
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5.1 Representations, Warranties and Covenants.
All representations and warranties of DPII contained in this Agreement
shall be true and correct on and as of the Closing Date and each of DPII and
Mergersub shall have performed all agreements and covenants required to be
performed by it prior to or on the Closing Date.
5.2 No Proceedings.
No Proceedings against DPII or Mergersub shall have been instituted or
threatened which question the validity or legality of the transactions
contemplated hereby.
5.3 Consents.
All Permits, authorizations, consents, approvals and waivers from third
parties and Governmental or Regulatory Authorities and other Persons necessary
or appropriate to permit DPII and Mergersub to perform their respective
obligations hereunder and to consummate the transactions contemplated hereby
shall have been obtained.
5.4 Closing Deliveries.
DPII shall have executed and delivered the documents required to be
executed and delivered by DPII pursuant to Section 2.14(c) above.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF DPII AND MERGERSUB
The obligation of DPII and Mergersub to effect the transactions
contemplated hereby is subject to the satisfaction, at or before the Closing, of
each of the following conditions:
6.1 Representations, Warranties and Covenants.
All representations and warranties of Axys and the Company contained in
this Agreement shall have been true and correct when made and shall be true and
correct on and as of the Closing Date and Axys and the Company shall have
performed all agreements and covenants required to be performed by them prior to
or on the Closing Date.
6.2 No Proceedings.
No Proceedings against the Company or Axys shall have been instituted or
threatened which question the validity or legality of the transactions
contemplated hereby.
6.3 Consents.
All Permits, authorizations, consents, approvals and waivers from third
parties and Governmental or Regulatory Authorities and other Persons necessary
or appropriate to permit
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Axys and the Company to perform their respective obligations hereunder and to
consummate the transactions contemplated hereby shall have been obtained.
6.4 Closing Deliveries.
The Company and Axys shall have executed and delivered the documents
required to be executed and delivered by the Company or Axys pursuant to Section
2.14(b) above.
ARTICLE VII
COVENANTS OF THE PARTIES
7.1 Covenants by Axys and DPII.
Prior to the Closing Date, each of Axys, the Company, DPII and Mergersub
covenant to act as follows:
(a) Notification of Certain Matters. Each of the parties shall give
prompt notice to the other party, of (i) the discovery of a fact or facts of
which the notifying party has actual knowledge which cause any of the
representations, warranties or statements made by it or in an any exhibit,
schedule or other document delivered pursuant to this Agreement, to be false or
misleading or omit any facts necessary in order to make such representations,
warranties or statements not false or misleading; (ii) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty made by them in this Agreement to be untrue
or inaccurate any time from the date of this Agreement to the Closing Date; and
(iii) any failure of the notifying party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it or him hereunder.
Each party hereto shall use all reasonable efforts to remedy any failure on its
or his part to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it or him/her hereunder.
During the period from the date of this Agreement to the Closing
Date, DPII will reasonably promptly notify Axys of any material change in, or
outside of, the Ordinary Course of Business of DPII or the DPII Business and of
any Governmental or Regulatory Authority complaints, investigative hearings, or
the institution, written threat (to the extent DPII has or should have Knowledge
of such threat) or settlement of litigation, in each case involving an amount in
excess of $50,000 and relating to DPII or the DPII Business, and shall keep Axys
fully informed in reasonable detail of such events. DPII shall not enter into
any settlements over $50,000 in connection with any such litigation without the
prior written consent of Axys.
During the period from the date of this Agreement to the Closing
Date, Axys and the Company will reasonably promptly notify DPII of any material
change in, or outside of, the Ordinary Course of Business of the Company or the
Business and of any Governmental or Regulatory Authority complaints,
investigative hearings, or the institution, written threat (to the extent Axys
or the Company has or should have Knowledge of such threat) or settlement of
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litigation, in each case involving an amount in excess of $50,000 and relating
to the Company or the Business, and shall keep DPII fully informed in reasonable
detail of such events. Neither the Company nor Axys shall enter into any
settlements over $50,000 in connection with any such litigation without the
prior written consent of DPII.
(b) Reasonable Commercial Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto will use its reasonable
commercial efforts to take, or cause to be taken, all action, or to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, obtaining all consents and
approvals of all Persons and Governmental or Regulatory Authorities and removing
any injunctions or other impairments or delays or otherwise which are necessary
to the consummation of the transactions contemplated by this Agreement. Any time
after the closing, Axys and DPII will, and DPII will cause the Company to,
promptly execute, acknowledge and deliver any other assurances or documents
reasonably requested by DPII or Axys, as the case may be, to satisfy its
obligations hereunder or to consummate or implement the transactions and
agreements contemplated hereby.
(c) Filings. Each of the parties hereto will use its reasonable
commercial efforts to make or cause to be made all such filings and submissions
as may be required under applicable laws and regulations for the consummation of
the transactions contemplated by this Agreement. Axys and DPII will coordinate
and cooperate with one another in exchanging such information and provide each
other such assistance as any other party may reasonably request in connection
with the foregoing.
(d) Confidentiality.
(i) Except as and to the extent required by law or as
expressly permitted in the other Transaction Agreements, the parties hereto will
not disclose or use, and will direct their respective representatives not to
disclose or use any Confidential Information of such other party furnished, or
to be furnished, by such other party or its representatives to the receiving
party or its representatives at any time or in any manner other than use in
connection with the transaction contemplated in this Agreement or disclosure
permitted by the terms hereof; provided, that if such disclosure is required by
federal or state securities laws or regulations of any stock exchange (or
quotation system), the party making such disclosure shall use reasonable efforts
to limit the disclosure (including seeking confidential treatment, if
applicable, of commercially sensitive or proprietary information) and shall
reasonably consult with the other party regarding the timing and content of any
such disclosure. Notwithstanding the foregoing, Confidential Information shall
not include any information which is generally known to the public or to
companies in businesses similar to the Business, or which later, through no act
of the disclosing party, becomes generally known.
(ii) In the event this Agreement is terminated prior to the
consummation of the transaction contemplated hereunder, the party receiving any
such Confidential Information shall (a) return to the party disclosing the same,
or shall destroy in a
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manner satisfactory to such disclosing party, all tangible forms of such
Confidential Information, including any and all copies thereof, and those
portions of any documents, memoranda, notes, studies and analyses prepared by or
on behalf of the receiving party or any of its directors, officers, employees,
advisors or representatives that incorporate or are derived from such
Confidential Information, and (b) immediately cease, and shall cause its
directors, officers, employees, partners, advisors and representatives to cease,
use of such Confidential Information as well as any information or materials
that incorporate or are derived from such Confidential Information.
(e) Public Announcements. Prior to the Closing, the Company, Axys,
DPII and Mergersub shall not issue any press release or make any public
announcement with respect to this Agreement and the transactions contemplated
hereby without obtaining the prior consent of the other parties, except as may
be required by applicable law on the part of Axys upon the advice of counsel and
announcement to DPII's indirect investors and financing services.
(f) Disclosure Schedule Supplement. At any time on or before the
third business day prior to the Closing Date, any party may update particular
sections of the Disclosure Schedule or DPII Disclosure Schedule, as the case may
be, by delivering to DPII or Axys, as the case may be, a written description of
a matter or event that first arises (and was reasonably foreseeable only after
the date hereof (specifying the applicable sections of the Disclosure Schedule
or DPII Disclosure Schedule, as the case may be, being updated) by each such
matter or event) that would, if not for the update to the Disclosure Schedule or
DPII Disclosure Schedule, as the case may be, contemplated thereby, result in
one or more of the conditions set forth in Section 5.1, Section 5.2, Section 6.1
or Section 6.2 hereof not being satisfied at Closing; provided, that no such
update shall be effective for purposes of determining whether any of the
conditions set forth in Article VI hereof shall have been satisfied at Closing;
provided, further, that no such update shall be effective unless accompanied by
a written acknowledgment by such party that the matter or event described would,
if not for the update to the applicable sections of the Disclosure Schedule or
DPII Disclosure Schedule, as the case may be, provided for herein, result in one
or more of the conditions set forth in Section 5.1, Section 5.2, Section 6.1 or
Section 6.2 hereof not being satisfied and agreeing to terminate and abandon
this Agreement pursuant to Section 10.1(a)(i) hereof at the option of the
counterparty. If the Closing occurs, the Disclosure Schedule or DPII Disclosure
Schedule, as the case may be, shall be deemed supplemental or amended for all
purposes of the Agreement, including without limitation, Section 8.2.
7.2 Covenants of the Company and Axys.
Prior to the Closing Date, each of the Company and Axys covenants to act
as follows:
(a) Maintenance of Business Prior to Closing. Except as otherwise
contemplated by this Agreement, during the period from the date of this
Agreement to the Closing Date, the Company has conducted and will continue to
conduct the Business in accordance with its Ordinary Course of Business and seek
to preserve its current relationships with the customers and other persons with
whom it has business relations to the extent consistent
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with its Ordinary Course of Business. Without limiting the generality of the
foregoing and, except as otherwise expressly provided in this Agreement, prior
to the Closing Date, without the prior written consent of DPII, the Company will
not, and Axys will cause the Company not to, with respect to the Company or the
Business:
(i) (A) create, incur or assume any long-term or short-term
debt (including obligations with respect to capital leases), other than under
revolving credit facilities existing as of the date of this Agreement or in
connection with the acquisition of any real property, machinery, equipment or
other capital assets with a purchase price not in excess of $25,000 in the
aggregate or (B) assume, guarantee, endorse or otherwise become liable or
responsible for (whether directly, contingently or otherwise) the obligations of
any other Person, other than endorsing negotiable instruments in the Ordinary
Course of Business;
(ii) (A) except as required by applicable law, increase the
compensation of any Company Employee, other than in the Ordinary Course of
Business, (B) pay or agree to pay any pension, retirement allowance, severance
or other employee benefit not required by law or by any Plan to any Company
Employee, whether past or present, (C) commit itself to any additional pension,
profit sharing, bonus, incentive, deferred compensation, group insurance,
severance pay, retirement or other employee benefit plan, agreement or
commitment, or to any employment or consulting agreement with or for the benefit
of any Person or (D) amend any Benefit Plan, other than as required by, or as
necessary to comply with, applicable law or by any such Benefit Plan;
(iii) (A) except as permitted by Section 7.2(a)(xv), sell,
transfer or otherwise dispose of, or agree to sell, transfer, license, grant or
otherwise dispose of any of its Company Assets or Properties except in the
Ordinary Course of Business or (B) permit any Encumbrance on any of its Asset or
Properties;
(iv) permit any insurance (or reinsurance) policies to be
cancelled or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies with similarly rated insurance companies providing coverage equal to or
greater than coverage remaining under those cancelled, terminated or lapsed are
in full force and effect;
(v) make any changes to the accounting methods, principles
or practices applicable to the Company, except as required by GAAP;
(vi) permit any damage, destruction or casualty loss,
whether covered by insurance or not, material to the Business taken as a whole;
(vii) make, pay, discharge or otherwise satisfy any claims,
Liabilities or Encumbrances of the Business except in the Ordinary Course of
Business;
(viii) through negotiation or otherwise, make any commitment
or incur any Liability with respect to make any capital expenditure or
commitment or additions to the
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Company Assets and Properties except for capital expenditures made in the
Ordinary Course of Business and that do not exceed Twenty-Five Thousand Dollars
($25,000);
(ix) enter into any other agreements, commitments or
transactions, except (A) agreements, commitments or transactions made in the
Ordinary Course of Business or (B) operating leases in an amount not to exceed
in the aggregate $10,000 per month on a cumulative basis;
(x) create, organize or otherwise establish any new
subsidiary or other entity;
(xi) take or omit to take any action in violation or
contravention of any provision of Section 3.27 above or any other representation
or warranty hereunder;
(xii) fail to perform in a timely manner any of the
Company's obligations under any contracts to which the Company is a party;
(xiii) settle any material Tax audit, make or change any
material Tax election or file any amended income or other material Tax Return;
(xiv) issue, deliver, sell, authorize or propose the
issuance, delivery or sale of, any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities convertible
into shares of capital stock, or accelerate the vesting schedule of any options,
or enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible shares, except for employee stock options
(exercisable for DPII shares) offered, subject to approval of DPII's Board
following the Closing, to new employees of the Company in the Ordinary Course of
Business; provided, that in no event shall the aggregate number of shares of
common stock of DPII so offered exceed 20,000 shares;
(xv) declare, set aside or pay any dividend or other
distribution or make or agree to make any distribution or payment in respect of
its capital stock or redeem, purchase or otherwise acquire or agree to acquire
any of its capital stock other than cash dividends paid to Axys on or prior to
the Closing Date in an amount not to exceed the excess of (A) the amount of cash
held by the Company as of the Closing Date, over (B) the amount of cash received
by the Company (or by Axys in respect of the Company) between January 1, 2000
and the Closing Date and not in the ordinary course of business;
(xvi) hire or retain (or offer to hire or retain) any
employee or consultant with total annual expected compensation (including bonus
potential) in excess of $100,000, fire, terminate or otherwise discharge any
such employee or consultant or enter into any employment, consulting or similar
agreement; or
(xvii) agree, whether in writing or orally, whether formally
or informally, to engage in any of the actions described in this Section 7.2(a).
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(b) Investigation by DPII. The Company and Axys shall allow DPII,
at its own expense during regular business hours, or otherwise with the consent
of Axys (which consent shall not be unreasonably withheld), to make such
inspection of the Company and the Business and to inspect (and, if applicable,
make copies of) Books and Records, offices and other facilities of the Company
as requested by DPII and necessary for or related to the operation of the
Business, including historical financial information, concerning the Business.
(c) Consents. As soon as practicable, the Company and Axys will
commence all reasonable action required hereunder to obtain all applicable
Permits, consents, approvals and agreements of, and to give all notices and make
all filings with, any third parties as may be necessary to authorize, approve or
permit the full and complete consummation of the transactions contemplated
hereby by the Closing Date.
(d) Compliance with Laws. The Company and Axys shall comply with
all laws and regulations which are applicable to them or to the conduct of the
Business where failure so to comply would have a Material Adverse Effect on the
Company or the Business and will perform and comply with all contracts to which
the Company is a party where failure so to perform and comply would have a
Material Adverse Effect on the Company or the Business.
(e) Continued Truth of Representations and Warranties. The Company
and Axys will not take any actions which would result in any of its
representations, warranties, covenants and agreements set forth in this
Agreement to be untrue, incorrect, unsatisfied or otherwise changed in any
material respect at any time.
(f) Cooperation. The Company and Axys shall cooperate fully with
DPII and shall provide DPII with such assistance as DPII may reasonably request,
for the purpose of facilitating the performance by DPII of its respective
obligations under this Agreement.
(g) Intercompany Accounts. Except as set forth in Section 7.2(g) of
the Disclosure Schedule, as of the Closing, all agreements (other than any
confidentiality agreement, the Investors' Rights Agreement Amendment, the
Shareholders' Agreement Amendment, the Voting Agreement Amendment, the
Standstill Agreement, the Indemnity Escrow Agreement, the Non-Competition
Agreement, the Contribution Agreement, the Facilities Agreement, the Sublease
Amendment, the License Agreement and the Compound Supply Agreement) between Axys
or an Affiliate of Axys (other than the Company) and the Company or DPII will be
terminated without further liability to any party thereto with respect to
periods following the Closing.
7.3 Covenants of DPII. Prior to the Closing Date, DPII covenants to act
as follows:
(a) Maintenance of Business Prior to Closing. Except as otherwise
contemplated by this Agreement, during the period from the date of this
Agreement to the Closing Date, DPII has conducted and will continue to conduct
in accordance with its Ordinary Course of Business and seek to preserve its
current relationships with the customers and other persons with whom it has
business relations to the extent consistent with its Ordinary Course of
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Business. Without limiting the generality of the foregoing and, except as
otherwise expressly provided in this Agreement, prior to the Closing Date,
without the prior written consent of Axys, DPII will not:
(i) (A) create, incur or assume any long-term or short-term
debt (including obligations with respect to capital leases), other than under
revolving credit facilities existing as of the date of this Agreement or in
connection with the acquisition of any real property, machinery, equipment or
other capital assets with a purchase price not in excess of $25,000 in the
aggregate or (B) assume, guarantee, endorse or otherwise become liable or
responsible for (whether directly, contingently or otherwise) the obligations of
any other Person, other than endorsing negotiable instruments in the Ordinary
Course of Business;
(ii) (A) except as required by applicable law, increase the
compensation of any DPII employee, other than in the Ordinary Course of
Business, (B) pay or agree to pay any pension, retirement allowance, severance
or other employee benefit not required by law or by any Plan to any DPII
employee, whether past or present, (C) commit itself to any additional pension,
profit sharing, bonus, incentive, deferred compensation, group insurance,
severance pay, retirement or other employee benefit plan, agreement or
commitment, or to any employment or consulting agreement with or for the benefit
of any Person or (D) amend any Benefit Plan, other than as required by, or as
necessary to comply with, applicable law or by any such Benefit Plan;
(iii) (A) sell, transfer or otherwise dispose of, or agree
to sell, transfer, license, grant or otherwise dispose of any of DPII assets or
properties except in the Ordinary Course of Business or (B) permit any
Encumbrance on any of its asset or properties;
(iv) permit any insurance (or reinsurance) policies to be
cancelled or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies with similarly rated insurance companies providing coverage equal to or
greater than coverage remaining under those cancelled, terminated or lapsed are
in full force and effect;
(v) make any changes to the accounting methods, principles
or practices applicable to DPII, except as required by GAAP;
(vi) permit any damage, destruction or casualty loss,
whether covered by insurance or not, material to DPII's business taken as a
whole;
(vii) make, pay, discharge or otherwise satisfy any claims,
Liabilities or Encumbrances of DPII's business except in the Ordinary Course of
Business;
(viii) through negotiation or otherwise, make any commitment
or incur any Liability with respect to make any capital expenditure or
commitment or additions to DPII's assets and properties except for capital
expenditures made in the Ordinary Course of Business and that do not exceed
Twenty-Five Thousand Dollars ($25,000);
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(ix) enter into any other agreements, commitments or
transactions, except (A) agreements, commitments or transactions made in the
Ordinary Course of Business or (B) operating leases in an amount not to exceed
in the aggregate $10,000 per month on a cumulative basis;
(x) create, organize or otherwise establish any new
subsidiary or other entity;
(xi) take or omit to take any action in violation or
contravention of any provision of Section 4.27 above or any other representation
or warranty hereunder;
(xii) fail to perform in a timely manner any of DPII's
obligations under any contracts to which DPII is a party;
(xiii) settle any material Tax audit, make or change any
material Tax election or file any amended income or other material Tax Return;
(xiv) issue, deliver, sell, authorize or propose the
issuance, delivery or sale of, any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities convertible
into shares of capital stock, or accelerate the vesting schedule of any options
or enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible shares, except for employee stock options
offered, subject to approval of DPII's Board following the Closing, to new
employees of DPII in the Ordinary Course of Business; provided, that in no event
shall the aggregate number of shares of common stock of DPII so offered exceed
20,000 shares;
(xv) declare, set aside or pay any dividend or other
distribution or make or agree to make any distribution or payment in respect of
its capital stock or redeem, purchase or otherwise acquire or agree to acquire
any of its capital stock;
(xvi) hire or retain (or offer to hire or retain) any
employee or consultant with total annual expected compensation (including bonus
potential) in excess of $100,000, fire, terminate or otherwise discharge any
such employee or consultant or enter into any employment, consulting or similar
agreement;
(xvii) allow Mergersub to operate any business; or
(xviii)agree, whether in writing or orally, whether formally
or informally, to engage in any of the actions described in this Section 7.3(a).
(b) Investigation by Axys. DPII shall allow Axys, at its own
expense during regular business hours, or otherwise with the consent of DPII
(which consent shall not be unreasonably withheld), to make such inspection of
DPII and DPII's business and to inspect (and, if applicable, make copies of)
Books and Records, offices and other facilities of DPII as
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requested by Axys and necessary for or related to the operation of DPII's
business, including historical financial information, concerning DPII's
business.
7.4 Covenants of DPII and Mergersub.
Prior to the Closing Date, each of DPII and Mergersub covenants to act
as follows:
(a) Consents. As soon as practicable, DPII and Mergersub will
commence all reasonable action required hereunder to obtain all applicable
Permits, consents, approvals and agreements of, and to give all notices and make
all filings with, any third parties as may be necessary to authorize, approve or
permit the full and complete consummation of the transactions contemplated
hereby by the Closing Date.
(b) Compliance with Laws. DPII and Mergersub shall comply with all
laws and regulations which are applicable to them where failure so to comply
would have a Material Adverse Effect on DPII's or Mergersub's ability to
consummate the transactions contemplated hereby and to perform any of their
respective obligations under this Agreement.
(c) Continued Truth of Representations and Warranties. Neither DPII
nor Mergersub will take any actions which would result in any of its
representations, warranties, covenants and agreements set forth in this
Agreement to be untrue, incorrect, unsatisfied or otherwise changed in any
material respect at any time.
(d) Cooperation. DPII and Mergersub shall cooperate fully with the
Company and Axys, and shall provide the Company and Axys with such assistance as
the Company and Axys may reasonably request, for the purpose of facilitating the
performance by the Company and Axys of their respective obligations under this
Agreement.
ARTICLE VIII
ACTIONS BY THE PARTIES AFTER THE CLOSING
8.1 Survival of Representations, Warranties, Etc.
Except as provided in Article IX, the representations, warranties and
covenants contained in or made pursuant to this Agreement or any certificate,
document or instrument delivered pursuant to this Agreement and the
indemnification with respect thereto shall survive the execution and delivery of
this Agreement and the Closing hereunder notwithstanding any investigation,
analysis or evaluation by any Person of the assets, business, operations or
condition (financial or otherwise) of the Company or DPII or any other Person
and thereafter the representations and warranties shall continue to survive in
full force and effect for a period of twenty-four (24) months after the Closing
Date; provided, however, that (i) the representations and warranties contained
in Section 3.1, Section 3.2, Section 3.3, Section 3.12, Section 3.14, Section
4.1, Section 4.2, Section 4.12 and Section 4.14 shall continue to survive
indefinitely after the Closing Date; and (ii) the representations and warranties
in Sections 3.13, 3.20 and 3.24 and
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Sections 4.13, 4.20 and 4.24 shall continue to survive after the Closing Date
until the date that is 90 days after the expiration of the applicable statute of
limitations.
8.2 Indemnification.
(a) By Axys. Axys shall indemnify, defend and hold harmless DPII,
the Surviving Corporation and their respective Affiliates, officers, directors,
employees, agents, successors and assigns (collectively the "DPII Group") from
and against any and all costs, losses, Liabilities, damages, lawsuits,
deficiencies, claims and expenses not reimbursed by insurance, including without
limitation, interest, penalties, costs of mitigation, attorneys' fees and all
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively, the "Damages"), incurred in connection with, arising out of,
resulting from or incident to (i) any breach of any representation or warranty,
or the inaccuracy of any representation, made by the Company or Axys to DPI in
or pursuant to this Agreement, or in the ancillary agreements delivered in
connection with the transactions contemplated in this Agreement, (ii) any
failure by Axys or the Company to perform or comply with any covenant or
agreement that is required to be performed or complied with by Axys or the
Company prior to the Closing, (iii) the operation of the Business (including any
act, omission or contract violation) or the ownership of any of the Company
Assets and Properties prior to the Closing Date, specifically excluding any
trade payables and other Ordinary Course of Business Liabilities and
specifically including Liabilities resulting from any Proceeding arising from
acts or omissions occurring before the Closing Date, (iv) Proceedings, if any,
set forth in the Disclosure Schedule, (v) Akkadix Claims, (vi) the events,
circumstances, and conditions described in Section 3.20 of the Disclosure
Schedule to the extent they result in actual or alleged violations of
Environmental Laws, and (vii) any Environmental Notice, pollution or threat to
human health or the environment or any alleged violation of Environmental Law
that is related in any way to Axys' or the Company's, or any other owner's or
operator's management, use, control, ownership or operation of the Company
Assets or Properties or the Business (including, without limitation, all on-site
and off-site activities involving Materials of, from or relating to the Business
or the Company Assets and Properties), and that occurred, existed, arises out of
conditions or circumstances that occurred or existed, or was caused, in whole or
in part, on or before the Closing Date, whether or not such matters are
described in Section 3.20 of the Disclosure Schedule. For the purposes of this
Section 8.2, the term "Akkadix Claims" shall mean any Proceedings by Akkadix or
its Affiliates against the Company based on the intellectual property rights
licensed by Axys or its Affiliates to Akkadix or its Affiliates, but excluding
any aspect of such Proceedings, and any Damages in such Proceedings, that are
based on actions or activities of the Company after the Closing that constitute
a breach of the License Agreement.
(b) By DPII. DPII shall indemnify, reimburse, defend and hold
harmless Axys and their respective officers, employees, agents, successors and
assigns (collectively, the "Axys Group") from and against any and all Damages
incurred in connection with, arising out of, resulting from or incident to (i)
any breach of any representation or warranty or the inaccuracy of any
representation made by DPII or Mergersub to Axys in or pursuant to this
Agreement, (ii) any failure by DPII or Mergersub to perform or comply with any
covenant or
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agreement that is required to be performed or complied with by DPII or Mergersub
prior to the Closing, (iii) the operation of the Business (including any act,
omission or contract violation) or the ownership of any of the Company Assets
and Properties after the Closing Date, except for (A) obligations relating to
products and services delivered by the Company before the Closing Date and (B)
the Akkadix Claims, (iv) costs, liabilities, and expenses incurred by Axys in
connection with satisfying any guarantees by Axys of contractual obligations of
the Company to be performed after the Closing Date set forth in Section 3.19 of
the Disclosure Schedule, except for obligations relating to products and
services delivered by the Company before the Closing Date, (v) the events,
circumstances, and conditions described in Section 4.20 of the Disclosure
Schedule to the extent they result in actual or alleged violations of
Environmental Laws, and (vi) any Environmental Notice, pollution or threat to
human health or the environment or any alleged violation of Environmental Law
that is related in any way to DPII's, or any other owner's or operator's
management, use, control, ownership or operation of DPII Assets or Properties or
the DPII Business (including, without limitation, all on-site and off-site
activities involving Materials of, from or relating to the DPII Business or the
DPII Assets and Properties), and that occurred, existed, arises out of
conditions or circumstances that occurred or existed, or was caused, in whole or
in part, on or before the Closing Date, whether or not such matters are
described in Section 4.20 of the DPII Disclosure Schedule.
(c) Defense of Claims. If any Proceeding is filed or initiated against
any party entitled to the benefit of indemnity hereunder, written notice thereof
shall be given to the indemnifying party as promptly as practicable (and in any
event within ten (10) days after the service of the citation or summons);
provided, however, that the failure of any indemnified party to give timely
notice shall not affect rights to indemnification hereunder except to the extent
that the indemnifying party has been materially prejudiced by such failure to
give timely notice. After such notice, if the indemnifying party shall
acknowledge in writing to the indemnified party that the indemnifying party
shall be obligated under the terms of its indemnity hereunder in connection with
such Proceeding, then the indemnifying party shall be entitled, if it so elects,
to take control of the defense and investigation of such Proceeding and to
employ and engage attorneys of its own choice to handle and defend the same,
such attorneys to be reasonably satisfactory to the indemnified party, at the
indemnifying party's cost, risk and expense (unless (i) the indemnifying party
has failed to assume the defense of such Proceeding or (ii) the named parties to
such Proceeding include both of the indemnifying party and the indemnified
party, and the indemnified party and its counsel determine in good faith that
there may be one or more legal defenses available to such indemnified party that
are different from or additional to those available to the indemnifying party
and that joint representation would be inappropriate), and to compromise or
settle such Proceeding, which compromise or settlement shall be made only with
the written consent of the indemnified party, such consent not to be
unreasonably withheld. The indemnified party may withhold such consent if such
compromise or settlement would materially adversely affect the conduct of
business. Notwithstanding the foregoing, the indemnified party may not withhold
consent if such compromise or settlement includes an unconditional release of
claims against the indemnified party. If (i) the indemnifying party fails to
assume the defense of such Proceeding within fifteen (15) days after receipt of
notice thereof pursuant to this Section 8.2, or (ii) the named parties to such
Proceeding include both the indemnifying party and the
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indemnified party and the indemnified party and its counsel determine in good
faith that there may be one or more legal defenses available to such indemnified
party that are different from or additional to those available to the
indemnifying party and that joint representation would be inappropriate, the
indemnified party against which such Proceeding has been filed or initiated will
(upon delivering notice to such effect to the indemnifying party) have the right
to undertake, at the indemnifying party's cost and expense, the defense,
compromise or settlement of such Proceeding on behalf of and for the account and
risk of the indemnifying party; provided, however, that such Proceeding shall
not be compromised or settled without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld. In the event the
indemnified party assumes defense of the Proceeding, the indemnified party will
keep the indemnifying party reasonably informed of the progress of any such
defense, compromise or settlement and will consult with, when appropriate, and
consider any reasonable advice from, the indemnifying party of any such defense,
compromise or settlement. The indemnifying party shall be liable for any
settlement of any action effected pursuant to and in accordance with this
Section 8.2 and for any final judgment (subject to any right of appeal), and the
indemnifying party agrees to indemnify and hold harmless the indemnified party
from and against any Damages by reason of such settlement or judgment.
Regardless of whether the indemnifying party or the indemnified party
takes up the defense, the indemnifying party will pay reasonable costs and
expenses in connection with the defense, compromise or settlement for any
Proceeding under this Section 8.2.
The indemnified party shall cooperate in all reasonable respects with
the indemnifying party and such attorneys in the investigation, trial and
defense of such Proceeding and any appeal arising therefrom; provided, however,
that the indemnified party may, at its own cost, participate in the
investigation, trial and defense of such Proceeding and any appeal arising
therefrom. The indemnifying party shall pay all expenses due under this Section
8.2 as such expenses become due.
(d) Other Claims. A claim for indemnification for any matter not
involving a third-party claim may be asserted by notice to the party from whom
indemnification is sought.
(e) Limitation on Indemnification.
(i) Axys shall have no liability to any member of the DPII
Group, and DPII shall have no liability to any member of the Axys Group, for
amounts payable pursuant to their respective indemnification obligations in
Section 8.2 (other than with respect to the breach of any covenant or agreement
set forth in Section 3.12) until the total of all such Damages incurred by the
indemnified party exceeds *** in the aggregate (the "Threshold Amount"), and
then indemnification by the indemnifying party shall apply to all such Damages
including the Threshold Amount.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
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(ii) Axys shall have no liability to the DPII Group, and
DPII shall have no liability to the Axys Group, pursuant to their respective
indemnification obligations in this Section 8.2 (a)(i) and (ii) or Section
8.2(b)(i) and (ii), as applicable, to the extent that the total of all such
Damages (subject to the threshold requirements set forth in Section 8.2(e)(i)
above) paid by the indemnifying party pursuant to such indemnification
obligations exceeds *** *** in the aggregate.
(iii) Notwithstanding anything to the contrary contained
herein, the limitation on Axys' and DPII's indemnification obligation in Section
8.2(e) shall not apply to any fraud, or intentional breach by Axys or the
Company, or by DPII, as the case may be, of any representation, warranty,
covenant or agreement of such party.
(iv) Notwithstanding anything to the contrary contained
herein, for purposes of determining Damages and the accuracy in or breach of the
representations or warranties referred to in Section 8.2(a) or (b) and
indemnification thereunder, references to "Material Adverse Effect",
"materiality" (and other forms of materiality qualifiers (together "Materiality
Terms")) shall not be applicable. As so construed, no indemnification for
Damages for any representation or warranty containing a Materiality Term under
Section 8.2(a) or (b) shall be required unless the untruth or breach of any
representation or warranty applied without the relevant Materiality Terms
results in Damages of *** or more; provided, however, that where a number of
such Damages are each individually less than *** , but the aggregate of such
Damages exceeds *** and all such Damages are based upon, arise from or are
attributable to the same set of facts or circumstances, such Damages shall be
aggregated for the purposes of this sentence.
(f) Indemnity Escrow Account. The Indemnity Escrow Amount shall be
maintained in the escrow account until the first year anniversary of the Closing
Date (the "Escrow Period") for the purpose of satisfying claims by DPII for
indemnification under this Section 8.2 and Article IX of this Agreement. Upon
expiration of the Escrow Period, and subject to the terms of this Section 8.2
and Article IX and the Indemnity Escrow Agreement, the Escrow Agent shall
deliver or cause to be delivered to Axys the balance, if any, remaining in the
escrow account. If, upon expiration of the Escrow Period, DPII shall have
asserted a claim for indemnity in accordance with this Section 8.2 and Article
IX or Section 2.13 of this Agreement and such claim is pending or unresolved at
the time of such expiration, the Escrow Agent shall retain in escrow a number of
shares of DPII Common Stock with a Fair Market Value (as defined in Section
8.2(g) below) equal to the value of the asserted claim until such matter is
resolved. In the event that DPII is entitled to indemnification under this
Section 8.2, or Article IX, as applicable, DPII's first recourse for
indemnification shall be the Indemnity Escrow Amount pursuant to the terms of
this Agreement and the Indemnity Escrow Agreement. After the Indemnity Escrow
Amount is exhausted or the Indemnity Escrow Agreement is terminated,
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
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DPII shall be entitled to seek indemnification under this Section 8.2 or Article
IX directly from Axys, subject to the limitations set forth in this Section 8.2
or Article IX, as applicable. In such event, as DPII's recourse for unsatisfied
Damages owed to DPII, and unless otherwise agreed to in writing by Axys and
DPII, Axys shall surrender to DPII for cancellation as promptly as practicable
such number of shares of DPII Common Stock with a Fair Market Value equal to the
value of the remaining unsatisfied Damages owed to DPII. Without limiting the
generality of the foregoing for purposes of illustration, if it is determined
that DPII is entitled to indemnification by Axys for *** in Damages (which
amount has not been previously satisfied out of the Indemnity Escrow Amount) and
the Fair Market Value of DPII Common Stock is $8.00 per share of DPII Common
Stock, then in satisfaction of the remaining Damages owed to DPII by Axys, Axys
shall surrender to DPII for cancellation *** shares of DPII Common Stock as
promptly as practicable.
(g) Share Adjustment Mechanism. In the event that Axys is entitled
to indemnification under Article VIII, Axys' recourse for the satisfaction of
Damages (subject to the limitations contained in this Section 8.2) owed to Axys
shall be as provided in this Section 8.2(g). Unless otherwise agreed to in
writing by Axys and DPII, DPII shall issue to Axys as promptly as practicable
such number of shares of DPII Common Stock with a Fair Market Value equal to the
value of the unsatisfied Damages owed to Axys. In the event that DPII has an
insufficient number of authorized shares of DPII Common Stock to fulfill its
obligations hereunder, DPII shall take all necessary actions as promptly as
practicable to increase its authorized shares of DPII Common Stock in order to
fulfill its obligations hereunder. For the purposes of this Section 8.2(g) and
Section 8.2(f), the "Fair Market Value" per share of DPII Common Stock shall be
determined as follows: (i) if traded on a securities exchange or through
NASDAQ-NMS, the Fair Market Value shall be deemed to be the average of the
closing price of such share on such exchange over the twenty (20) day period
ending three (3) days prior to the date on which the shares are delivered to
Axys or DPII, as the case may be; or (ii) if there is no active public market,
the Fair Market Value shall be deemed to be the per share price at which the
Company sold shares of its capital stock in its most recent equity financing
negotiated on an arms'-length basis. Tax Indemnity Not Covered. Notwithstanding
anything to the contrary herein, Sections 8.1 and 8.2 (other than Section
8.2(f)) shall have no application with respect to the indemnification for Taxes,
which shall be covered exclusively by the provisions of Article IX.
8.3 [reserved]
8.4 Further Assurances.
In case at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as the other party
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
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reasonably may request, all the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor under this
Article VIII).
8.5 Audited Financials.
Axys shall cooperate in all respects with the preparation by the Company
of a GAAP balance sheet as of December 31, 1999 and shall use its best efforts
to cause Ernst & Young LLP to cooperate with the audit thereof. The parties
agree to endeavor to cause such audit to be completed by April 25, 2000. Axys
shall also cooperate in all respects with the preparation by the Company of GAAP
balance sheets for the Business as of December 31, 1998 and December 31, 1997,
and statements of income and of cash flows for the Business for the years ended
December 31, 1999, 1998 and 1997, and shall use its best efforts to cause Ernst
&Young LLP to cooperate with the audit thereof. The parties agree to endeavor to
cause such audit to be completed by April 25, 2000. Axys shall also use its best
efforts to cause Ernst & Young to make available its work papers with respect to
both such audits to the Company and its (post-Closing) auditors upon request, at
any time or from time to time until December 31, 2004. Axys shall cooperate and
shall use its best efforts to cause Ernst & Young LLP to cooperate with DPII in
connection with DPII's use of such financial statements in filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended. It is anticipated that such cooperation shall include the execution and
delivery of consents, representation letters and other customary documents and
undertakings reasonably related thereto.
8.6 Payments Received.
Axys and DPII each agree that after the Closing they will hold and will
promptly transfer and deliver to the other, from time to time as and when
received by them, any cash, checks with appropriate endorsements (using their
best efforts not to convert such checks into cash), or other property that they
may receive on or after the Closing which properly belongs to the other party,
including without limitation any insurance proceeds, and will account to the
other for all receipts.
ARTICLE IX
CERTAIN TAX MATTERS
9.1 Not Tax Free.
The parties intend the Merger not to be a tax-free reorganization under
Section 368 of the Code. Each party has consulted with its own tax advisors with
respect to the tax consequences of the Merger. This Agreement is not a plan of
reorganization under Section 368 of the Code. At the request of DPII, Axys shall
cooperate in making an election under Section 338(h)(10) of the Code and any
comparable provisions of state law (the "Section 338(h)(10) Election").
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9.2 Allocation of Merger Consideration.
DPII shall provide to Axys on or before the date that is 150 days after
the Closing Date, a proposed allocation of the Merger Consideration for the
deemed sale of assets resulting from the making of the Section 338(h)(10)
Election, setting forth the estimated fair market values of the assets of the
Company. Axys and DPII shall agree upon a final allocation of such consideration
(the "Final Allocation") on or before the date that is 180 days after the
Closing Date. Axys and DPII shall cooperate in developing the Final Allocation,
and any dispute with respect thereto shall be resolved pursuant to Section 9.11.
The parties agree that, for the purposes of calculating the Final Allocation,
the value of the DPII Common Stock shall be deemed to be $8.00 per share.
9.3 Forms.
DPII shall prepare, and Axys shall cooperate in drafting and making
final, all forms (including IRS Form 8023), together with required attachments
thereto, required for making the Section 338(h)(10) Election (the "Election
Forms"), and any dispute with respect thereto shall be resolved pursuant to
Section 9.11. The Election Forms shall be timely filed by DPII with the proper
Taxing Authorities; provided, however, that Axys shall be responsible for filing
any Election Form(s) that must be filed by Axys with its Tax Returns.
9.4 Modification; Revocation.
DPII and Axys each agrees that it shall not, and shall not permit any of
its Affiliates to, take any action to modify the Election Forms following the
execution thereof, or to modify or revoke the Section 338(h)(10) Election
following the filing of the Election Forms without the written consent of DPII
or Axys, as the case may be.
9.5 Consistent Treatment.
DPII and Axys shall, and shall cause their respective Affiliates to,
file all Tax Returns in a manner consistent with the information contained in
the Election Forms as filed and the Final Allocation, unless otherwise required
because of a change in applicable Tax law.
9.6 Expenses Resulting from Section 338(h)(10) Elections.
DPII and its Affiliates (including the Company following the Closing),
on the one hand, and Axys and its Affiliates, on the other hand, shall bear
their respective administrative, legal and similar expenses resulting from the
making of the Section 338(h)(10) Election.
9.7 Tax Sharing Agreements.
Any Tax sharing agreements, arrangements or contracts of any kind
(whether written or oral) between the Company and any other Person shall be
terminated effective as of the Closing Date.
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9.8 Tax Indemnity.
(a) Notwithstanding any other provisions of this Agreement, from,
and after the Closing Date, Axys shall be liable to, and shall indemnify and
hold harmless, DPII, the Company and their respective officers, directors,
Affiliates and assigns from and against the following amounts: (i) Taxes imposed
on or attributable to the Company with respect to taxable years or periods
ending on or before the Closing Date (including, without limitation, any income
taxes arising as a result of any Section 338(h)(10) Election); (ii) with respect
to taxable years or periods beginning before the Closing Date and ending after
the Closing Date (a "Straddle Period"), Taxes imposed on or attributable to the
Company which are allocable, pursuant to Section 9.8(c), to the portion of such
Straddle Period ending on the Closing Date (an "Interim Period") (Interim
Periods and any taxable years or periods that end on or prior to the Closing
Date being referred to collectively hereinafter as "Pre-Closing Periods"); (iii)
Taxes imposed on any member of any affiliated group with which Axys and/or the
Company file or have filed a Tax Return on a consolidated, combined or unitary
basis for any taxable year or period beginning before the Closing Date; (iv)
Taxes required to be paid or reimbursed by Axys under Section 9.8(d) (to the
extent such Taxes have not been paid by Axys); (v) Taxes imposed on the DPII or
the Company as a result of an inaccuracy or breach of the representations and
warranties set forth in Section 3.24 or a breach of the covenants contained in
this Article IX, without duplication; and (vi) Taxes or other payments required
to be made after the date hereof by the Company to any Person under any Tax
sharing, indemnity or allocation agreement entered into before the Closing Date
(whether oral or written).
(b) Notwithstanding any other provisions of this Agreement to the
contrary, from and after the Closing Date, DPII shall be liable for and shall
indemnify Axys and its officers, directors, Affiliates and assigns from and
against the following amounts: (i) Taxes imposed on or attributable to the
Company which are allocable, pursuant to Section 9.8(c), to the portion of any
Straddle Period beginning after the Closing Date and (ii) Taxes imposed on or
attributable to the Company, or for which the Company may otherwise be liable,
for any taxable period that begins after the Closing Date.
(c) In order to apportion appropriately any Taxes relating to any
taxable year or period that includes an Interim Period, the parties hereto
shall, to the extent permitted under applicable law, elect with the relevant
Taxing Authority to treat, for all purposes, the Closing Date as the last day of
the taxable year or period of the Company, and such Interim Period shall be
treated as a short taxable year and a Pre-Closing Period for purposes of this
Section 9.8(c). In any case where applicable law does not permit the Company to
treat the Closing Date as the last day of the taxable year or period of the
Company with respect to Taxes that are payable with respect to an Interim
Period, the portion of any such Tax that is allocable to the Interim Period
shall be:
(i) in the case of Taxes that are either (x) based upon or
related to income or receipts, or (y) imposed in connection with any sale or
other transfer or assignment of property (real or personal, tangible or
intangible), deemed equal to the amount which would be
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payable if the taxable year or period ended on the Closing Date (except that (1)
exemptions, allowances and deductions such as depreciation deductions calculated
on an annual basis shall be prorated between the Interim Period and the
remainder of the Straddle Period and (2) solely for purposes of determining the
marginal tax rate applicable to income or receipts during such period in a
jurisdiction in which such tax rate depends upon the level of income or
receipts, annualized income or receipts may be taken into account, if
appropriate, for an equitable sharing of such Taxes); and
(ii) in the case of Taxes not described in clause (i) above
that are imposed on a period basis and measured by the level of any item, deemed
to be the amount of such Taxes for the entire period (or, in the case of such
Taxes determined on an arrears basis, the amount of such Taxes for the
immediately preceding period) multiplied by a fraction the numerator of which is
the number of calendar days in the Interim Period and the denominator of which
is the number of calendar days in the entire relevant period.
(d) Axys shall be liable for and shall pay all applicable sales,
transfer, recording, deed, stamp and other similar taxes, including, without
limitation, any real property transfer or gains taxes (if any), resulting from
the consummation of the transactions contemplated by this Agreement.
9.9 Mutual Cooperation.
As soon as practicable, but in any event within 30 days after either
Axys' or DPII's request, DPII shall, or shall cause the Company to, deliver to
Axys or Axys shall deliver to DPII, as the case may be, such information and
other data relating to the Tax Returns and Taxes of the Company and shall
provide such other assistance as may reasonably be requested, to cause the
completion and filing of all Tax Returns or to respond to audits by any Taxing
Authorities with respect to any Tax Returns or taxable periods, or to otherwise
enable Axys, DPII or the Company to satisfy their accounting or Tax
requirements. For a period of five years from and after the Closing, DPII and
Axys shall, and shall cause their Affiliates to, maintain and make available to
the other party, on such other party's reasonable request and at such other
party's sole cost and expense, copies of any and all information, books and
records referred to in this Section 9.9. After such five-year period, DPII or
Axys may dispose of such information, books and records, provided that prior to
such disposition, DPII or Axys shall give the other party the opportunity to
take possession of such information, books and records at such other party's
sole cost and expense.
9.10 Contests.
Whenever any Taxing Authority asserts a claim, makes an assessment or
otherwise disputes the amount of Taxes for which Axys is or may be liable under
this Agreement, DPII shall, if informed of such an assertion, inform Axys within
five business days, and Axys shall have the right to control any resulting
proceedings and to determine whether and when to settle any such claim,
assessment or dispute to the extent such proceedings or determinations affect
the amount of Taxes for which Axys may be liable under the Agreement, except
that DPII shall have
72
<PAGE> 81
the right to consent, which consent shall not be unreasonably withheld or
delayed, to any settlement to the extent such proceedings or settlement
materially affect the amount of Taxes imposed on the Company for periods
beginning after the Pre-Closing Date. Whenever any Taxing Authority asserts a
claim, makes an assessment or otherwise disputes the amount of Taxes for which
DPII is or may be liable under this Agreement, Axys shall, if informed of such
an assertion, inform DPII within five business days, and DPII shall have the
right to control any resulting proceedings and to determine whether and when to
settle any such claim, assessment or dispute, except that Axys shall have the
right to consent, which consent shall not be unreasonably withheld or delayed,
to any settlement to the extent such proceedings or settlement materially affect
the amount of Taxes for which Axys is or may be liable under this Agreement.
9.11 Resolution of Disagreements Between Axys and DPII.
If either Axys or DPII disagrees as to the amount of Taxes for which it
may be liable under this Agreement or Axys and DPII are unable to agree as to
the Final Allocation, the parties shall promptly consult each other to resolve
such dispute following the receipt of written notice from either party to begin
such consultation (the "Consultation Notice"). If any such point of disagreement
cannot be resolved within 60 days of the date of the Consultation Notice, or in
the case of the Final Allocation, within the 45-day period required by Section
9.2, as appropriate, Axys and DPII shall within ten days after such period
jointly select a nationally recognized independent public accounting or law firm
which has not, except pursuant to this Section 9.11, performed any services
since January 1, 1998, for Axys or DPII or their respective Affiliates, to act
as an arbitrator to resolve, within 60 days after its selection, all points of
disagreement concerning Tax matters with respect to this Agreement and presented
to such firm at the time of its selection. If the parties cannot agree on the
selection of an accounting or law firm within such ten-day period, they shall
cause their respective accounting firms to select such firm within five business
days of the end of such ten-day period. Any such resolution shall be conclusive
and binding on DPII and Axys. The fees of such independent public accountants or
law firm shall be divided equally between Axys and DPII, and DPII shall (and
shall cause the Company to) provide to such firm full cooperation. Such firm
shall be instructed to reach its conclusion regarding the dispute within 60 days
of its selection.
9.12 Survival of Obligations.
The obligations of the parties set forth in this Article IX shall be
unconditional and absolute, and shall remain in effect until 90 days after the
expiration of the applicable statutes of limitations.
ARTICLE X
MISCELLANEOUS
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<PAGE> 82
10.1 Termination.
(a) This Agreement may be terminated and abandoned at any time
prior to the Closing:
(i) by the mutual consent of Axys and DPII;
(ii) by either Axys or DPII in the event the Closing has not
occurred on or before May 15, 2000 (the "Termination Date"), unless the failure
of such consummation shall be due to the failure of the party seeking to
terminate this Agreement to comply with the agreements and covenants contained
herein to be performed by such party on or before the Termination Date; or
(iii) by either Axys or DPII in the event any court or
governmental agency of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree or
ruling or other action shall have become final and nonappealable.
(b) In the event of the termination and abandonment of this
Agreement by Axys or DPII pursuant to Section 10.1(a), written notice thereof
shall forthwith be given to the other parties. If the transactions contemplated
by this Agreement are terminated as provided herein, no party to this Agreement
will have any liability under this Agreement to any other except for any willful
breach of any provision of this Agreement; and Sections 7.1(d)
(confidentiality), 10.2 (notices), 10.11 (jurisdiction and forum), and 10.12
(expenses) shall survive and shall remain in full force and effect.
10.2 Notices.
All notices, requests and other communications hereunder must be in
writing and will be deemed to have been duly given only if delivered personally
against written receipt or by facsimile transmission with answer back
confirmation or mailed (postage prepaid by certified or registered mail, return
receipt requested) or by overnight courier to the parties at the following
addresses or facsimile numbers:
IF TO AXYS, TO:
Axys Pharmaceuticals, Inc.
180 Kimball Way
South San Francisco, CA 94080
Facsimile No: (650) 829-1067
Attention: William J. Newell, Esq.
WITH COPIES TO:
Cooley Godward, LLP
74
<PAGE> 83
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Facsimile No.: (650) 849-7400
Attention: Alan C. Mendelson, Esq.
IF TO DPII OR MERGERSUB, TO:
Discovery Partners International, Inc.
9640 Towne Centre Drive
San Diego, CA 92121
Facsimile No: (858) 455-8088
Attention: Chief Executive Officer
WITH COPIES TO:
Brobeck, Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130
Facsimile No.: (858) 720-2555
Attention: Hayden Trubitt, Esq.
All such notices, requests and other communications will (i) if
delivered personally to the address as provided in this Section 10.2, be deemed
given upon delivery, (ii) if delivered by facsimile transmission to the
facsimile number as provided in this Section 10.2, be deemed given upon receipt,
and (iii) if delivered by mail in the manner described above to the address as
provided in this Section 10.2, be deemed given upon receipt (in each case
regardless of whether such notice, request or other communication is received by
any other Person to whom a copy of such notice, request or other communication
is to be delivered pursuant to this Section). Any party from time to time may
change its address, facsimile number or other information for the purpose of
notices to that party by giving notice specifying such change to the other
parties hereto.
10.3 Entire Agreement.
This Agreement (and all exhibits and schedules attached hereto, all
other documents delivered in connection herewith) supersedes all prior
discussions and agreements among the parties with respect to the subject matter
hereof and contains the sole and entire agreement among the parties hereto with
respect thereto; provided, that all prior non-disclosure/non-use agreements are
not superseded, and remain in effect in addition to the provisions hereof.
10.4 Waiver.
Any term or condition of this Agreement may be waived at any time by the
party that is entitled to the benefit thereof, but no such waiver shall be
effective unless set forth in a written
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<PAGE> 84
instrument duly executed by or on behalf of the party waiving such term or
condition. No waiver by any party hereto of any term or condition of this
Agreement, in any one or more instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on any
future occasion. All remedies, either under this Agreement or by law or
otherwise afforded, will be cumulative and not alternative.
10.5 Amendment.
This Agreement may be amended, supplemented or modified only by a
written instrument duly executed by or on behalf of each party hereto.
10.6 No Third Party Beneficiary.
The terms and provisions of this Agreement are intended solely for the
benefit of each party hereto and their respective successors or permitted
assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person other than any Person entitled to
indemnity under Section 8.2 or Article IX.
10.7 No Assignment; Binding Effect.
Neither this Agreement nor any right, interest or obligation hereunder
may be assigned by any party hereto without the prior written consent of the
other parties hereto and any attempt to do so will be void, except that any
party's rights to indemnification under Section 8.2 or Article IX may be freely
assigned. This Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
10.8 Headings.
The headings used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions hereof.
10.9 Severability.
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under any present or future law, and if the rights or obligations
of any party hereto under this Agreement will not be materially and adversely
affected thereby, (i) such provision will be fully severable, (ii) this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof, (iii) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom and (iv) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and mutually acceptable to
the parties herein.
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<PAGE> 85
10.10 Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California applicable to contracts executed and performed
in such State, without giving effect to conflicts of laws principles.
10.11 Consent to Jurisdiction and Forum Selection.
The parties hereto agree that all actions or proceedings arising in
connection with this Agreement (as to proceedings initiated by Axys) shall be
initiated and tried exclusively in the State and Federal courts located in the
County of San Diego, State of California. The parties hereto agree that all
actions or proceedings arising in connection with this Agreement (as to
proceedings initiated by DPII or Mergersub) shall be initiated and tried
exclusively in the State and Federal courts located in the County of San
Francisco, State of California. The aforementioned choice of venue is intended
by the parties to be mandatory and not permissive in nature, thereby precluding
the possibility of litigation between the parties with respect to or arising out
of this Agreement in any jurisdiction other than that specified in this Section
10.11. Each party hereby waives any right it may have to assert the doctrine of
forum non conveniens or similar doctrine or to object to venue with respect to
any proceeding brought in accordance with this paragraph, and stipulates that
the State and Federal courts located in the County of San Diego, State of
California (as to proceedings initiated by Axys) or in the County of San
Francisco, State of California (as to proceedings initiated by DPII or
Mergersub) shall have in personam jurisdiction and venue over each of them for
the purposes of litigating any dispute, controversy or proceeding arising out of
or related to this Agreement. Each party hereby authorizes and accepts service
of process sufficient for personal jurisdiction in any action against it as
contemplated by this Section 10.11 by registered or certified mail, return
receipt requested, postage prepaid, to its address for the giving of notices as
set forth in this Agreement, or in the manner set forth in Section 10.2 of this
Agreement for the giving of notice. Any final judgment rendered against a party
in any action or proceeding shall be conclusive as to the subject of such final
judgment and may be enforced in other jurisdictions in any manner provided by
law.
10.12 Expenses.
Except as otherwise provided in this Agreement, Axys shall pay the
expenses and costs of Axys and the Company and DPII shall pay the expenses and
costs of DPII and Mergersub, respectively, incidental to the preparation of this
Agreement and to the consummation of the transactions contemplated hereby.
10.13 Construction.
No provision of this Agreement shall be construed in favor of or against
any party on the ground that such party or its counsel drafted the provision.
Any remedies provided for herein are not exclusive of any other lawful remedies
which may be available to either party. This Agreement shall at all times be
construed so as to carry out the purposes stated herein.
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<PAGE> 86
10.14 Counterparts.
This Agreement may be executed in any number of counterparts and by
facsimile, each of which will be deemed an original, but all of which together
will constitute one and the same instrument.
[SIGNATURE PAGES TO FOLLOW]
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<PAGE> 87
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto, each by a duly authorized officer, as of the date first
above written.
DISCOVERY PARTNERS INTERNATIONAL, INC., a
California corporation
By: /s/ Riccardo Pigliucci
------------------------------------
Name: Riccardo Pigliucci
Title: Chairman and CEO
DPII NEWCO, LLC,
a Delaware limited liability company
By: /s/ Riccardo Pigliucci
------------------------------------
Name: Riccardo Pigliucci
Title: Chairman and CEO
AXYS ADVANCED TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ William J. Newell
------------------------------------
Name: William J. Newell
Title: Vice President
AXYS PHARMACEUTICALS, INC., a Delaware
corporation
By: /s/ John P. Walker
------------------------------------
Name: John P. Walker
Title: Chairman and CEO
79
<PAGE> 88
EXHIBIT A
<PAGE> 89
CERTIFICATE OF INCORPORATION
To be mutually agreed upon by the parties prior to the Closing.
<PAGE> 90
EXHIBIT B
<PAGE> 91
PROMISSORY NOTE
$___________________ San Diego, California
_______________, 200_
For value received, the undersigned hereby promises to pay to
__________________, or order (the "Holder") at 9640 Towne Center Drive, San
Diego, California, the principal amount of _____________________ Dollars
($______________), plus interest accrued thereon.
This Promissory Note shall bear interest at a rate of 8 percent per
annum, compounded annually, until due (upon maturity or acceleration), and after
it is due (upon maturity or acceleration) shall bear interest at 10 percent per
annum, compounded annually.
Accrued interest shall be due and payable, annually in arrears, on each
anniversary of the date of this Promissory Note until payment in full and shall
be calculated on the basis of a 360-day year for the actual number of days
elapsed. All principal and remaining accrued interest shall be due and payable
in a lump sum on the third anniversary of the date of this Note.
This Promissory Note may be prepaid at any time, without premium or
penalty; provided, that any such prepayment must be of the entire principal
amount plus all accrued interest.
Upon the happening of any of the following events, Holder may, at its
option, declare immediately due and payable the entire unpaid principal amount
of this Promissory Note, together with all interest thereon, plus any other
amounts payable at the time of such declaration pursuant to this Promissory
Note; provided, that in the case of a default under clause (1) or (2), all
amounts shall be automatically due and payable. Such events are the following:
(1) the maker of this Promissory Note ("Maker") shall admit in writing its
inability to pay his debts as they become due, shall make a general assignment
for the benefit of creditors or shall file any petition or action for relief
under any bankruptcy, reorganization, insolvency or moratorium law, or any other
law or laws for the relief of, or relating to, debtors; or (2) an involuntary
petition shall be filed against Maker under any bankruptcy, reorganization,
insolvency or moratorium law, or any other law or laws for the relief of, or
relating to, debtors unless such petition shall be dismissed or vacated within
sixty (60) days of the date thereof; (3) Maker shall fail to make any payment of
principal, interest or any other amounts payable hereunder when due; or (4)
Maker shall have closed its initial underwritten public offering of its common
stock pursuant to a registration statement under the Securities Act of 1933, as
amended.
The acceptance by Holder of any payment hereunder which is less than the
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express consent of
Holder.
The Maker of this Promissory Note waives diligence, presentment, protest
and demand and also notice of protest, demand, dishonor and nonpayment of this
Promissory Note, and
<PAGE> 92
expressly agrees that this Promissory Note, or any payment hereunder, may be
extended from time to time and consents to the acceptance of security, if any,
or the release of security, if any, from this Promissory Note, all without in
any way affecting the liability of the Maker.
The right to plead any and all statutes of limitations as a defense to
any demand on this Promissory Note, or any instrument securing this Promissory
Note, or any and all obligations or liabilities arising out of or in connection
with this Promissory Note, is expressly waived by Maker to the fullest extent
permitted by law.
No extension of the time for the payment of this Promissory Note, or any
installment hereof, made by agreement by the Holder hereof with any person now
or hereafter liable for the payment of this Promissory Note shall affect the
original liability under the terms of this Promissory Note by Maker even if it
is not a party to such agreement.
If Holder should institute collection efforts, of any nature whatsoever,
to attempt to collect any and all amounts due hereunder upon the default of
Maker, Maker shall be liable to pay to Holder immediately and without demand all
reasonable costs and expenses of collection incurred by Holder, including
without limitation reasonable attorneys fees, whether or not suit or other
action or proceeding be instituted and specifically including but not limited to
collection efforts that may be made on appeal or through a bankruptcy court, and
all such sums shall be fully secured by all instruments, if any, securing this
Promissory Note.
The provisions of this Promissory Note are intended by Maker to be
severable and divisible and the invalidity or unenforceability of a provision or
term herein shall not invalidate or render unenforceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed by and construed and interpreted
in accordance with the internal laws of the State of California.
The provisions of this Note shall inure the benefit of and be binding on
any successor to Maker and shall extend to any holder hereof.
DISCOVERY PARTNERS INTERNATIONAL,
INC.
By:
-----------------------------------
President
2
<PAGE> 93
EXHIBIT C
<PAGE> 94
AXYS PHARMACEUTICALS, INC.
OFFICER'S CERTIFICATE
I, William J. Newell, Senior Vice President of Axys Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), in my capacity as an officer of
the Company and not in any individual or personal capacity, in connection with
the merger of DPII Newco, LLC ("Newco") with and into Axys Advanced
Technologies, Inc. ("ATT"), pursuant to Section 2.14(b)(xiv) of the Agreement
and Plan of Merger, dated as of April 11, 2000, by and among the Company, AAT,
Newco, and Discovery Partners International, Inc. (the "Agreement"), do hereby
certify that:
1. No legal action, suit or proceeding is pending or threatened which
seeks to restrain or prohibit the transactions contemplated by the Agreement on
the date hereof.
2. The representations and warranties of the Company contained in the
Agreement were true and correct on the date of the Agreement and are true and
correct on the date hereof as if made on the date hereof (except for
representations given as of a specific date, which representations are true and
correct as of such date).
3. The Company has performed all covenants and agreements contained in
the Agreement which are required to be performed by the Company on or before the
date hereof.
All capitalized terms not otherwise defined herein have the meanings
assigned to those terms in the Agreements.
[Remainder of page intentionally left blank.]
<PAGE> 95
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of April,
2000.
AXYS PHARMACEUTICALS, INC.
By:
------------------------------------
William J. Newell
Senior Vice President
<PAGE> 96
AXYS ADVANCED TECHNOLOGIES, INC.
OFFICER'S CERTIFICATE
I, William J. Newell, Secretary of Axys Advanced Technologies, Inc., a
Delaware corporation (the "Company"), in my capacity as an officer of the
Company and not in any individual or personal capacity, in connection with the
merger of DPII Newco, LLC ("Newco") with and into the Company pursuant to
Section 2.14(b)(xiv) of the Agreement and Plan of Merger, dated as of April 11,
2000, by and among the Company, Axys Pharmaceuticals, Inc., Newco, and Discovery
Partners International, Inc. (the "Agreement"), do hereby certify that:
1. No legal action, suit or proceeding is pending or threatened which
seeks to restraion or prohibit the transactions contemplated by the Agreement on
the date hereof.
2. The representations and warranties of the Company contained in the
Agreement were true and correct on the date of the Agreement and are true and
correct on the date hereof as if made on the date hereof (except for
representations given as of a specific date, which representations are true and
correct as of such date).
3. The Company has performed all covenants and agreements contained in
the Agreement which are required to be performed by the Company on or before the
date hereof.
All capitalized terms not otherwise defined herein have the meanings
assigned to those terms in the Agreements.
[Remainder of page intentionally left blank.]
<PAGE> 97
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of April,
2000.
AXYS ADVANCED TECHNOLOGIES,
INC.
By:
------------------------------------
William J. Newell
Senior Vice President
<PAGE> 98
EXHIBIT D
<PAGE> 99
DISCOVERY PARTNERS INTERNATIONAL, INC.
OFFICER'S CERTIFICATE
I, Jack Fitzpatrick, [SECRETARY AND CHIEF FINANCIAL OFFICER] of
Discovery Partners International, Inc., a Delaware corporation (the "Company"),
in my capacity as an officer of the Company and not in any individual or
personal capacity, in connection with the merger of DPII Newco, LLC ("Newco")
with and into Axys Advanced Technologies, Inc. ("ATT"), pursuant to Section
2.14(c)(xiii) of the Agreement and Plan of Merger, dated as of April ___, 2000,
by and among the Company, AAT, Newco, and Axys Pharmaceuticals, Inc. (the
"Agreement"), do hereby certify that:
1. No legal action, suit or proceeding is pending or threatened which
seeks to restrain or prohibit the transactions contemplated by the Agreement on
the date hereof.
2. The representations and warranties of the Company contained in the
Agreement were true and correct on the date of the Agreement and are true and
correct on the date hereof as if made on the date hereof (except for
representations given as of a specific date, which representations are true and
correct as of such date).
3. The Company has performed all covenants and agreements contained in
the Agreement which are required to be performed by the Company on or before the
date hereof.
All capitalized terms not otherwise defined herein have the meanings
assigned to those terms in the Agreements.
[Remainder of page intentionally left blank.]
<PAGE> 100
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of April,
2000.
DISCOVERY PARTNERS
INTERNATIONAL, INC.
By:
------------------------------------
Jack Fitzpatrick
[SECRETARY AND
CHIEF FINANCIAL OFFICER]
