<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Algos Pharmaceutical Corporation
------------------------------------------------------------
(Name of Issuer)
Common Stock
$.01 par value per share
------------------------------------------------------------
(Title of Class and Securities)
015869100
------------------------------------------------------------
(CUSIP Number)
Carol A. Ammon
President and Chief Executive Officer
Endo Pharmaceuticals Holdings Inc.
223 Wilmington - West Chester Pike
Chadds Ford, Pennsylvania 19317
(610) 558-9800
with a copy to:
Eileen Nugent, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York, 10022-3897
(212) 735-3000
------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
November 26, 1999
------------------------------------------------------------
(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rules 13d-1(e), 13d-1(f) or 13d-1(g), check the following
box. [ ]
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7 for other parties
to whom copies are to be sent.
(Continued on following pages)
Page 1 of 16
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SCHEDULE 13D
CUSIP No. 015869100
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1. NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (entities only)
Endo Pharmaceuticals Holdings Inc.
13-4022871
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP:
(a) ( )
(b) (X)
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
OO
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) ( )
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7. SOLE VOTING POWER
NUMBER OF 4,176,022
SHARES _____________________________________
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY None
EACH _____________________________________
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON None
WITH _____________________________________
10. SHARED DISPOSITIVE POWER
None
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,176,022
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
SHARES ( )
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
23.995%
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14. TYPE OF REPORTING PERSON
CO
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Page 2 of 16
<PAGE>
This statement on Schedule 13D ("Schedule 13D") is being filed
pursuant to Rule 13d-1 of the Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), by Endo Pharmaceuticals
Holdings Inc., a Delaware corporation ("Endo"), with respect to the common
stock, par value $.01 per share (the "Common Stock"), of Algos Pharmaceutical
Corporation (the "Issuer" or "Algos").
Item 1. Security and Issuer.
--------------------
This Schedule 13D relates to the Common Stock of the Issuer.
The principal executive offices of the Issuer are located at 1333 Campus
Parkway, Neptune, New Jersey 07753-6815.
Item 2. Identity and Background.
------------------------
(a) This Schedule 13D is being filed by Endo. A majority of
the outstanding capital stock of Endo is beneficially owned by Kelso Investment
Associates V, L.P., a Delaware limited partnership ("KIA V"), and Kelso Equity
Partners V, L.P., a Delaware limited partnership ("KEP V"). The general partner
of KIA V is Kelso Partners V, L.P. ("KPV"). The general partners of KPV and KEP
V are Frank T. Nickell, Thomas R. Wall, IV, George E. Matelich, David I.
Wahrhaftig, Frank K. Bynum, Jr., Philip E. Berney and Joseph S. Schuchert (such
individuals, collectively, the "Principals"). Endo, KIA V, KEP V, KPV and the
Principals are hereinafter sometimes collectively referred to as the "Item 2
Persons."
Endo, KIA V, KEP V, KPV and the Principals hereby disclaim
beneficial ownership of any shares of the Common Stock which may be voted by
Endo, and the filing of this statement shall not be construed as an admission
that the Item 2 Persons are, for purposes of Section 13(d) of the Exchange Act,
the beneficial owners of any such shares of Common Stock.
(b)-(c), (f)
Endo
----
Endo is principally engaged in the business of researching,
developing, manufacturing, marketing and selling both branded and generic
pharmaceuticals primarily for the treatment of pain. The principal business
address of Endo, which also serves as its principal office, is 223
Wilmington-West Chester Pike, Chadds Ford, Pennsylvania 19317.
The name, business address, present principal occupation
(including the name and address of the corporation or organization in which such
employment is conducted) and citizenship of each executive officer and director
of Endo are set forth in Schedule A hereto, which is incorporated herein by
reference.
Page 3 of 16
<PAGE>
KIA V
-----
KIA V, is a Delaware limited partnership, the principal
business of which is private investing. The principal business address of KIA V,
which also serves as its principal office, is 320 Park Avenue, 24/th/ Floor, New
York, New York 10022. Information with respect to KPV, the general partner of
KIA V, and the Principals, the general partners of KPV, is set forth below.
KEP V
-----
KEP V, is a Delaware limited partnership, the principal
business of which is co-investing with KIA V. The principal business address of
KEP V, which also serves as its principal office, is 320 Park Avenue, 24/th/
Floor, New York, New York 10022. Information with respect to the Principals, the
general partners of KEP V, is set forth below.
KPV and the Principals
----------------------
KPV, is a Delaware corporation, the principal business of
which is being the general partner of KIA V. The principal business address of
KPV, which also serves as its principal office is 320 Park Avenue, 24/th/ Floor,
New York, New York 10022. The name, business address, present principal
occupation (including the name and address of the corporation or organization in
which such employment is conducted) and citizenship of the Principals, the
general partners of KPV and KEP V, are set forth in Schedule A hereto, which is
incorporated herein by reference.
(d)-(e) During the last five years, none of the Item 2 Persons
and to the best of each of the Item 2 Persons' knowledge, any of their
respective executive officers, controlling persons or directors has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction resulting in a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws, or finding any
violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
--------------------------------------------------
Endo may be deemed to have acquired beneficial ownership of
4,176,022 shares of Algos Common Stock pursuant to certain voting agreements. In
accordance with the terms and conditions of
Page 4 of 16
<PAGE>
such voting agreements, dated as of November 26, 1999 (the "Voting Agreements"),
by and among Endo, Endo Inc., a wholly-owned subsidiary of Endo, and each of the
following stockholders of the Issuer: (i) Karen B. Lyle, (ii) Michael Hyatt,
(iii) Michael Hyatt, as Trustee for the Trust Under the Will of Inez Kimmel,
(iv) Michael Hyatt, as Trustee for The Todd Kimmel Trust, (v) Michael Hyatt, as
Trustee for The Melissa Kimmel Trust, (vi) Michael Hyatt, as Trustee for The
Anita Hyatt Family Trust, (vii) Frank S. Caruso ("Caruso"), (viii) John W. Lyle
("Lyle"), (ix) Roger H. Kimmel, as Trustee for The Hyatt Family Trust, (x) Roger
H. Kimmel, (xi) Frank S. Caruso, as Trustee for The Frank S. Caruso Irrevocable
Trust, (xii) James R. Ledley, (xiii) Donald G. Drapkin, (xiv) Donald Drapkin and
(xv) Patricia Caruso (each a "Stockholder," and collectively, the
"Stockholders"), Endo has been granted an irrevocable proxy, coupled with an
interest, from each of the Stockholders to vote the respective shares of Common
Stock for the following registered holders, solely in the certain circumstances
described below:
Registered Holder Number of Shares
- ----------------- ----------------
Karen B. Lyle 1,344,416
Michael Hyatt(1) 829,551
Trust Under the Will of Inez Kimmel 657,193
Todd Kimmel Trust 171,530
Melissa Kimmel Trust 155,000
Anita Hyatt Family Trust 20,750
Frank S. Caruso 370,200
John W. Lyle 224,100
Hyatt Family Trust 221,332
Roger H. Kimmel(2) 30,000
Frank S. Caruso Irrevocable Trust 24,900
James R. Ledley 109,450
Donald G. Drapkin 8,300
Donald Drapkin 8,300
Patricia Caruso 1,000
- --------------------------------------------------------
(1) Does not include shares owned by the Kimmel Trusts listed below.
(2) Does not include shares owned by the Hyatt Trusts listed above.
Upon the terms and subject to the conditions of the Voting
Agreements, Endo may vote the shares of Common Stock held by the Stockholders:
(A) In favor of the merger of the Issuer with and into Endo
Inc. (the "Merger"), the execution and delivery by the Issuer
Page 5 of 16
<PAGE>
of the Agreement and Plan of Merger, dated as of November 26, 1999 (the "Merger
Agreement"), by and among Endo, Endo Inc. and the Issuer and the approval of the
terms thereof and each of the other actions contemplated by the Merger Agreement
and the Voting Agreements and any actions required in furtherance of the Merger
Agreement and the Voting Agreements; and
(B) Against the following actions (other than the Merger and
the transactions contemplated by the Merger Agreement): (1) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Issuer; (2) a sale, lease or transfer of a material
amount of assets of the Issuer or a reorganization, recapitalization,
dissolution or liquidation of the Issuer; (3)(a) any change in the majority of
the board of directors of the Issuer; (b) any material change in the present
capitalization of the Issuer or any of its subsidiaries or any amendment of the
certificate of incorporation or similar governing document of the Issuer; (c)
any other material change in the corporate structure or business of the Issuer;
or (d) any other action, which, in the case of each of the matters referred to
in clauses (a), (b) or (c) above, is intended, or could reasonably be expected,
to impede, interfere with, delay, postpone, discourage or materially adversely
affect the contemplated economic benefits to Endo and Endo Inc. of the Merger or
the transactions contemplated by the Merger Agreement or the Voting Agreements.
The foregoing voting rights granted to Endo pursuant to the
terms of the Voting Agreements may hereinafter be referred to collectively as
the "Voting Rights." Other than as set forth above, the Item 2 Persons possess
no right or power to vote, direct the voting of, dispose or direct the
disposition of, the Common Stock. Reference is hereby made to the Voting
Agreements, a form of which is attached as Exhibit 1 hereto, for the full text
of the terms thereof.
Item 4. Purpose of Transaction.
-----------------------
(a) Under the Voting Agreements, each of the Stockholders has
agreed to: (1) not transfer (sale, gift, pledge or dispose), consent to any
transfer or enter into any contract or option with respect to any such transfer
of any Common Stock that would result in that Stockholder no longer having the
power to vote or cause to be voted the Common Stock; (2) not grant any proxy or
power-of-attorney with respect to the Common Stock; (3) not deposit the Common
Stock into a voting trust or enter into a voting agreement; (4) not request that
the Issuer register the transfer of Common Stock interests; (5) waive appraisal
rights; and (6) not to take any action that would restrict, limit or interfere
with the
Page 6 of 16
<PAGE>
performance of that Stockholder's obligations under the Voting Agreements or the
Merger Agreement.
Pursuant to the terms of a certain letter agreement, dated as
of November 26, 1999 ("Letter Agreement"), by and among Lyle, Caruso and Endo,
Lyle and Caruso are permitted to sell an aggregate of 290,500 shares of Algos
Common Stock, representing (i) 224,100 shares that Lyle owns and (ii) 66,400
shares that Caruso owns, on the open market after December 20, 1999 in the event
either (a) a proxy statement has been filed with the Securities and Exchange
Commission ("SEC") and made publicly available on or prior to December 20, 1999
or (b) a press release relating to the Merger and the Merger Agreement has been
released to the general public on or prior to December 20, 1999 such that Endo,
on the one hand, and Lyle and Caruso, on the other hand, each after consultation
with outside counsel, reasonably believe that such sales may be made in
accordance with the federal securities laws. If neither of the actions
contemplated by the prior sentence occur on or prior to December 20, 1999, then
Endo shall, or shall cause an Affiliate (as defined in the Merger Agreement) of
Endo, to purchase such shares from Lyle and Caruso on or before December 31,
1999 at a price equal to the average closing price of the Algos Common Stock as
reported on NASDAQ for the five-trading-day period immediately preceding such
purchase (ending on the day immediately prior to such purchase). The closing and
settlement of any such sale to Endo, or an Affiliate thereof, shall occur on or
before December 31, 1999 and payment for the shares shall be made by wire
transfer of immediately available funds.
(b)-(c) As discussed in Item 3 above, the Voting Agreements
were entered into as a condition to, and in consideration for, the Merger
Agreement. The purpose of entering into the Voting Agreements was to facilitate
the Merger.
In the Merger, the Issuer will merge with and into Endo Inc.,
and the Issuer will cease to exist as a separate corporate entity. Immediately
after the Merger, current Endo stockholders will own 80% of the combined public
company's approximately 89.5 million pro forma fully-diluted outstanding shares,
while the Issuer's stockholders will own 20%.
Each Algos stockholder will receive (i) one share of Endo
common stock for each share of Algos Common Stock held by them and (ii) one Endo
warrant for each of their shares of Common Stock of the Issuer. These Endo
warrants will be exercisable for $0.01 per share into a specified number of
shares of Endo common stock depending on the timing of approval by the U.S. Food
and Drug Administration ("FDA") of MorphiDex/(R)/, an Algos product designed to
Page 7 of 16
<PAGE>
treat moderate-to-severe pain arising from cancer, for one or more pain
indications. If FDA approval of MorphiDex/(R)/ is obtained on or before December
31, 2001, holders of these warrants will, upon exercise of these warrants,
receive, in the aggregate, an additional 15% of the pro forma combined company
(to be calculated as if all of such warrants had been exercised at the
completion of the Merger). This percentage will be reduced by an amount that
represents 5 percentage points for each six months after December 31, 2001 that
MorphiDex/(R)/ is not approved. If FDA approval of MorphiDex/(R)/ is not
attained by December 31, 2002, these warrants will expire unexercised.
If Endo does not meet or exceed a specified gross profit
target, based on current Endo products and products currently under development
by Endo, of $147.4 million for fiscal year 2000, shares held by Endo
stockholders who held such shares prior to the Merger will be returned to
treasury, thereby increasing current Algos stockholders' ownership of Endo by an
additional 5 percentage points.
In addition, immediately prior to the Merger, each current
Endo stockholder will receive one warrant for each of its Endo shares to be
exercised for $0.01 per share into Endo common stock if FDA approval of
MorphiDex/(R)/ is not attained by December 31, 2002. If FDA approval of
MorphiDex/(R)/ is not attained by this date, then, upon exercise of these
warrants, holders of these warrants will receive an additional 5% of the pro
forma combined company (to be calculated as if all of these warrants had been
exercised at the closing of the Merger). If FDA approval of MorphiDex/(R)/ is
attained by December 31, 2002, these warrants will expire unexercised.
Pursuant to the Voting Agreements, the Stockholders have
agreed to: (1) not transfer (sale, gift, pledge or dispose), consent to any
transfer or enter into any contract or option with respect to any such transfer
of any Common Stock that would result in the member of the stockholder party not
to have the power to vote or cause to be voted the Common Stock; (2) not grant
any proxy or power-of-attorney with respect to the Common Stock; (3) not deposit
the Common Stock into a voting trust or enter into a voting agreement; (4) not
request that the Issuer register the transfer of Common Stock interests; (5)
waive appraisal rights; and (6) not to take any action that would restrict,
limit or interfere with the performance of their obligations under the Voting
Agreements or the Merger Agreement.
On November 26, 1999, Endo Pharmaceuticals Inc., a Delaware
corporation and operating subsidiary of Endo, and the Issuer entered into a
collaboration agreement (the "Collaboration
Page 8 of 16
<PAGE>
Agreement") under which the parties will co-develop oxycodone-based products
using the Issuer's proprietary technology. Endo will be the exclusive worldwide
marketer of these products. In the event that the Merger is not consummated,
this collaboration agreement will survive.
(d)-(g) As discussed in Item 4(b) above, the Issuer will be
merging with and into Endo. As a result of the Merger, the Algos stockholders
will become stockholders of Endo and will be governed by Endo's amended and
restated certificate of incorporation ("Amended Certificate") and amended and
restated by-laws ("Amended By-Laws") and the laws of the State of Delaware. The
Amended Certificate and Amended By-Laws will differ from Algos' amended and
restated certificate of incorporation and amended and restated by-laws in
certain respects, including, but not limited to:
(1) The number of directors will be at least seven but not
more than eleven persons. The exact number of directors are to be fixed (x) by
the resolution of the board, (y) by resolution adopted by the vote of a majority
of the stockholders of common stock or (z) by consent executed on behalf of the
stockholders. The board of directors (the "Board") immediately after the Merger
will consist of 9 directors.
(2) The Board will not be classified.
(3) The total number of shares of authorized capital stock is
currently anticipated to be 175,078,160, consisting of (x) 142,656,279 shares of
common stock, par value $.01 per share, and (y) 32,421,881 shares of preferred
stock, par value $.01 per share.
(4) Vacancies in the Board may be filled by a vote of a
majority of the remaining Board, though less than a quorum, or even by a sole
remaining director. Algos will possess the right to appoint three directors of
Endo following the Merger and for a period of three years, these three Algos
directors on the Board will fill any vacancies created by them for other than
cause with a nominee of the remaining Algos-nominated directors.
(5) Actions permitted to be taken at the meeting of the
stockholders may be taken without (x) a meeting, (y) prior notice and (z) a
vote, if a consent in writing is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take actions at the stockholder meeting.
Page 9 of 16
<PAGE>
(6) When dividends are declared, the holders of the common
stock will be entitled to share equally, share for share, in the dividends. The
Board may declare dividends at regular or special meetings and may decide to pay
in cash, in property, or in shares of capital stock. Before payment of the
dividend, the board can set aside out of funds of Endo available for dividends,
sums that in its absolute discretion, the board deems necessary for the purpose
of a reserve of funds to meet contingencies, or for equalizing dividends, or for
repairing or maintaining the property of Endo.
(h)-(i) When the Merger is completed pursuant to the Merger
Agreement and the Voting Agreements, the Common Stock of the Issuer will be
delisted from the NASDAQ National Market and will be deregistered under Section
12(g)(4) of the Exchange Act.
(j) Not applicable.
The descriptions herein of the Voting Agreements, the Letter
Agreement, the Merger Agreement, the Amended Certificate and the Amended By-Laws
do not purport to be complete and are qualified in their entirety by reference
to the form of Voting Agreement; Letter Agreement, Merger Agreement, the form of
Amended Certificate and the form of Amended By-Laws, copies of which are
attached hereto as Exhibits 1-5, respectively.
Item 5. Interest in Securities of the Issuer.
- ----------------------------------------------
(a)-(b)
Endo
----
As a result of the Voting Agreements, the aggregate number of
shares of the Common Stock of Algos that Endo has the sole power to vote or to
direct the vote of (and as a result, may, under Rule 13d-3 under the Exchange
Act, be deemed the beneficial owner of) is 4,176,022, which constitutes
approximately 23.995% of the 17,403,895 shares of such Common Stock outstanding
as of November 22, 1999, as disclosed in the Merger Agreement. Endo hereby
disclaims beneficial ownership of any shares of Algos Common Stock which it may
vote, and the filing of this Schedule 13D shall not be construed as an admission
that Endo is, for purposes of Section 13(d) of the Exchange Act, the beneficial
owner of any such shares of Common Stock.
All Other Item 2 Persons
Page 10 of 16
<PAGE>
As a result of the Voting Agreements, because of their direct
or indirect ownership of the majority of the capital stock of Endo, all other
Item 2 Persons may be deemed as possessing the sole power to vote or to direct
the vote of (and as a result, may, under Rule 13d-3 under the Exchange Act, be
deemed the beneficial owner of) 4,176,022 shares of Common Stock, which
constitutes approximately 23.995% of the 17,403,895 shares of such Common Stock
outstanding as of November 22, 1999, as disclosed in the Merger Agreement.
However, all such Item 2 Persons (including Endo) disclaim beneficial ownership
of such shares of Common Stock.
(c) As described in Items 3 and 4 of this Schedule 13D, Endo
entered into the Voting Agreement, the Merger Agreement and the Letter Agreement
within the last sixty (60) days.
(d) Other than with respect to the Voting Rights, the Item 2
Persons possess no powers, rights or privileges with respect to the Algos Common
Stock. All other powers, rights and privileges with respect to the Algos Common
Stock remain with the Stockholders, including, but not limited to, the right to
receive, or the power to direct, the receipt of dividends from, or the proceeds
from the sale of, such shares of Algos Common Stock.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships
--------------------------------------------------------
With Respect to Securities of the Issuer.
-----------------------------------------
Except for the Voting Agreements, the Merger Agreement and the
Letter Agreement into which Endo has entered, as described in Items 3 and 4
above, none of the Item 2 Persons and to the best of each of the Item 2 Persons'
knowledge, any of their respective executive officers, controlling persons or
directors named in Schedule A hereto has any contracts, arrangements,
understandings or relationships (legal or otherwise) with any persons with
respect to any securities of the Issuer, including, but not limited to,
transfers or voting of any securities, finder's fees, joint ventures, loan or
option arrangements, puts or calls, guarantees of profits, division of profits
or loss, or the giving or withholding of proxies.
Item 7. Materials to be Filed as Exhibits.
----------------------------------
Exhibit Description
------- -----------
1 Form of Voting Agreement, dated as of
November __, 1999, by and among Endo
Page 11 of 16
<PAGE>
Pharmaceuticals Holdings Inc., Endo Inc. and
the stockholders party thereto.
2 Letter Agreement, dated as of November 26,
1999, by and among John W. Lyle, Frank S.
Caruso and Endo Pharmaceuticals Holdings
Inc.
3 Agreement and Plan of Merger, dated as of
November 26, 1999, by and among Endo
Pharmaceuticals Holdings Inc., Endo Inc. and
Algos Pharmaceutical Corporation.
4 Form of Amended and Restated Certificate of
Incorporation of Endo Pharmaceuticals
Holdings Inc.
5 Form of Amended and Restated By-laws of Endo
Pharmaceuticals Holdings Inc.
Page 12 of 16
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: December 14, 1999 ENDO PHARMACEUTICALS HOLDINGS INC.
By: /s/ Carol A. Ammon
-----------------------------------
Name: Carol A. Ammon
Title: President & Chief Executive Officer
<PAGE>
Schedule A
----------
DIRECTORS AND EXECUTIVE OFFICERS OF
ENDO PHARMACEUTICALS HOLDINGS INC.
The name, business address, title and present principal
occupation or employment of each of the current directors and executive officers
of Endo Pharmaceuticals Holdings Inc. ("Endo") are set forth below. If no
business address is given, the director's or officer's business address is 223
Wilmington-West Chester Pike, Chadds Ford, Pennsylvania 19317. Unless otherwise
indicated, each occupation set forth opposite an individual's name refers to
Endo, and each person is a citizen of the United States of America.
<TABLE>
<CAPTION>
Name and Business Address Title
- ------------------------- -----
<S> <C>
Directors
Carol A. Ammon................................. President and Chief Executive Officer
Michael B. Goldberg............................ Managing Director of Kelso & Co.
Kelso & Co.
320 Park Avenue
New York, NY 10022
David I. Wahrhaftig ........................... Managing Director of Kelso & Co.
Kelso & Co.
320 Park Avenue
New York, NY 10022
Executive Officers
(Who Are Not Directors)
Jeffrey R. Black................................ Senior Vice President, Chief Financial Officer and Treasurer
Mariann T. MacDonald............................ Executive Vice President-Operations
Louis J. Vollmer................................ Executive Vice President-Sales and Marketing
</TABLE>
Page 14 of 16
<PAGE>
<TABLE>
<S> <C>
David A. H. Lee, M.D., Ph.D..................... Senior Vice President-Research and Development
(Citizen of the United Kingdom)
Osagie O. Imasogie.............................. Senior Vice President-Business Development, General
Counsel and Secretary
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF
KELSO & COMPANY
The name, business address, title and present principal
occupation or employment of each of the current general partners of KPV, the
general partners of KIAV, and of KEPV are set forth below. Each individual is
both a general partner of KPV and KEPV. If no business address is given, the
individual's business address is 320 Park Avenue, 24/th/ Floor, New York, New
York 10022. Unless otherwise indicated, each occupation set forth opposite an
individual's name refers to Kelso & Company, L.P., a New York based private
investment firm that manages KIAV, and each person is a citizen of the United
States of America.
Name and Business Address Present Principal Occupation
- ------------------------- ----------------------------
Frank T. Nickell President & Chief Executive Officer
Thomas R. Wall, IV Managing Director
George E. Matelich Managing Director
Michael B. Goldberg Managing Director
David I. Wahrhaftig Managing Director
Frank K. Bynum, Jr. Managing Director
Philip E. Berney Managing Director
Joseph S. Schuchert Chairman
Page 15 of 16
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
1 Form of Voting Agreement, dated as of November
, 1999, by and among Endo Pharmaceuticals
Holdings Inc., Endo Inc. and the stockholders
party thereto.
2 Letter Agreement, dated as of November 26,
1999, by and among John W. Lyle, Frank S.
Caruso and Endo Pharmaceuticals Holdings Inc.
3 Agreement and Plan of Merger, dated as of
November 26, 1999, by and among Endo
Pharmaceuticals Holdings Inc., Endo Inc. and
Algos Pharmaceutical Corporation.
4 Form of Amended and Restated Certificate of
Incorporation of Endo Pharmaceuticals Holdings
Inc.
5 Form of Amended and Restated By-laws of Endo
Pharmaceuticals Holdings Inc.
Page 16 of 16
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EXHIBIT 1
FORM OF VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement"), dated as of November __, 1999, by
---------
and among ENDO PHARMACEUTICALS HOLDINGS INC., a Delaware corporation ("Parent"),
------
ENDO INC., a Delaware corporation and a newly-formed wholly-owned subsidiary of
Parent ("Sub"), and the stockholder party hereto (the "Stockholder").
--- -----------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, concurrently with the execution and delivery of this
Agreement, an Agreement and Plan of Merger (as such agreement may be amended
from time to time, the "Merger Agreement") is being entered into by and among
----------------
Parent, Sub and ALGOS PHARMACEUTICAL CORPORATION, a Delaware corporation (the
"Company"), pursuant to which Company has agreed to merge with and into Sub,
-------
with Sub continuing as the surviving corporation (the "Merger"); and
------
WHEREAS, as a condition to, and in consideration for, Parent's and
Sub's willingness to enter into the Merger Agreement and to consummate the
transactions contemplated thereby, Parent and Sub have required that the
Stockholder enter into this Agreement and certain other stockholders to enter
into similar agreements.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions. For purposes of this Agreement:
-----------
"Company Securities" shall mean the Company's common stock, par value
------------------
$.01 per share.
"Stockholder Shares" shall mean (i) the Existing Securities (as
------------------
defined in Section 5(a)(i) hereof) set forth on Schedule I hereto, (ii) any
shares of Company Securities distributed prior to the termination of this
Agreement in respect of the Stockholder Shares by reason of a stock dividend,
split-up, recapitalization, reclassification, combination, merger, exchange of
shares or otherwise and (iii) any other shares of the Company Securities of
which the Stockholder acquires ownership,
<PAGE>
either directly or indirectly, after the date of this Agreement and prior to the
Effective Time.
"Person" shall mean an individual, corporation, partnership, limited
------
liability company, joint venture, association, trust, unincorporated
organization or other entity.
Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Merger Agreement.
2. Agreement to Vote Shares. The Stockholder shall, at any meeting
------------------------
of the holders of any class or classes of Company Securities, however such
meeting is called and regardless of whether such meeting is a special or annual
meeting of the stockholders of the Company, or in connection with any written
consent of the stockholders of the Company, vote (or cause to be voted) the
Stockholder Shares, (i) in favor of the Merger, the execution and delivery by
the Company of the Merger Agreement and the approval of the terms thereof and
each of the other actions contemplated by the Merger Agreement and this
Agreement and any actions required in furtherance thereof and hereof and (ii)
against the following actions (other than the Merger and the transactions
contemplated by the Merger Agreement): (1) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company; (2) a sale, lease or transfer of a material amount of
assets of the Company or a reorganization, recapitalization, dissolution or
liquidation of the Company; (3) (a) any change in the majority of the board of
directors of the Company; (b) any material change in the present capitalization
of the Company or any amendment of the certificate of incorporation or similar
governing document of the Company; (c) any other material change in the
corporate structure or business of the Company; or (d) any other action, which,
in the case of each of the matters referred to in clauses (a), (b) and (c)
above, is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, discourage or materially adversely affect the contemplated
economic benefits to Parent or Sub of the Merger or the transactions
contemplated by the Merger Agreement or this Agreement.
2
<PAGE>
3. Grant of Irrevocable Proxy; Appointment of Proxy.
------------------------------------------------
(a) The Stockholder hereby irrevocably grants to, and appoints,
Carol Ammon, Jeffrey Black and Osagie Imasogie, or any one of them, in their
respective capacities as officers of Parent, and any individual who shall
hereafter succeed to any such office of Parent, and each of them individually,
the Stockholder's proxy and attorney-in-fact (with full power of substitution),
for and in the name, place and stead of the Stockholder, to vote the Stockholder
Shares held at the time of the relevant stockholder vote as set forth in Section
2 hereof. The Stock holder will cause any record holder of Stockholder Shares to
grant substantially similar proxies as requested in accordance with Section
8(e) hereof.
(b) The Stockholder represents that any proxies heretofore given
in respect of the Stockholder Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) The Stockholder understands and acknowledges that Parent and
Sub are entering into the Merger Agreement in reliance upon the Stockholder's
execution and delivery of this Agreement. The Stockholder hereby affirms that
the irrevocable proxy set forth in this Section 3 is given in connection with
the execution of the Merger Agreement, and that such irrevocable proxy is given
to secure the performance of the duties of the Stockholder under this Agreement.
The Stockholder hereby further affirms that the irrevocable proxy is coupled
with an interest and may under no circumstances be revoked. Such irrevocable
proxy is executed and intended to be irrevocable in accordance with the
provisions of Section 212(e) of the Delaware General Corporation Law.
4. Covenants of the Stockholders. The Stockholder hereby agrees
-----------------------------
and covenants that:
(a) Restriction on Transfers. Except as may otherwise be agreed
------------------------
by Parent and as contemplated by those agreements or understandings set forth
on Schedule II hereto, the Stockholder shall not (i) transfer (which term shall
include, without limitation, any sale, gift, pledge or other disposition), or
consent to any transfer of, any or all of the Stockholder Shares, or any
interest therein if such transfer would result in the Stockholder no longer
having the power to vote or cause to be voted the Stockholder Shares or (ii)
enter into any contract, option or other agreement or understanding with respect
to any such transfer of any or all of the Stockholder Shares, or any interest
therein.
3
<PAGE>
(b) Restrictions on Proxies and Voting Arrangements. Except as
-----------------------------------------------
otherwise provided herein, the Stockholder shall not (i) grant any proxy, power-
of-attorney or other authorization in or with respect to the Stockholder Shares
or (ii) deposit the Stockholder Shares into a voting trust or enter into a
voting agreement or arrangement with respect to the Stockholder Shares.
(c) Stop Transfer. The Stockholder shall not request that the
-------------
Company register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Stockholder's Existing
Securities (as defined in Section 6(a)(i) hereof), unless such transfer is made
in compliance with this Agreement. In the event of any dividend or
distribution, or any change in the capital structure of the Company by reason of
any non-cash dividend, split-up, recapitalization, combination, exchange of
securities or the like, the term "Existing Securities" shall refer to and
include the Existing Securities as well as all such dividends and distributions
of securities and any securities into which or for which any or all of the
Existing Securities may be changed, exchanged or converted.
(d) Waiver of Appraisal Rights. The Stockholder hereby waives
--------------------------
any rights of appraisal or rights to dissent from the Merger that the
Stockholder may have.
(e) No Inconsistent Arrangements. The Stockholder shall not
----------------------------
take any other action that would in any way restrict, limit or interfere with
the performance of the Stockholder's obligations hereunder or the transactions
contemplated hereby or by the Merger Agreement.
5. Representations and Warranties.
------------------------------
(a) The Stockholder hereby represents and warrants to Parent and
Sub as follows:
(i) Ownership of Securities. On the date hereof, the
-----------------------
Stockholder owns, directly or indirectly, or has the power to direct
the voting of, the Company Securities set forth next to the
Stockholder's name on Schedule I hereto (the "Existing Securities"),
-------------------
and the Existing Securities are owned of record by the Stockholder or
certain of the Stockholder's subsidiaries or nominees (together, the
"Record Holders"). On the date hereof, the Existing Securities
---------------
constitute all of the shares of voting capital stock of the Company
owned of record or otherwise by such Stockholder or as to which such
Stockholder has the power to direct the voting of the shares. Each
Record has
4
<PAGE>
sole voting power and sole power to issue instructions with respect to
the matters set forth in Section 2 hereof, sole power of disposition,
sole power of conversion, sole power (if any) to demand appraisal
rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of such Record Holder's
Existing Securities with no limitations, qualifications or
restrictions on such rights, subject to applicable securities laws and
the terms of this Agreement.
(ii) Power; Binding Agreement. The Stockholder has the power
------------------------
(or, if applicable, corporate power) and authority to enter into and
perform all of the Stockholder's obligations under this Agreement. The
execution, delivery and performance of this Agreement by the
Stockholder will not violate any other agreement to which the
Stockholder is a party including, without limitation, any voting
agreement, proxy arrangement, pledge agreement, shareholders
agreement, voting trust or trust agreement. This Agreement has been
duly and validly executed and delivered by the Stockholder and
constitutes a valid and binding agreement of the Stockholder,
enforceable against the Stockholder in accordance with its terms,
except as the enforceability thereof may be limited by (a) applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in
effect that affect the enforcement of creditors rights generally or
(b) general principles of equity, whether considered in a proceeding
at law or in equity. There is no beneficiary or holder of a voting
trust certificate or other interest of any trust of which the
Stockholder is a trustee whose consent is required for the execution
and delivery of this Agreement or the compliance by the Stockholder
with the terms hereof.
(iii) No Conflicts. No filing with, and no permit,
------------
authorization, consent or approval of, any Governmental Entity is
required for the execution of this Agreement by the Stockholder and
the consummation by the Stockholder of the transactions contemplated
hereby, except in connection, or in compliance, with the provisions of
(i) Section 16 and Section 13D or 13G of the Exchange Act and (ii) the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), none of the execution and delivery of this Agreement by
-------
the Stockholder, the consummation by the Stockholder of the
transactions contemplated hereby or compliance by the Stockholder with
any of the provisions hereof shall (A) conflict with, or result in any
breach of, any organizational documents applicable to
5
<PAGE>
the Stockholder, (B) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which the
Stockholder is a party or by which the Stockholder or any of the
Stockholder's properties or assets may be bound, or (C) violate any
order, writ, injunction, decree, judgment, order, statute, arbitration
award, rule or regulation applicable to the Stockholder or any of the
Stockholder's properties or assets.
(iv) No Liens. Except as established hereby, the Existing
--------
Securities are now and, at all times during the term hereof, will be
held by the Stockholder, or by a nominee or custodian for the benefit
of the Stockholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever.
(v) No Solicitation. The Stockholder hereby agrees, in the
---------------
Stockholder's capacity as stockholder of the Company, that neither the
Stockholder nor any of the Stockholder's subsidiaries, if applicable,
shall (and the Stockholder shall use best efforts to cause the
Stockholder's officers, directors, employees, investment bankers,
consultants, attorneys, accountants, agents, advisors or
representatives not to), directly or indirectly, take any action to
solicit, initiate, encourage, facilitate, participate in or initiate
discussions or negotiations with, or provide any information to, any
Person (other than Parent, Sub or any of their Affiliates or
representatives) concerning any Company Take over Proposal; provided
--------
that nothing contained in this Section 5(a)(v) shall restrict any
----
officer, director or employee of the Stockholder or the Stockholder's
subsidiaries, if applicable, from taking any action in his or her
capacity as a director, officer or employee of the Company which is
permitted to be taken pursuant to Section 4.2 of the Merger Agreement.
6
<PAGE>
(b) Parent and Sub jointly and severally hereby represent and
warrant to the Stockholder as follows:
(i) Power; Binding Agreement. Each of Parent and Sub has the
------------------------
corporate power and authority to enter into and perform all of its
obligations under this Agreement. The execution, delivery and
performance of this Agreement by each of Parent and Sub will not
violate any material agreement to which Parent or Sub, as the case may
be, is a party. This Agreement has been duly and validly executed
and delivered by each of Parent and Sub and constitutes a valid and
binding agreement of each of Parent and Sub, enforceable against each
of them in accordance with its terms, except as the enforceability
thereof may be limited by (a) applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws in effect that affect the
enforcement of creditors rights generally or (b) general principles of
equity, whether considered in a proceeding at law or in equity.
(ii) No Conflicts. No filing with, and no permit,
------------
authorization, consent or approval of, any Governmental Entity is
required for the execution of this Agreement by each of Parent and Sub
and the consummation by each of them of the transactions contemplated
hereby, except in connection, or in compliance, with the provisions of
(i) Section 16 and Section 13D or 13G of the Exchange Act and (ii) the
HSR Act, and none of the execution and delivery of this Agreement by
each of Parent and Sub, the consummation by each of them of the
transactions contemplated hereby or compliance by each of them with
any of the provisions hereof shall (A) conflict with or result in any
breach of any organizational documents applicable to Parent or Sub,
respectively, (B) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms,
conditions or provisions of any material note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind
to which Parent or Sub is a party or by which Parent or Sub or any of
their respective properties or assets may be bound, or (C) violate any
order, writ, injunction, decree, judgment, order, statute, arbitration
award, rule or regulation applicable to Parent or Sub or any of their
respective properties or assets.
7
<PAGE>
6. Best Efforts. Subject to the terms and conditions of this
------------
Agreement, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions, and 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
and the Merger Agreement; provided that nothing contained in this Section 6
-------- ----
shall restrict any officer, director or employee of the Stockholder or the
Stockholder's Subsidiaries from taking any action in his or her capacity as a
director, officer or employee of the Company which is permitted to be taken
pursuant to Section 4.2 of the Merger Agreement.
7. Termination. Other than Section 8 hereof (which shall survive
-----------
in any event), this Agreement and the covenants, representations and warranties,
agreements and irrevocable proxy or proxies contained herein or granted pursuant
hereto shall terminate upon the earlier to occur of (i) the termination of the
Merger Agreement in accordance with Article VII thereof and (ii) the
consummation of the transactions contemplated by the Merger Agreement. Upon any
termination of this Agreement, this Agreement shall thereupon become void and of
no further force and effect, and there shall be no liability in respect of this
Agreement or of any transactions contemplated hereby or by the Merger Agreement
on the part of any party hereto or any of its directors, officers, partners,
stockholders, employees, agents, advisors, representatives or Affiliates;
provided, however, that nothing herein shall relieve any party from any
- -------- -------
liability for such party's willful breach of this Agreement; and provided,
--------
further, that nothing herein shall limit, restrict, impair, amend or otherwise
- -------
modify the rights, remedies, obligations or liabilities of any person under any
other contract or agreement, including, without limitation, the Merger
Agreement.
8. Miscellaneous.
-------------
(a) Specific Performance. Each party hereto recognizes and
--------------------
agrees that if for any reason any of the provisions of this Agreement are not
performed by the other parties in accordance with their specific terms or are
otherwise breached, immediate and irreparable harm or injury would be caused to
the non-breaching parties for which money damages would not be an adequate
remedy. Accordingly, the parties agree that, in addition to any other available
remedies, the non-breaching parties shall be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement without the necessity of the non-breaching parties posting a bond or
other form of security. In the event that any action should be brought in equity
to enforce the provisions of this Agreement, the breaching party will not
allege, and the breaching party hereby waives the defense, that there is an
adequate remedy at law.
8
<PAGE>
(b) Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. Without limiting the
foregoing, with respect to any provision of this Agreement, if it is determined
by a court of competent jurisdiction to be excessive as to duration or scope,
it is the parties' intention that such provision nevertheless be enforced to the
fullest extent which it may be enforced.
(c) Attorneys' Fees. If any action at law or equity, including
---------------
an action for declaratory relief, is brought by a party to this Agreement to
enforce or interpret any provision of this Agreement, the prevailing party shall
be entitled to recover reasonable attorneys' fees and expenses from the other
party, which fees and expenses shall be in addition to any other relief which
may be awarded.
(d) Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY, OR SUB IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
(e) Further Assurances. From time to time, at the request of
------------------
Parent or Sub, the Stockholder shall execute and deliver to Parent and Sub or
cause other Record Holders to execute and deliver to Parent and Sub such
additional instruments containing grants of proxy with respect to the
Stockholder Shares (which grants of proxy will be in substantially the form of
Section 3(a) hereof) as Parent or Sub may reasonably request in connection with
the Stockholder's obligations under this Agreement.
(f) Entire Agreement. This Agreement constitutes the entire
----------------
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
9
<PAGE>
(g) Consent to Jurisdiction, Etc. Each party hereto hereby
-----------------------------
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the United States District Court located in the State of Delaware (unless
such courts assert no jurisdiction, in which case the parties hereto consent to
the exclusive jurisdiction of the courts of the State of Delaware) for any
actions, suits or proceedings arising out of or relating to this Agreement and
the transactions contemplated hereby (and each party hereto agrees not to
commence any action, suit or proceeding relating thereto except in such courts),
and further agrees that service of any process, summons, notice or document by
U.S. registered mail to the addresses set forth herein shall be effective
service of process for any such action, suit or proceeding brought against each
party in such court. Each party hereto hereby irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby, in the
United States District Courts located in the State of Delaware (unless such
courts assert no jurisdiction, in which case each party consents to the
exclusive jurisdiction of the courts of the State of Delaware). Each party
hereby further irrevocably and unconditionally waives and agrees not to plead or
to claim in any such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum. Each of the parties
hereto also agrees that any final and unappealable judgment against a party
hereto in connection with any action, suit or other proceeding shall be
conclusive and binding on such party and that such award or judgment may be
enforced in any court of competent jurisdiction, either within or outside of the
United States. A certified or exemplified copy of such award or judgment shall
be conclusive evidence of the fact and amount of such award or judgment.
(h) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by overnight
courier, by facsimile (which is confirmed), or by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to the Stockholder, to the addresses set forth next to the
Stockholder's name on Schedule II hereto and
(b) if to Parent or Sub, to:
Endo Pharmaceuticals Holdings Inc.
223 Wilmington-West Chester Pike
Chadds Ford, PA 19317
10
<PAGE>
Attn.: Carol A. Ammon
Fax No.: (610) 558-9683
with copies to:
Kelso & Company
320 Park Avenue, 24/th/ Floor
New York, NY 10022
Attn.: James J. Connors, II
Fax No.: (212) 223-2379
and
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attn.: Eileen Nugent Simon, Esq.
Fax No.: (212) 735-2000
and
(c) if to the Company, to:
Algos Pharmaceuticals Corporation
1333 Campus Parkway
Neptune, NJ 07753-6815
Attn.: General Counsel
Fax No.: (732) 938-2825
with copies to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attn.: Raymond Y. Lin, Esq.
Fax No.: (212) 751-4864
(i) Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
11
<PAGE>
(j) Assignment; Binding Agreement. Neither this Agreement nor any of
-----------------------------
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other party hereto;
provided, however, that Parent and Sub shall be permitted to assign, in whole or
- -------- -------
in part, this Agreement or any of the rights, interests or obligations hereunder
to any of their Subsidiaries or Affiliates.
(k) Amendment, Modification and Waiver. This Agreement may not be
----------------------------------
amended, modified or waived except by an instrument or instruments in writing
signed and delivered on behalf of the party hereto against whom such amendment,
modification or waiver is sought to be entered.
(l) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
12
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
ENDO PHARMACEUTICAL HOLDINGS INC.
By:_____________________________
Name:
Title:
ENDO INC.
By:_____________________________
Name:
Title:
[STOCKHOLDER]
By:_____________________________
Name:
Title:
<PAGE>
Schedule I
----------
List of Existing Securities
Stockholders' Holdings of Company Common Stock
- ----------------------------------------------------------------------
Registered Holder Number of Shares Held
- ----------------------------------------------------------------------
Karen B. Lyle 1,344,416
- ----------------------------------------------------------------------
Michael Hyatt (N.B. does not include 829,551
shares owned by the Kimmel Trusts
listed below)
- ----------------------------------------------------------------------
Trust Under the Will of Inez Kimmel 657,193
- ----------------------------------------------------------------------
Todd Kimmel Trust 171,530
- ----------------------------------------------------------------------
Melissa Kimmel Trust 155,000
- ----------------------------------------------------------------------
Anita Hyatt Family Trust 20,750
- ----------------------------------------------------------------------
Frank S. Caruso 370,200
- ----------------------------------------------------------------------
John W. Lyle 224,100
- ----------------------------------------------------------------------
Hyatt Family Trust 221,332
- ----------------------------------------------------------------------
Roger H. Kimmel (N.B. does not include 30,000
shares owned by the Hyatt Trusts listed
above)
- ----------------------------------------------------------------------
Frank S. Caruso Irrevocable Trust 24,900
- ----------------------------------------------------------------------
James R. Ledley 109,450
- ----------------------------------------------------------------------
Donald G. Drapkin 8,300
- ----------------------------------------------------------------------
Donald Drapkin 8,300
- ----------------------------------------------------------------------
Patricia Caruso 1,000
- ----------------------------------------------------------------------
Total 4,176,022
- ----------------------------------------------------------------------
14
<PAGE>
Schedule II
-----------
Notices
- --------------------------------------------------------------------------------
Stockholder Party Notice To: With A Copy To:
- --------------------------------------------------------------------------------
Michael Hyatt Michael Hyatt Michael Hyatt
Bear Stearns & Co. Inc. Bear Stearns & Co. Inc.
245 Park Avenue 245 Park Avenue
New York, NY 10167 New York, NY 10167
- --------------------------------------------------------------------------------
Michael Hyatt as Michael Hyatt Michael Hyatt
Trustee for the Bear Stearns & Co. Inc. Bear Stearns & Co. Inc.
Trust Under the Will 245 Park Avenue 245 Park Avenue
of Inez L. Kimmel New York, NY 10167 New York, NY 10167
- --------------------------------------------------------------------------------
Michael Hyatt as Michael Hyatt Michael Hyatt
Trustee for The Todd Bear Stearns & Co. Inc. Bear Stearns & Co. Inc.
Kimmel Trust 245 Park Avenue 245 Park Avenue
New York, NY 10167 New York, NY 10167
- --------------------------------------------------------------------------------
Michael Hyatt as Michael Hyatt Michael Hyatt
Trustee for the Bear Stearns & Co. Inc. Bear Stearns & Co. Inc.
Melissa Kimmel Trust 245 Park Avenue 245 Park Avenue
New York, NY 10167 New York, NY 10167
- --------------------------------------------------------------------------------
Michael Hyatt as Michael Hyatt Michael Hyatt
Trustee for the Bear Stearns & Co. Inc. Bear Stearns & Co. Inc.
Anita Hyatt Family 245 Park Avenue 245 Park Avenue
Trust New York, NY 10167 New York, NY 10167
- --------------------------------------------------------------------------------
Roger H. Kimmel Roger H. Kimmel Roger H. Kimmel
Latham & Watkins Latham & Watkins
885 Third Avenue, Suite 1000 885 Third Avenue, Suite 1000
New York, NY 10022 New York, NY 10022
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
Roger H. Kimmel as Roger H. Kimmel Roger H. Kimmel
Trustee for the Hyatt Latham & Watkins Latham & Watkins
Family Trust 885 Third Avenue, Suite 1000 885 Third Avenue, Suite 1000
New York, NY 10022 New York, NY 10022
- --------------------------------------------------------------------------------
James R. Ledley James R. Ledley James R. Ledley
26 Hardscrabble Hill 26 Hardscrabble Hill
Chappaqua, NY 10514 Chappaqua, NY 10514
- --------------------------------------------------------------------------------
Donald Drapkin Donald Drapkin Donald Drapkin
35 East 62/nd/ 35 East 62/nd/
New York, NY 10021 New York, NY 10021
- --------------------------------------------------------------------------------
Donald G. Drapkin Donald Drapkin Donald Drapkin
35 East 62/nd/ 35 East 62/nd/
New York, NY 10021 New York, NY 10021
- --------------------------------------------------------------------------------
John W. Lyle John Lyle John Lyle
28 Inlet Terrace 28 Inlet Terrace
Belmar, NJ 07719 Belmar, NJ 07719
- --------------------------------------------------------------------------------
Karen B. Lyle Karen Lyle Karen Lyle
4 Dayna Lane 4 Dayna Lane
Lawrenceville, NJ 08648 Lawrenceville, NJ 08648
- --------------------------------------------------------------------------------
Frank S. Caruso Frank S. Caruso, Ph. D. Frank S. Caruso, Ph. D.
2 Bowling Green 2 Bowling Green
Colts Neck, NJ 07722 Colts Neck, NJ 07722
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Frank S. Caruso, Jr. as Trustee Frank S. Caruso, Jr. Frank S. Caruso, Ph. D.
for the Frank S. Caruso USA Datanet 2 Bowling Green
Irrevocable Trust 318 South Clinton St. Colts Neck, NJ 07722
Suite 300
Syracuse, NY 13202
- --------------------------------------------------------------------------------
Patricia Caruso Patricia Caruso Patricia Caruso
2 Bowling Green 2 Bowling Green
Colts Neck, NJ 07722 Colts Neck, NJ 07722
- --------------------------------------------------------------------------------
3
<PAGE>
EXHIBIT 2
Endo Pharmaceuticals Holdings Inc.
233 Wilmington West Chester Pike
Chadds Ford, Pennsylvania 19317
November 26, 1999
John W. Lyle and Frank S. Caruso
c/o Algos Pharmaceutical Corporation
1333 Campus Parkway
Neptune, New Jersey 07753-6815
Gentlemen:
This letter agreement (the "Letter Agreement") will confirm the
----------------
understanding and agreement among John W. Lyle and Frank S. Caruso
(collectively, the "Executives") and Endo Pharmaceuticals Holdings Inc., a
----------
Delaware corporation ("Endo"), in connection with the possible purchase by Endo
----
or an Affiliate of Endo from each of the Executives of the number of shares of
common stock of Algos Pharmaceutical Corporation, a Delaware corporation (the
"Company"), owned by them and set forth on Annex I hereto (the "Algos Shares").
- -------- ------------
Capitalized terms used in this Letter Agreement but not otherwise defined herein
shall have the meanings ascribed to them in that certain Agreement and Plan of
Merger, dated as of November 26, 1999, by and among Endo, the Company and Endo
Inc., a Delaware corporation and wholly owned subsidiary of Endo (the "Merger
------
Agreement").
- ---------
The parties hereto agree that the Executives may sell the Algos Shares
on the open market after December 20, 1999 in the event either (a) the Proxy
Statement has been filed with the SEC and made publicly available on or prior to
December 20, 1999 or (b) a press release relating to the Merger and the Merger
Agreement has been released to the general public on or prior to December 20,
1999 such that Endo and the Executives, each after consultation with outside
counsel, reasonably believe that such sales may be made in accordance with the
federal securities laws. If neither of the actions contemplated by the prior
sentence occur on or prior to December 20, 1999, then Endo shall or shall cause
an Affiliate of Endo to purchase the Algos Shares from the Executives on or
before December 31, 1999 at a price equal to the average closing price of the
Algos Common Stock as reported on NASDAQ for the five-trading-day period
immediately preceding such purchase (ending on the day immediately prior to such
purchase); provided, however that if the purchase price for the Algos Shares
-------- -------
exceeds $5.5 million in the aggregate, then Endo or an Affiliate of Endo shall
pay any such excess in the form of a promissory note which will become payable
on January 31, 2000. The closing and settlement of any such sale to Endo or an
Affiliate thereof shall occur on or before December 31, 1999 and payment for the
Algos Shares shall be made by wire transfer of immediately available funds.
<PAGE>
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to the Company the enclosed copy of this
Letter Agreement, whereupon this Letter Agreement will become a binding
agreement among us.
Very truly yours,
ENDO PHARMACEUTICALS HOLDINGS INC.
/s/ Carol A. Ammon
By:___________________________________
Name: Carol A. Ammon
Title: President & Chief Executive Officer
Confirmed as of the date above:
/s/ John W. Lyle
____________________________
John W. Lyle
/s/ Frank S. Caruso
____________________________
Frank S. Caruso
2
<PAGE>
Annex I
_______
Holders Number of Algos Shares owned
- ------- ----------------------------
John W. Lyle 224,100
Frank S. Caruso 66,400
<PAGE>
EXHIBIT 3
AGREEMENT AND PLAN OF MERGER
by and among
ENDO PHARMACEUTICALS HOLDINGS INC.,
ENDO INC.
and
ALGOS PHARMACEUTICAL CORPORATION
__________________
Dated as of November 26, 1999
__________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE MERGER
Section 1.1 The Merger..............................
Section 1.2 Effective Time..........................
Section 1.3 Effects of the Merger...................
Section 1.4 Directors of the Surviving Corporation..
Section 1.5 Officers of the Surviving Corporation...
Section 1.6 Charter and By-Laws.....................
Section 1.7 Conversion of Securities................
Section 1.8 Parent to Make Certificates Available...
Section 1.9 Dividends; Transfer Taxes; Withholding..
Section 1.10 [Intentionally Omitted.]................
Section 1.11 Return of Exchange Fund.................
Section 1.12 Adjustment of Conversion Number.........
Section 1.13 No Further Ownership Rights in Company
Common Stock............................
Section 1.14 Closing of Company Transfer Books.......
Section 1.15 Lost Certificates.......................
Section 1.16 Affiliates..............................
Section 1.17 Further Assurances......................
Section 1.18 Closing.................................
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 2.1 Organization, Standing and Power............
Section 2.2 Capital Structure...........................
Section 2.3 Authority...................................
Section 2.4 Consents and Approvals; No Violation........
Section 2.5 Financial Statements........................
Section 2.6 Registration Statement and Proxy Statement..
Section 2.7 Absence of Certain Changes or Events........
Section 2.8 Permits and Compliance......................
Section 2.9 Tax Matters.................................
Section 2.10 Actions and Proceedings.....................
Section 2.11 Certain Agreements..........................
Section 2.12 ERISA.......................................
Section 2.13 Compliance with Certain Laws................
Section 2.14 Liabilities.................................
Section 2.15 Labor Matters...............................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 2.16 Intellectual Property.......................
Section 2.17 Ownership of Shares.........................
Section 2.18 Operations of Sub...........................
Section 2.19 Brokers.....................................
Section 2.20 State Takeover Statutes.....................
Section 2.21 Year 2000...................................
Section 2.22 Accuracy of Information Furnished...........
Section 2.23 Required Vote of Parent and Sub
Stockholders................................
Section 2.24 Interests in Other Entities.................
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization, Standing and Power............
Section 3.2 Capital Structure; Subsidiaries.............
Section 3.3 Authority...................................
Section 3.4 Consents and Approvals; No Violation........
Section 3.5 SEC Documents and Other Reports.............
Section 3.6 Registration Statement and Proxy Statement..
Section 3.7 Absence of Certain Changes or Events........
Section 3.8 Permits and Compliance......................
Section 3.9 Tax Matters.................................
Section 3.10 Actions and Proceedings.....................
Section 3.11 Certain Agreements..........................
Section 3.12 ERISA.......................................
Section 3.13 Compliance with Certain Laws................
Section 3.14 Liabilities.................................
Section 3.15 Labor Matters...............................
Section 3.16 Intellectual Property.......................
Section 3.17 Opinion of Financial Advisor................
Section 3.18 Required Vote of Company Stockholders.......
Section 3.19 Ownership of Shares.........................
Section 3.20 Brokers.....................................
Section 3.21 State Takeover Statutes.....................
Section 3.22 Year 2000...................................
Section 3.23 Interests in Other Entities.................
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger......
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 4.2 No Solicitation...................................
Section 4.3 Tax Representation Letters........................
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meeting..............................
Section 5.2 Preparation of the Registration Statement
and the Proxy Statement..........................
Section 5.3 Access to Information; Regulatory
Communications...................................
Section 5.4 Compliance with the Securities Act...............
Section 5.5 Designation of Directors.........................
Section 5.6 NASDAQ Listing...................................
Section 5.7 Fees and Expenses................................
Section 5.8 Company Stock Options............................
Section 5.9 Parent Options...................................
Section 5.10 Reasonable Efforts...............................
Section 5.11 Public Announcements.............................
Section 5.12 State Takeover Laws..............................
Section 5.13 Indemnification; Directors and Officers
Insurance........................................
Section 5.14 Notification of Certain Matters..................
Section 5.15 Employee Matters.................................
Section 5.16 Tax Treatment....................................
Section 5.17 Conveyance Taxes.................................
Section 5.18 Ownership of Shares..............................
Section 5.19 Additional Agreements............................
Section 5.20 Issuance of Warrants to Parent...................
Section 5.21 Formation of Parent LLC..........................
Section 5.22 Effect of Parent Recapitalization................
</TABLE>
iii
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger............................................
Section 6.2 Conditions to Obligation of the Company to Effect
the Merger........................................
Section 6.3 Conditions to Obligations of Parent and Sub to
Effect the Merger.................................
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination.........................................
Section 7.2 Effect of Termination...............................
Section 7.3 Amendment...........................................
Section 7.4 Waiver..............................................
Section 7.5 Procedure for Termination, Amendment, Extension
or Waiver.........................................
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties......
Section 8.2 Notices.............................................
Section 8.3 Interpretation......................................
Section 8.4 Counterparts........................................
Section 8.5 Entire Agreement; No Third-Party Beneficiaries......
Section 8.6 Governing Law.......................................
Section 8.7 Assignment..........................................
Section 8.8 Severability........................................
Section 8.9 Enforcement of this Agreement.......................
List of Exhibits
- ----------------
Exhibit A-1 Form of Charter Amendment
Exhibit A-2 Summary of Parent Recapitalization
Exhibit B Form of Stockholder Voting Agreement
Exhibit C Form of Algos Warrant
Exhibit D-1 Parent's Year 2000 Representation
Exhibit D-2 Company's Year 2000 Representation
Exhibit E-1 Form of Representation Letter (Parent's)
Exhibit E-2 Form of Representation Letter (the Company's)
Exhibit F-1 Form of Affiliate Letter (the Company's)
Exhibit F-2 Form of Affiliate Letter to the Agreement and
Plan of Merger
iv
<PAGE>
Exhibit G Form of Tax Sharing Agreement
Exhibit H Form of Lyle Agreement
Exhibit I Form of Endo Warrant
v
<PAGE>
Index of Defined Terms
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Adjustment Event............................................
Affiliates..................................................
Agreement...................................................
Applicable Laws.............................................
Cash Cost of Sales..........................................
Cash Gross Profit of Parent.................................
Certificate of Merger.......................................
Certificates................................................
Change in the Company Recommendation........................
Charter Amendment...........................................
Closing.....................................................
Closing Date................................................
COBRA.......................................................
Code........................................................
Company.....................................................
Company Business Personnel..................................
Company By-Laws.............................................
Company Charter.............................................
Company Common Stock........................................
Company Copyrights..........................................
Company Designees...........................................
Company Disclosure Schedule.................................
Company Intellectual Property...............................
Company License Agreements..................................
Company Multiemployer Plan..................................
Company Patents.............................................
Company Permits.............................................
Company Plan................................................
Company Preferred Stock.....................................
Company SEC Documents.......................................
Company Software............................................
Company Stock Options.......................................
Company Stock Plans.........................................
Company Stockholder Approvals...............................
Company Takeover Proposal...................................
Company Technology..........................................
Company Trademarks..........................................
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
Constituent Corporations.....................................
Conversion Number............................................
Credit Agreement.............................................
Current Endo Options.........................................
D&O Insurance................................................
DEA..........................................................
DGCL.........................................................
Effective Time...............................................
Endo Products................................................
Endo Warrant Agreement.......................................
Endo Warrants................................................
Environmental Laws...........................................
ERISA........................................................
Exchange Act.................................................
Exchange Agent...............................................
Exchange Fund................................................
FDA..........................................................
FDCA.........................................................
GAAP.........................................................
Governmental Entity..........................................
hazardous materials..........................................
HSR Act......................................................
IND..........................................................
Independent Accounting Firm..................................
IRS..........................................................
Knowledge of Parent..........................................
Knowledge of the Company.....................................
Lyle Agreement...............................................
Material Adverse Change......................................
Material Adverse Effect......................................
Merger.......................................................
Merger Consideration.........................................
MorphiDex(R) Application.....................................
NASDAQ.......................................................
NDA..........................................................
Net Sales....................................................
NOLs.........................................................
Non-Transferable Warrants....................................
Parent.......................................................
Parent Business Personnel....................................
Parent By-Laws...............................................
Parent Charter...............................................
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C>
Parent Class A Common Stock.................................
Parent Common Stock.........................................
Parent Copyrights...........................................
Parent Disclosure Schedule..................................
Parent Financial Statements.................................
Parent Incentive Plans......................................
Parent Intellectual Property................................
Parent License Agreements...................................
Parent LLC..................................................
Parent LLC Agreement........................................
Parent Material Contracts...................................
Parent Multiemployer Plan...................................
Parent Patents..............................................
Parent Permits..............................................
Parent Plan.................................................
Parent Preferred Stock......................................
Parent Recapitalization.....................................
Parent Software.............................................
Parent Stock Options........................................
Parent Stock Plans..........................................
Parent Stock Purchase Plan..................................
Parent Technology...........................................
Parent Trademarks...........................................
Permits.....................................................
Person......................................................
Position Paper..............................................
Proxy Statement.............................................
Registration Statement......................................
SEC.........................................................
Securities Act..............................................
State Takeover Approvals....................................
Stockholder Meeting.........................................
Stockholder Voting Agreement................................
Stockholder Voting Agreements...............................
Sub.........................................................
Subsidiary..................................................
Superior Company Proposal...................................
Surviving Corporation.......................................
Tax Representation Letters..................................
Tax Returns.................................................
Tax Sharing Agreement.......................................
Taxes.......................................................
</TABLE>
viii
<PAGE>
<TABLE>
<S> <C>
Termination Date............................................
Transaction Agreements......................................
Warrant Agreement...........................................
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 26, 1999 (this
"Agreement"), by and among ENDO PHARMACEUTICALS HOLDINGS INC., a Delaware
- ----------
corporation ("Parent"), ENDO INC., a Delaware corporation and a newly-formed
------
wholly-owned subsidiary of Parent ("Sub"), and ALGOS PHARMACEUTICAL CORPORATION,
---
a Delaware corporation (the "Company") (Sub and the Company being hereinafter
-------
collectively referred to as the "Constituent Corporations").
------------------------
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have each determined that the Merger is advisable and in the best interest of
their respective stockholders and is in furtherance of and consistent with their
respective long-term business strategies;
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have each (a) approved and declared advisable the merger of the Company with and
into Sub (the "Merger"), upon the terms and subject to the conditions set forth
------
herein, whereby each issued and outstanding share of common stock, par value
$.01 per share, of the Company ("Company Common Stock") not owned directly or
--------------------
indirectly by Parent or the Company will be converted into the Merger
Consideration (as defined in Section 1.7(c) hereof) and (b) approved this
Agreement upon the terms and subject to the conditions set forth herein;
WHEREAS, concurrently with the execution of this Agreement, the Board of
Directors of Parent will have approved this Agreement and the Merger and, in its
capacity as the sole stockholder of Sub, will have approved this Agreement upon
the terms and subject to the conditions set forth herein;
WHEREAS, following the execution of this Agreement and prior to the Closing
(as defined in Section 1.18 hereof), Parent will (a) duly adopt and declare
advisable an amendment and restatement of the Certificate of Incorporation of
Parent substantially in the form attached hereto as Exhibit A-1 (the "Charter
-------
Amendment") and (b) declare and pay a stock dividend to the then current holders
- ---------
of shares of common stock, par value $.01 per share, of Parent ("Parent Common
-------------
Stock") or effect some other form of recapitalization, the results of which are
- -----
substantially set forth on Exhibit A-2 attached hereto (the "Parent
------
Recapitalization");
- ----------------
<PAGE>
WHEREAS, simultaneous with the execution and delivery of this Agreement,
Parent and each stockholder of the Company listed on Annex I attached hereto
have each entered into an agreement substantially in the form of Exhibit B
hereto (each, a "Stockholder Voting Agreement" and collectively, "Stockholder
---------------------------- -----------
Voting Agreements") pursuant to which such stockholder has agreed to vote the
- ------------------
shares of Company Common Stock beneficially owned by such stockholder in favor
of the Merger (the Stockholder Voting Agreements, the Warrant Agreement (as
defined in Section 1.7(c) hereof) and this Agreement are collectively referred
to herein as the "Transaction Agreements");
-----------------------
WHEREAS, following the execution of this Agreement and prior to the
Closing, Parent and certain stockholders of Parent shall enter into a
registration rights agreement pursuant to which Parent will grant certain rights
to such Persons regarding the registration of Parent Common Stock owned by them
following the Merger;
WHEREAS, for U.S. federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code") and that this
----
Agreement shall be, and hereby is, adopted as a plan of reorganization for
purposes of Section 368 of the Code;
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
----------
hereof, and in accordance with the Delaware General Corporation Law (the
"DGCL"), the Company shall be merged with and into Sub at the Effective Time
----
(as hereinafter defined). Following the Merger, the separate corporate existence
of the Company shall cease and Sub shall (i) continue as the surviving
corporation (sometimes referred to herein as the "Surviving Corporation"), (ii)
---------------------
succeed to and assume all the rights and obligations of the Company in
accordance with the DGCL, (iii) continue to be governed by the laws of the State
of Delaware and (iv) continue under the name "Endo Inc."
2
<PAGE>
Section 1.2 Effective Time. The Merger shall become effective when a
--------------
Certificate of Merger (the "Certificate of Merger"), duly executed in accordance
---------------------
with the relevant provisions of the DGCL, is filed with the Secretary of State
of the State of Delaware; provided, however, that, upon mutual consent of the
-------- -------
Constituent Corporations, the Certificate of Merger may provide for a later date
or time of effectiveness of the Merger. When used in this Agreement, the term
"Effective Time" shall mean the later of the date and time at which the
--------------
Certificate of Merger is filed or such later date and time established by the
Certificate of Merger. The filing of the Certificate of Merger in accordance
with the DGCL shall be made on the date of the Closing, or as promptly
thereafter as practicable.
Section 1.3 Effects of the Merger. The Merger shall have the effects set
---------------------
forth in Section 259 of the DGCL.
Section 1.4 Directors of the Surviving Corporation. The directors of Sub
--------------------------------------
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation as of the Effective Time and shall hold office until their
successors are duly appointed or elected in accordance with applicable law and
the Certificate of Incorporation and By-laws of the Surviving Corporation.
Section 1.5 Officers of the Surviving Corporation. The officers of Sub
-------------------------------------
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation as of the Effective Time and shall hold office until their
successors are duly appointed or elected in accordance with applicable law and
the certificate of incorporation and by-laws of the Surviving Corporation.
Section 1.6 Charter and By-Laws. The Certificate of Incorporation of Sub
-------------------
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law. The By-laws of Sub as in effect
immediately prior to the Effective Time shall be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by the
certificate of incorporation of the Surviving Corporation or by applicable law.
Section 1.7 Conversion of Securities. As of the Effective Time, by
------------------------
virtue of the Merger and without any action on the part of Sub, the Company or
the holders of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock of Sub shall remain
outstanding as one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation.
3
<PAGE>
(b) All shares of Company Common Stock that are held in the treasury of
the Company and any shares of Company Common Stock owned by Parent or Sub shall
be canceled and no capital stock of Parent or other consideration shall be
delivered in respect thereof.
(c) Subject to the provisions of Section 1.12 hereof, each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares to be canceled in accordance with Section 1.7(b) hereof)
shall be converted into (i) one (the "Conversion Number") validly issued, fully
-----------------
paid and nonassessable share of Parent Common Stock and (ii) one warrant which
shall be subject to the terms and conditions of a warrant agreement (the
"Warrant Agreement") substantially in the form attached hereto as Exhibit C (an
- ------------------
"Algos Warrant" and, together with the shares of Parent Common Stock referred to
-------------
in clause (i), the "Merger Consideration"). All such shares of Company Common
--------------------
Stock, when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and each holder of a certificate formerly representing
any such shares shall cease to have any rights with respect thereto, except for
the right to receive any dividends and other distributions in accordance with
Section 1.9 hereof, certificates representing the shares of Parent Common Stock
and Algos Warrants into which such shares are converted upon surrender of such
certificates in accordance with Section 1.8 hereof. Each certificate shall,
from and after the Effective Time until surrendered in exchange for Parent
Common Stock and Algos Warrants, for all purposes be deemed to represent the
shares of Parent Common Stock and Algos Warrants into which such Company Common
Stock was converted in the Merger.
Section 1.8 Parent to Make Certificates Available.
-------------------------------------
(a) Exchange of Certificates. Parent shall authorize a commercial bank
------------------------
reasonably acceptable to the Company (or such other Person (as defined in
Section 1.8(a) hereof) or Persons as shall be reasonably acceptable to Parent
and the Company) to act as Exchange Agent hereunder (the "Exchange Agent"). As
--------------
soon as practicable after the Effective Time, Parent shall deposit with the
Exchange Agent, in trust for the holders of shares of Company Common Stock
converted in the Merger, certificates representing the shares of Parent Common
Stock and certificates representing the Algos Warrants, including certificates
representing Algos Warrants subject to the transfer restrictions set forth in
the Warrant Agreement (the "Non-Transferable Warrants"), each issuable pursuant
-------------------------
to Section 1.7(c) hereof in exchange for outstanding certificates representing
shares of Company Common Stock (such shares of Parent Common Stock and Algos
Warrants, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange
--------
4
<PAGE>
Fund"). Except as contemplated by this Section 1.8, and Section 1.11 hereof,
- -----
the Exchange Fund shall not be used for any other purpose. For purposes of this
Agreement, "Person" means any natural person, firm, individual, corporation,
------
limited liability company, partnership, association, joint venture, company,
business trust, trust or any other entity or organization, whether incorporated
or unincorporated, including a government or political subdivision or any agency
or instrumentality thereof.
(b) Exchange Procedures. As soon as practicable after the Effective Time,
-------------------
Parent shall cause the Exchange Agent to mail to each record holder of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock converted in the Merger
(the "Certificates") a letter of transmittal (in customary form), which shall
------------
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Exchange Agent, and shall contain instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock, certificates representing Algos Warrants. Upon
surrender to the Exchange Agent for cancellation of a Certificate, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (i) a certificate representing that
number of whole shares of Parent Common Stock into which the shares of Company
Common Stock represented by the surrendered Certificate shall have been
converted at the Effective Time pursuant to this Article I, (ii) a certificate
representing that number of Algos Warrants (or, if requested, Non-Transferable
Warrants) into which the shares of Company Common Stock represented by the
surrendered Certificate shall have been converted at the Effective Time pursuant
to this Article I and (iii) any dividends and other distributions payable in
accordance with Section 1.9 hereof, and any Certificate so surrendered shall
forthwith be canceled.
Section 1.9 Dividends; Transfer Taxes; Withholding.
--------------------------------------
(a) No dividends or other distributions that are declared on or after the
Effective Time on Parent Common Stock, or are payable to the holders of record
thereof on or after the Effective Time, will be paid to any Person entitled by
reason of the Merger to receive a certificate representing Parent Common Stock
and a certificate representing Algos Warrants, until such Person surrenders such
certificates in accordance with Section 1.8 hereof. Subject to the effect of
applicable law, there shall be paid to each record holder of a new certificate
representing such Parent Common Stock: (i) at the time of such surrender or as
promptly as practicable thereafter, the amount of any dividends or other
distributions theretofore paid with
5
<PAGE>
respect to the shares of Parent Common Stock represented by such new certificate
and having a record date on or after the Effective Time and a payment date prior
to such surrender; (ii) at the appropriate payment date or as promptly as
practicable thereafter, the amount of any dividends or other distributions
payable with respect to such shares of Parent Common Stock and having a record
date on or after the Effective Time, but prior to such surrender and a payment
date on or subsequent to such surrender. In no event shall (1) the Person
entitled to receive such dividends or other distributions be entitled to receive
interest on such dividends or other distributions and (2) any dividends or
distributions be payable on the Algos Warrants or to the holders of record
thereof unless and until such Algos Warrants are exercised in accordance with
the terms of the Warrant Agreement.
(b) If any cash or certificates representing shares of Parent Common Stock
or Algos Warrants are to be paid to or issued in a name other than that in which
the Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer, subject to the limitations
set forth in Section 1.8 hereof and in the Warrant Agreement with respect to
Non-Transferable Warrants, and that the Person requesting such exchange shall
pay to the Exchange Agent any transfer or other Taxes (as defined in Section 2.9
hereof) required by reason of the issuance of certificates representing such
shares of Parent Common Stock or such Algos Warrants in a name other than that
of the registered holder of the Certificate surrendered, or shall establish to
the satisfaction of the Exchange Agent that such Tax has been paid or is not
applicable. Except as otherwise provided in Section 5.17 hereof, Parent or the
Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as Parent or the Exchange Agent are required to
deduct and withhold with respect to the making of such payment under the Code or
under any provision of state, local or foreign Tax law. To the extent that
amounts are so withheld by Parent or the Exchange Agent, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Company Common Stock in respect of which such deduction and
withholding were made by Parent or the Exchange Agent.
Section 1.10 [Intentionally Omitted.]
6
<PAGE>
Section 1.11 Return of Exchange Fund. Any portion of the Exchange Fund
-----------------------
that remains undistributed to the former stockholders of the Company for six
months after the Effective Time shall be delivered to Parent, upon demand of
Parent, and any such former stockholders who have not theretofore complied with
this Article I shall thereafter look only to Parent for payment of their claim
for Parent Common Stock, Algos Warrants and any dividends or distributions with
respect to Parent Common Stock. Neither Parent nor either Constituent
Corporation shall be liable to any former holder of Company Common Stock for any
such shares of Parent Common Stock, Algos Warrants, cash and dividends and
distributions held in the Exchange Fund which are delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Section 1.12 Adjustment of Conversion Number. In the event of any
-------------------------------
reclassification, recapitalization, stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock) or subdivision with respect to Parent Common Stock, any
change or conversion of Parent Common Stock into other securities, any other
dividend or distribution with respect to the Parent Common Stock as the same may
be adjusted from time to time pursuant to the terms of this Agreement (or if a
record date with respect to any of the foregoing should occur), prior to the
Effective Time, appropriate and proportionate adjustments shall be made to the
Conversion Number, and all references to the Conversion Number in this Agreement
shall be deemed to be to the Conversion Number as so adjusted; provided that in
-------- ----
no event shall any such adjustment occur on account of the Charter Amendment or
the Parent Recapitalization.
Section 1.13 No Further Ownership Rights in Company Common Stock. All
---------------------------------------------------
shares of Parent Common Stock and all Algos Warrants issued pursuant to the
terms hereof (including any cash paid pursuant to Section 1.10 hereof) shall be
deemed to have been issued in full satisfaction of all rights pertaining to the
shares of Company Common Stock represented by such Certificates.
Section 1.14 Closing of Company Transfer Books. At the Effective Time,
---------------------------------
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock outstanding prior to the Effective Time shall
thereafter be made on the records of the Company. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, the Exchange Agent or
Parent, such Certificates shall be canceled and exchanged as provided in this
Article I.
7
<PAGE>
Section 1.15 Lost Certificates. If any Certificate shall have been lost,
-----------------
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if reasonably
required by the Surviving Corporation, the posting by such Person of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Common Stock, the Algos Warrants and any
dividends or other distributions to which the holder thereof is entitled
pursuant to Section 1.9 hereof.
Section 1.16 Affiliates. Certificates surrendered for exchange by each
----------
Affiliate (as defined in Section 5.4 hereof) of the Company for purposes of Rule
145(c) under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (the "Securities Act") that has been identified and
--------------
required to provide an Affiliate letter pursuant to Section 5.4 hereof shall not
be exchanged until Parent has received such Affiliate letter from such Person as
provided in Section 5.4 hereof.
Section 1.17 Further Assurances. If at any time after the Effective Time
------------------
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations or (ii) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of either
Constituent Corporation, all such other acts and things as may be necessary,
desirable or proper to vest, perfect or confirm the Surviving Corporation's
right, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement.
Section 1.18 Closing. Subject to the satisfaction or waiver of the
-------
conditions set forth in Article VI hereof, the closing of the transactions
contemplated by this Agreement (the "Closing") and all actions specified in this
-------
Agreement to occur at the Closing shall take place at the offices of Skadden,
Arps, Slate, Meagher & Flom LLP in New York, New York at 10:00 a.m. (New York
time) on a date to be specified by the parties hereto, but no later than the
business day immediately following the satisfaction or waiver of the conditions
set forth in Section 6.1(a), (b), (c) and (d)
8
<PAGE>
hereof or at such other time, date or place as Parent and the Company shall
agree. The date on which the Closing occurs is referred to herein as the
"Closing Date."
------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company
as follows:
Section 2.1 Organization, Standing and Power. Each of Parent and Sub is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted and to enter into and perform this
Agreement and the other Transaction Agreements and the transactions contemplated
hereby and thereby. Each Subsidiary (as hereinafter defined) of Parent (other
than Sub) is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized and has the requisite
corporate or other power and authority to carry on its business as now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power or authority would not, individually or in the
aggregate, have a Material Adverse Effect (as hereinafter defined) on Parent.
Each of Parent and its Subsidiaries is duly qualified to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect on Parent. For purposes of
this Agreement, (a) each of "Material Adverse Change" or "Material Adverse
----------------------- ----------------
Effect" means, when used with respect to Parent, Sub or the Company, as the case
- ------
may be, any change or effect that is materially adverse to the business, assets,
liabilities, results of operation or condition (financial or otherwise) of
Parent and its Subsidiaries, taken as a whole, or the Company, as the case may
be, excluding, in either case, any changes, circumstances or effects resulting
from or related to changes or developments in the economy, financial markets or
regulatory or political climate generally, any changes in conditions or
developments generally applicable to the industries in which Parent and
Subsidiaries of Parent or the Company, as the case may be, are involved, any
changes or developments related to the general relationship of Parent and
Subsidiaries of Parent or the Company, as the case may be, with the U.S. Food
and Drug Administration ("FDA") or the U.S. Drug Enforcement Administration
---
("DEA") and in the case of the Company, any change or development relating to
---
MorphiDex(R) or any other of the Company's products under
9
<PAGE>
development (including the FDA or DEA approval process relating thereto) and
except for any such changes or effects resulting from this Agreement, the
transactions contemplated hereby or the announcement thereof and (b)
"Subsidiary" means any corporation, partnership, joint venture or other legal
----------
entity of which Parent or the Company, as the case may be (either alone or
through or together with any other Subsidiary), owns, directly or indirectly,
50% or more of the stock or other equity interests the holders of which
generally are entitled to vote for the election of the board of directors or
other governing body of such corporation, partnership, joint venture or other
legal entity. Parent has heretofore delivered to the Company complete and
correct copies of Parent's certificate of incorporation ("Parent Charter") and
--------------
by-laws ("Parent By-Laws") and Sub's certificate of incorporation and by-laws,
--------------
each as in effect on the date of this Agreement.
Section 2.2 Capital Structure. As of the date of this Agreement, the
-----------------
authorized capital stock of Parent consists of (i) 2,000,000 shares of Parent
Common Stock, (ii) 200,000 shares of class A common stock, par value $.01 per
share, of Parent ("Parent Class A Common Stock") and (iii) 500,000 shares of
---------------------------
preferred stock, par value $.01 per share, of Parent (the "Parent Preferred
----------------
Stock"). At the close of business on November 15, 1999, (i) 929,950 shares of
- -----
Parent Common Stock were issued and outstanding, all of which were validly
issued, fully paid and nonassessable and free of preemptive rights; (ii) 174,560
shares of Parent Class A Common Stock were issued and outstanding, all of which
were validly issued, fully paid and nonassessable and free of preemptive rights,
and 290 of which are held in the treasury of the Parent; (iii) 618,750 shares of
Parent Common Stock were reserved for future issuance pursuant to Parent's 1997
Executive Stock Option Plan and Parent's 1997 Employee Stock Option Plan
(collectively, the "Parent Stock Plans"); (iv) 6,000 shares of Parent Common
------------------
Stock were reserved for future issuance pursuant to Parent's 1997 Employee
Stock Purchase Plan (the "Parent Stock Purchase Plan" and, together with the
--------------------------
Parent Stock Plans, the "Parent Incentive Plans"); and (v) no shares of Parent
----------------------
Preferred Stock were issued or outstanding. All of the shares of Parent Common
Stock and all of the Algos Warrants issuable in exchange for Company Common
Stock at the Effective Time in accordance with this Agreement will be, when so
issued, duly authorized, validly issued, free of preemptive rights and, in the
case of the shares of the Parent Common Stock, fully paid and nonassessable.
Each share of Parent Common Stock issuable upon exercise of the Algos Warrants
will be fully paid and nonassessable at the time of exercise. As of the date of
this Agreement, except for (a) this Agreement, (b) stock options covering not in
excess of 618,750 shares of Parent Common Stock (collectively, the "Parent Stock
------------
Options") and (c) the Parent Stock Purchase Plan, there are no options,
- -------
warrants, calls, rights or agreements to which Parent or any of its Subsidiaries
is a party or by which any of them is bound obligating Parent or any of its
Subsidiaries to
10
<PAGE>
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of Parent or any of its Subsidiaries, or securities
convertible into or exchangeable for such capital stock, or obligating Parent or
any of its Subsidiaries to grant, extend or enter into any such option, warrant,
call, right or agreement. Since November 15, 1999, Parent has not issued any
shares of its capital stock, or securities convertible into or exchangeable for
such capital stock, other than shares issued in the ordinary course pursuant to
the Parent Stock Plans. Except as set forth in Schedule 2.2 of that separate
disclosure letter delivered by Parent to the Company at or prior to the
execution and delivery by Parent of this Agreement (the "Parent Disclosure
-----------------
Schedule"), there are no outstanding contractual obligations of Parent or any of
- --------
Parent's Subsidiaries (i) restricting the transfer of, (ii) affecting the voting
rights of, (iii) requiring the repurchase, redemption or disposition of, (iv)
requiring the registration for sale of, or (v) granting any preemptive or
antidilutive right with respect to, any shares of Parent Common Stock, Parent
Class A Common Stock, Parent Preferred Stock or any capital stock of any
Subsidiary of Parent. The execution and delivery of the Transaction Agreements
do not, and the consummation of the transactions contemplated hereby and thereby
and the compliance with the provisions hereof and thereof will not, except as
set forth in such Transaction Agreements, give rise to any preemptive right or
antidilutive right of any Person with respect to any shares of Parent Common
Stock, Parent Class A Common Stock, Parent Preferred Stock or any capital stock
of any Subsidiary of Parent. Each outstanding share of capital stock or other
equity interests of each Subsidiary of Parent is duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights, and each such
share is owned by Parent or another Subsidiary of Parent, free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on voting rights, charges and other encumbrances of any
nature whatsoever.
Section 2.3 Authority. Each of Parent and Sub has all requisite corporate
---------
power and authority to enter into the Transaction Agreements to which it is a
party and to consummate the transactions contemplated hereby and thereby. On or
prior to the date of this Agreement, the respective Boards of Directors of
Parent and Sub have each declared the Merger advisable and in the best interest
of their respective stockholders and have each approved execution and delivery
of this Agreement in accordance with applicable law; the Board of Directors of
Sub has recommended to Parent, as the sole stockholder of Sub, that it approve
this Agreement in accordance with the DGCL; the Board of Directors of Parent has
authorized that it approve this Agreement in its capacity as the sole
stockholder of Sub in accordance with the DGCL; and concurrently with the
execution of this Agreement, Parent is approving this Agreement as the sole
stockholder of Sub in accordance with the DGCL. On or prior to the date of this
Agreement, the stockholders of Parent, in accordance with
11
<PAGE>
the DGCL and the Parent Charter, shall have approved the Charter Amendment. The
execution and delivery by each of Parent and Sub of the Transaction Agreements
to which it is a party and the consummation by Parent and Sub of the
transactions contemplated hereby and thereby, including the Share Issuance, have
been duly authorized by all necessary corporate action on the part of Parent and
Sub, subject to the filing of the Certificate of Merger pursuant to the DGCL.
Each of Parent and Sub have duly executed and delivered the Transaction
Agreements to which it is a party and (assuming the valid authorization,
execution and delivery thereof by the other parties thereto) each such
Transaction Agreement constitutes the valid and binding obligation of Parent and
Sub enforceable against each of them in accordance with their terms, except as
the enforceability hereof and thereof may be limited (1) by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in effect
that affect the enforcement of creditors rights generally or (2) general
principals of equity, whether considered in a proceeding at law or in equity.
Prior to the filing thereof, the filing of a registration statement on Form S-4
with the Securities and Exchange Commission ("SEC") by Parent under the
---
Securities Act for the purpose of registering the shares of Parent Common Stock
and the Algos Warrants to be issued in the Merger and the shares of Parent
Common Stock to be issued upon exercise of the Algos Warrants (together with any
amendments or supplements thereto, whether prior to or after the effective date
thereof, the "Registration Statement") and the taking of all actions in
----------------------
connection therewith will have been duly authorized by Parent's Board of
Directors.
Section 2.4 Consents and Approvals; No Violation. Assuming that all
------------------------------------
consents, approvals, authorizations and other actions described in the second
sentence of this Section 2.4 have been obtained and all filings and obligations
described in the second sentence of this Section 2.4 have been made, the
execution and delivery of the Transaction Agreements do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, conflict with, result in any
violation of, or breach or default (with or without due notice or lapse of time,
or both) under, or give to others a right of termination, cancellation or
acceleration of any obligation or the loss of any benefit under, or result in
the creation of any lien, security interest, charge or encumbrance upon any of
the properties or assets of Parent or any of its Subsidiaries under, any
provision of (i) the Parent Charter or Parent By-Laws, (ii) any provision of the
comparable charter or organization documents of any of Parent's Subsidiaries,
(iii) any loan or credit agreement, note, bond, mortgage, lease, indenture, or
other contract, agreement, instrument, permit, concession, franchise or license
applicable to Parent or any of its Subsidiaries, (iv) any license, permit or
other instrument, contract or agreement granted by, or entered into with, the
FDA or the DEA or (v) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to
12
<PAGE>
Parent or any of its Subsidiaries or any of their respective properties or
assets, other than, in the case of clauses (ii), (iii), (iv) or (v), any such
conflicts, violations, breaches, defaults, rights, liens, security interests,
charges or encumbrances that, individually or in the aggregate, would not have a
Material Adverse Effect on Parent, or prevent or materially delay the
consummation of any of the transactions contemplated hereby or thereby. No
filing, notification or registration with, or authorization, consent or approval
of, any domestic (federal and state), or foreign court, commission,
governmental body, regulatory or administrative agency, authority or tribunal (a
"Governmental Entity") is required by or with respect to Parent or any of its
-------------------
Subsidiaries in connection with the execution, delivery and performance of the
Transaction Agreements by Parent or Sub or is necessary for the consummation of
the Merger and the other transactions contemplated by the Transaction
Agreements, except for (i) in connection, or in compliance, with the provisions
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the Securities Act and the Securities Exchange Act of 1934, as
-------
amended (together with the rules and regulations promulgated thereunder, the
"Exchange Act"), (ii) the filing of the Certificate of Merger with the Secretary
------------
of State of the State of Delaware and the filing of the appropriate documents
with the relevant authorities of other states in which Parent or any of its
Subsidiaries is qualified to do business, each of which is set forth in Schedule
2.4 of the Parent Disclosure Schedule, (iii) such filings and consents as may be
required under any environmental, health or safety law or regulation (including
any rules and regulations of the FDA and the DEA ) pertaining to any
notification, disclosure or required approval triggered by the Merger or by the
transactions contemplated by the Transaction Agreements, each of which is set
forth in Schedule 2.4 of the Parent Disclosure Schedule, (iv) such filings,
authorizations, orders and approvals as may be required by state takeover laws
(the "State Takeover Approvals"), each of which is set forth in Schedule 2.4 of
------------------------
the Parent Disclosure Schedule, (v) applicable requirements, if any, of "blue
sky" laws and the NASDAQ National Market (the "NASDAQ") and (vi) such other
------
consents, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, have a Material Adverse Effect on Parent, or prevent or materially
delay the consummation of any of the transactions contemplated by the
Transaction Agreements. The execution and delivery of the Transaction Agreements
do not, and the consummation of the transactions contemplated hereby and
thereby and compliance with the provisions hereof and thereof will not, conflict
with, result in any violation of, or breach or default (with or without due
notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or the loss of any
benefit under, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of Parent or any of its
Subsidiaries under, any of the license agreements to which it is a
13
<PAGE>
party, except for such conflicts, violations, breaches, defaults, rights or
liens as would not, individually or in the aggregate, have a Material Adverse
Effect on Parent. All material license agreements of Parent or any of its
Subsidiaries are listed in Schedule 2.4 of the Parent Disclosure Schedule.
Section 2.5 Financial Statements. Parent has previously provided the
--------------------
Company with true and accurate copies of (x) Parent's audited financial
statements for the years ended December 31, 1997 and December 31, 1998, and (y)
Parent's unaudited financial statements for the six-month periods ended June 30,
1998 and June 30, 1999 (collectively, the "Parent Financial Statements"). The
---------------------------
Parent Financial Statements, as of their respective dates, fairly present in all
material respects in accordance with generally accepted accounting principles
("GAAP") the consolidated financial position of Parent and its consolidated
----
Subsidiaries as at the respective dates thereof and the consolidated results of
their operations and their consolidated cash flows for the periods then ended
(subject, in the case of unaudited statements, to any other adjustments
described therein and normal year-end audit adjustments and to any other
adjustments described therein). Except as required by GAAP, Parent has not,
since December 31, 1998, made any change in the accounting practices or policies
applied in the preparation of the financial statements. The books and records of
Parent and its Subsidiaries have been, and are being, maintained in all material
respects in accordance with GAAP and other applicable legal and accounting
requirements.
Section 2.6 Registration Statement and Proxy Statement. None of the
------------------------------------------
information to be supplied by Parent or Sub for inclusion or incorporation by
reference in the Registration Statement or the proxy statement/prospectus
included therein (together with any amendments or supplements thereto, the
"Proxy Statement") relating to the Stockholder Meeting (as hereinafter defined)
---------------
will (i) in the case of the Registration Statement, at the time it becomes
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading or (ii) in the case of the Proxy Statement, at
the time of the mailing of the Proxy Statement, the time of the Stockholder
Meeting and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. If, at any time prior to the
Effective Time, any event with respect to Parent, its officers and directors or
any of its Subsidiaries shall occur which is required to be described in the
Proxy Statement or the Registration Statement, such event shall be so described,
and an appropriate amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the stockholders of the Company. The
Registration Statement
14
<PAGE>
will comply (excluding any matters relating to the Company, as to which Parent
and Sub make no representations) as to form in all material respects with the
provisions of the Securities Act.
Section 2.7 Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Schedule 2.7 of the Parent Disclosure Schedule, since September 30, 1999, (A)
none of Parent or any of its Subsidiaries has incurred any liability or
obligation (indirect, direct or contingent), or entered into any oral or written
agreement or other transaction, that is not in the ordinary course of business
or that would, individually or in the aggregate, result in a Material Adverse
Effect on Parent, except for any such changes or effects resulting from this
Agreement, the transactions contemplated hereby or the announcement thereof; (B)
none of Parent or any of its Subsidiaries has sustained any loss or interference
with their business or properties from fire, flood, windstorm, accident or other
calamity (whether or not covered by insurance) that would, individually or in
the aggregate, have a Material Adverse Effect on Parent; (C) there has been no
action taken by Parent or any of its Subsidiaries that, if taken during the
period from the date of this Agreement through the Effective Time, would
constitute a material breach of Section 4.1(a) hereof; and (D) there has been no
event, circum stance or development that would, individually or in the
aggregate, have a Material Adverse Effect on Parent.
Section 2.8 Permits and Compliance.
----------------------
(a) Each of Parent and its Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Entity ("Permits") necessary for it to own, lease and operate its properties or
-------
to carry on its business as it is now being conducted (the "Parent Permits"),
--------------
except where the failure to have any of the Parent Permits would not,
individually or in the aggregate, have a Material Adverse Effect on Parent, and,
as of the date of this Agreement, no suspension or cancellation of any of the
Parent Permits is pending or, to the Knowledge of Parent (as hereinafter
defined), threatened, except where the suspension or cancellation of any of the
Parent Permits would not, individually or in the aggregate, have a Material
Adverse Effect on Parent; provided that no representation is being made by the
-------- ----
Company in this sentence with respect to any investigational new drug
application (an "IND") or new drug application (an "NDA") of Parent filed with
--- ---
the FDA (which are the subject of Section 2.13 hereof). None of Parent or any
of its Subsidiaries is in violation of (A) its charter, by-laws or other
organizational documents, (B) any applicable law, ordinance, administrative or
governmental rule or regulation or (C) any order, decree or judgment of any
Governmental Entity having jurisdiction over Parent or any of its Subsidiaries,
except, in the case of clauses (B) and (C), for any violations that,
15
<PAGE>
individually or in the aggregate, would not have a Material Adverse Effect on
Parent.
(b) Schedule 2.8(b) of the Parent Disclosure Schedule contains a true and
complete list of all written agreements (i) that would be required to be listed
as exhibits to a registration statement of Parent on Form S-1 under the rules
and regulations of the SEC if such registration statement were filed on the date
of this Agreement, (ii) relating to indebtedness for money borrowed by Parent or
any of its Subsidiaries, which, individually or in the aggregate, represent an
amount greater than $1.0 million, excluding trade credit or payables arising in
the ordinary course of business, (iii) creating any guarantee arrangement or
other agreement to be liable for the obligations of a Person other than Parent
or any of its wholly owned Subsidiaries, (iv) providing for payment or the
receipt of payment or the sale of purchase or exchange of goods worth in excess
of $20.0 million, (v) with any distributor or sales contractor for Parent's
products, (vi) providing for any joint venture or partnership, (vii) with E.I.
du Pont de Nemours and Company or The Dupont Merck Pharmaceutical Company or
any of its Subsidiaries or (viii) containing any provision or covenant
materially limiting the ability of Parent or its Subsidiaries or any of its or
their Affiliates to sell any products of or to any other Person, engage in any
line of business or compete with or to obtain products or services from any
Person or materially limiting the ability of any Person to provide products or
services to Parent or any of its Subsidiaries or Affiliates (collectively, the
"Parent Material Contracts"). Parent has previously provided the Company with
-------------------------
true and correct copies of each of the Parent Material Contracts, as in effect
on the date of this Agreement. Except as disclosed in Schedule 2.8(b) of the
Parent Disclosure Schedule, the execution and delivery of the Transaction
Agreements do not, and the consummation of the transactions contemplated hereby
and thereby and compliance with the provisions hereof and thereof will not,
conflict with, result in any violation of, or breach or default (with or without
due notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or the loss of any
benefit under, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of Parent or any of its
Subsidiaries under, any indenture, mortgage, loan agreement, note or other
agreement or instrument for borrowed money, any guarantee of any agreement or
instrument for borrowed money or any lease, contractual license or other
contract, agreement or instrument to which Parent or any of its Subsidiaries is
a party or by which Parent or any of its Subsidiaries is bound or to which any
of the properties, assets or operations of Parent or any of its Subsidiaries is
subject, other than such conflicts, violations, breaches, defaults, rights or
liens as would not, individually or in the aggregate, have a Material Adverse
Effect on Parent. As used in this Agreement, "Knowledge of Parent" means the
-------------------
actual knowledge of any of the Chief Executive Officer, Chief
16
<PAGE>
Operating Officer, Chief Financial Officer, General Counsel of Parent or Senior
Vice President-Research and Development.
Section 2.9 Tax Matters.
-----------
Except as set forth in Schedule 2.9 of the Parent Disclosure Schedule:
(a) All federal, state, local and foreign Tax Returns required to be
filed (taking into account extensions) by or on behalf of Parent and each of its
Subsidiaries (i) have been timely filed, except for such Tax Returns that the
failure by Parent or such Subsidiary to timely file would not, individually or
in the aggregate, have a Material Adverse Effect on Parent, and (ii) are true,
complete and correct in all material respects.
(b) All Taxes payable by or with respect to Parent and any of its
Subsidiaries have been timely paid, or adequately reserved for (in accordance
with GAAP) in the most recent Parent Financial Statements, except for Taxes that
the failure of which to pay would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
(c) No deficiencies for any Taxes have been proposed, asserted or
assessed either orally or in writing against Parent or any of its Subsidiaries
that are not adequately reserved for (in accordance with GAAP) in the most
recent Parent Financial Statements, except for such deficiencies as would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. All
assessments for Taxes due and owing by or with respect to Parent or any of its
Subsidiaries with respect to completed and settled examinations or concluded
Litigation have been paid.
(d) No examinations have been completed or are presently being conducted
with respect to the Parent or any of its Subsidiaries' federal or material state
income Tax Returns.
(e) Parent and each of its Subsidiaries have complied with all rules and
Treasury regulations relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections 1441
and 1442 of the Code or similar provisions under any foreign Laws) and have,
within the time and in the manner required by law, withheld from employee wages
and paid over to the proper Governmental Entities all amounts required to be so
withheld and paid over under all Applicable Laws, except where the failure to be
in such compliance or to withhold and pay over such amounts would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
17
<PAGE>
(f) Parent and each of its Subsidiaries (i) have not waived any statutory
period of limitations in respect of its or their Taxes or Tax Returns or (ii)
are not a party to, not bound by, or have no obligation under any agreement,
contract or arrangement for the sharing, allocation, or indemnification of Taxes
(other than indemnification agreements where Taxes incidental to the primary
obligation so indemnified are also indemnified).
(g) No property of Parent or any of its Subsidiaries is "tax-exempt use
property" (as such term is defined in Section 168 of the Code).
(h) Neither Parent nor any of its Subsidiaries has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a "Subsection (f) asset" (as such term is
defined in Section 341(f)(4) of the Code) owned by Parent or any of its
Subsidiaries.
(i) Parent is not, and has not been for the five years preceding the
Closing, a "United States real property holding company" (as such term is
defined in Section 897(c)(2) of the Code).
(j) Parent has no reason to believe that any condition exists, nor has
Parent, nor any of its Subsidiaries, taken any action or failed to take any
action, that could reasonably be expected to prevent the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code.
For purposes of this Agreement the term (i) "Taxes" will mean any and all
-----
federal, state, local, foreign, provincial, territorial or other taxes, imposts,
tariffs, fees, levies or other similar assessments or liabilities and other
charges of any kind, including income taxes, ad valorem taxes, excise taxes,
withholding taxes, stamp taxes or other taxes of or with respect to gross
receipts, premiums, real property, personal property, windfall profits, sales,
use, transfers, licensing, employment, social security, workers' compensation,
unemployment, payroll and franchises imposed by or under any Law; and such terms
will include any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any such tax or
any contest or dispute thereof and (ii) "Tax Returns" will mean any declaration,
-----------
return, report, schedule, certificate, statement or other similar document
(including relating or supporting information) required to be filed with a
Governmental Entity, or where none is required to be filed with a Governmental
Entity, the statement or other document issued by a Governmental Entity in
connection with any Tax, including, without limitation, any information return,
claim for refund, amended return or declaration of estimated Tax.
18
<PAGE>
Section 2.10 Actions and Proceedings. Except as set forth in Schedule
-----------------------
2.10 the Parent Disclosure Schedule, (a) there are no outstanding orders,
judgments, injunctions, awards or decrees of any Governmental Entity against or
involving Parent or any of its Subsidiaries, against or involving any of the
present directors or officers of Parent or any of its Subsidiaries, as such, or
involving any of its or their properties, assets or business that, individually
or in the aggregate, would have a Material Adverse Effect on Parent and (b) as
of the date of this Agreement, there are no actions, suits or claims or legal,
administrative or arbitrative proceedings or investigations pending or, to the
Knowledge of Parent, threatened against or involving Parent or any of its
Subsidiaries against or involving any of the present directors or officers of
Parent or any of its Subsidiaries, as such, or involving any of its or their
properties, assets or business before any court or arbitration tribunal or
before any Governmental Entity that, individually or in the aggregate, would
have a Material Adverse Effect on Parent. As of the date of this Agreement,
there are no actions, suits, labor disputes or other litigation, legal or
administrative proceedings or governmental investigations pending, or, to the
Knowledge of Parent, threatened against or affecting Parent or any of its
Subsidiaries or any of its or their present directors or officers, as such, or
any of its or their properties, assets or business before any court or
arbitration tribunal or before any Governmental Entity relating to the
transactions contemplated by the Transaction Agreements.
Section 2.11 Certain Agreements. Schedule 2.11 of the Parent Disclosure
------------------
Schedule sets forth each material oral or written stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan to which
Parent or any of its Subsidiaries is a party. Except as set forth in Schedule
2.11 of the Parent Disclosure Schedule, as of the date of this Agreement,
neither Parent nor any of its Subsidiaries is a party to any oral or written
agreement or plan, including any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. No holder of any option to
purchase shares of Parent Common Stock, or shares of Parent Common Stock granted
in connection with the performance of services for Parent or its Subsidiaries,
is or will be entitled to receive cash from Parent or any Subsidiary in lieu of
or in exchange for such option or shares as a result of the transactions
contemplated by this Agreement (other than in lieu of fractional shares).
Neither Parent nor any Subsidiary is a party to any termination benefits
agreement or severance agreement or employment agreement which would be
triggered by the consummation of the transactions contemplated by this
Agreement.
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Section 2.12 ERISA.
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(a) Schedule 2.12(a) of the Parent Disclosure Schedule lists each Parent
Plan (as hereinafter defined). With respect to each material Parent Plan,
Parent has made (or as soon as practicable will make) available to the Company a
true and correct copy of (i) the three most recent annual reports (Form 5500)
filed with the Internal Revenue Service (the "IRS"), (ii) such Parent Plan and
---
any amendments thereto, (iii) each trust agreement, insurance contract or
administration agreement relating to such Parent Plan and the latest financial
statements thereof, (iv) the most recent summary plan description of each Parent
Plan for which a summary plan description is required, (v) the most recent
actuarial report or valuation relating to a Parent Plan subject to Title IV of
ERISA, (vi) the most recent determination letter, if any, issued by the IRS with
respect to any Parent Plan intended to be qualified under section 401(a) of the
Code and (vii) any written description that exists as of the date of this
Agreement of any unwritten Parent Plan. Except as would not, individually or in
the aggregate, have a Material Adverse Effect on Parent, (i) each Parent Plan
complies with all applicable statutes and governmental rules and regulations,
including but not limited to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), the Code and the Consolidated Omnibus Budget
-----
Reconciliation Act of 1985, as amended ("COBRA"), and (ii) no "reportable
-----
event" (within the meaning of Section 4043 of ERISA) has occurred with respect
to any Parent Plan for which the 30-day notice requirement has not been waived,
(iii) none of Parent or its Subsidiaries is or has been obligated to contribute
or otherwise may have any liability with respect to any Parent Multiemployer
Plan (as hereinafter defined), (iv) no action has been taken, or is currently
being considered, to terminate any Parent Plan subject to Title IV of ERISA, (v)
Parent has complied with the continued medical coverage requirements of COBRA,
(vi) no Parent Plan has engaged in a "prohibited transaction" (as defined in
Section 4975 of the Code or Section 406 of ERISA) and (vii) no liability under
Title IV or Section 302 of ERISA or Section 412 of the Code has been incurred by
Parent that has not been satisfied in full, and no condition exists that
presents a risk to Parent of incurring any such liability. Except as would not,
individually or in the aggregate, have a Material Adverse Effect on Parent, no
Parent Plan subject to Title IV of ERISA, nor any trust created thereunder, has
incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived.
(b) With respect to any Parent Plan which is subject to Title IV of ERISA,
the present value of accrued benefit obligations, as determined in accordance
with FAS 87 in accordance with the actuarial assumptions used to prepare the
most recent reports of such Parent Plan, did not exceed the fair market value of
the Plan assets as of the most recent valuation date for which an actuarial
report has been
20
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prepared and to the Knowledge of Parent, there has not been any material adverse
change to such status. All contributions required to be made with respect to any
Parent Plan on or prior to the Closing Date have been timely made or are
reflected on the most recent balance sheet of Parent. With respect to the Parent
Plans, no event has occurred in connection with which Parent would be subject to
any liability under the terms of such Parent Plans, ERISA, the Code or any other
applicable law which would have, individually or in the aggregate, a Material
Adverse Effect on Parent. With respect to any current or former employee,
director, officer, consultant or contractor of Parent or its Subsidiaries,
consummation of the transactions contemplated by this Agreement shall not result
in the payment or provision of additional compensation or benefits or accelerate
the vesting, payment or funding of any compensation or benefits. No amounts
payable by reason of this transaction under the Parent Plans will fail to be
deductible for federal income tax purposes by virtue of either Section 280G or
Section 162(m) of the Code. All Parent Plans that are intended to be qualified
under Section 401(a) of the Code have been determined by the IRS to be so
qualified or a timely application for such determination is pending, and to the
Knowledge of Parent, there is no reason why any such Parent Plan is not so
qualified in operation. Parent does not have any liability or obligation under
any welfare plan to provide benefits after termination of employment to any
employee or dependent other than as required by ERISA or as disclosed in
Schedule 2.12 of the Parent Disclosure Schedule. There are no pending or, to
the Knowledge of Parent, threat ened, claims, suits, audits or investigations
related to any Parent Plan other than claims for benefits in the ordinary course
and other than claims, suits, audits or investigations that would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. As
used herein, (i) "Parent Plan" means each deferred compensation and each bonus
-----------
or other incentive compensation, stock purchase, stock option and other equity
compensation or ownership plan, program, agreement or arrangement, each
severance or termination pay, medical, surgical, hospitalization, life insurance
and other "welfare" plan, fund or program (within the meaning of Section 3(1) of
the ERISA); each profit-sharing, stock bonus or other "pension" plan, fund or
program (within the meaning of Section 3(2) of ERISA); each employment,
retention, consulting, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each case,
that is sponsored, maintained or contributed to or required to be contributed
to by Parent or its Subsidiaries, including any plan subject to Title IV of
ERISA maintained within the past five (5) years by Parent or any of its
Subsidiaries and (ii) "Parent Multiemployer Plan" means a "multiemployer plan"
-------------------------
(as defined in Section 4001(a)(3) of ERISA) to which Parent is or has been
obligated to contribute or otherwise may have any liability.
Section 2.13 Compliance with Certain Laws.
----------------------------
21
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(a) Except as disclosed in Schedule 2.13(a) of the Parent Disclosure
Schedule, the properties, assets and operations of Parent and its Subsidiaries
are in compliance with all Applicable Laws, except for any violations that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent. Except as disclosed in Schedule 2.13(a) of the Parent Disclosure
Schedule, with respect to such properties, assets and operations, including any
previously owned, leased or operated properties, assets or operations, there are
no past, present or reasonably anticipated future events, conditions,
circumstances, activities, practices, incidents, actions or plans of Parent or
any of its Subsidiaries that may interfere with or prevent compliance or
continued compliance with all Applicable Laws, other than any such interference
or prevention as would not, individually or in the aggregate with any such other
interference or prevention, have a Material Adverse Effect on Parent. For
purposes of this Agreement, "Applicable Laws" shall mean applicable federal,
---------------
state, local and foreign laws, rules and regulations, orders, decrees,
judgments, permits and licenses of all Governmental Entities (including, but not
limited to, those related to public and worker health and safety, controlled
substances and the protection and clean-up of the environment and activities or
conditions related thereto (including, without limitation, those relating to the
generation, handling, disposal, transportation or release of hazardous
materials) (collectively, "Environmental Laws")). The term "hazardous materials"
------------------ -------------------
shall mean those substances that are regulated by or form the basis for
liability under any applicable Environmental Laws. Parent will make available to
the Company such certificates and environmental studies with respect to such
properties as Parent has available on the date of this Agreement.
(b) Each of Parent's and its Subsidiaries' manufacturing, distribution,
development and marketing practices are in compliance with all applicable
federal and state laws, rules, regulations, orders, licenses, judgments, writs,
injunctions, decrees or demands, including, without limitation, laws and
regulations administered by the FDA and the DEA, except where the failure to be
in such compliance would not, individually or in the aggregate, have a Material
Adverse Effect on Parent.
(c) Each of Parent and its Subsidiaries possesses FDA approval or
allowance of all material investigational or marketed product applications as
are currently legally required and are necessary for the conduct of its business
as now being conducted, a list of which is attached hereto as Schedule 2.13(c)
of the Parent Disclosure Schedule, true and correct copies of which have been
provided to the Company by Parent.
(d) Since December 1, 1997, none of Parent or any of its Subsidiaries has
used the services of any person debarred under the provisions of the Generic
Drug
22
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Enforcement Act of 1992, 21 U.S.C. (S) 335(a)(b). Since December 1, 1997, none
of Parent, its Subsidiaries, nor any of their respective officers, employees,
agents or affiliates, has been convicted of any crime or engaged in any conduct
for which debarment is mandated by 21 U.S.C. (S) 335a(a) or authorized by
21 U.S.C. (S) 335a(b).
(e) Each of Parent and its Subsidiaries is in compliance with all (i)
federal and state laws applicable to the development, manufacture, processing,
packing, testing and sale of pharmaceutical products to the extent such laws are
applicable to it, (ii) rules and regulations of the FDA and the DEA to the
extent such rules and regulations are applicable to it, and (iii) product
applications (including INDs) has been approved by the FDA under which Parent or
any of its Subsidiaries has sold any product on or after November 1, 1999,
except in each case where the failure to be in such compliance would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. All
manufacturing operations conducted by or for the benefit of Parent or any of its
Subsidiaries have been and are being conducted in compliance with the current
Good Manufacturing Practice regulations set forth in 21 C.F.R. Parts 210 and
211, except where the failure to be in such compliance would not, individually
or in the aggregate, have a Material Adverse Effect on Parent.
(f) As to each drug of Parent for which a product application has been
approved by, or an IND has been filed with, the FDA, the applicant and all
Persons performing operations covered by the application are in compliance with
the requirements of the Food, Drug and Cosmetics Act, as amended (the "FDCA"),
----
and the implementing regulations of the FDA, respectively, and all terms and
conditions of the application, except where the failure to be in such compliance
would not, individually or in the aggregate, have a Material Adverse Effect on
Parent.
(g) Each of Parent and its Subsidiaries is in material compliance with all
applicable registration and listing requirements set forth in 21 U.S.C. (S) 360
and 21 C.F.R. Part 207. To the extent required, each of Parent and its
Subsidiaries has obtained registrations from the DEA and are in material
compliance with all such registrations and all applicable regulations
promulgated by the DEA.
(h) Neither Parent, any of its Subsidiaries, nor their respective
officers, employees, or agents have made an untrue statement of material fact or
fraudulent statement to the FDA or the DEA, failed to disclose a material fact
required to be disclosed to the FDA or the DEA, or committed an act, made a
statement, or failed to make a statement that could reasonably be expected to
provide a basis for the FDA to invoke its policy respecting "Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities," set forth in 56
Fed. Reg. 46191 (September 10, 1991).
23
<PAGE>
(i) Parent has made available to the Company copies of any and all notices
of inspectional observations (FD 483's), establishment inspection reports,
warning letters and any other documents received from or issued by the FDA or
the DEA within the last three years that indicate or suggest lack of compliance
with the FDA or the DEA regulatory requirements by Parent, any Subsidiary of
Parent, or Persons covered by product applications or otherwise performing
services for the benefit of Parent or any of its Subsidiaries with respect to
services or products provided to Parent or any of its Subsidiaries.
(j) Neither Parent nor any of its Subsidiaries has received any written
notice that the FDA or the DEA has commenced or threatened to initiate (i) any
action to withdraw its approval or request the recall of any product of Parent
or any Subsidiary of Parent, (ii) any action to enjoin (A) production at any
facility owned or used by Parent, any of Parent's Subsidiaries or any Person on
behalf of Parent or any of Parent's Subsidiaries or (B) any facility (including
any clinical facility where testing and/or trials occur) owned or used by
Parent, any of Parent's Subsidiaries or any Person on behalf of Parent or any of
Parent's Subsidiaries, (iii) the withdrawal of approval of any product
application (including any IND), other than such withdrawals of approval that
would not, individually or in the aggregate, have a Material Adverse Effect on
Parent, or (iv) any material civil penalty, injunction, seizure or criminal
action.
(k) To the Knowledge of Parent, as to each article of drug or consumer
product currently manufactured and/or distributed by Parent or any Subsidiary of
Parent, or by any Person on behalf of Parent or any Subsidiary of Parent, such
article is not adulterated or misbranded within the meaning of the FDCA, 21
U.S.C. (S)(S) 301 et seq. and not in violation of 21 U.S.C. (S) 355.
(l) As to each drug referred to in subsection (c) above, Parent, its
Subsidiaries and their respective officers, employees, agents and affiliates
have included or caused to be included in the application for such drug, where
required, the certification described in 21 U.S.C. (S) 335a(k)(1) and the list
described in 21 U.S.C. (S) 335a(k)(2), and such certification and such list was
in each case true and accurate when made and remained true and accurate
thereafter.
(m) All pre-clinical trials and clinical trials Parent or its Subsidiaries
has conducted or has had conducted for it by third parties, to the Knowledge of
Parent, complies in all material respects with the requirements of Good Clinical
Practice, Informed Consent, and all requirements relating to protection of human
subjects, found in 21 C.F.R. (S)(S) 50, 54 and 56 and that all nonclinical
laboratory testing complies with the requirements of 21 C.F.R. (S) 58.
24
<PAGE>
(n) As to each product application submitted to, but not approved by, the
FDA, and not withdrawn by Parent or one of its Subsidiaries, or applicants
acting on its behalf as of the date of this Agreement, each of Parent and its
Subsidiaries has complied in all material respects with the requirements of the
FDCA and implementing FDA regulations and has provided, or will provide, all
additional information and taken, or will take, all additional action that has
been deemed appropriate by Parent in connection with the application.
(o) Parent and each of its Subsidiaries represent and warrant that in
connection with the exportation of certain FDA regulated products, it is in
compliance with the requirements of 21 U.S.C. (S)(S) 381 and 382 of the FDCA.
Section 2.14 Liabilities. Except as fully reflected or reserved against
-----------
in the consolidated balance sheet of Parent and its Subsidiaries as of December
31, 1998 (included in the Parent Financial Statements) or as disclosed in
Schedule 2.14 of the Parent Disclosure Schedule, Parent and its Subsidiaries
have no liabilities (including, without limitation, tax liabilities) absolute or
contingent, that would be required to be reflected on a balance sheet or in
notes thereto prepared in accordance with GAAP, other than liabilities incurred
in the ordinary course of business or that, individually or in the aggregate,
would not have a Material Adverse Effect on Parent.
Section 2.15 Labor Matters. Except as set forth in Schedule 2.15 of the
-------------
Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is a
party to any collective bargaining agreement or labor contract. Neither Parent
nor any of its Subsidiaries has engaged in any unfair labor practice with
respect to any Persons employed by or otherwise performing services for Parent
or any of its Subsidiaries (the "Parent Business Personnel"), and there is no
-------------------------
unfair labor practice complaint or grievance against Parent or any of its
Subsidiaries by the National Labor Relations Board or any comparable state
agency pending or, to Parent's Knowledge, threatened in writing with respect to
the Parent Business Personnel, except where such unfair labor practices,
complaints or grievances would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. There is no labor strike, dispute, slow down
or stoppage pending or, to the Knowledge of Parent, threatened against or
affecting Parent or any of its Subsidiaries which may interfere with the
respective business activities of Parent or any of its Subsidiaries, except
where such disputes, strikes or work stoppages would not, individually in the
aggregate, have a Material Adverse Effect on Parent. Parent and its
Subsidiaries are in compliance with all labor, employment and wage payment-
related laws, regulations and rules, except where the failure to be in such
compliance would not, individually or in the aggregate, have a Material Adverse
Effect on Parent.
25
<PAGE>
Section 2.16 Intellectual Property.
---------------------
(a) Except as set forth in Schedule 2.16(a) of the Parent Disclosure
Schedule or as would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, Parent and each of its Subsidiaries are the owners of
or have the valid and enforceable right to make, use, sell, offer to sell and
import all Parent Intellectual Property to the extent used in or necessary for
the conduct of Parent or any of its Subsidiaries' business, free and clear of
all liens, security interests, charges or encumbrances of any kind and, except
for the Parent License Agreements set forth in Schedule 2.16(b) of the Parent
Disclosure Schedule, free and clear of all licenses to third parties granting
any right to use or practice any rights under any Parent Intellectual Property.
As used in this Agreement, the term "Parent Intellectual Property" shall mean:
----------------------------
(i) Parent's or any of its Subsidiaries' registered and unregistered trade
marks, service marks (including registrations, recordings and applications in
the United States Patent and Trademark Office, any state of the United States or
any other Governmental Entity worldwide), slogans, trade names, logos and trade
dress (collectively, together with the good will symbolized thereby or
associated with each, "Parent Trademarks"); (ii) all of Parent's or any of its
-----------------
Subsidiaries' national (including, but not limited to, the United States) and
multinational statutory invention registrations, patents, patent registrations
and patent applications (including, but not limited to, all reissues, divisions,
continuations, continuations-in-part, extensions and reexaminations, and all
rights therein provided by law, multinational treaties or conventions)
(collectively, "Parent Patents"); (iii) all of Parent's or any of its
--------------
Subsidiaries' national and multinational registered and material unregistered
copyrights, including, but not limited to, copyrights in software programs and
databases (collectively, "Parent Copyrights"); (iv) Parent's or any of its
-----------------
Subsidiaries' software programs documentation and manuals used in connection
therewith and databases (together, "Parent Software"); (v) all of Parent's or
---------------
any of its Subsidiaries' (A) inventions, whether patentable or not patentable,
whether or not reduced to practice, and not yet made the subject of a pending
patent application or applications, (B) ideas and conceptions of potentially
patentable subject matter, including, without limitation, any patent
disclosures, whether or not reduced to practice and not yet made the subject of
a patent application, (C) trade secrets and confidential, technical information
(including ideas, formulas, compositions, inventions and conceptions of
inventions whether patentable or not patentable and whether or not reduced to
practice), (D) technology (including, without limitation, know-how and
show-how), manufacturing and production processes and techniques, service and
repair manuals, research and development information, drawings, specifications,
designs, plans, proposals, technical data and copyrightable works, whether
secret or confidential or not, and all proprietary or confidential business
information, (E) all rights to obtain
26
<PAGE>
and rights to apply for patents, and to register trademarks and copyrights and
(F) all records (including, but not limited to, laboratory, research and
testing notebooks) in any accessible format (including, but not limited to,
paper records, photographs, audio and visual tape recordings and computer
storage media and other information storage media) pertaining to patentable or
potentially patentable subject matter and all technical manuals and
documentation made or used in connection with any of the foregoing
(collectively, "Parent Technology"); and (vi) agreements pursuant to which
-----------------
Parent or any of its Subsidiaries has obtained or granted the right to use any
of the foregoing (collectively, and together with other agreements to which
Parent or any of its Subsidiaries are a party relating to the development,
acquisition, use, sale, offer for sale or importation of Parent Intellectual
Property, "Parent License Agreements").
-------------------------
(b) Schedule 2.16(b) of the Parent Disclosure Schedule sets forth a true,
complete and accurate list of the following Parent Intellectual Property items
owned by or under obligation of assignment to Parent or any of its Subsidiaries:
(i) all registrations of and applications to register Parent Trademarks
material to the business of Parent or any of its Subsidiaries as conducted on
the date of this Agreement; (ii) all unregistered Parent Trademarks which are
material to the business of Parent or any of its Subsidiaries as conducted on
the date of this Agreement; (iii) all Parent Patents; (iv) all registrations of
and applications to register any Parent Copyrights; (v) all Parent Software; and
(vi) all Parent License Agreements, other than off-the-shelf Parent Software
licenses.
(c) Except as set forth in Schedule 2.16(c) of the Parent Disclosure
Schedule, either Parent or one of its Subsidiaries is the sole and exclusive
owner of Parent Intellectual Property items set forth in Schedule 2.16(b) of the
Parent Disclosure Schedule and Parent or one of its Subsidiaries, as
applicable, is listed in the records of the appropriate Governmental Entity as
the sole owner of record. Except as set forth in Schedule 2.16(c) of the Parent
Disclosure Schedule, there is no lien, security interest, charge or encumbrance
of any kind on the right of Parent or any of its Subsidiaries to transfer any of
Parent Intellectual Property. Except as otherwise indicated in Schedule 2.16(b)
of the Parent Disclosure Schedule, (i) all issued patents set forth thereon are
valid and enforceable and (ii) (A) as of the date of this Agreement, no such
trademark registrations, trademark applications, issued patents or patent
applications set forth in Schedule 2.16(b) of the Parent Disclosure Schedule are
subject to any pending proceedings, including opposition, cancellation,
interference or similar adversarial proceeding by or before any Governmental
Entity and no such proceedings are threatened and (B) at the Effective Time, no
such trademark registrations, trademark applications, issued patents or patent
applications set forth in Schedule 2.16(b) of the Parent Disclosure Schedule are
subject to any pending proceedings, including opposition, cancellation,
interference or similar adversarial proceeding by or before any Governmental
Entity and no such proceedings are
27
<PAGE>
threatened, other than such proceedings that would not, individually or in the
aggregate, have a Material Adverse Effect on Parent.
(d) There are no royalties, honoraria, fees or other payments payable by
Parent or any of its Subsidiaries in respect of the use or the right to use any
Parent Intellectual Property to any Person or Governmental Entity (excluding
Taxes, governmental or attorneys' fees required in the normal course of
obtaining patent, trademark or copyright rights and excluding governmental
maintenance fees), except as set forth in the Parent License Agreements listed
in Schedule 2.16(b) of the Parent Disclosure Schedule and pursuant to off-the-
shelf Parent Software licenses. The Parent License Agreements set forth in
Schedule 2.16(b) of the Parent Disclosure Schedule are valid and binding
obligations of the parties thereto, enforceable in accordance with their terms,
except as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect that affect the
enforcement of creditors rights generally or general principals of equity,
whether considered in a proceeding at law or in equity, and there exists no
event or condition which will result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default by Parent or any
of its Subsidiaries (or, to the Knowledge of Parent or any of its Subsidiaries,
any other party thereto) under any Parent License Agreement, except where such
violations, breaches or defaults would not, individually or in the aggregate,
have a Material Adverse Effect on Parent.
(e) Except as disclosed in Schedule 2.16(e) of the Parent Disclosure
Schedule or as would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, (i) none of the use by Parent or any of its
Subsidiaries of any Parent Intellectual Property, the exercise of rights
relating to Parent Patents, Parent Trademarks and Parent Copyrights contained
within Parent Intellectual Property or the conduct of the business of Parent or
any of its Subsidiaries infringes or otherwise violates any intellectual
property rights (either directly or indirectly, such as through contributory
infringement or inducement to infringe) of any third party and (ii) no such
claims have been asserted or, to the Knowledge of Parent, threatened against
Parent or any of its Subsidiaries which have not been resolved. Except as
disclosed in Schedule 2.16(e) of Parent Disclosure Schedule, (A) as of the date
of this Agreement, (i) to the Knowledge of Parent, no third party is infringing
or otherwise violating any Parent Intellectual Property rights of Parent or
any of its Subsidiaries and (ii) no such claims are pending or threatened by
Parent or any of its Subsidiaries against any third party and (B) at the
Effective Time, (i) to the Knowledge of Parent, no third party is infringing or
otherwise violating any Parent Intellectual Property rights of Parent that are
material to the business of Parent as conducted or proposed to be conducted on
the date of this Agreement and (ii) no such claims are pending or
28
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threatened by Parent against any third party, which involve any Parent
Intellectual Property that is material to the business of Parent as conducted or
proposed to be conducted on the date of this Agreement.
(f) Except as disclosed in Schedule 2.16(f) of the Parent Disclosure
Schedule, (i) as of the date of this Agreement, there are no suits or any other
proceedings pending or, to the Knowledge of Parent, threatened before any
Governmental Entity to which Parent or any of its Subsidiaries is a party
challenging (A) Parent's or such Subsidiary's rights to own or use any Parent
Intellectual Property or (B) the validity, enforceability or scope of the Parent
Intellectual Property and (ii) at the Effective Time, there are no such suits to
which Parent or any of its Subsidiaries is a party challenging (A) Parent's or
such Subsidiary's rights to own or use any Parent Intellectual Property that
is material to the business of the Company as conducted or proposed to be
conducted on the date of this Agreement or (B) the validity, enforceability or
scope of the Parent Intellectual Property that is material to the business of
the Company as conducted or proposed to be conducted on the date of this
Agreement. There are no settlement agreements, consents, judgments, orders,
forebearances to sue or similar obligations which materially restrict any rights
of Parent or any of its Subsidiaries to (i) make, use, sell, offer for sale,
import or license under any Parent Intellectual Property or (ii) conduct its
business in order to accommodate a third party's intellectual property rights.
(g) Parent and each of its Subsidiaries employ reasonable measures to
protect the confidentiality of the Parent Technology. Parent and each of its
Subsidiaries require employees with access to the Parent Technology to execute
a nondisclosure agreement substantially in accordance with the form(s)
previously provided by Parent to the Company. Except as set forth in Schedule
2.16(g) of the Parent Disclosure Schedule, none of the current or former
employees, officers or directors of Parent or any of its Subsidiaries (i) is
suspected to be in violation of any such agreement or (ii) is suspected of
having disclosed any Parent Technology to any third party except subject to an
appropriate confidentiality agreement or as required by a Governmental Entity.
(h) Except as set forth in Schedule 2.16(h) of the Parent Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not result in the loss or impairment of any rights of Parent or any of its
Subsidiaries to own, use or license any Parent Intellectual Property, except
where such losses or impairments would not, individually or in the aggregate,
have a Material Adverse Effect on Parent.
29
<PAGE>
(i) Except as set forth in Schedule 2.16(i) of the Parent Disclosure
Schedule, since December 1, 1997, none of Parent or any of its Subsidiaries has
disposed of or permitted to lapse any rights to the use of any Parent
Intellectual Property, or disposed of or disclosed to any Person other than
representatives of the Company any Parent trade secret, formula, process or
know-how not theretofore a matter of public knowledge other than in the ordinary
course of business or pursuant to secrecy agreement.
Section 2.17 Ownership of Shares. As of the date of this Agreement, none
-------------------
of Parent, any Person deemed acting in concert with Parent or any of its
Subsidiaries or any of Parent's Subsidiaries owns any shares of Company Common
Stock.
Section 2.18 Operations of Sub. Sub is a direct, wholly-owned subsidiary
-----------------
of Parent, was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
Section 2.19 Brokers. No broker, investment banker or other Person
-------
(other than (a) Goldman, Sachs & Co. and Salomon Smith Barney, the fees and
expenses of which have been previously disclosed to the Company and will be paid
by Parent and (b) Kelso & Co. (or an Affiliate thereof) to whom a fee (in an
amount previously disclosed to the Company) will be paid in connection with the
transactions contemplated by this Agreement), is entitled to any broker's,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent.
Section 2.20 State Takeover Statutes. Assuming the accuracy of the
-----------------------
Company's representations and warranties contained in Section 3.19 hereof (Owner
ship of Shares), as of the date of this Agreement, no state takeover statutes or
other state statutes, including, without limitation, any business combination
act, with respect to Parent or Sub are applicable to the Merger or the
Transaction Agreements.
Section 2.21 Year 2000. With respect to year 2000, Parent and Sub
---------
represent and warrant that the statement contained in Exhibit D-1 hereto is true
and accurate.
30
<PAGE>
Section 2.22 Accuracy of Information Furnished. No representation or
---------------------------------
warranty of Parent and Sub contained in this Agreement (taken together with the
other Transaction Agreements and the exhibits, schedules, certificates and lists
attached hereto or specifically referred to herein or delivered by or on behalf
of Parent or Sub pursuant to this Agreement) contains or will contain, in light
of the circumstances in which they were made, any untrue statement of a material
fact, or omits or will omit to state any material fact that is necessary to make
the statement contained herein or therein not misleading.
Section 2.23 Required Vote of Parent and Sub Stockholders. Under
--------------------------------------------
applicable Delaware law and the Parent Charter and Parent By-laws and the
certificate of incorporation and by-laws of Sub, respectively, the affirmative
vote of the holder(s) of (A) not less than a majority of the outstanding shares
of Parent Common Stock and (B) not less than a majority of the outstanding
shares of common stock of Sub is in each case required to approve the Merger.
Such votes have been obtained as of the date of this Agreement. No other vote
of the stockholders of Parent or of Sub is required by law, the Parent Charter,
the Parent By-laws or the certificate of incorporation or by-laws of Sub or
otherwise for Parent and Sub to consummate the Merger and the transactions
contemplated hereby.
Section 2.24 Interests in Other Entities. As of the date of this
---------------------------
Agreement, none of Parent or its Subsidiaries, directly or indirectly, own or
have the right to acquire any equity interest in any other corporation,
partnership, joint venture or other business organization (other than any such
equity interest that is 1% or less of the equity interest of such a public
corporation). None of Parent or its Subsidiaries has made any material
investment in or advance of cash or other extension of credit to any Person, or
has any material commitment or obligation to do so.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 Organization, Standing and Power. The Company is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted and to enter into and perform this
Agreement and the other Transaction Agreements and the transactions contemplated
hereby and thereby. The Company is duly qualified to do business, and is in
good standing, in
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each jurisdiction where the character of its properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. The Company has
heretofore delivered to Parent complete and correct copies of the Company's
Certificate of Incorporation ("Company Charter") and by-laws
---------------
("Company By-Laws"), as in effect on the date of this Agreement.
---------------
Section 3.2 Capital Structure; Subsidiaries.
-------------------------------
(a) The authorized capital stock of the Company consists of 50,000,000
shares of Company Common Stock, par value $.0l per share, and 10,000,000 shares
of Company preferred stock, par value $.01 per share (the "Company Preferred
-----------------
Stock"). At the close of business on November 22, 1999, (i) 17,403,895 shares
- -----
of Company Common Stock were issued and outstanding, all of which were validly
issued, fully paid and nonassessable and free of preemptive rights, (ii) no
shares of Company Common Stock were held in the treasury of the Company, (iii)
not more than 23,240 and 1,146,100 shares of Company Common Stock were reserved
for future issuance pursuant to the Company's 1994 Stock Option Plan and the
Company's 1996 Stock Option Plan, respectively, (v) 283,000 shares of Company
Common Stock were reserved for issuance pursuant to the 1996 Non-Employee
Director Stock Option Plan (collectively with the Company's 1994 Stock Option
Plan and the Company's 1996 Stock Option Plan, the "Company Stock Plans") and
-------------------
(vi) no shares of Company Preferred Stock were issued and outstanding. As of
the date of this Agreement, except for (a) stock options covering not in excess
of 767,315 shares of Company Common Stock issued under the Company Stock Plans
(collectively, the "Company Stock Options") and (b) warrants exercisable into
---------------------
479,661 shares of Company Common Stock, there are no options, warrants, calls,
rights or agreements to which the Company is a party or by which any of them is
bound obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of the Company or
securities convertible into or exchangeable for such capital stock, or
obligating the Company to grant, extend or enter into any such option, warrant,
call, right or agreement. Except as disclosed in the Company SEC Documents (as
hereinafter defined) filed prior to the date of this Agreement, since November
15, 1999, the Company has not issued any shares of its capital stock, or
securities convertible into or exchangeable for such capital stock, other than
shares issued in the ordinary course pursuant to the Company Stock Plans.
Except as disclosed in the Company SEC Documents filed prior to the date of this
Agreement or as set forth in Schedule 3.2 of the disclosure letter delivered by
the Company to Parent at or prior to the execution of this Agreement (the
"Company Disclosure Schedule"), there are no outstanding contractual obligations
---------------------------
of the Company (i)
32
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restricting the transfer of, (ii) affecting the voting rights of, (iii)
requiring the repurchase, redemption or disposition of, (iv) requiring the
registration for sale of or (v) granting any preemptive or antidilutive right
with respect to, any shares of Company Common Stock. The execution and delivery
of the Transaction Documents do not, and the consummation of the transactions
contemplated hereby and thereby and the compliance with the provisions hereof
and thereof will not, give rise to any preemptive right or antidilutive right of
any Person with respect to any shares of the Company Common Stock.
(b) The Company has no Subsidiaries.
Section 3.3 Authority. The Board of Directors of the Company has on or
---------
prior to the date of this Agreement (a) declared the Merger advisable and in the
best interest of the Company and its stockholders and approved this Agreement in
accordance with applicable law, (b) resolved to recommend the approval of this
Agreement by the Company's stockholders and (c) directed that this Agreement be
submitted to the Company's stockholders for approval. The Company has all
requisite corporate power and authority to enter into the Transaction Agreements
to which it is a party and, subject to approval by the stockholders of the
Company of this Agreement (which approval, for all purposes in this Agreement,
shall be deemed to include any necessary approval of amendments to the Company's
Stock Plans) (collectively, the "Company Stockholder Approval"), to consummate
----------------------------
the transactions contemplated hereby and thereby. The execution and delivery of
the Transaction Agreements to which it is a party by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the
Company, subject to (x) Company Stockholder Approval and (y) the filing of the
Certificate of Merger pursuant to the DGCL. The Transaction Agreements to which
it is a party have been duly executed and delivered by the Company and (assuming
the valid authorization, execution and delivery thereof by the other parties
thereto) each such Transaction Agreement constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with
their terms, except as the enforceability thereof may be limited by (1)
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in
effect that affect the enforcement of creditors rights generally or (2) general
principals of equity, whether considered in a proceeding at law or in equity.
Prior to the filing thereof, the filing of the Proxy Statement with the SEC and
the taking of all actions in connection therewith will have been duly authorized
by the Company's Board of Directors.
Section 3.4 Consents and Approvals; No Violation. Assuming all consents,
------------------------------------
approvals, authorizations and other actions described in the second
33
<PAGE>
sentence of this Section 3.4 have been obtained and all filings and obligations
described in the second sentence of this Section 3.4 have been made and except
as set forth in Schedule 3.4 of the Company Disclosure Schedule, the execution
and delivery of the Transaction Agreements do not, and the consummation of the
transactions contemplated hereby and thereby and compliance with the
provisions hereof and thereof will not, conflict with, result in any violation
of, or breach or default (with or without due notice or lapse of time, or both)
under, or give to others a right of termination, cancellation or acceleration of
any obligation or the loss of any benefit under, or result in the creation of
any lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under, any provision of (a) the Company Charter or Company
By-Laws, (b) any loan or credit agreement, note, bond, mort gage, lease,
indenture or other contract, agreement, instrument, permit, concession,
franchise or license applicable to the Company, (c) any license, permit or other
instrument, contract or agreement granted by, or entered into with, the FDA or
the DEA or (d) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or any of its properties or assets, other
than, in the case of clauses (b), (c) or (d), any such conflicts, violations,
breaches, defaults, rights, liens, security interests, charges or encumbrances
that, individually or in the aggregate, would not have a Material Adverse Effect
on the Company, or prevent or materially delay the consummation of any of the
transactions contemplated hereby or thereby. No filing, notification or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to the Company in connection with the
execution, delivery and performance of the Transaction Agreements by the Company
or is necessary for the consummation of the Merger and the other transactions
contemplated by the Transaction Agreements, except for (i) in connection, or in
compliance, with the provisions of the HSR Act, the Securities Act and the
Exchange Act, (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and the filing of appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business, each of which is set forth in Schedule 3.4 of the Company Disclosure
Schedule, (iii) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or by the
transactions contemplated by the Transaction Agreements, each of which is set
forth in Schedule 3.4 of the Company Disclosure Schedule, (iv) such filings,
authorizations, orders and approvals as may be required to obtain the State
Takeover Approvals, each of which is set forth in Schedule 3.4 of the Company
Disclosure Schedule, (v) applicable requirements, if any, of "blue sky" laws and
the NASDAQ Composite Index and (vi) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse Effect
on the Company or
34
<PAGE>
prevent or materially delay the consummation of any of the transactions
contemplated hereby or thereby or by any other Transaction Agreement. The
execution and delivery of the Transaction Agreements do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, conflict with, result in any
violation of, or breach or default (with or without due notice or lapse of time,
or both) under, or give to others a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company under, any of the license
agreements to which it is a party, except for such conflicts, violations,
breaches, defaults, rights or liens as would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. All license agreements
of the Company are listed in Schedule 3.4 of the Company Disclosure Schedule.
Section 3.5 SEC Documents and Other Reports. The Company has filed with
-------------------------------
the SEC all documents required by the Exchange Act to be filed by the Company
since September 25, 1996 (the "Company SEC Documents"). As of their respective
---------------------
dates, the Company SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and,
at the respective times they were filed, none of the Company SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading
(except, to the extent that any Company SEC Documents were subsequently amended
or modified by a filing prior to the date of this Agreement, such representation
is given only with respect to such Company SEC Document as so amended or
modified as of the date of such amendment or modification). The financial
statements (including, in each case, any notes thereto) of the Company included
in the Company SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with GAAP (except, in
the case of the unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly present in all material
respects in accordance with GAAP the financial position of the Company as at the
respective dates thereof and the consolidated results of their operations and
their consolidated cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein). Except as disclosed in the Company SEC
Documents or as required by GAAP, the Company has not, since December 31, 1998,
made any change in the accounting practices or policies applied in the
preparation of its financial statements. The books and records of the Company
have
35
<PAGE>
been, and are being, maintained in accordance with GAAP and other applicable
legal and accounting requirements.
Section 3.6 Registration Statement and Proxy Statement. None of the
------------------------------------------
information to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement or the Proxy Statement will (i) in the
case of the Registration Statement, at the time it becomes effective, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading or include any statement that is materially different
from the representations and warranties of the Company contained in this
Agreement or the other Transaction Agreements or that discloses a liability,
condition or event that would constitute a Material Adverse Effect on the
Company, which liability, condition or event is not otherwise disclosed in the
representations and warranties of the Company contained in this Agreement or in
the Company Disclosure Schedule or (ii) in the case of the Proxy Statement, at
the time of the mailing of the Proxy Statement, the time of the Stockholder
Meeting and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading or include any statement that is
materially different from the representations and warranties of the Company
contained in this Agreement or the other Transaction Agreements or that
discloses a liability, condition or event that would constitute a Material
Adverse Effect on the Company, which liability, condition or event is not
otherwise disclosed in the representations and warranties of the Company
contained in this Agreement or in the Company Disclosure Schedule. If, at any
time prior to the Effective Time, any event with respect to the Company, its
officers or directors shall occur which is required to be described in the Proxy
Statement or the Registration Statement, such event shall be so described, and
an appropriate amendment or supplement shall be promptly filed with the SEC and,
as required by law, disseminated to the stockholders of the Company. The Proxy
Statement will comply (excluding any matters relating to Parent and Sub, as to
which the Company makes no representations) as to form in all material respects
with the provisions of the Exchange Act.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed
------------------------------------
in the Company SEC Documents filed with the SEC prior to the date of this
Agreement or in Schedule 3.7 of the Company Disclosure Schedule, since December
31, 1998, (A) the Company has not incurred any liability or obligation
(indirect, direct or contingent), or entered into any oral or written agreement
or other transaction, that is not in the ordinary course of business or that
would, individually or in the aggregate, result in a Material Adverse Effect on
the Company, except for any such changes or
36
<PAGE>
effects resulting from this Agreement, the transactions contemplated hereby or
the announcement thereof; (B) the Company has not sustained any loss or
interference with their business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that would,
individually or in the aggregate, have a Material Adverse Effect on the Company;
(C) there has been no action taken by the Company, that, if taken during the
period from the date of this Agreement through the Effective Time, would
constitute a material breach of Section 4.1(b) hereof; and (D) there has been no
event, circumstance or development that would have a Material Adverse Effect on
the Company.
Section 3.8 Permits and Compliance.
----------------------
(a) The Company is in possession of all Permits necessary for it to own,
lease and operate its properties or to carry on its business as it is now being
conducted (the "Company Permits"), except where the failure to have any of the
---------------
Company Permits would not, individually or in the aggregate, have a Material
Adverse Effect on the Company, and, as of the date of this Agreement, no
suspension or cancellation of any of the Company Permits is pending or, to the
Knowledge of the Company (as hereinafter defined), threatened, except where the
suspension or cancellation of any of the Company Permits would not, individually
or in the aggregate, have a Material Adverse Effect on the Company; provided
--------
that no representation is being made by the Company in this sentence with
- ----
respect to any IND or NDA of the Company filed with the FDA (which are the
subject of Section 3.13 hereof). The Company is not in violation of (A) the
Company Charter or the Company By-Laws, (B) any applicable law, ordinance,
administrative or governmental rule or regulation or (C) any order, decree or
judgment of any Governmental Entity having jurisdiction over the Company,
except, in the case of clauses (B) and (C), for any violations that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
(b) Except as disclosed in the Company SEC Documents filed prior to the
date of this Agreement or in Schedule 3.8(a) of the Company Disclosure Schedule,
as of the date of this Agreement, there is no contract or agreement that is
material to the business, financial condition or results of operations of the
Company. Except as set forth in the Company SEC Documents filed prior to the
date of this Agreement or in Schedule 3.8(b) of the Company Disclosure Schedule,
the execution and delivery of the Transaction Agreements do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, conflict with, result in any
violation of, or breach or default (with or without due notice or lapse of time,
or both) under, or give to others a right of termination, cancellation or
acceleration of any obligation or the loss of any benefit
37
<PAGE>
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company under, any
indenture, mortgage, loan agreement, note or other agreement or instrument for
borrowed money, any guarantee of any agreement or instrument for borrowed money
or any lease, contractual license or other contract, agreement or instrument to
which the Company is a party or by which the Company is bound or to which any of
the properties, assets or operations of the Company is subject, other than such
conflicts, violations, breaches, defaults, rights or liens as would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
As used in this Agreement "Knowledge of the Company" means the actual knowledge
------------------------
of any of the Chief Executive Officer, the Chief Financial Officer, the General
Counsel of the Company or Executive Vice President, Research and Development.
Section 3.9 Tax Matters.
-----------
Except as set forth in Schedule 3.9 of the Company Disclosure Schedule:
(a) All federal, state, local and foreign Tax Returns required to be filed
(taking into account extensions) by or on behalf of the Company (i) have been
timely filed, except for such Tax Returns that the failure by the Company to
timely file would not, individually or in the aggregate, have a Material Adverse
Effect on the Company, and (ii) are true, complete and correct in all material
respects.
(b) All Taxes payable by or with respect to the Company have been timely
paid, or adequately reserved for (in accordance with GAAP) in the most recent
financial statements contained in the Company SEC Documents, except for Taxes
that the failure of which to pay would not, individually or in the aggregate,
have a Material Adverse Effect on the Company.
(c) No deficiencies for any Taxes have been proposed, asserted or assessed
either orally or in writing against the Company that are not adequately reserved
for (in accordance with GAAP) in the most recent financial statements contained
in the Company SEC Documents, except for such deficiencies as would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
All assessments for Taxes due and owing by or with respect to the Company with
respect to completed and settled examinations or concluded Litigation have been
paid.
(d) No examinations have been completed or are presently being conducted
with respect to the Company's federal or material state income Tax Returns.
38
<PAGE>
(e) The Company has complied with all rules and Treasury regulations
relating to the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar
provisions under any foreign Laws) and have, within the time and in the manner
required by law, withheld from employee wages and paid over to the proper Govern
mental Entities all amounts required to be so withheld and paid over under all
Applicable Laws, except where the failure to be in such compliance or to
withhold and pay over such amounts would not, individually or in the aggregate,
have a Material Adverse Effect on the Company.
(f) The Company (i) has not waived any statutory period of limitations in
respect of its or their Taxes or Tax Returns or (ii) is not a party to, not
bound by, or has no obligation under any agreement, contract or arrangement for
the sharing, allocation, or indemnification of Taxes (other than indemnification
agreements where Taxes incidental to the primary obligation so indemnified are
also indemnified).
(g) The net operating losses ("NOLs") of the Company are not, as of the
----
date hereof, subject to Section 382 or 269 of the Code, Treasury regulation
Section 1.1502-21T(c), or any similar provisions or Treasury regulations
otherwise limiting the use of the NOLs of the Company.
(h) No property of the Company is "tax-exempt use property" (as such term
is defined in Section 168 of the Code).
(i) The Company has not filed a consent pursuant to Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of
a "Subsection (f) asset" (as such term is defined in Section 341(f)(4) of the
Code) owned by the Company.
(j) The Company is not, and has not been for the five years preceding the
Closing, a "United States real property holding company" (as such term is
defined in Section 897(c)(2) of the Code).
(k) The Company has no reason to believe that any condition exists nor has
the Company taken any action or failed to take any action that could reasonably
be expected to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
39
<PAGE>
Section 3.10 Actions and Proceedings. Except as set forth in the Company
-----------------------
SEC Documents filed prior to the date of this Agreement or in Schedule 3.10 of
the Company Disclosure Schedule, there are no outstanding orders, judgments,
injunctions, awards or decrees of any Governmental Entity against or involving
the Company, against or involving any of the present directors or officers of
the Company, as such, or involving any of its or their properties, assets or
business that, individually or in the aggregate, would have a Material Adverse
Effect on the Company. Except as set forth in the Company SEC Documents filed
prior to the date of this Agreement or in Schedule 3.10 of the Company
Disclosure Schedule, as of the date of this Agreement, there are no actions,
suits or claims or legal, administrative or arbitrative proceedings or
investigations pending or, to the Knowledge of the Company, threatened against
or involving the Company against or involving any of the present directors or
officers of the Company as such, or involving any of its or their properties,
assets or business before any court or arbitration tribunal or before any
Governmental Entity that, individually or in the aggregate, would have a
Material Adverse Effect on the Company. As of the date of this Agreement,
there are no actions, suits, labor disputes or other litigation, legal or
administrative proceedings or governmental investigations pending, or, to the
Knowledge of the Company, threatened against or affecting the Company or any of
its present directors or officers, as such, or any of its or their properties,
assets or business before any court or arbitration tribunal or before any
Governmental Entity relating to the transactions contemplated by the
Transaction Agreements.
Section 3.11 Certain Agreements. Schedule 3.11 of the Company Disclosure
------------------
Schedule sets forth each material oral or written stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan to which
the Company is a party. Except as set forth in Schedule 3.11 of the Company
Disclosure Schedule, as of the date of this Agreement, the Company is not a
party to any oral or written agreement or plan, including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement. No holder of any option to purchase shares of Company Common Stock,
or shares of Company Common Stock granted in connection with the performance
of services for the Company, is or will be entitled to receive cash from the
Company in lieu of or in exchange for such option or shares as a result of the
transactions contemplated by this Agreement (other than in lieu of fractional
shares). The Company is not a party to any termination benefits agreement or
severance agreement or employment agreement which would be triggered by the
40
<PAGE>
consummation of the transactions contemplated by this Agreement, except as set
forth in Schedule 3.11 of the Company Disclosure Schedule.
Section 3.12 ERISA.
-----
(a) Schedule 3.12(a) of the Company Disclosure Schedule lists each
Company Plan (as hereinafter defined). With respect to each material Company
Plan, the Company has made (or as soon as practicable will make) available to
Parent a true and correct copy of (i) the three most recent annual reports (Form
5500) filed with the IRS, (ii) such Company Plan and any amendments thereto,
(iii) each trust agreement, insurance contract or administration agreement
relating to such Company Plan and the latest financial statements thereof, (iv)
the most recent summary plan description of each Company Plan for which a
summary plan description is required, (v) the most recent actuarial report or
valuation relating to a Company Plan subject to Title IV of ERISA, (vi) the most
recent determination letter, if any, issued by the IRS with respect to any
Company Plan intended to be qualified under Section 401(a) of the Code and (vii)
any written description that exists as of the date of this Agreement of any
unwritten Company Plan. Except as would not, individually or in the aggregate,
have a Material Adverse Effect on the Company, (i) each Company Plan complies
with all applicable statutes and governmental rules and regulations, including
but not limited to ERISA, the Code and COBRA, (ii) no "reportable event" (within
the meaning of Section 4043 of ERISA) has occurred with respect to any Company
Plan for which the 30-day notice requirement has not been waived, (iii) the
Company is not or has not been obligated to contribute or otherwise may not have
any liability with respect to any Company Multiemployer Plan (as hereinafter
defined), (iv) no action has been taken, or is currently being considered, to
terminate any Company Plan subject to Title IV of ERISA, (v) the Company has
complied with the continued medical coverage requirements of COBRA, (vi) no
Company Plan has engaged in a "prohibited transaction" (as defined in Section
4975 of the Code and Section 406 of ERISA) and (vii) no liability under Title IV
or Section 302 of ERISA or Section 412 of the Code has been incurred by the
Company that has not been satisfied in full, and no condition exists that
presents a risk to the Company of incurring any such liability. Except as would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company, no Company Plan subject to Title IV of ERISA, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived.
(b) Except as disclosed in Schedule 3.12(b) of the Company Disclosure
Schedule, with respect to any Company Plan which is subject to Title IV of
ERISA, the present value of accrued benefit obligations, as determined in
accordance with FAS 87 in accordance with the actuarial assumptions used to
prepare the most recent
41
<PAGE>
reports of such Company Plan, did not exceed the fair market value of the Plan
assets as of the most recent valuation date for which an actuarial report has
been prepared, and to the Knowledge of the Company, there has not been any
material adverse change to such status. All contributions required to be made
with respect to any Company Plan on or prior to the Closing Date have been made
or are reflected on the most recent balance sheet of the Company.
(c) With respect to the Company Plans, no event has occurred in connection
with which the Company would be subject to any liability under the terms of such
Company Plans, ERISA, the Code or any other applicable law which would have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Except as disclosed in the Company SEC Documents or set forth in Schedule
3.12(c) of the Company Disclosure Schedule, with respect to any current or
former employee, director, officer, consultant or contractor of the Company,
consummation of the transactions contemplated by this Agreement shall not result
in the payment or provision of additional compensation or benefits or accelerate
the vesting, payment or funding of any compensation or benefits. Except as
disclosed in the Company SEC Documents or set forth in Schedule 3.12(c) of the
Company Disclosure Schedule, no amounts payable by reason of this transaction
under the Company Plans will fail to be deductible for federal income tax
purposes by virtue of either Section 280G or Section 162(m) of the Code. Except
as set forth in Schedule 3.12(c) of the Company Disclosure Schedule, Company
Plans that are intended to be qualified under Section 401(a) of the Code have
been determined by the IRS to be so qualified, or a timely application for such
determination is now pending, and to the Knowledge of the Company, there is no
reason why any Company Plan is not so qualified in operation. Except as
disclosed in the Company SEC Documents filed prior to the date of this Agreement
or set forth in Schedule 3.12(c) of the Company Disclosure Schedule or as
required by ERISA, the Company does not have any liability or obligation under
any welfare plan to provide benefits after termination of employment to any
employee or dependent. There are no pending, or to the Knowledge of the
Company, threatened, claims, suits, audits or investigations related to any
Company Plan other than claims for benefits in the ordinary course and other
than claims, suits, audits or investigations that would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. As used herein,
(i) "Company Plan" means each deferred compensation and each bonus or other
------------
incentive compensation, stock purchase, stock option and other equity
compensation or ownership plan, program, agreement or arrangement, each
severance or termination pay, medical, surgical, hospitalization, life insurance
and other "welfare" plan, fund or program (within the meaning of Section 3(1) of
the ERISA); each profit-sharing, stock bonus or other "pension" plan, fund or
program (within the meaning of Section 3(2) of ERISA); each employment,
retention, consulting,
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termination or severance agreement; and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to by the Company, including any
plan subject to Title IV of ERISA maintained within the past five (5) years by
the Company and (ii) "Company Multiemployer Plan" means a "multiemployer plan"
--------------------------
(as defined in Section 4001(a)(3) of ERISA) to which the Company is or has been
obligated to contribute or otherwise may have any liability.
Section 3.13 Compliance with Certain Laws.
----------------------------
(a) Except as disclosed in Schedule 3.13(a) of the Company Disclosure
Schedule, the properties, assets and operations of the Company are in compliance
with all Applicable Laws, except for any violations that individually or in the
aggregate would not have a Material Adverse Effect on the Company. Except as
disclosed in Schedule 3.13(a) of the Company Disclosure Schedule, with respect
to such properties, assets and operations, including any previously owned,
leased or operated properties, assets or operations, there are no past, present
or reasonably anticipated future events, conditions, circumstances, activities,
practices, incidents, actions or plans of the Company that may interfere with or
prevent compliance or continued compliance with all Applicable Laws, other than
interference or prevention that would not individually or in the aggregate with
any other such interference or prevention have a Material Adverse Effect on the
Company. The Company will make available to Parent such certificates and
environmental studies with respect to such properties as the Company has
available on the date of this Agreement.
(b) The Company's manufacturing, distribution, development and marketing
practices are in compliance with all applicable federal and state laws, rules,
regulations, orders, licenses, judgments, writs, injunctions, decrees or
demands, including, without limitation, laws and regulations administered by the
FDA and the DEA, except where the failure to be in such compliance would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
(c) The Company has filed an NDA for MorphiDex(R) with the FDA (the
"MorphiDex(R) Application"), and on August 2, 1999, the Company received
------------------------
notification from the FDA that such application was not approvable. The
MorphiDex(R) Application is the only NDA of the Company on file with the FDA.
Schedule 3.13(c) of the Company Disclosure Schedule sets forth all INDs and
license agreements of the Company.
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(d) The Company has not used the services of any person debarred under
the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. (S)
335(a)(b). Neither the Company nor any of its officers, employees, agents or
affiliates, has been convicted of any crime or engaged in any conduct for which
debarment is mandated by 21 U.S.C. (S) 335a(a) or authorized by 21 U.S.C. (S)
335a(b).
(e) The Company is in compliance with all (i) federal and state laws
applicable to the development, manufacture, processing, packing, testing and
sale of pharmaceutical products to the extent such laws are applicable to it,
(ii) rules and regulations of the FDA and the DEA to the extent such rules and
regulations are applicable to it, and (iii) product applications (including
INDs) in which the Company has sold any product on or after November 1, 1999,
except in each case where the failure to be in such compliance would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
All manufacturing operations conducted by or for the benefit of the Company have
been and are being conducted in substantial compliance with the current Good
Manufacturing Practice regulations set forth in 21 C.F.R. Parts 210 and 211.
(f) As to each drug of the Company for which a product application has
been approved by, or any IND has been filed with, the FDA, which drugs are
described in Schedule 3.13(f) of the Company Disclosure Schedule, the applicant
and all Persons performing operations covered by the application are in
compliance with the requirements of the FDCA and the implementing regulations of
the FDA, respectively, and all terms and conditions of the application, except
where the failure to be in such compliance would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(g) The Company is in material compliance with all applicable
registration and listing requirements set forth in 21 U.S.C. (S) 360 and 21
C.F.R. Part 207. To the extent required, the Company has obtained registrations
from the DEA and is in material compliance with all such registrations and all
applicable regulations promulgated by the DEA.
(h) None of the Company or any of its officers, employees, or agents has
made an untrue statement of material fact or fraudulent statement to the FDA or
the DEA, failed to disclose a material fact required to be disclosed to the FDA
or the DEA, or committed an act, made a statement, or failed to make a statement
that could reasonably be expected to provide a basis for the FDA to invoke its
policy respecting "Fraud, Untrue Statements of Material Facts, Bribery, and
Illegal Gratuities," set forth in 56 Fed. Reg 46191 (September 10, 1991).
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(i) The Company has made available to Parent copies of any and all
notices of inspectional observations (FD 483's), establishment inspection
reports, warning letters and any other documents received from or issued by the
FDA or the DEA within the last three years that indicate or suggest lack of
compliance with the FDA or the DEA regulatory requirements by the Company or
Persons covered by product applications or otherwise performing services for the
benefit of the Company with respect to services or products provided to the
Company.
(j) The Company has not received any written notice that the FDA or the
DEA has commenced or threatened to initiate (i) any action to withdraw its
approval or request the recall of any product of the Company, or (ii) any action
to enjoin (A) production at any facility (including any clinical facility where
testing and/or trials occur) owned or used by the Company or any Person on
behalf of the Company or (B) any facility (including any clinical facility where
testing and/or trials occur) owned or used by the Company or any Person on
behalf of the Company, (iii) the withdrawal of approval of any product
application (including any IND), other than such withdrawals of approval that
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company, or (iv) any material civil penalty, injunction, seizure or criminal
action.
(k) To the Knowledge of the Company, as to each article of drug or
consumer product currently manufactured and/or distributed by the Company, which
products are described in Schedule 3.13(k) of the Company Disclosure Schedule,
or by any Person on behalf of the Company, such article is not adulterated or
misbranded within the meaning of the FDCA, 21 U.S.C. (S)(S) 301 et seq. and not
in violation of 21 U.S.C. (S) 355.
(l) As to each drug referred to in subsection (c) above, the Company and
its officers, employees, agents and affiliates have included or caused to be
included in the application for such drug, where required, the certification
described in 21 U.S.C. (S) 335a(k)(1) and the list described in 21 U.S.C. (S)
335a(k)(2), and such certification and such list was in each case true and
accurate when made and remained true and accurate thereafter.
(m) Except as set forth in Schedule 3.13(m) of the Company Disclosure
Schedule, all pre-clinical trials and clinical trials the Company has conducted
or has had conducted for it by third parties, to the Knowledge of the Company,
complies in all material respects with the requirements of Good Clinical
Practice, Informed Consent, and all requirements relating to protection of human
subjects, found in 21 C.F.R. (S)(S) 50, 54 and 56 and that all nonclinical
laboratory testing complies with the requirements of 21 C.F.R. (S) 58.
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(n) Except as set forth in Schedule 3.13(n) of the Company Disclosure
Schedule, as to each product application submitted to, but not approved by, the
FDA, and not withdrawn by the Company or applicants acting on its behalf as of
the date of this Agreement, the Company has complied in all material respects
with the requirements of the FDCA and implementing FDA regulations and has
provided, or will provide, all additional information and taken, or will take,
all additional action either that has been deemed appropriate by both the
Company and Parent in connection with the application.
(o) The Company exports no FDA regulated products.
Section 3.14 Liabilities. Except as fully reflected or reserved against in
-----------
the balance sheet of the Company as of December 31, 1998 (included in the
Company SEC Documents) or as reflected in the Company SEC Documents filed prior
to the date of this Agreement, or set forth in Schedule 3.14 of the Company
Disclosure Schedule, the Company has no liabilities (including, without
limitation, tax liabilities) absolute or contingent, that would be required to
be reflected on a balance sheet or in notes thereto prepared in accordance with
GAAP, other than liabilities incurred in the ordinary course of business or
that, individually or in the aggregate, would not have a Material Adverse Effect
on the Company.
Section 3.15 Labor Matters. Except as set forth in Schedule 3.15 of the
-------------
Company Disclosure Schedule or in the Company SEC Documents filed prior to the
date of this Agreement, the Company is not a party to any collective bargaining
agreement or labor contract. The Company has not engaged in any unfair labor
practice with respect to any Persons employed by or otherwise performing
services primarily for the Company (the "Company Business Personnel"), and there
--------------------------
is no unfair labor practice complaint or grievance against the Company by the
National Labor Relations Board or any comparable state agency pending or
threatened in writing with respect to the Company Business Personnel, except
where such unfair labor practices, complaints or grievances would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
There is no labor strike, dispute, slowdown or stoppage pending or, to the
Knowledge of the Company, threatened against or affecting the Company which may
interfere with the business activities of the Company, except where such
disputes, strikes or work stoppages would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. The Company is in compliance with
all labor, employment and wage payment-related laws, regulations and rules,
except where the failure to be in such compliance would not, individually or in
the aggregate, have a Material Adverse Effect on Parent.
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Section 3.16 Intellectual Property.
---------------------
(a) Except as set forth in Schedule 3.16(a) of the Company Disclosure
Schedule or as would not, individually or in the aggregate, have a Material
Adverse Effect on the Company, the Company is the owner of or has the valid and
enforceable right to make, use, sell, offer to sell and import all Company
Intellectual Property to the extent used in or necessary for the conduct of the
Company's business, free and clear of all liens, security interests, charges or
encumbrances of any kind and, except for the Company License Agreements set
forth in Schedule 3.16(b) of the Company Disclosure Schedule, free and clear of
all licenses to third parties granting any right to use or practice any rights
under any Company Intellectual Property. As used in this Agreement, the term
"Company Intellectual Property" shall mean: (i) the Company's registered and
-----------------------------
material unregistered trademarks, service marks (including registrations,
recordings and applications in the United States Patent and Trademark Office,
any state of the United States or any other Governmental Entity worldwide),
slogans, trade names, logos and trade dress (collectively, together with the
good will symbolized thereby or associated with each, "Company Trademarks");
------------------
(ii) all of the Company's national (including, but not limited to, the United
States) and multinational statutory invention registrations, patents, patent
registrations and patent applications (including, but not limited to, all
reissues, divisions, continuations, continuations-in-part, extensions and
reexaminations, and all rights therein provided by law, multinational treaties
or conventions) (collectively, "Company Patents"); (iii) all of the Company's
---------------
national and multinational registered and material unregistered copy rights,
including, but not limited to, copyrights in software programs and databases
(collectively, "Company Copyrights"); (iv) the Company's software programs
------------------
documentation and manuals used in connection therewith and databases (together,
"Company Software"); (v) all of the Company's (A) inventions, whether patentable
----------------
or not patentable, whether or not reduced to practice, and not yet made the
subject of a pending patent application or applications, (B) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any patent disclosures, whether or not reduced to practice and not
yet made the subject of a patent application, (C) trade secrets and
confidential, technical information (including ideas, formulas, compositions,
inventions and conceptions of inventions whether patentable or not patentable
and whether or not reduced to practice), (D) technology (including, without
limitation, know-how and show-how), manufacturing and production processes and
techniques, service and repair manuals, research and development information,
drawings, specifications, designs, plans, proposals, technical data and
copyrightable works, whether secret or confidential or not, and all proprietary
or confidential business information, (E) all rights to obtain and rights to
apply for patents, and to register trademarks and copyrights and (F) all records
(including, but
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not limited to, laboratory, research and testing notebooks) in any accessible
format (including, but not limited to, paper records, photographs, audio and
visual tape recordings and computer storage media and other information storage
media) pertaining to patentable or potentially patentable subject matter and all
technical manuals and documentation made or used in connection with any of the
foregoing (collectively, "Company Technology"); and (vi) agreements pursuant to
------------------
which the Company has obtained or granted the right to use any of the foregoing
(collectively, and together with other agreements to which the Company is a
party relating to the development, acquisition, use, sale, offer for sale or
importation of Company Intellectual Property, "Company License Agreements").
--------------------------
(b) Schedule 3.16(b) of the Company Disclosure Schedule sets forth a true,
complete and accurate list of the following Company Intellectual Property items
owned by or under obligation of assignment to the Company: (i) all
registrations of and applications to register Company Trademarks material to the
Company; (ii) all unregistered Company Trademarks which are material to the
Company; (iii) all Company Patents; (iv) all registrations of and applications
to register any Company Copyrights; (v) all Company Software; and (vi) all
Company License Agreements, other than off-the-shelf Company Software licenses.
(c) Except as set forth in Schedule 3.16(b) of the Company Disclosure
Schedule, the Company is the sole and exclusive owner of the Company
Intellectual Property items set forth in Schedule 3.16(b) of the Company
Disclosure Schedule and the Company is listed in the records of the Governmental
Entities set forth in Schedule 3.16(b) of the Company Disclosure Schedule as the
sole owner of record. Except as set forth in Schedule 3.16(c) of the Company
Disclosure Schedule, there is no lien, security interest, charge or encumbrance
of any kind on the right of the Company to transfer to the Surviving Corporation
any of the Company Intellectual Property, as contemplated by this Agreement.
Except as otherwise indicated in Schedule 3.16(b) of the Company Disclosure
Schedule, (i) all issued patents set forth thereon are valid and enforceable and
(ii) (A) as of the date of this Agreement, no such trademark registrations,
trademark applications, issued patents or patent applications set forth in
Schedule 3.16(b) of the Company Disclosure Schedule are subject to any pending
proceedings, including opposition, cancellation, interference or similar
adversarial proceeding by or before any Governmental Entity and no such
proceedings are threatened and (B) at the Effective Time, no such trademark
registrations, trademark applications, issued patents or patent applications
set forth in Schedule 3.16(b) of the Company Disclosure Schedule are subject to
any pending proceedings, including opposition, cancellation, interference or
similar adversarial proceeding by or before any Governmental Entity and no such
proceedings are
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threatened, other than such proceedings that would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(d) There are no royalties, honoraria, fees or other payments payable by
the Company in respect of the use or the right to use any of the Company
Intellectual Property to any Person or Governmental Entity (excluding Taxes,
governmental or attorneys' fees required in the normal course of obtaining
patent, trademark or copyright rights and excluding governmental maintenance
fees), except as set forth in the Company License Agreements listed in Schedule
3.16(b) of the Company Disclosure Schedule and pursuant to off-the-shelf Company
Software licenses. The Company License Agreements set forth in Schedule 3.16(b)
of the Company Disclosure Schedule are valid and binding obligations of the
parties thereto, enforceable in accordance with their terms, except as the
enforceability thereof may be limited by (a) applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws in effect that affect the enforcement
of creditors rights generally or (b) general principals of equity, whether
considered in a proceeding at law or in equity, and there exists no event or
condition which will result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default by the Company (or, to
the Knowledge of the Company, any other party thereto) under any Company License
Agreement, except where such violations, breaches or defaults would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
Except as set forth in Schedule 3.16(d) of the Company Disclosure Schedule, no
consent is required to be obtained in connection with the right of the Company
to transfer any Company License Agreement to Parent or Sub pursuant to the
Merger.
(e) Except as disclosed in Schedule 3.16(e) of the Company Disclosure
Schedule or as would not, individually or in the aggregate, have a Material
Adverse Effect on the Company, (i) none of the use by the Company of any Company
Intellectual Property, the exercise of rights relating to Company Patents,
Company Trademarks and Company Copyrights contained within the Company
Intellectual Property or the conduct of the business of the Company infringes or
otherwise violates any intellectual property rights (either directly or
indirectly, such as through contributory infringement or inducement to infringe)
of any third party and (ii) no such claims have been asserted or, to the
Knowledge of the Company, threatened against the Company which have not been
resolved. Except as disclosed in Schedule 3.16(e) of the Company Disclosure
Schedule, (A) as of the date of this Agreement, (i) to the Knowledge of the
Company, no third party is infringing or otherwise violating any Company
Intellectual Property rights of the Company and (ii) no such claims are pending
or threatened by the Company against any third party and (B) at the Effective
Time, (i) to the Knowledge of the Company, no third party is infringing or
otherwise violating any Company Intellectual Property rights of the Company that
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are material to the business of the Company as conducted or proposed to be
conducted on the date of this Agreement and (ii) no such claims are pending or
threatened by the Company against any third party, which involve any Company
Intellectual Property that is material to the business of the Company as
conducted or proposed to be conducted on the date of this Agreement.
(f) Except as disclosed in Schedule 3.16(f) of the Company Disclosure
Schedule, (i) as of the date of this Agreement, there are no suits or any other
proceedings pending or, to the Knowledge of the Company, threatened before any
Governmental Entity to which the Company is a party challenging (A) the
Company's rights to own or use any Company Intellectual Property or (B) the
validity, enforceability or scope of the Company Intellectual Property and (ii)
at the Effective Time, there are no such suits to which the Company is a party
challenging (A) the Company's rights to own or use any Company Intellectual
Property that is material to the business of the Company as conducted or
proposed to be conducted on the date of this Agreement or (B) the validity,
enforceability or scope of the Company Intellectual Property that is material to
the business of the Company as conducted or proposed to be conducted on the date
of this Agreement. There are no settlement agreements, consents, judgments,
orders, forebearances to sue or similar obligations which materially restrict
any rights of the Company to (i) make, use, sell, offer for sale, import or
license under any Company Intellectual Property or (ii) conduct its business in
order to accommodate a third party's intellectual property rights.
(g) The Company employs reasonable measures to protect the confidentiality
of the Company Technology. The Company requires employees with access to the
Company Technology to execute a nondisclosure agreement substantially in
accordance with the form(s) previously provided by the Company to Parent. Except
as set forth in Schedule 3.16(g) of the Company Disclosure Schedule, none of the
current or former employees, officers or directors of the Company (i) is
suspected to be in violation of any such agreement or (ii) is suspected of
having disclosed any Company Technology to any third party except subject to an
appropriate confidentiality agreement or as required by a Governmental Entity.
(h) Except as set forth in Schedule 3.16(h) of the Company Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not result in the loss or impairment of any rights of the Company to own,
use or license any Company Intellectual Property, except where such losses or
impairments would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
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(i) Except as set forth in Schedule 3.16(i) of the Company Disclosure
Schedule, since September 25, 1996, the Company has not disposed of or permitted
to lapse any rights to the use of any Company Intellectual Property, or disposed
of or disclosed to any Person other than representatives of Parent any Company
trade secret, formula, process or know-how not theretofore a matter of public
knowledge other than in the ordinary course of business or pursuant to secrecy
agreement.
Section 3.17 Opinion of Financial Advisor. The Company has received the
----------------------------
written opinion of Credit Suisse First Boston dated the date hereof, to the
effect that, as of the date hereof, the Merger Consideration is fair to the
Company's stockholders from a financial point of view, a copy of which opinion
will be made available to Parent promptly after the date of this Agreement.
Section 3.18 Required Vote of Company Stockholders. Under applicable
-------------------------------------
Delaware law and the Company Charter and Company By-laws, the affirmative vote
of the holders of not less than a majority of the outstanding shares of Company
Common Stock is required to approve the Merger. No other vote of the
stockholders of the Company is required by law, the Company Charter or Company
By-Laws or otherwise for the Company to consummate the Merger and the
transactions contemplated hereby.
Section 3.19 Ownership of Shares. The Company does not own any Shares of
-------------------
Parent Common Stock.
Section 3.20 Brokers. No broker, investment banker or other Person, other
-------
than Credit Suisse First Boston, the fees and expenses of which will be paid by
the Company (and are reflected in agreements between Credit Suisse First Boston
and the Company, copies of which have been furnished to Parent), is entitled to
any broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
Section 3.21 State Takeover Statutes. Assuming the accuracy of Parent's
-----------------------
representations and warranties contained in Section 2.17 hereof (Ownership of
Shares), the Board of Directors of the Company has taken all action so that,
prior to the execution hereof, the Board of Directors has approved both pursuant
to Section 203 of the DGCL and Article VIII of the Company Charter (a) the
Merger, this Agreement and each Stockholder Voting Agreement and the
transactions contemplated hereby and thereby prior to the execution hereof and
thereof, (b) a fee (in an amount previously disclosed to the Company) paid to
Kelso & Co. (or an Affiliate thereof) in connection with the transactions
contemplated by this
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Agreement and (c) the possible purchase by an Affiliate of Parent (other than
Parent and so long as such purchase would not be treated for U.S. federal income
tax purposes as a purchase, in whole or in part, by a Person who is related to
Parent within the meaning of Treasury Regulation Section 1.368-1(e)(3)) of
shares of Company Common Stock from John W. Lyle and Frank S. Caruso pursuant to
that certain side letter dated of even date herewith between each of such
executives and Parent. Prior to the execution of this Agreement, the Company has
delivered to Parent a true and accurate copy of the resolutions of the Board of
Directors of the Company approving such transactions. As of the date of this
Agreement, no other state takeover statutes, including without limitation, any
business combination act or supermajority Company Charter provisions are
applicable to the Merger or the Transaction Agreements.
Section 3.22 Year 2000. With respect to year 2000, the Company
---------
represents and warrants that the statement contained in Exhibit D-2 hereto is
true and accurate.
Section 3.23 Interests in Other Entities. Except as set forth in
---------------------------
Schedule 3.23 of the Company Disclosure Schedule, the Company does not, directly
or indirectly, own or have the right to acquire any equity interest in any other
corporation, partnership, joint venture or other business organization (other
than any such equity interest that is 1% or less of the equity interest such
public corporation). The Company has not made any investment in or advance of
cash or other extension of credit to any Person, or has any commitment or
obligation to do so.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger.
--------------------------------------
(a) Actions by Parent. Notwithstanding anything herein to the contrary,
-----------------
(1) prior to the Effective Time, the Parent Recapitalization shall occur and (2)
contemporaneously with the Closing, Parent shall duly adopt and declare
advisable the Charter Amendment. During the period from the date of this
Agreement through the Effective Time, Parent shall, and shall cause each of its
Subsidiaries to, in all material respects carry on its business in the ordinary
course as currently conducted and, to the extent consistent therewith, use
reasonable best efforts to preserve intact its current business organizations,
keep available the services of its current officers and employees and preserve
its relationships with customers, suppliers and others
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having business dealings with it. Without limiting the generality of the
foregoing, and except as otherwise contemplated by this Agreement (including the
Parent Recapitalization as consummated in accordance with the terms set forth on
Exhibit A-2 hereto), from the date of this Agreement to the Effective Time,
Parent, shall not, and shall not permit any of its Subsidiaries to, without the
prior written consent of the Company:
(i) (w) declare, set aside or pay any dividends on, or make any
other actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such (other than dividends and other distributions by Subsidiaries),
(x) other than in the case of any Subsidiary, split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock,
(y) other than pursuant to any existing stockholders agreement (copies of which
have been previously provided to the Company), purchase, redeem or otherwise
acquire any shares of capital stock of Parent or any other securities thereof or
the capital stock of any Subsidiary or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities or
(z) institute or amend any share repurchase program;
(ii) issue, deliver, sell, pledge, dispose of, grant, transfer or
otherwise encumber any shares of its capital stock, any other voting securities
or equity equivalent or any securities convertible or exchangeable into, or
exercisable for, or any rights, warrants or options to acquire any such shares,
voting securities, equity equivalent or convertible securities, other than (A)
subject to Section 4.3 hereof, the issuance of stock options and shares of
Parent Common Stock to employees of Parent or any of its Subsidiaries under the
Parent Incentive Plans and in the ordinary course of business consistent with
past practice between the date hereof and the Effective Date, (B) the issuance
by any wholly-owned Subsidiary of Parent of its capital stock to Parent or
another wholly-owned Subsidiary of Parent and (C) as set forth in Schedule
4.1(a)(ii) of the Parent Disclosure Schedule;
(iii) amend its charter or by-laws;
(iv) except for inventory, merchandise, finished goods and accounts
receivable acquired in the ordinary course of business, acquire or agree to
acquire by merging or consolidating with, or by purchasing a portion of the
assets of or equity in, or by making an investment in or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets, other than acquisitions of
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assets in the ordinary course of business consistent with past practice in an
amount not to exceed $20 million;
(v) sell, lease or otherwise dispose of, or agree to sell, lease
or otherwise dispose of, any of its rights or other assets, other than (A) sales
of inventory, merchandise and finished goods in the ordinary course of business
and (B) transactions that are in the ordinary course of business consistent with
past practice and that, individually or in the aggregate, are not material to
Parent and its Subsidiaries taken as a whole;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to, or other
investments in, any other Person, other than (A) indebtedness incurred in the
ordinary course of business consistent with past practice in an amount not to
exceed $20 million, (B) indebtedness, loans, advances, capital contributions and
investments between Parent and any of its wholly-owned Subsidiaries or between
any of such wholly-owned Subsidiaries, (C) such indebtedness as may be necessary
to fund actions allowed under Section 4.1(a)(iv) hereof and (D) in connection
with a refinancing of the Credit Agreement, dated as of August 26, 1997 (the
"Credit Agreement"), among Endo Pharmaceuticals Inc., the lenders party thereto
----------------
and The Chase Manhattan Bank (provided that such indebtedness incurred in
-------- ----
connection with such a refinancing does not exceed indebtedness allowed under
the Credit Agreement);
(vii) knowingly violate or knowingly fail to perform any material
obligation or duty imposed upon it or any Subsidiary by any applicable federal,
state or local law, rule, regulation, guideline or ordinance;
(viii) take any action, other than reasonable and usual actions in
the ordinary course of business consistent with past practice, with respect to
accounting policies or procedures and other than actions required to be taken by
GAAP; or
(ix) enter into any contract, agreement, commitment or arrangement
to take any action prohibited by this Section 4.1(a).
(b) Actions by the Company. During the period from the date of this
----------------------
Agreement through the Effective Time, the Company shall, in all material
respects, carry on its business in the ordinary course as currently conducted
and, to the extent consistent therewith, use reasonable best efforts to preserve
intact its current business organizations, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business
54
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dealings with it. Without limiting the generality of the foregoing, and except
as otherwise expressly contemplated by this Agreement, from the date of this
Agreement to the Effective Time, the Company shall not, without the prior
written consent of Parent:
(i) (w) declare, set aside or pay any dividends on, or make any
other actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such, (x) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, (y) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any other
securities thereof or any rights, warrants or options to acquire any such shares
or other securities or (z) institute or amend any share repurchase program;
(ii) issue, deliver, sell, pledge, dispose of, grant, transfer or
otherwise encumber any shares of its capital stock, any other voting securities
or equity equivalent or any securities convertible or exchangeable into, or
exercisable for, or any rights, warrants or options to acquire any such shares,
voting securities, equity equivalent or convertible securities, other than the
issuance of shares of Company Common Stock upon the exercise of Company Stock
Options outstanding on the date of this Agreement in accordance with their
current terms;
(iii) amend the Company Charter or Company By-Laws;
(iv) except for inventory, merchandise, finished goods and accounts
receivable acquired in the ordinary course of business, acquire or agree to
acquire by merging or consolidating with, or by purchasing a portion of the
assets of or equity in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets other than acquisitions of
assets in the ordinary course of business consistent with past practice, the
value of which do not exceed $500,000 in the aggregate;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its rights or other assets other than (A) sales of
inventory, merchandise and finished goods in the ordinary course of business and
(B) transactions that are in the ordinary course of business consistent with
past practice, not material to the Company and in an aggregate amount greater
than $250,000;
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(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to, or other
investments in (other than investments in accordance with clause (iv) above),
any other Person, other than indebtedness incurred in the ordinary course of
business consistent with past practice in an amount not to exceed $50,000 in the
aggregate;
(vii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or ownership of
the Company other than as a result of the trading of the Company Common Stock on
the NASDAQ;
(viii) enter into or adopt, or amend any existing, severance plan,
agreement or arrangement or enter into or amend any Company Plan or employment
or consulting agreement, other than (A) as required by applicable law, (B) as
expressly contemplated by this Agreement or (C) stay bonuses as reasonably
approved by Parent;
(ix) increase the compensation payable or to become payable to its
officers, employees or directors except for increases in the ordinary course of
business consistent with past practice in salaries or wages of employees of the
Company who are not officers of the Company, or grant any additional rights to
severance or termination pay to, or enter into any employment or severance
agreement with, any director or officer of the Company, or establish, adopt,
enter into, or, except as set forth in Schedule 4.1(b)(ix) of the Company
Disclosure Schedule or as may be required to comply with applicable law, amend
or take action in any such case in a manner so as to enhance or accelerate any
rights or benefits under, any labor, collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee;
(x) knowingly violate or knowingly fail to perform any material
obligation or duty imposed upon it by any applicable federal, state or local
law, rule, regulation, guideline or ordinance;
(xi) take any action, other than reasonable and usual actions in
the ordinary course of business consistent with past practice, with respect to
accounting policies or procedures (other than actions required to be taken by
GAAP);
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(xii) make any Tax election, change its method of accounting, or
settle or compromise any material federal, state, local or foreign income Tax
liability or refund;
(xiii) except as set forth in Schedule 4.1(b)(xiii) of the Company
Disclosure Schedule, enter into any contract that cannot be canceled on 30 days'
notice pursuant to which it is obligated in an amount in excess of $500,000;
(xiv) make any capital expenditure in the aggregate in excess of
$100,000, other than expenditures (and contracts for such expenditures) set
forth in the Company's current capital budget included as Schedule 4.1(b)(xiv)
of the Company Disclosure Schedule;
(xv) enter into any agreement, arrangement or contract that
provides for the allocation, sharing or indemnification for Taxes; or
(xvi) enter into any contract, agreement, commitment or arrangement
to take any action prohibited by this Section 4.1(b).
(c) Other Actions. The Company and Parent shall not, and Parent shall not
-------------
permit any of its Subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that is qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that is not so qualified becoming untrue in any material respect or (iii) except
as otherwise permitted by Section 4.2 hereof with regard to the Company, any
condition to the Merger set forth in Article VI hereof not being satisfied.
Section 4.2 No Solicitation.
---------------
(a) The Company shall not, and it will use its best efforts to cause its
officers, directors, employees, investment bankers, consultants, attorneys,
accountants, agents, advisors or representatives not to, directly or indirectly,
(i) take any action to solicit, initiate, encourage or facilitate any Company
Takeover Proposal (as hereinafter defined) or any inquiry with respect thereto,
(ii) enter into or approve any agreement or agreement-in-principle providing for
or with respect to any Company Takeover Proposal or (iii) participate or engage
in any discussions or negotiations regarding, or furnish to any Person any
information with respect to or take any other action to facilitate any inquiries
or the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Company Takeover Proposal, including affording access to the
Company's properties, books or records;
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provided, however, that prior to the approval of this Agreement by the
- -------- -------
stockholders of the Company, to the extent required by the fiduciary obligations
of the Board of Directors of the Company, as determined in good faith by it
after consultation with outside counsel, the Company may, in response to a
Company Takeover Proposal that was not solicited by the Company and that did not
otherwise result from a breach or a deemed breach of this Section 4.2(a), and
subject to compliance with the provisions of this Agreement, (x) furnish
information with respect to the Company to any Person pursuant to a customary
confidentiality agreement and (y) if the Company is in compliance with Section
4.2(b) hereof, participate or engage in discussions or negotiations with such
Person regarding any Company Takeover Proposal. Without limiting the foregoing,
it is agreed that any violation of the restrictions set forth in the preceding
sentence by any executive officer of the Company or any director or investment
banker, attorney or other advisor or representative of the Company, whether or
not such Person is purporting to act on behalf of the Company or otherwise,
shall be deemed to be a breach of this Section 4.2(a) by the Company. For
purposes of this Agreement, "Company Takeover Proposal" means any proposal for a
------------------------
merger or other business combination involving the Company or the acquisition or
purchase of more than 25% of any class of equity securities of the Company, or
any tender offer (including self-tenders) or exchange offer that, if
consummated, would result in any Person beneficially owning more than 25% of any
class of equity securities of the Company, or a majority of the assets of the
Company, other than the transactions contemplated by this Agreement. Nothing
contained in this Section 4.2 shall prohibit the Company or the Company's Board
of Directors from (i) taking and disclosing to the Company's stockholders a
position with respect to a tender or exchange offer by a third party pursuant to
Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or (ii) making any
disclosure required by applicable law.
(b) The Company promptly shall advise Parent orally and in writing of its
receipt of any public or private Company Takeover Proposal or any inquiry with
respect to or that could reasonably be expected to lead to any Company Takeover
Proposal, the identity of the Person making any such Company Takeover Proposal
or inquiry and the material terms of any such Company Takeover Proposal. The
Company shall (i) keep Parent fully informed of the status, including any change
to the terms and conditions of, any such Company Takeover Proposal or inquiry
and (ii) provide to Parent as soon as practicable after receipt or delivery
thereof with copies of all correspondence and other written material sent or
provided to the Company from any third party in connection with any Company
Takeover Proposal or sent or provided by the Company to any third party in
connection with any Company Takeover Proposal.
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Section 4.3 Tax Representation Letters. For purposes of the tax
--------------------------
opinions described in Sections 6.2(b) and 6.3(c) hereof, Parent and the Company
shall provide representation letters reasonably customary in scope and
substance, substantially in the respective forms of Exhibits E-1 and E-2
attached hereto (the "Tax Representation Letters"), dated as of the date that is
--------------------------
two business days prior to the date the Proxy Statement is mailed to
stockholders of the Company and reissued as of the date of Closing.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meeting. The Company shall call a meeting of its
-------------------
stockholders to be held as promptly as practicable after the date on which the
Registration Statement becomes effective for the purpose of considering the
approval of this Agreement (such meeting and any adjournments or postponements
thereto, the "Stockholder Meeting"). Neither the Board of Directors of the
-------------------
Company nor any committee thereof shall withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or Sub, the approval or
recommendation by the Board of Directors of the Company or any such committee
thereof of this Agreement or the Merger, or approve or recommend, or propose to
approve or recommend, any Company Takeover Proposal (each, a "Change in the
-------------
Company Recommendation"), unless such proposal is a Superior Company Proposal.
- ----------------------
For purposes of this Agreement, a "Superior Company Proposal" means any proposal
-------------------------
made by a third party to acquire a majority of the equity securities or assets
of the Company, pursuant to a tender or exchange offer, a merger, a sale of all
or substantially all its assets or otherwise, on terms which the Company Board
of Directors determines in its good faith judgment to be superior from a
financial point of view to the holders of Company Common Stock (based on the
written opinion, with only customary qualifications, of the Company's
independent financial advisor), taking into account all the terms and conditions
of such proposal and this Agreement. Notwithstanding any Change in the Company
Recommendation, a proposal to approve the Merger and adopt this Agreement shall
be submitted to the stockholders of the Company at the Stockholder Meeting in
order to give the Company's stockholders the opportunity to vote on the Merger
and this Agreement in order to obtain the requisite approval of the Company's
stockholders and nothing contained in this Agreement shall be deemed to relieve
the Company of such obligation.
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Section 5.2 Preparation of the Registration Statement and the Proxy
-------------------------------------------------------
Statement. The Company and Parent shall promptly prepare the Proxy Statement
- ---------
and the Registration Statement in which the Proxy Statement will be included,
and thereafter the Company shall promptly file with the SEC the Proxy Statement
and Parent shall promptly file with the SEC such Registration Statement. The
Company and Parent shall cooperate with each other in connection with the
preparation of the foregoing documents (including, without limitation, providing
each other any information that is necessary to be included in such documents).
Each of Parent and the Company shall use its reasonable best efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. As promptly as practicable after the
Registration Statement shall have become effective, the Company shall mail the
Proxy Statement to its stockholders. Parent shall also take any action (other
than qualifying to do business in any jurisdiction in which it is now not so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Parent Common Stock and Algos Warrants in the
Merger and the issuance of Parent Common Stock upon the exercise of the Algos
Warrants, and the Company shall furnish all information concerning the Company
and the holders of Company Common Stock as may be reasonably requested in
connection with any such action. No amendment or supplement to the Proxy
Statement or the Registration Statement will be made by Parent or the Company
without the prior approval of the other party. Parent and the Company each will
advise the other, promptly after it receives notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, of the issuance of any stop order, of the suspension of the
qualification of the Parent Common Stock or Algos Warrants issuable in
connection with the Merger or the Parent Common Stock issuable upon the exercise
of the Algos Warrants for offering or sale in any jurisdiction, or of any
request by the SEC for amendment of the Proxy Statement or the Registration
Statement or comments thereon and responses thereto or requests by the SEC for
additional information.
Section 5.3 Access to Information; Regulatory Communications.
------------------------------------------------
(a) Subject to currently existing contractual and legal restrictions
applicable to the Company or Parent or any of Parent's Subsidiaries, each of
Parent and the Company shall, and Parent shall cause each of its Subsidiaries
to, afford to the accountants, counsel, financial advisors and other
representatives of the other party hereto reasonable access to, and permit them
to make such inspections as they may reasonably require of, during normal
business hours during the period from the date of this Agreement through the
Effective Time, all their respective properties, books, contracts, commitments
and records (including, without limitation, the work papers of independent
accountants, if available and subject to the consent of such
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independent accountants) and, during such period, Parent and the Company shall,
and Parent shall cause each of its Subsidiaries to, furnish promptly to the
other (i) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of federal
or state securities laws and (ii) all other information concerning its business,
properties and personnel as the other may reasonably request. No investigation
pursuant to this Section 5.3(a) shall affect any representation or warranty in
this Agreement of any party hereto or any condition to the obligations of the
parties hereto.
(b) The Company (i) shall keep Parent promptly informed of (A) any
communication (written or oral) with or from the FDA or the DEA and (B) any
communications (written or oral) received from any Person relating to the
Company Intellectual Property and (ii) shall not make any submissions to, or
have discussions with, the FDA or the DEA without either the prior consultation
or the inclusion of Parent; provided, however, that in the event the Company (i)
-------- -------
is verbally contacted by the FDA and (ii) has made a good faith effort to
include representatives of Parent in such discussion without success, then the
Company shall be allowed to participate in such discussions without Parent and
shall promptly inform Parent of the content of such discussions. Parent shall
keep the Company promptly informed of any communications from the FDA or DEA
relating to any of the drugs set forth in Schedule 5.3(b) of the Parent
Disclosure Schedule,
Section 5.4 Compliance with the Securities Act. Prior to mailing the
----------------------------------
Proxy Statement, the Company shall deliver to Parent a list of names and
addresses of those Persons who, in the opinion of the Company, may, at the time
of the Stockholder Meeting, be deemed to be "affiliates" of the Company within
the meaning of Rule 145 under the Securities Act ("Affiliates"). The Company
----------
shall provide to Parent such information and documents as each shall reasonably
request for purposes of reviewing such lists. There shall be added to such lists
the names and addresses of any other Person that the Company reasonably
identifies (by written notice to the other party within ten business days after
receipt of such list) as being a Person who may be deemed to be an Affiliate of
the Company. Except as set forth in Schedule 5.4 of the Company Disclosure
Schedule, the Company shall exercise all reasonable efforts to deliver or cause
to be delivered to Parent, not later than 30 days prior to the Effective Time,
from each of such Affiliates of the Company identified on the foregoing list, an
affiliate letter in the form attached hereto as Exhibit F.
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Section 5.5 Designation of Directors. At the Effective Time, Parent
-------------------------
shall take all actions necessary to cause (a) three (3) designees of the Company
(each of whom shall be satisfactory to Parent) to be appointed to its Board of
Directors (such person and any subsequent designees thereof, the "Company
-------
Designees"), to serve until their terms expire or until their successors have
- ---------
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Parent Charter or Parent By-laws
and (b) John W. Lyle to be appointed a Non-Executive Chairman of Parent's Board
of Directors. During the three-year period from and including the Effective
Date, (A) Parent shall use its reasonable best efforts to cause at least three
(3) Company Designees to be on the Board of Directors of Parent at all times,
(B) at any meeting of stockholders for the purpose of electing the members of
Parent's Board of Directors, Parent shall cause to be nominated for election the
Company Designees, (C) the Parent LLC (as defined in Section 5.21) shall vote
the shares of Parent Common Stock owned by it in favor of the Company Designees,
(D) the Parent Charter or the Parent By-Laws shall provide that any vacancies
created by any Company Designee upon such Company Designee's death, resignation
or removal that are not filled pursuant to a Parent stockholder vote shall be
filled by a nominee of the remaining Company Designees and (E) one Company
Designee shall be appointed as a member of any compensation committee of
Parent's Board of Directors or any other committee of such Board having the
responsibility or power with respect to the granting of employee stock options.
Section 5.6 NASDAQ Listing. Parent shall use its reasonable best efforts
--------------
to have authorized for listing on the NASDAQ, subject to official notice of
issuance,the shares of Parent Common Stock, the Algos Warrants to be issued in
connection with the Merger and the Endo Warrants (as defined in Section 5.20
hereof).
Section 5.7 Fees and Expenses.
-----------------
(a) Except as provided in this Section 5.7, whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby, including, without limitation, the
fees and disbursements of counsel, financial advisors and accountants, shall be
paid by the party incurring such costs and expenses; provided that all filing
-------- ----
fees and printing expenses for the Proxy Statement and Registration Statement
shall be shared equally by the Company and Parent.
(b) The Company shall reimburse Parent and Sub for all their out-of-pocket
expenses actually incurred in connection with this Agreement and the other
Transaction Agreements, the Merger and any other transactions contemplated
hereby and thereby if this Agreement is terminated pursuant to Section 7.1(e)
hereof, or
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terminated pursuant to Section 7.1(b) or (c) hereof based on a breach of the
Company. Such reimbursement shall be paid upon demand following such
termination.
(c) Parent and Sub shall reimburse the Company for all of its out-of-
pocket expenses actually incurred in connection with this Agreement and the
other Transaction Agreements, the Merger and any other transactions contemplated
hereby and thereby if this Agreement is terminated pursuant to Section 7.1(b) or
(c) hereby based on a breach of Parent or Sub. Such reimbursement shall be paid
upon demand following such termination.
Section 5.8 Company Stock Options. The Company shall cause each
---------------------
unexpired and unexercised Company Stock Option under the Company Stock Plans to
become fully vested and exercisable for the thirty (30)-day period immediately
prior to the Effective Time. To the extent any Company Stock Option is unexpired
and unexercised at the end of such period, the Company shall cause such Company
Stock Option to terminate as of the Effective Time.
Section 5.9 Parent Options. Parent shall take all action necessary, and
--------------
shall use its reasonable best efforts to obtain as soon as practicable the
consent of option holders to provide that each Parent Stock Option (to purchase
shares of Parent Common Stock under the Parent Incentive Plans) which is
outstanding at the Effective Time (whether or not such Parent Stock Option is
then vested and exercisable) shall, subject to the following sentence, be
following the Effective Time exercisable solely into shares of Parent Common
Stock that are beneficially owned by certain holders of Parent Common Stock
immediately following the Parent Recapitalization and prior to the Effective
Time (the "Current Endo Options"). The parties hereto also agree and
--------------------
acknowledge that following the date of this Agreement, current holders of Parent
Common Stock and current holders of Parent Stock Options will enter into
amendments to their current stockholders agreements, Parent Incentive Plans and
Parent Stock Options, as the case may be, in order to accomplish the foregoing.
Section 5.10 Reasonable Efforts.
------------------
(a) Upon the terms and subject to the conditions set forth in this
Agreement, including, with regard to the Company, Section 4.2 hereof, each of
the parties agrees to use reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions
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contemplated by this Agreement, including, but not limited to: (i) the obtaining
of all necessary actions or nonactions, waivers, consents and approvals from all
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity (including those in connection
with the HSR Act and State Takeover Approvals), (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by this Agreement. Parent and the Company shall
cooperate with each other in connection with the making of such filings,
including providing copies of all such documents to the non-filing party and its
advisors prior to filing and, if requested, accepting all reasonable suggestions
in connection therewith.
(b) The parties hereto will consult and cooperate with one another, and
consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in connection
with proceedings under or relating to the HSR Act or any other federal, state or
foreign antitrust or fair trade law. Each party shall promptly notify the other
party of any communication to that party from any Governmental Entity in
connection with any required filing with, or approval or review by, such
Governmental Entity in connection with the Merger and permit the other party to
review in advance any such proposed communication to any Governmental Entity.
Neither party shall agree to participate in any meeting with any Governmental
Entity in respect of any such filings, investigation or other inquiry unless it
consults with the other party in advance and, to the extent permitted by such
Governmental Entity, gives the other party the opportunity to attend and
participate thereat.
(c) Each party shall use all reasonable efforts to not take any action, or
enter into any transaction, which would cause any of its representations or
warranties contained in this Agreement to be untrue or result in a breach of any
covenant made by it in this Agreement.
Section 5.11 Public Announcements. The initial press release shall be a
--------------------
joint press release and thereafter the Company and Parent each shall obtain the
prior consent of the other prior to issuing any press releases or otherwise
making public
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announcements with respect to the Merger and the other transactions contemplated
by this Agreement and prior to making any filings with any third party and/or
any Governmental Entity (including any national securities exchange or
interdealer quotation service) with respect thereto, except as may be required
by law or by obligations pursuant to any listing agreement with or rules of the
NASDAQ.
Section 5.12 State Takeover Laws. If any "fair price," "business
-------------------
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective Boards of Directors shall use their
reasonable best efforts to grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
minimize the effects of any such statute or regulation on the transactions
contemplated hereby.
Section 5.13 Indemnification; Directors and Officers Insurance. For not
-------------------------------------------------
than six (6) years from and after the Effective Time, Parent agrees to, and to
cause the Surviving Corporation to, indemnify and hold harmless all past and
present directors, officers and employees of the Company to the same extent such
Persons are indemnified as of the date of this Agreement by the Company pursuant
to the Company Charter and Company By-Laws and indemnification agreements, if
any, in existence on the date of this Agreement with any directors, officers and
employees of the Company for acts or omissions occurring at or prior to the
Effective Time; provided, however, that Parent agrees to, and to cause the
-------- -------
Surviving Corporation to, indemnify and hold harmless such Persons to the
fullest extent permitted by law for acts or omissions occurring in connection
with the approval of this Agreement and the consummation of the transactions
contemplated hereby. Parent shall cause the Surviving Corporation to provide,
for an aggregate period of not less than six (6) years from the Effective Time,
the Company's current directors and officers an insurance and indemnification
policy that provides coverage for events occurring prior to the Effective Time
(the "D&O Insurance") that is no less favorable than the Company's existing
-------------
policy or, if substantially equivalent insurance coverage is unavailable, the
best available coverage; provided, however, that the Surviving Corporation shall
-------- -------
not be required to pay an annual premium for the D&O Insurance in excess of 200
percent of the last annual premium paid prior to the date of this Agreement,
which premium the Company represents and warrants to be approximately $195,740.
Section 5.14 Notification of Certain Matters. Parent shall use its
-------------------------------
reasonable best efforts to give prompt notice to the Company, and the Company
shall use its reasonable best efforts to give prompt notice to Parent, of: (i)
the
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occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which it is aware and which would be reasonably likely to cause (x) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied in all material
respects, (ii) any failure of Parent or the Company, as the case may be, to
comply in a timely manner with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder, (iii) any material litigation,
any material governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) or (iv) any change
or event which would be reasonably likely to have a Material Adverse Effect on
Parent or the Company, as the case may be; provided, however, that the delivery
-------- -------
of any notice pursuant to this Section 5.14 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 5.15 Employee Matters. Except to the extent necessary to avoid
----------------
duplication of benefits, Parent will, or will cause the Surviving Corporation
to, give Continuing Employees full credit for purposes of eligibility and
vesting under any employee benefit plans or arrangements maintained by Parent,
the Surviving Corporation or any Subsidiary of Parent in which such Continuing
Employee is eligible to participate for such Continuing Employees' service with
the Company to the same extent recognized by the Company immediately prior to
the Effective Time. Parent will, or will cause the Surviving Corporation to, (i)
waive all limitations as to preexisting conditions exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the Continuing Employees under any welfare plan that such employees may be
eligible to participate in after the Effective Time, other than limitations or
waiting periods that are already in effect with respect to such employees and
that have not been satisfied as of the Effective Time under any welfare plan
maintained for the Continuing Employees immediately prior to the Effective Time,
and (ii) provide each Continuing Employee with credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Effective Time.
Section 5.16 Tax Treatment. Parent and the Company will each use
-------------
reasonable efforts before and after the Closing to cause the Merger to qualify
as a reorganization within the meaning of Section 368(a) of the Code, and will
not take or fail to take, and will use reasonable efforts to prevent any
Affiliate of such party from taking or failing to take, any actions which would
jeopardize the qualification of the Merger as such a reorganization, and will
take such action as is available and may be reasonably required to negate the
impact of any past actions or failures by
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such party or its respective Affiliates which would reasonably be expected to
adversely impact the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
Section 5.17 Conveyance Taxes. Parent and the Company shall cooperate
----------------
in the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding (i) any real property transfer gains,
sales, use, transfer, value-added, stock transfer (subject to Section 1.9(b)
hereof), and stamp Taxes, (ii) any recording, registration and other fees and
(iii) any similar Taxes or fees that become payable in connection with the
transactions contemplated hereby. The Taxes described in clause (i) above shall
be paid by the Company, without deduction or withholding from any amounts
payable to the holders of Company Common Stock.
Section 5.18 Ownership of Shares. None of Parent, any Person deemed
-------------------
acting in concert with Parent or any of its Subsidiaries or any of Parent's
Subsidiaries has acquired the beneficial ownership of any shares of Company
Common Stock other than in compliance with Section 3.21 hereof and any other
Applicable Law.
Section 5.19 Additional Agreements. At or before Closing, (a) each of
---------------------
Parent and the Parent LLC shall enter into a tax sharing agreement in
substantially the form attached hereto as Exhibit G (the "Tax Sharing
-----------
Agreement") and (b) each of Parent and John W. Lyle shall enter into an
- ----------
agreement in substantially the form attached hereto as Exhibit H (the "Lyle
-----
Agreement").
- ----------
Section 5.20 Issuance of Warrants to Parent. Immediately prior to
------------------------------
Closing, Parent shall issue one warrant (collectively, the "Endo Warrants")
-------------
with respect to each share of Parent Common Stock then outstanding, which
warrant shall be subject to the terms and conditions of a warrant agreement
"Endo Warrant Agreement") substantially in the form attached hereto as
----------------------
Exhibit I.
Section 5.21 Formation of Parent LLC.
-----------------------
(a) Immediately prior to the Effective Time, a limited liability company
(the "Parent LLC") shall be formed to which Parent shall use its reasonable best
----------
efforts to cause each of the then current holders of Parent Common Stock to
contribute all of the shares of Parent Common Stock beneficially owned by it in
exchange for membership interests in such Parent LLC; provided that this
-------- ----
covenant shall be deemed to have occurred if holders of at least 85% of the
Parent Common Stock so contribute their shares of Parent Common Stock to the
Parent LLC.
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(b) On March 31, 2001, Parent will determine the Cash Gross Profit of
Parent (as defined below) and the Adjustment Event (as defined below) shall be
deemed to have occurred or not occurred (as appropriate) on such date. Among
other things, the limited liability company agreement for the Parent LLC (the
"Parent LLC Agreement") will provide that (i) in the event (A) the Cash Gross
--------------------
Profit of Parent (as defined below) for the fiscal year ended December 31, 2000
does not equal or exceed $147.4 million and (B) the Exercisability Date (as
defined in the Algos Warrant) has occurred prior to March 31, 2001, then
----
13,769,573 shares of Parent Common Stock that are then owned by the Parent LLC
shall be transferred for no consideration to Parent (which shall deposit the
same in its treasury) and (ii) in the event (A) the Cash Gross Profit of Parent
for the fiscal year ended December 31, 2000 does not equal or exceed $147.4
million and (B) the Exercisability Date has not occurred prior to March 31,
2001, then 17,900,445 shares of Parent Common Stock that are then owned by the
----
Parent LLC shall be transferred for no consideration to Parent (which shall
deposit the same in its treasury) (the actions contemplated by clause (i) or
clause (ii) shall be adjustments to the Merger Consideration and shall be
referred to as an "Adjustment Event").
----------------
(c) The number of shares that are required to be transferred in the event
of an Adjustment Event shall be appropriately adjusted (i) such that, at the
Effective Time, the numbers in clauses (b)(i)(B) and (b)(ii)(B) of this Section
5.21 shall represent that number of shares of Parent Common Stock such that if
such shares were no longer outstanding at the Effective Time, the shares
issuable under the Algos Warrants in the aggregate (if such Algos Warrants were
then immediately exercisable), together with shares of Parent Common Stock
issued to the Company stockholders in the Merger would represent 40% of the
outstanding Parent Common Stock on a fully diluted basis (excluding the Endo
Warrants) and (ii) without duplicating clause (i) above, if Parent pays a
dividend or makes a distribution on the Parent Common Stock in shares of Parent
Common Stock or other capital stock of Parent or subdivides, splits, combines or
reclassifies its outstanding shares of Parent Common Stock into a different
number of securities of the same class, then the number of shares of Parent
Common Stock required to be transferred under this Section 5.21 shall be
appropriately adjusted to give the effect specified in clause (i) of this
sentence as if such events occurred immediately prior to the Effective Time.
(d) For such purposes, "Cash Gross Profit of Parent" shall mean the
---------------------------
difference between Net Sales (as defined below) and Cash Cost of Sales (as
defined below) for the fiscal year ended December 31, 2000. "Net Sales" shall
---------
mean the gross invoice price of Endo Products (as defined below) sold to any
third party (excluding Affiliates of Parent) less (i) cash, trade, promotional,
or quantity discounts and/or rebates, and chargebacks, (ii) retroactive price
reductions, (iii) sales,
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use or other excise taxes and (iv) returns and allowances, all as reflected on
the audited statement of operations of Parent attributable to the Endo Products
determined in accordance with GAAP consistently applied for the fiscal year
ended December 31, 2000. "Cash Cost of Sales" shall mean the Cost of Sales
------------------
(determined in accordance with GAAP and consistent with the past practices used
by Parent in 1998 as previously disclosed to the Company) as reflected on the
audited statement of operations of Parent for the fiscal year ended December 31,
2000 attributable to the Endo Products less all non-recurring charges and non-
cash charges included in Cost of Sales (including, but not limited to,
depreciation, amortization and other non-cash manufacturing charges). "Endo
----
Products" shall include current and future internally developed products sold or
- --------
marketed by Parent or its Subsidiaries (other than products developed or being
developed by the Company) to any third party (including products from which
Parent has revenues on account of royalties and license fees). The Parent LLC
Agreement shall further provide that the definition of the Cash Gross Profit of
Parent shall be based solely on the audited financial statements of Parent for
the fiscal year ended December 31, 2000. Any determinations regarding the
satisfaction of such obligation or any amendments, modifications or waivers of
such provisions by Parent shall be effective only if approved by a majority of
the members of the Board of Directors of Parent who do not then (by themselves
or through an Affiliate) have a financial interest in the Parent LLC. Any
dispute relating to the calculation of the Cash Gross Profit of Parent shall be
resolved by the Independent Accounting Firm (as defined below) acting as
arbitrator, and such determination shall be final and binding on the parties.
The Parent LLC and Parent (by a majority of the members of the Board of
Directors of Parent who do not then (by themselves or through an Affiliate) have
a financial interest in the Parent LLC) shall mutually select a nationally
recognized firm of certified public accountants then having no significant
ongoing relationship with either Parent or the Parent LLC or their respective
Affiliates, but if the Parent LLC and Parent cannot mutually agree on the
identity of such firm, then the Parent LLC and Parent shall each submit to the
other party's independent auditor the name of a national accounting firm other
than any firm that has in the prior two years provided services to the Parent
LLC, Parent or any of their respective Affiliates, and a firm shall be selected
by lot from these two firms by the independent auditors of the two parties. The
accounting firm selected pursuant to the foregoing procedures shall be referred
to as the "Independent Accounting Firm." (If no national accounting firm shall
---------------------------
be willing to serve as the Independent Accounting Firm, then an arbitrator
qualified under the rules of the American Arbitration Association shall be
selected to serve as such, such selection to be according to the above
procedures.) Within five (5) days of the submission of the dispute to the
Independent Accounting Firm, each of the Parent LLC and Parent (by a majority of
the members of the Board of Directors of Parent who do not then (by themselves
or through an Affiliate) have a
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financial interest in the Parent LLC) shall submit a written position paper (the
"Position Paper") to the Independent Accounting Firm outlining such party's
--------------
calculations and/or objections that are the subject of dispute. The Independent
Accounting Firm shall be instructed to use every reasonable effort to perform
its services within thirty (30) days of submission of the Position Papers to it
and, in any case, as promptly as practicable after such submission. The
determination of the Independent Accounting Firm shall be final and binding on
the parties without further right of appeal.
Section 5.22 Effect of Parent Recapitalization. Parent covenants that the
---------------------------------
Parent Recapitalization shall have the effect of adjusting the outstanding
Parent Common Stock such that those Persons who had been holders of Company
Common Stock immediately prior to the Effective Time shall, following the Parent
Recapitalization and at the Effective Time, hold, in the aggregate, 20% of the
outstanding Parent Common Stock (on a fully diluted basis, excluding the effect
of the Algos Warrants and the Endo Warrants) and those Persons who had been
holders of Parent Common Stock immediately prior to the Effective Time shall,
following the Parent Recapitalization and at the Effective Time, hold, in the
aggregate, 80% of the outstanding Parent Common Stock (on a fully diluted basis,
excluding the effect of the Algos Warrants and the Endo Warrants). For purposes
of calculating this 20/80 split, (a) any repurchases by Parent between the date
of this Agreement and the Effective Time of any Parent Common Stock or Parent
Stock Options from current holders thereof pursuant to any current stockholders
or options agreements or plans and any issuances of Parent Common Stock or
Parent Stock Options between the date of this Agreement and the Effective Time
to any Parent employee shall be taken into account in determining the 80% to be
owned by holders of Parent Common Stock and the 20% to be owned by holders of
Company Common Stock and (b) the shares of Parent Common Stock underlying any
Parent Stock Options, the holders of which do not consent to amend such Parent
Stock Options pursuant to Section 5.9 hereof, shall not be counted as part of
the 80% to be owned by holders of Parent Common Stock nor as part of the 20% to
be owned by holders of Company Common Stock and shall be treated as if such
Parent Stock Options did not exist for purposes of this calculation and in
calculating the number of fully diluted shares; provided, however, that such
-------- ------- ----
treatment will not apply to the shares underlying the Parent Stock Options held
by the six executives listed in Schedule 5.22 of the Parent Disclosure Schedule,
which Parent Stock Options shall be taken into account in determining the 80% to
be owned by the current holders of Parent Common Stock if such Parent Stock
Options are not amended pursuant to Section 5.9 hereof. If any of such
executives fails to abide by the terms of that certain side letter agreement
between each of them and the Company, mutually agreed upon arrangements will be
made so that the Parent Stock Options held by such Persons will only affect the
80% held at
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Effective Time by the current Parent stockholders. Each of the Algos Warrants
and the Endo Warrants shall be exercisable into a number of shares of Parent
Common Stock that is necessary to achieve the effect specified in the form of
each such Warrant in Section 7 of the Warrant Agreement and Section 7 of the
Endo Warrant Agreement, respectively.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligation of each party to effect the Merger shall be subject to
the fulfillment or, to the extent permitted by applicable law, waiver at or
prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved by
--------------------
the requisite vote of stockholders of the Company in accordance with applicable
law and the Company Charter and Company By-Laws.
(b) Listing on the NASDAQ. The Parent Common Stock issuable in the Merger
---------------------
shall have been authorized for listing on the NASDAQ, subject to official notice
of issuance.
(c) HSR. The waiting period (and any extensions thereof) applicable to
---
the consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) Registration Statement. The Registration Statement shall have become
----------------------
effective in accordance with the provisions of the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been initiated
or, to the Knowledge of Parent or the Knowledge of the Company, threatened by
the SEC. All necessary state securities or "blue sky" authorizations (including
State Takeover Approvals) shall have been received.
(e) No Governmental Action/Order. There shall not be pending any action,
----------------------------
suit or proceeding brought by any Governmental Entity which challenges or seeks
to enjoin the Merger or the other transactions contemplated hereby. No court or
other Governmental Entity having jurisdiction over the Company or Parent, or any
of Parent's Subsidiaries, shall have enacted, issued, promulgated, enforced or
entered
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any law, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is then in effect and
has the effect of making the Merger or any of the transactions contemplated
hereby illegal.
Section 6.2 Conditions to Obligation of the Company to Effect the Merger.
------------------------------------------------------------
The obligation of the Company to effect the Merger shall be subject to the
fulfillment or, to the extent permitted by applicable law, waiver at or prior to
the Effective Time of the following additional conditions:
(a) Performance of Obligations; Representations and Warranties. Each of
----------------------------------------------------------
Parent and Sub shall have performed in all material respects each of its
covenants and agreements contained in this Agreement required to be performed on
or prior to the Effective Time, each of the representations and warranties of
Parent and Sub contained in this Agreement that is qualified by materiality
shall be true and correct on and as of the Effective Time as if made on and as
of such date (other than representations and warranties that address matters
only as of a certain date which shall be true and correct as of such certain
date) and each of the representations and warranties that is not so qualified
shall be true and correct in all material respects on and as of the Effective
Time as if made on and as of such date (other than representations and
warranties that address matters only as of a certain date which shall be true
and correct in all material respects as of such certain date), in each case
except as contemplated or permitted by this Agreement, and the Company shall
have received a certificate signed on behalf of each of Parent and Sub by its
Chief Executive Officer or its Chief Financial Officer to such effect.
(b) Tax Opinion. The Company shall have received an opinion of Latham &
-----------
Watkins in form and substance reasonably satisfactory to the Company, dated the
Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion (including as provided
in the Tax Representation Letters) which are consistent with the state of facts
existing as of the Effective Time, for U.S. federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Company, Sub and Parent will each
be a party to that reorganization within the meaning of Section 368(b) of the
Code; and
(ii) no gain or loss will be recognized by Parent or the Company as
a result of the Merger.
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The issuance of such opinion shall be conditioned on the receipt by Latham &
Watkins of the Tax Representation Letters, upon which Latham & Watkins will rely
in rendering its opinion, from each of Parent, Sub and the Company, in each
case, in form and substance reasonably satisfactory to such tax counsel. The
specific provisions of each such representation letter shall be in form and
substance reasonably satisfactory to such tax counsel rendering such opinion,
and each such representation letter shall be dated on or before the date of such
opinion and shall not have been withdrawn or modified in any material respect.
(c) Formation of Parent LLC. The formation of the Parent LLC in
------------------------
accordance with Section 5.21 hereof shall have occurred.
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the
---------------------------------------------------------
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
- ------
to the fulfillment or, to the extent permitted by applicable law, waiver at or
prior to the Effective Time of the following additional condition:
(a) Performance of Obligations; Representations and Warranties. The
----------------------------------------------------------
Company shall have performed in all material respects each of its agreements
contained in this Agreement required to be performed on or prior to the
Effective Time, each of the representations and warranties of the Company
contained in this Agreement that is qualified by materiality shall be true and
correct on and as of the Effective Time as if made on and as of such date (other
than representations and warranties that address matters only as of a certain
date which shall be true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Effective Time as if made on
and as of such date (other than representations and warranties that address
matters only as of a certain date which shall be true and correct in all
material respects as of such certain date), in each case except as contemplated
or permitted by this Agreement, and Parent shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer or its Chief
Financial Officer to such effect.
(b) Affiliate Letters. The letters from Affiliates required by Section
-----------------
5.4 hereof shall have been executed and delivered.
(c) Tax Opinion. Parent shall have received an opinion of Skadden, Arps,
-----------
Slate, Meagher & Flom LLP in form and substance reasonably satisfactory to
Parent, dated the Effective Time substantially to the effect that on the basis
of facts, representations and assumptions set forth in such opinion (including
as provided in
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the Tax Representation Letters) which are consistent with the state of facts
existing as of the Effective Time, for U.S. federal income tax purposes:
(i) the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code, and that the Company, Sub and Parent will each be
a party to that reorganization within the meaning of Section 368(b) of the Code;
and
(ii) no gain or loss will be recognized by Parent or the Company as
a result of the Merger.
The issuance of such opinion shall be conditioned on the receipt by Skadden,
Arps, Slate, Meagher & Flom LLP of the Tax Representation Letters, upon which
Skadden, Arps, Slate, Meagher & Flom LLP will rely in rendering its opinion,
from each of Parent, Sub, and the Company, in each case, in form and substance
reasonably satisfactory to such tax counsel. The specific provisions of each
such representation letter shall be in form and substance reasonably
satisfactory to such tax counsel rendering such opinion, and each such
representation letter shall be dated on or before the date of such opinion and
shall not have been withdrawn or modified in any material respect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Effective Time, whether before or after any approval of the matters
presented in connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company (provided such party is not then in
material breach) if the other party shall have failed to comply in any material
respect with any of its covenants or agreements contained in this Agreement
required to be complied with prior to the date of such termination, which
failure to comply has not been cured within ten business days following receipt
by such other party of written notice of such failure to comply; provided,
--------
however, that if any such breach is curable by the breaching party through the
- -------
exercise of the breaching party's best efforts and for so long as the breaching
party shall be so using its best efforts to cure such breach, the non-breaching
party may not terminate this Agreement pursuant to this paragraph;
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<PAGE>
(c) by either Parent or the Company (provided such party is not then in
material breach) if there has been (i) a breach by the other party (in the case
of Parent, including any breach by Sub) of any representation or warranty that
is not qualified as to materiality which has the effect of making such
representation or warranty not true and correct in all material respects or (ii)
a breach by the other party (in the case of Parent, including any breach by Sub)
of any representation or warranty that is qualified as to materiality, in each
case which breach has not been cured within ten business days following receipt
by the breaching party of written notice of the breach; provided, however, that
-------- -------
if any such breach is curable by the breaching party through the exercise of the
breaching party's best efforts and for so long as the breaching party shall be
so using its best efforts to cure such breach, the non-breaching party may not
terminate this Agreement pursuant to this paragraph;
(d) by Parent or the Company:
(i) if any Governmental Entity issues an order, decree or ruling or
takes any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree or ruling shall have become final
and nonappealable;
(ii) if any condition to the obligation of such party to consummate
the Merger set forth in Article VI hereof becomes incapable of satisfaction
prior to the Termination Date (as hereinafter defined) (provided that the
-------------
terminating party is not then in material breach of any representation, warranty
or covenant contained in this Agreement); or
(iii) if the Merger has not been effected on or prior to the close of
business on June 30, 2000 (the "Termination Date"); provided, however, that the
---------------- -------- -------
right to terminate this Agreement pursuant to this Section 7.1(d)(iii) shall not
be available to any party whose failure to fulfill any of its obligations
contained in this Agreement has been the cause of, or resulted in, the failure
of the Merger to have occurred on or prior to the aforesaid date; and
(e) by Parent or the Company if the stockholders of the Company do not
approve this Agreement at the Stockholder Meeting or any adjournment or
postponement thereof (so long as Parent and its Affiliates have voted the
proxies that they are entitled to vote in favor of this Agreement).
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any
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<PAGE>
investigation made by or on behalf of any party hereto, any Person controlling
any such party or any of their respective officers or directors, whether prior
to or after the execution of this Agreement.
Section 7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either Parent or the Company as provided in Section 7.1 hereof,
this Agreement shall forthwith terminate and there shall be no liability
hereunder on the part of the Company, Parent, Sub or their respective officers
or directors (except for Section 5.7 and Article VIII hereof which shall survive
the termination); provided, however, that nothing contained in this Section 7.2
-------- -------
shall relieve any party hereto from any liability for any willful breach of a
representation or warranty contained in this Agreement or the breach of any
covenant contained in this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties
---------
hereto at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company; provided,
--------
however, after any such
- -------
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, the parties
------
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) subject to the proviso of Section 7.3 hereof, waive
compliance with any of the agreements or conditions contained herein which may
legally be waived. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
Section 7.5 Procedure for Termination, Amendment, Extension or Waiver. A
---------------------------------------------------------
termination of this Agreement pursuant to Section 7.1 hereof, an amendment of
this Agreement pursuant to Section 7.3 hereof or an extension or waiver pursuant
to Section 7.4 hereof shall, to be effective, require in the case of Parent, Sub
or the Company, action by its Board of Directors or the duly authorized designee
of its Board of Directors.
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ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties. The
----------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall terminate at the Effective Time or, subject to
Section 7.2 hereof, upon the termination of this Agreement pursuant to Section
7.1 hereof.
Section 8.2 Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed given when delivered personally, one day after
being delivered to an overnight courier or when telecopied (with a confirmatory
copy sent by overnight courier) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Endo Pharmaceuticals Holdings Inc.
223 Wilmington-West Chester Pike
Chadds Ford, PA 19317
Attn.: Carol A. Ammon
Fax No.: (610) 558-9683
with copies to:
Kelso & Company
320 Park Avenue, 24/th/ Floor
New York, New York 10022
Attn.: James J. Connors, II
Fax No.: (212) 223-2379
and
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attn.: Eileen Nugent Simon
Fax No.: (212) 735-2000
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(b) if to the Company, to:
Algos Pharmaceuticals Corporation
1333 Campus Parkway
Neptune, NJ 07753-6815
Attn.: General Counsel
Fax No.: (732) 938-2825
with copies to:
Latham & Watkins
885 Third Avenue
Suite 1000
New York, NY 10022
Attn.: Raymond Y. Lin
Fax No.: (212) 751-4864
Section 8.3 Interpretation. When a reference is made in this Agreement to
--------------
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
Section 8.4 Counterparts. This Agreement may be executed in counterparts,
------------
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 8.5 Entire Agreement; No Third-Party Beneficiaries. Except for
----------------------------------------------
the Mutual Confidentiality and Non-Disclosure Agreement between the parties
dated October 21, 1998, this Agreement (together with the Company Disclosure
Schedule, the Parent Disclosure Schedule, the Stockholder Voting Agreements and
the exhibits and annexes attached hereto and thereto) constitute the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and
thereof. In the event of any conflict between this Agreement and any of the
Company Disclosure Schedule, the Parent Disclosure Schedule, the Stockholder
Voting Agreements and the exhibits and annexes attached hereto and thereto, this
Agreement shall control. Other than Sections 5.5, 5.8, 5.9, 5.13, 5.15 and
5.21(c) hereof and the obligation of the Parent
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LLC to transfer shares of Parent Common Stock pursuant to Section 5.21(b) hereof
(taking into account Section 5.21(d) hereof), this Agreement is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
Section 8.6 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY, OR SUB IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
Section 8.7 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
Section 8.8 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
Section 8.9 Enforcement of this Agreement.
-----------------------------
(a) The parties acknowledge and agree that any payment made pursuant to
Section 5.7 hereof does not relieve either party from any liability it otherwise
may have for breach of this Agreement.
(b) The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this
79
<PAGE>
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, such remedy being
in addition to any other remedy to which any party is entitled at law or in
equity. Each party hereto hereby irrevocably and unconditionally consents to
submit to the exclusive jurisdiction of the United States District Court located
in the State of Delaware (unless such courts assert no jurisdiction, in which
case the parties hereto consent to the exclusive jurisdiction of the courts of
the State of Delaware) for any actions, suits or proceedings arising out of or
relating to this Agreement and the transactions contemplated hereby (and each
party hereto agrees not to commence any action, suit or proceeding relating
thereto except in such courts), and further agrees that service of any process,
summons, notice or document by U.S. registered mail to the addresses set forth
herein shall be effective service of process for any such action, suit or
proceeding brought against each party in such court. Each party hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby, in the United States District Courts located in the State
of Delaware (unless such courts assert no jurisdiction, in which case each party
consents to the exclusive jurisdiction of the courts of the State of Delaware).
Each party hereby further irrevocably and unconditionally waives and agrees not
to plead or to claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum. Each of the
parties hereto also agrees that any final and unappealable judgment against a
party hereto in connection with any action, suit or other proceeding shall be
conclusive and binding on such party and that such award or judgment may be
enforced in any court of competent jurisdiction, either within or outside of the
United States. A certified or exemplified copy of such award or judgment shall
be conclusive evidence of the fact and amount of such award or judgment.
80
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized all as of the
date first written above.
ENDO PHARMACEUTICALS HOLDINGS INC.
By: /s/ Carol A. Ammon
-------------------------------------------------------
Name: Carol A. Ammon
Title: President & Chief Executive Officer
ENDO INC.
By: /s/ Carol A. Ammon
-------------------------------------------------------
Name: Carol A. Ammon
Title: President & Chief Executive Officer
ALGOS PHARMACEUTICAL CORPORATION
By: /s/ John W. Lyle
-------------------------------------------------------
Name: John W. Lyle
Title: President
<PAGE>
Annex I
Company Stockholders Entering into a Stockholder Voting Agreement
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================
Registered Holder Number of Shares
Subject to
Stockholder
Voting Agreements
- -------------------------------------------------------------------
<S> <C>
Karen B. Lyle 1,344,416
- -------------------------------------------------------------------
Michael Hyatt (N.B. does not include 829,551
shares owned by the Kimmel Trusts listed
below)
- -------------------------------------------------------------------
Trust Under the Will of Inez Kimmel 657,193
- -------------------------------------------------------------------
Todd Kimmel Trust 171,530
- -------------------------------------------------------------------
Melissa Kimmel Trust 155,000
- -------------------------------------------------------------------
Anita Hyatt Family Trust 20,750
- -------------------------------------------------------------------
Frank S. Caruso 370,200
- -------------------------------------------------------------------
John W. Lyle 224,100
- -------------------------------------------------------------------
Hyatt Family Trust 221,332
- -------------------------------------------------------------------
Roger H. Kimmel (N.B. does not include
shares owned by the Hyatt Trusts listed above) 30,000
- -------------------------------------------------------------------
Frank S. Caruso Irrevocable Trust 24,900
- -------------------------------------------------------------------
James R. Ledley 109,450
- -------------------------------------------------------------------
Donald G. Drapkin 8,300
- -------------------------------------------------------------------
Donald Drapkin 8,300
- -------------------------------------------------------------------
Patricia Caruso 1,000
===================================================================
Total 4,176,022
===================================================================
</TABLE>
82
<PAGE>
EXHIBIT 4
FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ENDO PHARMACEUTICALS HOLDINGS INC.
FIRST: The name of the Corporation is Endo Pharmaceuticals Holdings
-----
Inc. (hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in
------
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at that address is the
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").
FOURTH: The total number of shares of capital stock which the
------
Corporation shall have authority to issue is 175,078,160 shares, consisting of
(i) 142,656,279 shares of Common Stock, par value $.01 per share (the "Common
Stock") and (ii) 32,421,882 shares of Preferred Stock, par value $.01 per share
(the "Preferred Stock").
A. Common Stock. Except as otherwise pro vided in this Article
------------
FOURTH or as otherwise required by law, shares of Common Stock shall be
identical and shall entitle the holders thereof to the same rights and
privileges, subject to the same qualifications, limitations and restrictions.
<PAGE>
1. Voting Rights. Except as otherwise required by applicable
-------------
law, the holders of Common Stock will be entitled to one vote per share on all
matters to be voted on by the Corporation's Common Stockholders.
2. Dividends. When and as dividends are declared thereon,
---------
whether payable in cash, property or securities of the Corporation, the holders
of Common Stock will be entitled to share equally, share for share, in such
dividends.
B. Preferred Stock. The Board of Directors is expressly authorized
---------------
to provide for the issuance of all or any shares of the Preferred Stock in one
or more classes or series, and to fix for each such class or series such voting
powers, full or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the GCL, including, without limitation, the authority to provide that any such
class or series may be (i) subject to such mandatory or optional redemption at
such time or times and at such price or prices, or, if appropriate, not subject
to such mandatory or optional redemption, (ii) entitled to receive dividends
(which may be cumulative or non-cumulative) at such rates, on such conditions,
and at such times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or any other series, (iii)
entitled to such rights upon the dissolution of, or upon any distribution of the
assets of, the Corporation, or (iv) convertible into, or exchangeable for,
shares of any other class or classes of stock, or of any other series of the
same or any other class or classes of stock, of the Corporation at such price or
prices or at such rates of exchange and with such adjustments, all as may be
stated in such resolution or resolutions .
FIFTH: The following provisions are inserted for the management of
-----
the business and the conduct of
2
<PAGE>
the affairs of the Corporation, and for further definition, limitation and
regulation of the powers of the Corporation and of its directors and
stockholders:
(1) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the stockholders
to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation, as amended and restated from time to time (the "By-Laws").
(3) The number of directors of the Corporation shall not be less than
seven (7) nor more than eleven (11), the exact number of directors to be
fixed from time to time by, or in the manner provided in, the By-Laws of
the Corporation. The number of directors constituting the Board of
Directors shall be fixed at nine (9) as of the date hereof. Election of
directors need not be by written ballot unless the By-Laws so provide.
(4) No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the GCL or (iv) for any
transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article FIFTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification with respect to acts or omissions
3
<PAGE>
occurring prior to such repeal or modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the GCL, this Certificate of Incorporation, and any By-Laws
adopted by the stockholders; provided, however, that no By-Laws hereafter
adopted by the stockholders shall invalidate any prior act of the directors
which would have been valid if such By-Laws had not been adopted.
SIXTH: The name and mailing address of the Sole Incorporator is as
-----
follows:
Name Address
---- -------
Deborah M. Reusch P.O. Box 636
Wilmington, DE 19899
SEVENTH: The Corporation shall indemnify its directors and officers
-------
to the fullest extent authorized or permitted by law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who has
ceased to be a director or officer of the Corporation and shall inure to the
benefit of his or her heirs, executors and personal and legal representatives;
provided, however, that, except for proceedings to enforce rights to
- -------- -------
indemnification, the Corporation shall not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors. The right to indemnification conferred by this
Article SEVENTH shall include the right to be paid by the Corporation the
expenses incurred in defending or otherwise participating in any proceeding in
advance of its final disposition.
4
<PAGE>
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those conferred
in this Article SEVENTH to directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses conferred
in this Article SEVENTH shall not be exclusive of any other right which any
person may have or hereafter acquire under this Certificate of Incorporation,
the By-Laws, any statute, agreement, vote of stockholders or disinterested
directors or otherwise.
Any repeal or modification of this Article SEVENTH by the stockholders
of the Corporation shall not adversely affect any rights to indemnification and
to the advancement of expenses of a director or officer of the Corporation
existing at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
EIGHTH: Meetings of stockholders may be held within or without the
------
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws.
NINTH: The Corporation hereby elects not to be governed by Section
-----
203 of the GCL pursuant to Section 203(b)(3) therein.
TENTH: The Corporation reserves the right to amend, alter, change or
-----
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
5
<PAGE>
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the GCL, do make this
Certificate, hereby declaring and certifying that this is my act and deed and
the facts herein stated are true, and accordingly have hereunto set my hand this
__ day of _________, ____.
______________________
Deborah M. Reusch
Sole Incorporator
6
<PAGE>
EXHIBIT 5
FORM OF AMENDED AND RESTATED BY-LAWS
OF
ENDO PHARMACEUTICALS HOLDINGS INC.
(hereinafter called the "Corporation")
As adopted ________ __, ____
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of the
--------- -----------------
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have offices
--------- -------------
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
--------- -----------------
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to
<PAGE>
time by the Board of Directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Stockholders
--------- ---------------
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
Section 3. Nature of Business at Meetings of Stockholders. No
--------- ----------------------------------------------
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the Corporation (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 3
and on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this Section 3.
2
<PAGE>
In addition to any other applicable require ments, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
-------- -------
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings
3
<PAGE>
between such stockholder and any other person or persons (including their names)
in connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business and (v) a representation
that such stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 3; provided, however, that, once business
-------- -------
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 3 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Section 4. Special Meetings. Unless otherwise prescribed by law
--------- ----------------
or by the certificate of incorporation of the Corporation, as amended and
restated from time to time (the "Certificate of Incorporation"), Special
Meetings of Stockholders, for any purpose or purposes, may be called by any
officer of the Corporation at the request in writing of a majority of the Board
of Directors or at the request in writing of stockholders owning a majority of
the capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of
4
<PAGE>
the proposed meeting. Written notice of a Special Meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting.
Section 5. Quorum. Except as otherwise provided by law or by the
--------- ------
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally noticed. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting.
Section 6. Voting. Unless otherwise required by law, the
--------- ------
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock
5
<PAGE>
represented and entitled to vote thereat. Unless otherwise provided in the
Certificate of Incorporation and subject to Section 5 of Article V hereof, each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy but no proxy
shall be voted on or after three years from its date, unless such proxy provides
for a longer period. The Board of Directors, in its discretion, or the officer
of the Corporation presiding at a meeting of stockholders, in his or her
discretion, may require that any votes cast at such meeting shall be cast by
written ballot.
Section 7. Consent of Stockholders in Lieu of Meeting. Unless
--------- ------------------------------------------
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Section 8. List of Stockholders Entitled to Vote. The officer of
--------- -------------------------------------
the Corporation who has charge of the stock ledger of the Corporation shall
prepare and
6
<PAGE>
make, at least ten days before every meeting of stockholders, a complete list
of the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 9. Stock Ledger. The stock ledger of the Corporation
--------- ------------
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 8 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
---------
Section 1. Number and Election of Directors. The Board of Directors
--------- --------------------------------
shall consist of not less than seven (7) nor more than eleven (11) members, the
exact number of which shall initially be fixed upon the adoption of these By-
Laws at nine (9) and, thereafter, shall be fixed from time to time by resolution
of the
7
<PAGE>
Board of Directors adopted in accordance with Section 6 of this Article III (the
"Board Resolution"), or by resolution adopted by the vote of a majority of the
stockholders of the Common Stock or by consent executed on behalf of such
stockholders (the "Stockholder Resolution"); provided, that in the event of a
--------
conflict between the Board Resolution and the Stockholder Resolution, the
Stockholder Resolution shall govern. Except as provided in Section 2 of this
Article, directors shall be elected by a plurality of the votes cast at Annual
Meetings of Stockholders, and each director so elected shall hold office until
the next Annual Meeting and until his or her successor is duly elected and
qualified, or until his or her earlier resignation or removal. Any director may
resign at any time upon notice to the Corporation. Directors need not be
stockholders.
Section 2. Vacancies. Vacancies and newly created directorships
--------- ---------
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or
by a sole remaining director, and the directors so chosen shall hold office
until the next Annual Meeting and until their successors are duly elected and
qualified, or until their earlier death, resignation or removal.
Section 3. Duties and Powers. The business of the Corporation
--------- -----------------
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not
8
<PAGE>
by statute or by the Certificate of Incorporation or by these By-Laws directed
or required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation may
--------- --------
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President, or any director. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by personal delivery, facsimile, telephone or telegram on twenty-four
(24) hours' notice, or on such shorter notice as the person or persons calling
such meeting may deem necessary or appropriate in the circumstances.
Section 5. Quorum. Except as may be otherwise specifically
--------- ------
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors; provided, however, that so long as
-------- -------
(i) Kelso & Company ("Kelso") and its affiliates shall own at least 25% of the
outstanding shares of Common Stock and (ii) the Corporation's Common Stock is
not publicly traded, any act by the Board of Directors shall require the consent
of at least one member of the Board of Directors
9
<PAGE>
who is an officer, director or employee of Kelso or its affiliates (other than
the Corporation), if there exists such officer, director or employee of Kelso
serving as a member of the Board of Directors at such time. If a quorum shall
not be present at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 6. Actions of Board by Written Consent. Unless otherwise
--------- -----------------------------------
provided by the Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of
the Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless
--------- -----------------------------------------
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
10
<PAGE>
Section 8. Committees. The Board of Directors may, by resolution
--------- ----------
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any absent or disqualified member. Notwithstanding the preceding
sentences, no absent or disqualified member of any committee who is a [Target]
Designee (as defined in Section 11 of this Article III) shall be replaced at any
meeting except by another [Target] Designee or a nominee thereof. Any committee,
to the extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
Section 9. Compensation. The directors may be paid their
--------- ------------
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a
11
<PAGE>
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation there for. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 10. Interested Directors. No contract or transaction
---------- --------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present
at or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or her or
their votes are counted for such purpose if (i) the material facts as to his or
her or their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his or her or their relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract
12
<PAGE>
or transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 11. Continuing Directors. Three (3) designees of [Target]
---------- --------------------
(each of whom shall be satisfactory to the Corporation) shall be appointed to
the Board of Directors (such person and any subsequent designees thereof, the
"[Target] Designees"), and shall serve until their terms expire or until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the terms hereof or the
Certificate of Incorporation. During the three-year period, from and including
[the Effective Date], (a) at any meeting of stockholders for the purpose of
electing the members of the Board of Directors, the Corporation shall use its
reasonable best efforts to cause to be nominated for election the [Target]
Designees, (b) any vacancies created by any [Target] Designee upon such [Target]
Designee's death, resignation or removal that are not filled pursuant to a
stockholder vote shall be filled by a nominee of the remaining [Target]
Designees and (c) one [Target] Designee shall be appointed as a member of any
compensation committee of the Board of Directors or any other committee of such
Board of Directors having the responsibility or power with respect to the
granting of employee stock options.
13
<PAGE>
ARTICLE IV
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be
--------- -------
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a
Chairman of the Board of Directors (who must be a director) and one or more
Vice Presidents, Assistant Secretaries, Assistant Treasurers and other
officers. Any number of offices may be held by the same person, unless other-
wise prohibited by law, the Certificate of Incorporation or these By-Laws. The
officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman of the Board of Directors, need such officers
be directors of the Corporation.
Section 2. Election. The Board of Directors at its first meeting
--------- --------
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
14
<PAGE>
Section 3. Voting Securities Owned by the Corporation. Powers of
--------- ------------------------------------------
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name
of and on behalf of the Corporation by the President or any Vice President and
any such officer may, in the name of and on behalf of the Corporation, take all
such action as any such officer may deem advisable to vote in person or by proxy
at any meeting of security holders of any corporation in which the Corporation
may own securities and at any such meeting shall possess and may exercise any
and all rights and power incident to the ownership of such securities and which,
as the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of
--------- ----------------------------------
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the signature
of the President is required, the Chairman of the Board of Directors shall
possess the same power as the President to sign all contracts, certificates and
other instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers
15
<PAGE>
as from time to time may be assigned to him or her by these By-Laws or by the
Board of Directors.
Section 5. President. The President shall be the Chief Executive
--------- ---------
Officer of the Corporation, and shall, subject to the control of the Board of
Directors and, if there be one, the Chairman of the Board of Directors, have
general supervision of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. He or
she shall execute all bonds, mortgages, contracts and other instruments of the
Corporation requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except that
the other officers of the Corporation may sign and execute documents when so
authorized by these By-Laws, the Board of Directors or the President. In the
absence or disability of the Chairman of the Board of Directors, or if there be
none, the President shall preside at all meetings of the stockholders and the
Board of Directors. The President shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by these
By-Laws or by the Board of Directors.
Section 6. Vice Presidents. At the request of the President or in
--------- ---------------
his or her absence or in the event of his or her inability or refusal to act
(and if there be no Chairman of the Board of Directors), the Vice President or
the Vice Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of
16
<PAGE>
and be subject to all the restrictions upon the President. Each Vice President
shall perform such other duties and have such other powers as the Board of
Directors from time to time may prescribe. If there be no Chairman of the Board
of Directors and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the President or in the event
of the inability or refusal of the President to act, shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of
--------- ---------
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or President, under whose supervision he or she shall be. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of Directors or the
President may choose another officer to cause such notice to be given. The
Secretary shall have custody of the seal of the Corporation and the Secretary or
any Assistant Secretary, if there be one, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
the signature of the Secretary or by
17
<PAGE>
the signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his or her signature. The Secretary shall see that all
books, reports, statements, certificates and other documents and records
required by law to be kept or filed are properly kept or filed, as the case may
be.
Section 8. Treasurer. The Treasurer shall have the custody of the
--------- ---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his or her transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the Corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
18
<PAGE>
Section 9. Assistant Secretaries. Except as may be otherwise
--------- ---------------------
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his or her
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there
---------- --------------------
be any, shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his or her disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the Corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
19
<PAGE>
Section 11. Other Officers. Such other officers as the Board of
---------- --------------
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other offi cers and to prescribe their respective duties and
powers.
ARTICLE V
STOCK
-----
Section 1. Form of Certificates. Every holder of stock in the
--------- --------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Any or all of the signatures on a
--------- ----------
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
20
<PAGE>
Section 3. Lost Certificates. The Board of Directors may direct a
--------- -----------------
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be
--------- ---------
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his or her attorney law fully constituted in writing and
upon the surrender of the certificate therefor, which shall be cancelled before
a new certificate shall be issued.
Section 5. Record Date. In order that the Corporation may
--------- -----------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of
21
<PAGE>
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty days nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled
--------- -----------------
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI
NOTICES
-------
Section 1. Notices. Whenever written notice is required by law,
--------- -------
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his or her
address as it appears on
22
<PAGE>
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Written notice may also be given by personal delivery,
facsimile, telephone or telegram.
Section 2. Waivers of Notice. Whenever any notice is required by
--------- -----------------
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
--------- ---------
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corpora-
23
<PAGE>
tion, or for any proper purpose, and the Board of Directors may modify or
abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
--------- -------------
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall
--------- -----------
be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
--------- --------------
thereon the name of the Corporation, the year of its organization and the
words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 1. Power to Indemnify in Actions, Suits or Proceedings other
--------- ---------------------------------------------------------
than Those by or in the Right of the Corporation. Subject to Section 3 of this
- ------------------------------------------------
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
24
<PAGE>
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or
--------- ---------------------------------------------------------
in the Right of the Corporation. Subject to Section 3 of this Article VIII,
- -------------------------------
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director,
25
<PAGE>
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
--------- --------------------------------
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion or (iii) by the stockholders. To
the extent,
26
<PAGE>
however, that a director or officer of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith, without the necessity of
authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination
--------- ------------------
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe such
person's conduct was unlawful, if such person's action is based on the records
or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent.
27
<PAGE>
The provisions of this Section 4 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Section 1 or 2 of this Article VIII,
as the case may be.
Section 5. Indemnification by a Court. Not withstanding any contrary
--------- --------------------------
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
28
<PAGE>
Section 6. Expenses Payable in Advance. Expenses incurred by a
--------- ---------------------------
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
--------- ----------------------------------------------------
Expenses. The indemnification and advancement of expenses provided by or
- --------
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any By-Law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office, it being the policy of the Corporation that indemnification
of the persons specified in Sections 1 and 2 of this Article VIII shall be made
to the fullest extent permitted by law. The provisions of this Article VIII
shall not be deemed to preclude the indemnification of any person who is not
specified in Section 1 or 2 of this Article VIII but whom the Corporation has
the power or obligation to indemnify under the provisions of the General
Corporation Law of the State of Delaware, or otherwise.
29
<PAGE>
Section 8. Insurance. The Corporation may purchase and maintain
--------- ---------
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power or the
obligation to indemnify such person against such liability under the
provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
--------- -------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII,
30
<PAGE>
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director or officer with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses.
---------- -------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VIII shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director or officer
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
Section 11. Limitation on Indemnification. Notwithstanding anything
---------- -----------------------------
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
31
<PAGE>
Section 12. Indemnification of Employees and Agents. The Corporation
---------- ---------------------------------------
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
----------
Section 1. These By-Laws may be altered, amended or repealed, in
---------
whole or in part, or new By-Laws may be adopted by the stockholders or by the
Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article IX
--------- -------------------------
and in these By-Laws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.
32
