<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 26, 1999
ALGOS PHARMACEUTICAL CORPORATION
_________________________________________
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 000-28844 22-3142274
- ------------------------------- --------- ----------
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation) Identification Number)
</TABLE>
1333 Campus Parkway, Neptune, New Jersey 07753
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(732) 938-5959
-----------------------------------------------------
(Registrants' telephone number, including area code)
N/A
------------------------------------------------
(former name or former address, if changed since last report)
<PAGE>
ITEM 1(b). CHANGE IN CONTROL OF REGISTRANT
On November 26, 1999, Algos Pharmaceutical Corporation (the "Company")
entered into an Agreement and Plan of Merger (the "Merger Agreement") with Endo
Pharmaceuticals Holdings Inc. ("Endo") and Endo's wholly owned subsidiary, Endo
Inc. ("Merger Sub"). The Merger Agreement, attached hereto as Exhibit 2.1
provides that, upon satisfaction of certain conditions, the Company will merge
into Merger Sub, with Merger Sub surviving the merger as a wholly owned
subsidiary of Endo (the "Merger"). Pursuant to the Merger Agreement, each share
of common stock of the Company ("Company Common Stock") will be exchanged for
one share of common stock of Endo, such that the holders of the Company Common
Stock will own 20% of the combined public company's approximately 89.5 million
pro forma fully diluted shares outstanding. In addition, each holder of Company
Common Stock will receive a warrant (the "Warrants"), for each share of Company
Common Stock that the holder exchanges in the Merger. The Warrants will be
subject to a warrant agreement, attached hereto as an exhibit to the Merger
Agreement and will be exercisable for a nominal price per share upon approval of
MorphiDex(R) by the Food and Drug Administration (the "FDA"). If FDA approval of
MorphiDex(R) is obtained on or before December 31, 2001, then upon exercise of
the Warrants, holders of the Warrants will receive an additional 15% of the pro
forma combined company (to be calculated as if all Warrants had been exercised
at the closing of the Merger). This percentage will be reduced by an amount that
represents five percentage points for each six-month period after December 31,
2001 that MorphiDex(R) is not approved. If FDA approval of MorphiDex(R) is not
attained by December 31, 2002, the Warrants expire unexercised. In addition, in
the event that Endo (excluding revenue and expenses related to the Company) does
not meet or exceed a specified gross profit target of $147.4 million for fiscal
year 2000, shares held by current Endo stockholders will be returned to treasury
such that the current Company stockholders' ownership will increase by an
additional five percentage points.
In addition, immediately prior to the Merger, each current Endo stockholder
will receive a warrant to be exercised for a nominal price per share into Endo
common shares if FDA approval of MorphiDex(R) is not attained by December 31,
2002, in which case holders of these warrants will receive upon exercise of the
warrants an addition 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). A
form of the warrant agreement with respect to these warrants is attached hereto
as an exhibit to the Merger Agreement. If FDA approval of MorphiDex(R) is
attained by December 31, 2002, these warrants expire unexercised.
Also in connection with the Merger, certain stockholders of the Company who
own approximately 24% of the outstanding Company Common Stock in the aggregate
have each agreed pursuant to a separate voting agreement with Endo to vote in
their capacities as stockholders in favor of the Merger and against any
competing offer, These stockholders are: Karen B. Lyle, Michael Hyatt, the Trust
Under the Will of Inez L. Kimmel, Frank S. Caruso, John W. Lyle, the Hyatt
Family Trust, the Todd Kimmel Trust, the Melissa Kimmel Trust, Roger H. Kimmel,
the Frank S. Caruso Irrevocable Trust, the Anita Hyatt Family Trust, James R.
Ledley, Donald G. Drapkin and Patricia Caruso. The form of voting agreement is
attached hereto as an exhibit to the Merger Agreement.
In addition, John W. Lyle, the Chief Executive Officer of the Company will
enter into an employment agreement (the "Lyle Employment Agreement") with Endo,
whereby Mr. Lyle will become the employee of Endo in a senior executive
capacity. The Lyle Employment Agreement is attached hereto as an exhibit to the
Merger Agreement.
In addition, the Company entered into a binding letter agreement (the
"Kelso Side Letter") with Endo and Endo's majority stockholder, in which this
majority stockholder has agreed not to transfer any of its holdings of Endo
for a period of two years from the consummation of the merger, except under
conditions specified in the Kelso Side Letter. The Kelso Side Letter is attached
hereto as Exhibit 99.5.
<PAGE>
The Exhibits hereto are incorporated by reference herein and form an integral
part hereof.
<PAGE>
Item 7. Financial Statements and Exhibits.
Exhibits.
2.1 The Merger Agreement, dated November 26, 1999, by and among
Endo Pharmaceutical Holdings Inc., Endo Inc. and Algos
Pharmaceutical Corporation (the "Merger Agreement").
99.1 Form of Warrant Agreement of Endo Pharmaceutical Holdings Inc.
(attached as Exhibit C to the Merger Agreement).
99.2 Form of Warrant Agreement of Endo Pharmaceutical Holdings Inc.
(attached as Exhibit I to the Merger Agreement).
99.3 Form of Stockholder Voting Agreement between Endo
Pharmaceuticals Holdings Inc. and the stockholder named therein
(attached as Exhibit B to the Merger Agreement).
99.4 Form of Employment Agreement between Endo Pharmaceuticals
Holdings Inc. and John W. Lyle (attached as Exhibit H to the
Merger Agreement).
99.5 Letter Agreement, dated November 26, 1999, among Algos
Pharmaceutical Corporation, KIA V, L.P. and KEP V, L.P.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 26, 1999
ALGOS PHARMACEUTICAL CORPORATION
By: /s/ John W. Lyle
----------------
John W. Lyle
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
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<CAPTION>
Sequentially
Exhibit No. Numbered Page
- ----------- -------------
<S> <C>
2.1 The Merger Agreement, dated November 26, 1999, by and among Endo
Pharmaceutical Holdings Inc., Endo Inc. and Algos Pharmaceutical
Corporation (the "Merger Agreement").
99.1 Form of Warrant Agreement of Endo Pharmaceutical Holdings Inc.
(attached as Exhibit C to the Merger Agreement).
99.2 Form of Warrant Agreement of Endo Pharmaceutical Holdings Inc.
(attached as Exhibit I to the Merger Agreement).
99.3 Form of Stockholder Voting Agreement between Endo Pharmaceuticals
Holdings Inc. and the stockholder named therein (attached as
Exhibit B to the Merger Agreement).
99.4 Form of Employment Agreement between Endo Pharmaceuticals Holdings
Inc. and John W. Lyle (attached as Exhibit H to the Merger Agreement).
99.5 Letter Agreement, dated November 26, 1999, among Algos Pharmaceutical
Corporation, KIA V, L.P. and KEP V, L.P.
</TABLE>
<PAGE>
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>
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Page
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<S> <C>
ARTICLE I
THE MERGER
Section 1.1 The Merger.............................. 2
Section 1.2 Effective Time.......................... 3
Section 1.3 Effects of the Merger................... 3
Section 1.4 Directors of the Surviving Corporation.. 3
Section 1.5 Officers of the Surviving Corporation... 3
Section 1.6 Charter and By-Laws..................... 3
Section 1.7 Conversion of Securities................ 4
Section 1.8 Parent to Make Certificates Available... 5
Section 1.9 Dividends; Transfer Taxes; Withholding.. 6
Section 1.10 [Intentionally Omitted.]................ 7
Section 1.11 Return of Exchange Fund................. 7
Section 1.12 Adjustment of Conversion Number......... 7
Section 1.13 No Further Ownership Rights in Company
Common Stock............................ 8
Section 1.14 Closing of Company Transfer Books....... 8
Section 1.15 Lost Certificates....................... 8
Section 1.16 Affiliates.............................. 8
Section 1.17 Further Assurances...................... 8
Section 1.18 Closing................................. 9
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 2.1 Organization, Standing and Power............ 9
Section 2.2 Capital Structure........................... 10
Section 2.3 Authority................................... 12
Section 2.4 Consents and Approvals; No Violation........ 13
Section 2.5 Financial Statements........................ 14
Section 2.6 Registration Statement and Proxy Statement.. 15
Section 2.7 Absence of Certain Changes or Events........ 15
Section 2.8 Permits and Compliance...................... 16
Section 2.9 Tax Matters................................. 17
Section 2.10 Actions and Proceedings..................... 19
Section 2.11 Certain Agreements.......................... 20
Section 2.12 ERISA....................................... 21
Section 2.13 Compliance with Certain Laws................ 23
Section 2.14 Liabilities................................. 26
Section 2.15 Labor Matters............................... 27
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<PAGE>
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Section 2.16 Intellectual Property....................... 27
Section 2.17 Ownership of Shares......................... 31
Section 2.18 Operations of Sub........................... 32
Section 2.19 Brokers..................................... 32
Section 2.20 State Takeover Statutes..................... 32
Section 2.21 Year 2000................................... 32
Section 2.22 Accuracy of Information Furnished........... 32
Section 2.23 Required Vote of Parent and Sub
Stockholders................................ 32
Section 2.24 Interests in Other Entities................. 33
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization, Standing and Power............ 33
Section 3.2 Capital Structure; Subsidiaries............. 34
Section 3.3 Authority................................... 35
Section 3.4 Consents and Approvals; No Violation........ 35
Section 3.5 SEC Documents and Other Reports............. 37
Section 3.6 Registration Statement and Proxy Statement.. 38
Section 3.7 Absence of Certain Changes or Events........ 38
Section 3.8 Permits and Compliance...................... 39
Section 3.9 Tax Matters................................. 40
Section 3.10 Actions and Proceedings..................... 42
Section 3.11 Certain Agreements.......................... 42
Section 3.12 ERISA....................................... 43
Section 3.13 Compliance with Certain Laws................ 45
Section 3.14 Liabilities................................. 48
Section 3.15 Labor Matters............................... 48
Section 3.16 Intellectual Property....................... 49
Section 3.17 Opinion of Financial Advisor................ 53
Section 3.18 Required Vote of Company Stockholders....... 53
Section 3.19 Ownership of Shares......................... 54
Section 3.20 Brokers..................................... 54
Section 3.21 State Takeover Statutes..................... 54
Section 3.22 Year 2000................................... 55
Section 3.23 Interests in Other Entities................. 55
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger...... 55
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ii
<PAGE>
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<S> <C>
Section 4.2 No Solicitation................................... 60
Section 4.3 Tax Representation Letters........................ 61
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meeting.............................. 62
Section 5.2 Preparation of the Registration Statement
and the Proxy Statement.......................... 62
Section 5.3 Access to Information; Regulatory
Communications................................... 63
Section 5.4 Compliance with the Securities Act............... 64
Section 5.5 Designation of Directors......................... 65
Section 5.6 NASDAQ Listing................................... 65
Section 5.7 Fees and Expenses................................ 65
Section 5.8 Company Stock Options............................ 66
Section 5.9 Parent Options................................... 66
Section 5.10 Reasonable Efforts............................... 67
Section 5.11 Public Announcements............................. 68
Section 5.12 State Takeover Laws.............................. 68
Section 5.13 Indemnification; Directors and Officers
Insurance........................................ 68
Section 5.14 Notification of Certain Matters.................. 69
Section 5.15 Employee Matters................................. 69
Section 5.16 Tax Treatment.................................... 70
Section 5.17 Conveyance Taxes................................. 70
Section 5.18 Ownership of Shares.............................. 70
Section 5.19 Additional Agreements............................ 71
Section 5.20 Issuance of Warrants to Parent................... 71
Section 5.21 Formation of Parent LLC.......................... 71
Section 5.22 Effect of Parent Recapitalization................ 73
</TABLE>
iii
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger............................................ 75
Section 6.2 Conditions to Obligation of the Company to Effect
the Merger........................................ 76
Section 6.3 Conditions to Obligations of Parent and Sub to
Effect the Merger................................. 77
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination......................................... 78
Section 7.2 Effect of Termination............................... 80
Section 7.3 Amendment........................................... 80
Section 7.4 Waiver.............................................. 80
Section 7.5 Procedure for Termination, Amendment, Extension
or Waiver......................................... 80
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties...... 81
Section 8.2 Notices............................................. 81
Section 8.3 Interpretation...................................... 82
Section 8.4 Counterparts........................................ 83
Section 8.5 Entire Agreement; No Third-Party Beneficiaries...... 83
Section 8.6 Governing Law....................................... 83
Section 8.7 Assignment.......................................... 83
Section 8.8 Severability........................................ 83
Section 8.9 Enforcement of this Agreement....................... 84
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
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<CAPTION>
Term Page
- ---- ----
<S> <C>
Adjustment Event............................................ 72
Affiliates.................................................. 64
Agreement................................................... 1
Applicable Laws............................................. 23
Cash Cost of Sales.......................................... 72
Cash Gross Profit of Parent................................. 72
Certificate of Merger....................................... 3
Certificates................................................ 5
Change in the Company Recommendation........................ 62
Charter Amendment........................................... 1
Closing..................................................... 9
Closing Date................................................ 9
COBRA....................................................... 21
Code........................................................ 2
Company..................................................... 1
Company Business Personnel.................................. 49
Company By-Laws............................................. 33
Company Charter............................................. 33
Company Common Stock........................................ 1
Company Copyrights.......................................... 50
Company Designees........................................... 65
Company Disclosure Schedule................................. 34
Company Intellectual Property............................... 49
Company License Agreements.................................. 50
Company Multiemployer Plan.................................. 45
Company Patents............................................. 49
Company Permits............................................. 39
Company Plan................................................ 45
Company Preferred Stock..................................... 34
Company SEC Documents....................................... 37
Company Software............................................ 50
Company Stock Options....................................... 34
Company Stock Plans......................................... 34
Company Stockholder Approvals............................... 35
Company Takeover Proposal................................... 61
Company Technology.......................................... 50
Company Trademarks.......................................... 49
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
Constituent Corporations..................................... 1
Conversion Number............................................ 4
Credit Agreement............................................. 57
Current Endo Options......................................... 66
D&O Insurance................................................ 69
DEA.......................................................... 10
DGCL......................................................... 2
Effective Time............................................... 3
Endo Products................................................ 72
Endo Warrant Agreement....................................... 71
Endo Warrants................................................ 71
Environmental Laws........................................... 23
ERISA........................................................ 21
Exchange Act................................................. 13
Exchange Agent............................................... 5
Exchange Fund................................................ 5
FDA.......................................................... 10
FDCA......................................................... 24
GAAP......................................................... 14
Governmental Entity.......................................... 13
hazardous materials.......................................... 23
HSR Act...................................................... 13
IND.......................................................... 16
Independent Accounting Firm.................................. 73
IRS.......................................................... 21
Knowledge of Parent.......................................... 17
Knowledge of the Company..................................... 40
Lyle Agreement............................................... 71
Material Adverse Change...................................... 10
Material Adverse Effect...................................... 10
Merger....................................................... 1
Merger Consideration......................................... 4
MorphiDex(R) Application..................................... 46
NASDAQ....................................................... 14
NDA.......................................................... 16
Net Sales.................................................... 72
NOLs......................................................... 41
Non-Transferable Warrants.................................... 5
Parent....................................................... 1
Parent Business Personnel.................................... 27
Parent By-Laws............................................... 10
Parent Charter............................................... 10
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C>
Parent Class A Common Stock................................. 10
Parent Common Stock......................................... 1
Parent Copyrights........................................... 28
Parent Disclosure Schedule.................................. 11
Parent Financial Statements................................. 14
Parent Incentive Plans...................................... 11
Parent Intellectual Property................................ 27
Parent License Agreements................................... 28
Parent LLC.................................................. 71
Parent LLC Agreement........................................ 71
Parent Material Contracts................................... 17
Parent Multiemployer Plan................................... 22
Parent Patents.............................................. 28
Parent Permits.............................................. 16
Parent Plan................................................. 22
Parent Preferred Stock...................................... 10
Parent Recapitalization..................................... 2
Parent Software............................................. 28
Parent Stock Options........................................ 11
Parent Stock Plans.......................................... 11
Parent Stock Purchase Plan.................................. 11
Parent Technology........................................... 28
Parent Trademarks........................................... 27
Permits..................................................... 16
Person...................................................... 5
Position Paper.............................................. 73
Proxy Statement............................................. 15
Registration Statement...................................... 13
SEC......................................................... 12
Securities Act.............................................. 8
State Takeover Approvals.................................... 14
Stockholder Meeting......................................... 62
Stockholder Voting Agreement................................ 2
Stockholder Voting Agreements............................... 2
Sub......................................................... 1
Subsidiary.................................................. 10
Superior Company Proposal................................... 62
Surviving Corporation....................................... 2
Tax Representation Letters.................................. 61
Tax Returns................................................. 19
Tax Sharing Agreement....................................... 71
Taxes....................................................... 19
</TABLE>
viii
<PAGE>
<TABLE>
<S> <C>
Termination Date............................................ 79
Transaction Agreements...................................... 2
Warrant Agreement........................................... 4
</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
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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
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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
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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.
-----
(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
<PAGE>
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.
----------------------------
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<PAGE>
(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
<PAGE>
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.
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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
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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
<PAGE>
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
31
<PAGE>
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
<PAGE>
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.
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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
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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
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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.
43
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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).
44
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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
49
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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
51
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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
52
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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
53
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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
<PAGE>
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;
55
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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);
56
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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;
57
<PAGE>
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.
58
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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.
59
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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
60
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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
63
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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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(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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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.
76
<PAGE>
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
77
<PAGE>
(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
78
<PAGE>
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 A-1 to the
Agreement and Plan of Merger
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 A-2 - Summary of Parent Recapitalization
Endo Pharmaceuticals Holdings Inc.
Share Recapitalization Schedule
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Authorized Issued Treasury Outstanding
- ------------ ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Shares 2,000,000 929,950 - 929,950
Exchange Class A to Common Stock 200,000 174,560 (290) 174,270
----------- ---------- ----------- -------------
Adjusted Shares 2,200,000 1,104,510 (290) 1,104,220
Recapitalization Ratio 64.844x 64.844x 64.844x 64.844x
----------- ---------- ----------- -------------
Total Post-Recapitalization Shares 142,656,279 71,620,585 (18,805) 71,601,780
=========== ========== =========== =============
Class A Common Stock
- --------------------
Shares 200,000 174,560 (290) 174,270
Exchange Class A to Common Stock (200,000) (174,560) 290 (174,270)
----------- ----------- ---------- -------------
Adjusted Shares - - - -
Recapitalization Ratio 64.844x 64.844x 64.844x 64.844x
----------- ----------- ---------- -------------
Total Post-Recapitalization Shares - - - -
=========== =========== ========== =============
Preferred Stock
- ---------------
Shares 500,000 - - -
Exchange Preferred to Common Stock - - - -
----------- ----------- ---------- -------------
Adjusted Shares 500,000 - - -
Recapitalization Ratio 64.844x 64.844x 64.844x 64.844x
----------- ----------- ---------- -------------
Total Post-Recapitalization Shares 32,421,882 - - -
=========== =========== ========== =============
Totals
- ------
Total Pre-Recapitalization Shares 2,700,000 1,104,510 (290) 1,104,220
Recapitalization Ratio 64.844x 64.844x 64.844x 64.844x
----------- ----------- ---------- -------------
Total Post-Recapitalization Shares 175,078,160 71,620,585 (18,805) 71,601,780
=========== =========== ========== =============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The numbers set forth in this exhibit A-2 assume Algos has 17,900,445
fully diluted shares outstanding and are subject to adjustment after the date of
the Merger Agreement to the extent necessary to give effect to the requirements
set forth in Section 5.22 of the Merger Agreement.
<PAGE>
Exhibit B-Form of Company Voting Agreement
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 C - Form of Algos Warrant
________________________________________________________________________________
WARRANT AGREEMENT
by and between
ENDO PHARMACEUTICALS HOLDINGS INC.
and
[WARRANT AGENT],
as
Warrant Agent
_____________________
Dated as of _____________, ____
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Appointment of Warrant Agent...................................... 1
Section 2. Warrant Certificates.............................................. 2
Section 3. Execution of Warrant Certificates................................. 2
Section 4. Registration and Countersignature................................. 3
Section 5. Transfer and Exchange of Warrants................................. 4
Section 6. Registration of Transfers and Exchanges........................... 5
Section 7. Terms of Warrants; Exercise of Warrants........................... 8
Section 8. Payment of Taxes.................................................. 13
Section 9. Mutilated or Missing Warrant Certificates......................... 14
Section 10. Reservation of Warrant Shares..................................... 14
Section 11. Obtaining Stock Exchange Listings................................. 15
Section 12. Adjustment of Exercise Price and Number of
Warrant Shares Issuable........................................... 15
Section 13. Fractional Interests.............................................. 24
Section 14. Notices to Warrant Holders; Reservation
of Dividends...................................................... 24
Section 15. Notices to the Company and Warrant Agent.......................... 27
Section 16. Supplements and Amendments; Actions............................... 28
Section 17. Concerning the Warrant Agent...................................... 28
Section 18. Change of Warrant Agent........................................... 31
Section 19. Successors........................................................ 32
Section 20. Termination....................................................... 32
Section 21. GOVERNING LAW..................................................... 32
Section 22. Benefits of This Agreement........................................ 33
Section 23. Counterparts...................................................... 33
Section 24. Headings.......................................................... 33
Exhibit A. Form of Warrant Certificate.................................................... A-1
Exhibit B. Certificate to be Delivered Upon Transfer...................................... B-1
</TABLE>
i
<PAGE>
WARRANT AGREEMENT (the "Agreement"), dated as of _______ __, ____, by
---------
and between Endo Pharmaceuticals Holdings Inc., a Delaware corporation
(together with any successors and assigns, the "Company"), and [WARRANT AGENT],
-------
as Warrant Agent (the "Warrant Agent").
-------------
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of November __, 1999 (the "Merger Agreement"), by and among the Company, Endo
----------------
Inc., a Delaware corporation and wholly owned subsidiary of the Company ("Sub"),
---
and [TARGET] Pharmaceutical Corporation, a Delaware corporation Algos, the
-----
Company proposes to issue warrants (each a "Warrant," and collectively, the
-------
"Warrants") for the purchase of an aggregate of up to 20,654,360/1/ shares of
--------
common stock, par value $.01 per share, of the Company (the "Common Stock," and
------------
the shares of Common Stock issuable upon exercise of the Warrants being referred
to herein as the "Warrant Shares");
--------------
WHEREAS, there shall be two classes of Warrants, Class A which shall
be transferable ("Class A Transferable Warrants") and Class B which shall not be
-----------------------------
transferable ("Class B Non-Transferable Warrants") and each holder of shares of
---------------------------------
common stock of Target at the time of the stockholder vote relating to the
Merger Agreement may elect to receive all or a portion of such holder's Warrants
to be Class A Transferable Warrants or all or a portion of such holder's
Warrants to be Class B Non-Transferable Warrants and in the event any such
holder of shares of common stock of Target does not make such an election, then
such holder shall be issued Class A Transferable Warrants. Such election, once
made, will be irrevocable;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company and the Warrant Agent is willing to act in connection with the issuance,
transfer, exchange and exercise of Warrants as provided herein; and
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein, the Company and the Warrant Agent hereby agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby appoints
----------------------------
the Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
___________________
/1/ These numbers may be adjusted in the final Endo Warrant. See footnotes 2-5
below.
<PAGE>
Section 2. Warrant Certificates. The Class A Transferable Warrants
--------------------
will initially be issued in global form (the "Global Warrants"), substantially
---------------
in the form of Exhibit A hereto. Any certificates evidencing the Global
Warrants to be delivered pursuant to this Agreement (the "Class A Warrant
---------------
Certificates") shall be substantially in the form set forth in Exhibit A hereto.
- ------------
Such Global Warrants shall represent such of the outstanding Class A
Transferable Warrants as shall be specified therein and each shall provide that
it shall represent the aggregate amount of outstanding Class A Transferable
Warrants from time to time endorsed thereon and that the aggregate amount of
outstanding Class A Transferable Warrants represented thereby may from time to
time be reduced or increased, as appropriate. Any endorsement of a Global
Warrant to reflect the amount of any increase or decrease in the amount of
outstanding Class A Transferable Warrants represented thereby shall be made by
the Warrant Agent and the Depositary (as defined below) in accordance with
instructions given by the holder thereof. [The Depository Trust Company] shall
act as the Depositary with respect to the Global Warrants until a successor
shall be appointed by the Company. Upon written request, a Warrant holder who
holds Class A Transferable Warrants may receive from the Depositary and Warrant
Agent Class A Transferable Warrants in registered form as definitive Warrant
Certificates (the "Definitive Warrants") as set forth in Section 6 below. Class
-------------------
B Non-Transferable Warrants will be issued in certificated form in the form of
Exhibit B hereto, in the name of and in the denomination as set forth in the
applicable letter of transmittal accompanying the shares of common stock of
Target surrendered by the holder thereof in connection with the merger of Target
with and into Sub pursuant to the Merger Agreement.
Section 3. Execution of Warrant Certificates. Warrant Certificates
---------------------------------
shall be signed on behalf of the Company by its Chairman of the Board, its
President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer or Treasurer or a Vice President and by its Secretary or an Assistant
Secretary. Each such signature upon the Warrant Certificates may be in the form
of a facsimile signature of the present or any future Chairman of the Board,
President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, Treasurer, Vice President, Secretary or Assistant Secretary and may be
imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person who
shall have been Chairman of the Board, President, Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, Treasurer, a Vice President,
Secretary or an Assistant Secretary, notwithstanding the fact that at the time
the Warrant Certificates shall be countersigned and delivered or disposed of
such person shall have ceased to hold such office.
2
<PAGE>
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of countersignature by
the Warrant Agent.
Section 4. Registration and Countersignature. The Warrants shall be
---------------------------------
numbered and shall be registered on the books of the Company maintained at the
principal office of the Warrant Agent in [LOCATION OF WARRANT AGENT'S OFFICES]
(the "Warrant Register") as they are issued.
----------------
Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. The
Warrant Agent shall, upon written instructions of the Chairman of the Board, the
President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, Treasurer, a Vice President, the Secretary or an Assistant Secretary of
the Company, initially countersign and deliver Warrants entitling the holders
thereof to purchase not more than the number of Warrant Shares referred to above
in the first recital hereof and shall thereafter countersign and deliver
Warrants as otherwise provided in this Agreement.
The Company and the Warrant Agent may deem and treat the registered
holders (the "Holders") of the Warrant Certificates as the absolute owners
-------
thereof (notwithstanding any notation of ownership or other writing thereon made
by anyone) for all purposes, and neither the Company nor the Warrant Agent shall
be affected by any notice to the contrary.
Section 5. Transfer and Exchange of Warrants. The Warrant Agent shall
---------------------------------
from time to time, subject to the limitations of Section 6 hereof, register the
transfer of any outstanding Warrants upon the records to be maintained by it for
3
<PAGE>
that purpose, upon surrender thereof duly endorsed or accompanied (if so
required by it) by a written instrument or instruments of transfer in form
satisfactory to the Warrant Agent, duly executed by the registered Holder or
Holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney; provided that Class B Non-Transferable Warrants may
-------- ----
only be transferred (i) as the result or assignment by operation of law (such as
death or merger or otherwise) or (ii) as required by law or any court of
competent jurisdiction (such as in connection with divorce, bankruptcy or
liquidation). A request for a transfer of a Class B Non-Transferable Warrant
shall be accompanied by such documentation establishing satisfaction of the
conditions set forth in clause (i) or (ii) above, as applicable, as may be
reasonably requested by the Company (including opinions of counsel, if
appropriate). Upon receipt of documentation reasonably satisfactory to the
Company, the Company shall authorize the Warrant Agent to permit the transfer of
a Class B Non-Transferable Warrant. The Warrant Agent shall not permit the
transfer of a Class B Non-Transferable Warrant until it is so authorized by the
Company. Unless otherwise authorized by the Company, Class B Non-Transferable
Warrant Certificate may only be transferred for another Class B Non-Transferable
Warrant Certificate. Subject to the terms of this Agreement, each Warrant
Certificate may be exchanged for another certificate or certificates entitling
the Holder thereof to purchase a like aggregate number of Warrant Shares as the
certificate or certificates surrendered then entitle each Holder to purchase.
Any Holder desiring to exchange a Warrant Certificate or Certificates shall make
such request in writing delivered to the Warrant Agent, and shall surrender,
duly endorsed or accompanied (if so required by the Warrant Agent) by a written
instrument or instruments of transfer in form satisfactory to the Warrant Agent,
the Warrant Certificate or Certificates to be so exchanged.
Upon registration of transfer, the Warrant Agent shall countersign and
deliver by certified or first class mail a new Warrant Certificate or
Certificates to the persons entitled thereto. The Warrant Certificates may be
exchanged at the option of the Holder thereof, when surrendered at the office or
agency of the Company maintained for such purpose, which initially will be the
corporate trust office of the Warrant Agent in [LOCATION OF WARRANT AGENT'S
CORPORATE TRUST OFFICE], for another Warrant Certificate, or other Warrant
Certificates of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Warrant Shares.
No service charge shall be made for any exchange or registration of
transfer of Warrant Certificates, but the Company may require payment of a sum
4
<PAGE>
sufficient to cover any stamp or other tax or other governmental charge that is
imposed in connection with any such exchange or registration of transfer.
Section 6. Registration of Transfers and Exchanges.
---------------------------------------
(a) Transfer and Exchange of Definitive Warrants. When Definitive
--------------------------------------------
Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of Definitive
Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if its requirements under this Agreement are met; provided, however, that the
-------- -------
Definitive Warrants presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Warrant Agent, duly executed by the Holder
thereof or by such Holder's attorney, duly authorized in writing; provided that
-------- ----
a transfer of Definitive Warrants that are Class B Non-Transferable Warrants
shall be subject to the requirements of Section 5 hereof.
(b) Restrictions on Transfer of a Definitive Warrant for a Beneficial
-----------------------------------------------------------------
Interest in a Global Warrant. The Warrant Agent may exchange a Definitive
- ----------------------------
Warrant for a beneficial interest in a Global Warrant only if the Warrant Agent
has received such Definitive Warrant, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Warrant Agent,
together with written instructions directing the Warrant Agent to make, or to
direct the Depositary to make, an endorsement on the Global Warrant to reflect
an increase in the aggregate amount of the Warrants represented by the Global
Warrant. If such conditions have been satisfied, the Warrant Agent shall cancel
such Definitive Warrant and cause, or direct the Depositary to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Warrant Agent, the number of Warrant Shares represented by
the Global Warrant to be increased accordingly. If no Global Warrant is then
outstanding, the Company shall issue and the Warrant Agent shall countersign a
new Global Warrant in the appropriate amount.
(c) Transfer and Exchange of Global Warrants. The transfer and
----------------------------------------
exchange of Global Warrants or beneficial interests therein shall be effected
through
5
<PAGE>
the Depositary, in accordance with this Warrant Agreement (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) Transfer of a Beneficial Interest in a Global Warrant for a
-----------------------------------------------------------
Definitive Warrant.
- ------------------
(i) Any person having a beneficial interest in a Global Warrant may upon
his, her or its request exchange such beneficial interest for a
Definitive Warrant. Upon receipt by the Warrant Agent of written
instructions (or such other form of instructions as is customary for
the Depositary) from the Depositary or its nominee on behalf of any
person having a beneficial interest in a Global Warrant and upon
receipt by the Warrant Agent of a written order or such other form of
instructions as is customary for the Depositary or the person
designated by the Depositary as having such a beneficial interest
containing registration instructions, then the Warrant Agent will
cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Warrant Agent, the aggregate
amount of the Global Warrant to be reduced and, following such
reduction, the Company will execute and, upon receipt of a
countersignature, the Warrant Agent will countersign and deliver to
the transferee a Definitive Warrant. All such Warrants shall be Class
A Transferable Warrants.
(ii) Definitive Warrants issued in exchange for a beneficial interest in a
Global Warrant pursuant to this Section 6(d) shall be registered in
such names and in such authorized denominations as the Depositary,
pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Warrant Agent in writing, provided such
designation is in accordance with this Section 6(d). The Warrant Agent
shall deliver such Definitive Warrants to the persons in whose names
such Definitive Warrants are registered.
(e) Restrictions on Transfer and Exchange of Global Warrants.
--------------------------------------------------------
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in subsection (f) of this Section 6), a Global Warrant may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary
6
<PAGE>
or by the Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary.
(f) Authentication of Definitive Warrants in Absence of Depositary.
---------------------------------------------------------------
If at any time:
(i) the Depositary for the Global Warrants notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the
Global Warrant and a successor Depositary for the Global Warrant is
not appointed by the Company within 90 days after delivery of such
notice; or
(ii) the Company, at its sole discretion, notifies the Warrant Agent in
writing that it elects to cause the issuance of Definitive Warrants
under this Warrant Agreement,
then the Company will execute, and the Warrant Agent, upon receipt of an
officers' certificate, signed by the President, Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer or a Vice President of the Company,
requesting the counter-signature and delivery of Definitive Warrants, will
countersign and deliver Definitive Warrants, in an aggregate number equal to the
aggregate number of Warrants represented by the Global Warrant, in exchange for
such Global Warrant.
(g) Cancellation and/or Adjustment of a Global Warrant. At such time
--------------------------------------------------
as all beneficial interests in a Global Warrant have either been exchanged for
Definitive Warrants, redeemed, repurchased or cancelled, such Global Warrant
shall be returned to or retained and cancelled by the Warrant Agent. At any time
prior to such cancellation, if any beneficial interest in a Global Warrant is
exchanged for Definitive Warrants, redeemed, repurchased or cancelled, the
number of Warrants represented by such Global Warrant shall be reduced and an
endorsement shall be made on such Global Warrant, by the Warrant Agent to
reflect such reduction.
(h) Obligations with Respect to Transfers and Exchanges of Definitive
-----------------------------------------------------------------
Warrants.
- --------
(i) To permit registrations of transfers and exchanges in accordance with
the terms of this Agreement, the Company shall execute, and the
Warrant Agent shall countersign Definitive Warrants and Global
Warrants.
7
<PAGE>
(ii) All Definitive Warrants and Global Warrants issued upon any
registration, transfer or exchange of Definitive Warrants or Global
Warrants shall be the valid obligations of the Company, entitled to
the same benefits under this Warrant Agreement as the Definitive
Warrants or Global Warrants surrendered upon the registration of
transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat the
person in whose name any Warrant is registered as the absolute owner
of such Warrant, and neither the Warrant Agent nor the Company shall
be affected by notice to the contrary.
Section 7. Terms of Warrants; Exercise of Warrants. Subject to the
---------------------------------------
terms of this Agreement, each Warrant Holder shall have the right, which may be
exercised commencing on or after the Exercisability Date (as defined below) and
until 5:00 p.m., New York City time, on the six-month anniversary of the
Exercisability Date (the "Expiration Date"), to receive from the Company the
---------------
number of fully paid and nonassessable Warrant Shares which the Holder may at
the time be entitled to receive on exercise of such Warrants and payment of the
Exercise Price (as defined below) then in effect for such Warrant Shares
together, if applicable, with cash payable as provided in Section 13 hereof and
any dividends or distributions payable as provided in Section 14 hereof. If the
Exercisability Date is on or prior to December 31, 2001, the Holders shall then
be entitled to receive from the Company (on exercise of such Warrants and
payment of the Exercise Price then in effect for such Warrant Shares) (together,
if applicable, with cash payable as provided in Section 13 hereof and any
dividends or distributions payable as provided in Section 14 hereof) (a)
20,654,360 Warrant Shares (in the aggregate) (with each Warrant being
exercisable for 1.153846 Warrant Shares)/2/ in the event the Adjustment Event
(as defined in the Merger Agreement) has not occurred prior to the
Exercisability Date or (b) 17,900,445 Warrant Shares (in the aggregate) (with
each Warrant being
__________________
/2/ These numbers shall be adjusted in the final Agreement and Warrants in
order to reflect that at the Effective Time such aggregate number, when
taken together with the shares of Parent Common Stock issuable to holders
of Company Stock in the Merger, shall equal 35% of the shares of Parent
Common Stock on a fully diluted basis (excluding the effect of the Algos
Warrants as if no Adjustment Event had occurred).
8
<PAGE>
exercisable for 1.000000 Warrant Shares)/3/ in the event the Adjustment Event
has occurred prior to the Exercisability Date. If the Exercisability Date is
after December 31, 2001 and on or prior to June 30, 2002, the Holder shall then
be entitled to receive from the Company (on exercise of such Warrants and
payment of the Exercise Price then in effect for such Warrant Shares) (together,
if applicable, with cash payable as provided in Section 13 hereof and any
dividends or distributions payable as provided in Section 14 hereof) (a)
12,786,032 Warrant Shares (in the aggregate) (with each Warrant being
exercisable for 0.714286 Warrant Shares)/4/ in the event the Adjustment Event
has not occurred prior to the Exercisability Date or (b) 11,015,658 Warrant
Shares (in the aggregate) (with each Warrant being exercisable for 0.615385
Warrant Shares)/5/ in the event the Adjustment Event has occurred prior to the
Exercisability Date. If the Exercisability Date is after June 30, 2002 and on or
prior to December 31, 2002 (the "Ultimate Expiration Date"), the Holders shall
------------------------
then be entitled to receive from the Company (on exercise of such Warrants and
payment of the Exercise Price then in effect for such Warrant Shares) (together,
if applicable, with cash payable as provided in Section 13 hereof and any
dividends or distributions payable as provided in Section 14 hereof) (a)
5,966,815 Warrant Shares (in the aggregate) (with each Warrant being exercisable
for 0.333333 Warrant Shares)/6/ in the event the Adjustment Event has not
occurred prior to the
_____________________
/3/ These numbers shall be adjusted in the final Agreement and Warrants in
order to reflect that at the Effective Time such aggregate number, when
taken together with the shares of Parent Common Stock issuable to holders
of Company Common Stock in the Merger, shall equal 40% of the shares of
Parent Common Stock on a fully diluted basis (excluding the effect of
the Algos Warrants and after giving effect to the Adjustment Event as if
it had occurred).
/4/ These number shall be adjusted in the final Agreement and Warrants in order
at the Effective Time such aggregate number, when taken together with the
shares of Parent Common Stock issuable to holders of Company Stock in the
Merger, shall equal 30% of the shares of Parent Common Stock on a fully
diluted basis (excluding the effect of the Algos Warrants as if no
Adjustment Event had occurred).
/5/ These numbers shall be adjusted in the final Agreement and Warrants in
order to reflect that at the Effective Time such aggregate number, when
taken together with the shares of Parent Common Stock issuable to holders
of Company Common Stock in the Merger, shall equal 35% of the shares of
Parent Common Stock on a fully diluted basis (excluding the effect of the
Algos Warrants as if no Adjustment Event had occurred).
/6/ These numbers shall be adjusted in the final Agreement and Warrants in
order to reflect that at the Effective Time such aggregate number, when
taken together with the shares of Parent
(continued...)
9
<PAGE>
Exercisability Date or (b) 5,114,413 Warrant Shares (in the aggregate) (with
each Warrant being exercisable for 0.285714 Warrant Shares)/7/ in the event
the Adjustment Event has occurred prior to the Exercisability Date. Each
Warrant not exercised prior to the Expiration Date shall become void and all
rights thereunder and all rights in respect thereof under this Agreement
shall cease as of the Expiration Date. Without limiting the foregoing, in the
event the Ultimate Expiration Date occurs before the Exercisability Date, each
Warrant shall become void and all rights thereunder and all rights in respect
thereof under this Agreement shall cease as of the Ultimate Expiration Date.
If applicable, dividends and other distributions will be made upon exercise of
the Warrants as set forth in Section 14 hereof.
"Exercisability Date" shall mean the fifth (5/th/) Business Day (as
-------------------
defined below) following the date on which the Company (or any of its
subsidiaries) receives approval from the U.S. Food and Drug Administration (the
"FDA") with respect to its New Drug Application for MorphiDex(R) for the
---
treatment of one or more pain indications. In addition to the notices
required by Section 14 hereof, the Company shall give prompt written notice to
the Warrant Agent that the Exercisability Date has occurred and shall cause the
Warrant Agent, on behalf of and at the expense of the Company, within 5 Business
Days after such notification is received by the Warrant Agent, to mail by first
class mail, postage prepaid, to each Holder a notice specifying that the
Exercisability Date has occurred and that the Warrant has become exercisable
pursuant to its terms and that the Warrant will expire at 5:00 p.m., New York
City time, on the Expiration Date. In addition, the Company shall post
appropriate notices of the Exercisability Date on its web pages
- ----------------------
/6/ (...continued)
Common Stock issuable to holders of Company Common Stock in the Merger,
shall equal 25% of the shares of Common Stock on a fully diluted basis
(excluding the effect of Algos Warrants as if no Adjustment Event had
occurred).
/7/ These numbers shall be adjusted in the final Agreement and Warrants in
order to reflect that at the Effective Time such aggregate number, when
taken together with the shares of Parent Common Stock issuable to holders
Company Common Stock in the Merger, shall equal 30% of the shares of Parent
Common Stock on a fully diluted basis (excluding the effect of the Algos
Warrants and after giving effect to the Adjustment Event as if it had
occurred).
10
<PAGE>
and issue press releases to wire services. A "Business Day" is a day that is not
------------
a Legal Holiday. A "Legal Holiday" is a Saturday a Sunday, a federally
-------------
recognized holiday or a day on which banking institutions are not required to be
open in the State of New York.
From and after the Effective Time, Parent agrees to use its reasonable
efforts to continue to process the FDA application for MorphiDex(R) in a timely
fashion. The parties acknowledge that there are many variables in the process of
obtaining FDA approval in such a situation and many different approaches which
may be used by an applicant in order to obtain such approval; as a result, the
parties hereto agree that all determinations relating to such process and all
actions taken in connection with seeking such approval shall be in the sole
discretion of Parent and shall be binding upon the parties for all purposes. The
parties further acknowledge that (i) on August 2, 1999, the Company received
notification from the FDA that such application was not approvable, (ii) the
failure to obtain such approval, either at all or on or before a certain date,
shall not be deemed a breach by Parent of the provisions hereof and (iii) in any
event Parent shall have no responsibility in connection with the provisions of
this paragraph, except for its willful breach hereof.
The initial price per share at which Warrant Shares shall be
purchasable upon exercise of Warrants (the "Exercise Price") shall equal $0.01.
--------------
A Warrant may be exercised upon surrender at the office or agency of the Company
maintained for such purpose, which initially will be the corporate trust office
of the Warrant Agent or its agents in [LOCATION OF WARRANT AGENT'S OFFICE], of
the Warrant Certificate(s) evidencing the Warrants to be exercised with the form
of election to purchase on the reverse thereof duly filled in and signed, which
signature shall be guaranteed by a participant in a recognized Signature
Guarantee Medallion Program, and upon payment to the Warrant Agent for the
account of the Company of the Exercise Price, as adjusted as herein provided,
for the number of Warrant Shares together, if applicable, with cash payable as
provided in Section 13 hereof and any dividends or distributions as provided in
Section 14 hereof in respect of which such Warrants are then exercised. Payment
of the Exercise Price may be made (a) in the form of cash or by certified or
official bank check payable to the order of the Company in New York Clearing
House Funds, (b) by delivering to the Company a written notice accompanying the
surrender of a Warrant to, at the time of
11
<PAGE>
exercise, apply to the payment of Exercise Price such number of Warrant Shares
as shall be specified in such notice, in which case an amount equal to the
excess of the Current Market Value (as defined in Section 12(d) hereof) of such
Warrant Shares on the date of exercise over the Exercise Price required for such
exercise shall be deemed to have been paid to the Company and the number of
Warrant Shares issuable upon such exercise shall be reduced by such specified
number (a "Cashless Exercise") or (c) any combination of (a) and (b) above.
-----------------
Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
Holder and in such name or names as the Warrant Holder may designate a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants together with cash as provided in Section 13
hereof. Such certificate or certificates shall be deemed to have been issued and
any person so named therein shall be deemed to have become a holder of record of
such Warrant Shares as of the date of the surrender of such Warrants and payment
of the Exercise Price.
On or after the Exercisability Date, the Warrants shall be
exercisable, at the election of the Holders thereof, either in full or from time
to time in part and, in the event that a certificate evidencing Warrants is
exercised in respect of fewer than all of the Warrant Shares issuable on such
exercise at any time prior to the Expiration Date, a new certificate evidencing
the remaining Warrant or Warrants will be issued, and the Warrant Agent is
hereby irrevocably authorized to countersign and to deliver the required new
Warrant Certificate or Certificates pursuant to the provisions of this Section 7
and of Section 3 hereof, and the Company, whenever required by the Warrant
Agent, will promptly supply the Warrant Agent with Warrant Certificates duly
executed on behalf of the Company for such purpose.
All Warrant Certificates surrendered upon exercise of Warrants shall
be cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall
then be either delivered to the Company or disposed of by the Warrant Agent in a
manner consistent with the Warrant Agent's customary procedure for such disposal
and in a manner reasonably satisfactory to the Company. The Warrant Agent shall
account promptly to the Company with respect to Warrants exercised and
concurrently pay to
12
<PAGE>
the Company all monies received by the Warrant Agent for the purchase of the
Warrant Shares through the exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement available for
inspection by the Holders during normal business hours at its office. The
Company shall supply the Warrant Agent from time to time with such numbers of
copies of this Agreement as the Warrant Agent may request.
Section 8. Payment of Taxes. The Company will pay all documentary
----------------
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided, however, that the Company shall not be required
-------- -------
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue of any Warrant Certificates or any certificates for Warrant Shares
in a name other than that of the registered Holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
Section 9. Mutilated or Missing Warrant Certificates. In case any of
-----------------------------------------
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue and the Warrant Agent may countersign, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity, if requested, also satisfactory to them.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or the Warrant Agent may prescribe.
Section 10. Reservation of Warrant Shares. The Company will at all
-----------------------------
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to
13
<PAGE>
issue Warrant Shares upon exercise of Warrants, the maximum number of shares of
Common Stock which may then be deliverable upon the exercise of all outstanding
Warrants.
The Company will keep a copy of this Agreement on file with the
transfer agent for the Common Stock (the "Transfer Agent") and with every
--------------
subsequent transfer agent for any shares of the Company's capital stock issuable
upon the exercise of the rights of purchase represented by the Warrants. The
Warrant Agent is hereby irrevocably authorized to requisition from time to time
from such Transfer Agent the stock certificates required to honor outstanding
warrants upon exercise thereof in accordance with the terms of this Agreement.
The Company will supply such Transfer Agent with duly executed certificates for
such purposes and will provide or otherwise make available any cash which may be
payable as provided in Section 13 hereof. The Company will furnish such Transfer
Agent a copy of all notices of adjustments and certificates related thereto
transmitted to each Holder pursuant to Section 14 hereof.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon payment of the Exercise Price therefor and
issue, be validly authorized and issued, fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issuance thereof. The Company will use its reasonable best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Agreement.
Section 11. Obtaining Stock Exchange Listings. The Company will from
---------------------------------
time to time take all action which may be necessary so that the Warrants and,
immediately upon their issuance upon exercise of the Warrants, the Warrant
Shares will be listed on the principal securities exchanges and markets within
the United States of America, if any, on which other shares of Common Stock are
then listed.
14
<PAGE>
Section 12. Adjustment of Exercise Price and Number of Warrant Shares
---------------------------------------------------------
Issuable.
- --------
(a) If the Company:
(i) pays a dividend or makes a distribution on its Common Stock in shares
of its Common Stock or other capital stock of the Company; or
(ii) subdivides, splits, combines or reclassifies its outstanding shares of
Common Stock into a different number of securities of the same class,
then the number of shares of Common Stock issuable upon the exercise of each
Warrant (the "Exercise Rate") in effect immediately prior to such action shall
-------------
be proportionately adjusted so that the Holder of any Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital stock
of the Company which such Holder would have owned immediately following such
action if such Warrant had been exercised immediately prior to such action and
the Exercise Price in effect immediately prior to such action shall be adjusted
to a price determined by multiplying the Exercise Price in effect immediately
prior to such action by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding before giving effect to such action and
the denominator of which shall be the number of shares of Common Stock and/or
such other capital stock outstanding referred to in the foregoing clause (a)(1)
after giving effect to such action.
An adjustment pursuant to this Section 12(a) shall become effective
immediately after the record date in the case of a dividend or distribution and
immediately after the effective date in the case of a subdivision, combination
or reclassification.
If, after an adjustment pursuant to this Section 12(a), a Holder of a
Warrant upon exercise of it may receive shares of two or more classes of capital
stock of the Company, the board of directors of the Company shall determine the
allocation of the adjusted Exercise Price between the classes of capital stock.
After such allocation, the exercise privilege and the Exercise Price of each
class of capital stock shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Stock in this Section 12.
15
<PAGE>
Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) Adjustment for Certain Issuances of Common Stock. If the Company
------------------------------------------------
issues or sells to any Affiliate (as defined in Section 12(d) hereof) of the
Company shares of its Common Stock or distributes to any Affiliate of the
Company any rights, options or warrants entitling them to purchase shares of
Common Stock, or securities convertible into or exchangeable for Common Stock,
in each case, at a price per share less than the Current Market Value on the
record date for determining entitlements of such Affiliates to participate in
such issuance, sale or distribution (the "Time of Determination") and prior to
--------------------- ---
such issuance, sale or distribution the Company did not first offer to issue,
sell or distribute such shares of its Common Stock or such rights, options or
warrants or such securities convertible into or exchangeable for Common Stock to
all holders of Common Stock on the same economic terms and on a pro rata basis
with the issuance, sale or distribution to the Affiliates of the Company, then
----
the Exercise Rate shall be adjusted in accordance with the formula:
E' = E x O + N
---------------
O + N x P
-----
M
and the Exercise Price shall be adjusted in accordance with the following
formula:
EP'= EP x E
---
E'
where:
E' = the adjusted Exercise Rate.
E = the Exercise Rate immediately prior to the Time of Determination
for any such issuance, sale or distribution.
EP' = the Adjusted Exercise Price.
16
<PAGE>
EP = the Exercise Price immediately prior to the Time of
Determination for any such issuance, sale or distribution.
O = the number of Fully Diluted Shares (as defined below)
outstanding immediately prior to the Time of Determination for
any such issuance, sale or distribution.
N = the number of additional shares of Common Stock issued, sold or
issuable upon exercise of such rights, options or warrants.
P = the per share price received and receivable by the Company in
the case of any issuance or sale of Common Stock or rights,
options or warrants as to which such adjustment is being made,
inclusive of the exercise price per share of Common Stock
payable upon exercise of such rights, options or warrants.
M = the Current Market Value per share of Common Stock on the Time
of Determination for any such issuance, sale or distribution.
For purposes of this Section 12(b), the term "Fully Diluted Shares"
--------------------
shall mean (i) the shares of Common Stock outstanding as of a specified date,
and (ii) the shares of Common Stock into or for which rights, options, warrants
or other securities of the Company outstanding as of such date are exercisable
or convertible (other than the Warrants).
Any adjustments shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
relevant Time of Determination. Notwithstanding the foregoing, the Exercise
Rate and the Exercise Price shall not be subject to adjustment in connection
with (i) the issuance of any shares of Common Stock upon exercise of any such
rights, options or warrants which have previously been the subject of an
adjustment under this Agreement for which the required adjustment has been made
and (ii) any exercise of the Warrants. If at the end of the period during which
any such rights,
17
<PAGE>
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Warrant shall be immediately readjusted to what it
would have been if "N" in each of the above formulas had been the number of
shares actually issued.
(c) When De Minimis Adjustment May Be Deferred. No adjustment in the
------------------------------------------
Exercise Rate need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Rate. Notwithstanding the foregoing, any
adjustments that are not made shall be carried forward and taken into account in
any subsequent adjustment, provided that no such adjustment shall be deferred
-------- ----
beyond the date on which a Warrant is exercised.
All calculations under this Section 12 shall be made to the nearest
cent or to the nearest 1/100/th/ of a share, as the case may be.
(d) Certain Definitions. "Current Market Value" per share of Common
------------------- --------------------
Stock or of any other security (herein collectively referred to as a "Security")
--------
at any date shall be:
(1) if the Security is not registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (i) the value of the Security
------------
determined in good faith by the board of directors of the Company and
certified in a board resolution, based on the most recently completed
arm's-length transaction between the Company and a person other than an
Affiliate of the Company and the closing of which occurs on such date or
shall have occurred within the six months preceding such date or (ii) if no
such transaction shall have occurred on such date or within such six-month
period, the value of the Security determined as of a date within 30 days
preceding such date by an Independent Financial Expert (as defined below),
or
(2) if the Security is registered under the Exchange Act, the average
of the daily closing bid prices of such Security for 30 consecutive
Business Days selected by the Company from the period of 45 Business Days
preceding such date, but only if such Security shall have been listed on a
national securities exchange or the Nasdaq National Market or traded
through an automated quotation system during such entire 45-Business Day
period.
18
<PAGE>
The "closing bid price" for any Security on each Business Day means
-----------------
the closing price, regular way, on such day on the principal exchange on which
such Security is traded, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day.
"Independent Financial Expert" shall mean any nationally recognized
----------------------------
investment banking firm that is not an Affiliate of the Company. Any such
person may receive customary compensation and indemnification by the Company for
opinions or services it provides as an Independent Financial Expert.
"Affiliate" of any specified person means any other person which
---------
directly or indirectly through one or more intermediaries controls or is
controlled by, or is under common control with, such specified person. For the
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling," "controlled by" and "under common control with") as used
with respect to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
person, whether through the ownership of voting securities, by agreement or
otherwise.
"Ordinary Cash Distribution" means any quarterly cash dividend on the
--------------------------
Common Stock to the extent that the aggregate cash dividend per share of Common
Stock in any calendar quarter does not exceed the greater of (x) the amount per
share of Common Stock of the next preceding quarterly cash dividend on the
Common Stock (as adjusted to reflect subdivisions or combinations of the Common
Stock) and (y) 3.0% of the average of the last reported sales prices of the
Common Stock during the ten trading days immediately prior to the date of
declaration of such dividend.
(e) When No Adjustment Required. If an adjustment is made upon the
---------------------------
establishment of a record date for an issuance, sale or distribution subject to
subsection (a) or (b) hereof and such issuance, sale or distribution is
subsequently cancelled or is not otherwise made, the Exercise Rate and Exercise
Price then in effect shall be readjusted, effective as of the date when the
board of directors of the Company determines to cancel such issuance, sale or
distribution or when it is otherwise evident that such issuance, sale or
distribution will not be so made, to that
19
<PAGE>
which would have been in effect if such record date had not been fixed. If an
adjustment would be required under both subsections (a) and (b) above, such
adjustments will be determined without duplication.
To the extent the Warrants become convertible into cash, no adjustment
need be made thereafter as to the amount of cash into which such Warrants are
exercisable. Interest will not accrue on the cash.
(f) Notice of Adjustment. Whenever the Exercise Rate or Exercise
--------------------
Price is adjusted, the Company shall provide the notices required by Section 14
hereof.
(g) Voluntary Reduction. The Company from time to time may increase
-------------------
the Exercise Rate or reduce the Exercise Price by any amount for any period of
time (including, without limitation, permanently) if the period is at least 20
Business Days after the Company has given notice of such increase or reduction
in accordance with Section 14 hereof.
An increase of the Exercise Rate or reduction in the Exercise Price
under this subsection (g) (other than a permanent increase) does not change or
adjust the Exercise Rate otherwise in effect for purposes of subsection (a) and
(b) of this Section 12.
(h) When Issuance or Payment May Be Deferred. In any case in which
----------------------------------------
this Section 12 shall require that an adjustment in the Exercise Rate or
Exercise Price be made effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event (i) issuing to the
Holder of any Warrant exercised after such record date the Warrant Shares and
other capital stock of the Company, if any, issuable upon such exercise over and
above the Warrant Shares and other capital stock of the Company, if any,
issuable upon such exercise on the basis of the Exercise Rate prior to such
adjustment, and (ii) paying to such Holder any amount in cash in lieu of a
fractional share pursuant to Section 13 hereof; provided, however, that the
-------- -------
Company shall deliver to the Warrant Agent and shall cause the Warrant Agent, on
behalf of and at the expense of the Company, to deliver to such Holder a due
bill or other appropriate instrument evidencing such
20
<PAGE>
Holder's right to receive such additional Warrant Shares, other capital stock
and cash upon the occurrence of the event requiring such adjustment.
(i) Reorganizations. In case of (i) any capital reorganization,
---------------
other than in the cases referred to in Section 12(a) and (b) hereof and other
than any capital reorganization that does not result in any reclassification of
the outstanding shares of Common Stock into shares of other stock or other
securities or property, or (ii) the consolidation or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the continuing corporation and which does not result in any
reclassification of the outstanding shares of Common Stock into shares of other
stock or other securities or property), or (iii) the sale of all or
substantially all of the assets of the Company (collectively such actions being
hereinafter referred to as "Reorganizations"), there shall thereafter be
---------------
deliverable upon exercise of any Warrant in accordance with the terms hereof (in
lieu of the number of shares of Common Stock theretofore deliverable) the number
of shares of stock or other securities or property to which a holder of the
number of shares of Common Stock that would otherwise have been deliverable upon
the exercise of such Warrant would have been entitled upon such Reorganization
if the Exercisability Date had occurred and such Warrant had been exercised in
full immediately prior to such Reorganization. In case of any Reorganization,
appropriate adjustment, as determined in good faith by the board of directors
of the Company, whose determination shall be described in a duly adopted
resolution certified by the Company's Secretary or Assistant Secretary, shall be
made in the application of the provisions herein set forth with respect to the
rights and interests of Holders so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any such shares
or other securities or property thereafter deliverable upon exercise of
Warrants.
The Company shall not effect any such Reorganization unless prior to
or simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such Reorganization or the corporation or
other entity purchasing such assets shall expressly assume, by a supplemental
warrant agreement or other acknowledgment executed and delivered to the Warrant
Agent, the obligation to deliver to the Warrant Agent and to cause the Warrant
Agent to deliver to each such Holder such shares of stock, securities or assets
as, in
21
<PAGE>
accordance with the foregoing provisions, such Holder may be entitled to
purchase in accordance with the terms hereof upon the occurrence of the
Exercisability Date, and the due and punctual performance and observance of each
and every covenant, condition, obligation and liability under this Agreement to
be performed and observed by the Company in the manner prescribed herein.
The foregoing provisions of this Section 12(i) shall apply to
successive Reorganization transactions.
(j) Form of Warrants. Irrespective of any adjustments in the number
----------------
or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
(k) Warrant Agent's Disclaimer. The Warrant Agent has no duty to
--------------------------
determine when an adjustment under this Section 12 should be made, how it should
be made or what it should be. The Warrant Agent has no duty to determine
whether any provisions of a supplemental warrant agreement under subsection (i)
of this Section 12 are correct. The Warrant Agent makes no representation as to
the validity or value of any securities or assets issued upon exercise of
Warrants. The Warrant Agent shall not be responsible for the Company's failure
to comply with this Section 12.
(l) Miscellaneous. For purpose of this Section 12 the term "shares of
------------- ---------
Common Stock" shall mean (i) shares of the class of stock designated as the
- ------------
Common Stock, par value $.01 per share, of the Company as of the date of this
Agreement, and (ii) shares of any other class of stock resulting from successive
changes or reclassification of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that at any time, as a result of an adjustment made pursuant to this
Section 12, the Holders of Warrants shall become entitled to purchase any
securities of the Company other than, or in addition to, shares of Common Stock,
thereafter the number or amount of such other securities so purchasable upon
exercise of each Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Warrant Shares contained in subsections (a) through (l) of this
Section 12, inclusive, and the
22
<PAGE>
provisions of Sections 7, 8, 10 and 13 with respect to the Warrant Shares or the
Common Stock shall apply on like terms to any such other securities.
Section 13. Fractional Interests. The Company shall not be required
--------------------
to issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the excess of the Current Market
Value of a Warrant Share over the Exercise Price on the day immediately
preceding the date the Warrant is presented for exercise, multiplied by such
fraction.
Section 14. Notices to Warrant Holders; Reservation of Dividends. No
----------------------------------------------------
later than April 6, 2001, the Company shall give written notice of the
occurrence or non-occurrence of the Adjustment Event to the Warrant Agent and
shall cause the Warrant Agent, on behalf of and at the expense of the Company,
within 10 days after such notification is received by the Warrant Agent, to mail
by first class mail, postage prepaid, to each Holder a notice of such occurrence
or non-occurrence of the Adjustment Event. Upon any adjustment pursuant to
Section 12 hereof, the Company shall give prompt written notice of such
adjustment to the Warrant Agent and shall cause the Warrant Agent, on behalf of
and at the expense of the Company, within 10 days after notification is received
by the Warrant Agent of such adjustment, to mail by first class mail, postage
prepaid, to each Holder a notice of such adjustment(s) and shall deliver to the
Warrant Agent a certificate of the Chief Financial Officer of the Company,
setting forth in reasonable detail (i) the number of Warrant Shares purchasable
upon the exercise of each Warrant and the Exercise Price of such Warrant after
such adjustment(s), (ii) a brief statement of the facts requiring such
adjustment(s) and (iii) the computation by which such adjustment(s) was made.
Where appropriate, such notice may be given in advance and included as a part of
the notice required under the other provisions of this Section 14.
23
<PAGE>
In case the Exercisability Date has occurred and:
(a) the Company shall authorize the issuance to all holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants; or
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets or cash; or
(c) of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, or of any reclassification or change of Common Stock issuable
upon exercise of the Warrants (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or a tender offer or exchange offer for shares of
Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action that would require an
adjustment to the Exercise Rate pursuant to Section 12 hereof;
then the Company shall give prompt written notice to the Warrant Agent and shall
cause the Warrant Agent, on behalf of and at the expense of the Company to give
to each of the registered holders of the Warrant Certificates at his, her or its
address appearing on the Warrant Register, at least 30 days (or 20 days in any
case specified in clauses (a) or (b) above) prior to the applicable record date
hereinafter specified, or the date of the event in the case of events for which
there is no record date, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of Common Stock
to be entitled to receive any such rights, options, warrants or distribution are
to be determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger,
24
<PAGE>
conveyance, transfer, dissolution, liquidation or winding up. The failure by the
Company or the Warrant Agent to give such notice or any defect therein shall not
affect the legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up, or the vote upon any action.
The Company shall give prompt written notice to the Warrant Agent and
shall cause the Warrant Agent, on behalf of and at the expense of the Company to
give to each Holder written notice of any determination to make a distribution
or dividend to the holders of its Common Stock of any assets (including cash
(other than any Ordinary Cash Distribution)), debt securities, preferred stock,
or any rights or warrants to purchase debt securities, preferred stock, assets
or other securities (other than Common Stock, or rights, options, or warrants to
purchase Common Stock) of the Company, which notice shall state the nature and
amount of such planned dividend or distribution and the record date therefor,
and shall be given by the Company at least 20 days prior to such record date
therefor.
At any time prior to the date that is 30 Business Days after the
Exercisability Date, with respect to any distribution or dividend made by the
Company to all of the holders of its Common Stock for which notice to the
Holders of the Warrants under this Section 14 would be required had such
dividend or distribution occurred after the Exercisability Date and except for
such distributions or dividends as are provided for in Section 12 hereof, the
Company shall hold in reserve the amount of any such dividend or distribution
that would have been payable to the Holders in respect of their Warrant Shares
had the Holders exercised their Warrants immediately prior to such dividend or
distribution. The Company shall release to each Holder of Warrants his, her or
its pro rata share of such reserved dividends or distributions upon the exercise
of such Holder's Warrants pursuant to Section 7 hereof. Any notice delivered to
the Holders by the Company pursuant to this Section 14 shall state the nature
and amount of such dividend or distribution that shall be held in reserve.
Nothing contained in this Agreement or in any Warrant Certificate
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as stockholders in respect of the meetings of
stockholders or the election of directors of the Company or any other matter, or
any rights whatsoever as stockholders of the Company.
25
<PAGE>
Section 15. Notices to the Company and Warrant Agent. Any notice or
----------------------------------------
demand authorized by this Agreement to be given or made by the Warrant Agent or
by any Holder to or on the Company shall be sufficiently given or made when
received at the office of the Company expressly designated by the Company as its
office for purposes of this Agreement (until the Warrant Agent is otherwise
notified in accordance with this Section 15 by the Company), as follows:
Endo Pharmaceuticals Holdings Inc.
c/o Kelso & Company
320 Park Avenue
24/th/ Floor
New York, New York 10022
Attention: Managing Director
with copy to General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
Attention: Eileen Nugent Simon, Esq.
Any notice pursuant to this Agreement to be given by the Company or by
any Holder(s) to the Warrant Agent shall be sufficiently given when received by
the Warrant Agent at the address appearing below (until the Company is otherwise
notified in accordance with this Section by the Warrant Agent).
[WARRANT AGENT]
[ADDRESS]
Attention: [CONTACT]
Section 16. Supplements and Amendments; Actions. The Company and the
-----------------------------------
Warrant Agent may from time to time supplement or amend this Agreement without
the approval of any holders of Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any
26
<PAGE>
way adversely affect the rights of any holder of Warrants hereunder. Any
amendment or supplement to this Agreement that has a material adverse effect on
the rights of holders hereunder shall require the written consent of registered
holders of a majority of the then outstanding Warrants, which consent shall then
be effective against all the Holders of Warrants hereunder. The consent of each
holder of a Warrant affected shall be required for any amendment pursuant to
which the Exercise Price would be increased or the number of Warrant Shares
purchasable upon exercise of Warrants would be decreased (not including
adjustments contemplated hereunder). The Warrant Agent shall be entitled to
receive and shall be fully protected in relying upon an officers' certificate
and opinion of counsel as conclusive evidence that any such amendment or
supplement is authorized or permitted hereunder, that it is not inconsistent
herewith, and that it will be valid and binding upon the Company in accordance
with its terms.
Any actions seeking enforcement of the rights of Holders hereunder
(including paragraph 3 of Section 7 hereof) may be brought either by the Warrant
Agent or the Holders of more than 50% of the Warrants issued hereunder and then
outstanding.
Section 17. Concerning the Warrant Agent. The Warrant Agent
----------------------------
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the Holders, by
their acceptance of Warrants, shall be bound:
(a) The statements contained herein and in the Warrant Certificate
shall be taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or any action taken by it. The Warrant Agent assumes no
responsibility with respect to the distribution of the Warrants except as
herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with the covenants contained in this Agreement or in the
Warrants to be complied with by the Company.
(c) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself (through
its employees) or by or through its attorneys or agents (which shall not include
its
27
<PAGE>
employees) and shall not be responsible for the misconduct of any agent
appointed with due care.
(d) The Warrant Agent may consult at any time with legal counsel
satisfactory to it (who may be counsel for the Company), and the Warrant Agent
shall incur no liability or responsibility to the Company or to any Holder in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel.
(e) Whenever in the performance of its duties under this Agreement
the Warrant Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless such evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the President,
Chief Financial Officer, one of the Vice Presidents, the Treasurer or the
Secretary of the Company and delivered to the Warrant Agent; and such
certificate shall be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(f) The Company agrees to pay the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the performance
of its duties under this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent (including reasonable fees and expenses of
the Warrant Agent's counsel and agents) in the performance of its duties under
this Agreement, and to indemnify the Warrant Agent and save it harmless against
any and all liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the performance of its duties
under this Agreement, except as a result of the Warrant Agent's negligence or
bad faith.
(g) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more Holders shall furnish the Warrant
Agent with reasonable security and indemnity satisfactory to the Warrant Agent
for any costs and expenses which may be incurred, but this provision shall not
affect the power of the Warrant Agent to take such action as the Warrant Agent
may consider proper, whether with or without any such security or indemnity.
28
<PAGE>
All rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrants or
the production thereof at any trial or other proceeding relative thereto, and
any such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery of judgment shall be for
the ratable benefit of the Holders, as their respective rights or interests may
appear.
(h) The Warrant Agent and any stockholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transactions in which the Company may be interested, or contract with or lend
money to the Com pany or otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement or such director, officer or employee.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity including, without
limitation, acting as Transfer Agent or as a lender to the Company or an
Affiliate thereof.
(i) The Warrant Agent shall act hereunder solely as agent, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not be liable for anything which it may do or refrain from doing in
connection with this Agreement except for its own negligence or bad faith.
(j) The Warrant Agent will not incur any liability or responsibility
to the Company or to any Holder for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument reasonably believed by it to be genuine and to have been signed, sent
or presented by the proper party or parties.
(k) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Warrant Agent) or in respect of the
validity or execution of any Warrant (except its countersignature thereof); nor
shall the Warrant Agent by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any Warrant
Shares (or other stock) to be issued pursuant to this Agreement or any Warrant,
or as to whether any Warrant Shares (or other stock) will, when issued, be
validly issued, fully paid and nonassessable, or as to the Exercise Price or the
number or amount of Warrant Shares or other securities or other property
issuable upon exercise of any Warrant.
29
<PAGE>
(l) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chair man of the Board, the President, any Vice President or the Secretary of
the Company, and to apply to such officers for advice or instructions in
connection with its duties, and shall not be liable for any action taken or
suffered to be taken by it in good faith and without negligence in accordance
with instructions of any such officer or officers.
Section 18. Change of Warrant Agent. The Warrant Agent may resign at
-----------------------
any time and be discharged from its duties under this Agreement by giving to the
Company 30-days' notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Holder (who shall with such notice submit
his, her or its Warrant for inspection by the Company), then any Holder may
apply to any court of competent jurisdiction for the appointment of a successor
to the Warrant Agent. Pending appointment of a successor warrant agent, either
by the Company or by such court, the duties of the Warrant Agent shall be
carried out by the Company. Any successor warrant agent, whether appointed by
the Company or such a court, shall be a bank or trust company in good standing,
incorporated under the laws of the United States of America or any State thereof
or the District of Columbia and having at the time of its appointment as warrant
agent a combined capital and surplus of at least $10,000,000. After appointment,
the successor warrant agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer to
the successor warrant agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
such purpose. Failure to file any notice provided for in this Section 18,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
warrant agent, as the case may be. In the event of such resignation or removal,
the Company or the successor warrant agent shall mail by first class mail,
postage prepaid, to each Holder, written notice of such removal or resignation
and the name and address of such successor warrant agent.
30
<PAGE>
Section 19. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company, the Warrant Agent or any holder
of Warrants shall bind and inure to the benefit of their respective successors
and assigns hereunder.
Section 20. Termination. This Agreement shall terminate at 5:00 p.m.,
-----------
New York City time, on the Expiration Date. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date if all Warrants have been exercised
pursuant to this Agreement.
Section 21. GOVERNING LAW. THIS AGREEMENT AND EACH WARRANT
-------------
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO THE CONFLICT OF LAW
RULES THEREOF.
Section 22. Benefits of This Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any person or corporation other than the Company,
the Warrant Agent and the registered Holders of the Warrant Certificates any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the registered Holders of the Warrant Certificates.
Section 23. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 24. Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
ENDO PHARMACEUTICALS HOLDINGS INC.
By: ________________________________
Name:
Title:
[WARRANT AGENT],
as Warrant Agent
By: ________________________________
Name:
Title:
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
[Face]
THIS SECURITY IS A GLOBAL CERTIFICATE AND IS REGISTERED IN THE NAME
OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON
OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE WARRANT AGREEMENT, DATED AS OF ____________, ____, BY AND
BETWEEN THE COMPANY AND THE WARRANT AGENT (THE "WARRANT AGREEMENT"), AND NO
TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY
TO THE DEPOSITORY OR AN OTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT. UNLESS
THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
A-1
<PAGE>
EXERCISABLE ON OR AFTER THE EXERCISABILITY DATE
AND ON OR BEFORE THE EXPIRATION DATE
No. __________ __________ Class A Transferable Warrants
Class A Transferable Warrant Certificate
ENDO PHARMACEUTICALS HOLDINGS INC.
This Warrant Certificate certifies that _______, or registered
assigns, is the registered holder of Class A Transferable Warrants expiring on
or before the Expiration Date (the "Warrants") to purchase shares of Common
Stock, par value $.01 per share (the "Common Stock"), of Endo Pharmaceuticals
Holdings Inc., a Delaware corporation (the "Company"). Each Warrant entitles
the holder upon exercise to receive from the Company on or after the
Exercisability Date and on or before 5:00 p.m. New York City Time on the six-
month anniversary of the Exercisability Date (the "Expiration Date") a number of
fully paid and nonassessable shares of Common Stock (each such share, a "Warrant
Share") as determined in the following paragraph at the initial exercise price
(the "Exercise Price") equal to $0.01 payable upon surrender of this Warrant
Certificate and payment of the Exercise Price in the manner set forth in the
Warrant Agreement, subject only to the conditions set forth herein and in the
Warrant Agreement referred to on the reverse hereof.
If the Exercisability Date is on or prior to December 31, 2001, the
Holder shall then be entitled to receive from the Company (on exercise of such
Warrants and payment of the Exercise Price then in effect for such Warrant
Shares) (together, if applicable, with cash payable as provided in Section 13
hereof and any dividends or distributions payable as provided in Section 14
hereof) (a) 1.153846/8/ Warrant Shares in the event the Adjustment Event (as
defined in that certain Agreement and Plan of Merger, dated as of November __,
1999, by and among the Company, Endo Inc., a Delaware corporation and wholly
owned subsidiary of the
_________________
/8/ This number shall be adjusted in the final Agreement and Warrants in order
to reflect that at the Effective Time the aggregate number on which it is
based, when taken together with the shares of Parent Common Stock issuable
to holders of Company Common Stock in the Merger, shall equal 35% of the
shares of Parent Common Stock on a fully diluted basis (excluding the
effect of the Algos Warrants as if no Adjustment Event had occurred).
A-2
<PAGE>
Company, and [TARGET] Pharmaceutical Corporation, a Delaware corporation) has
not occurred prior to the Exercisability Date or (b) 1.000000/9/ Warrant Shares
in the event the Adjustment Event has occurred prior to the Exercisability Date.
If the Exercisability Date is after December 31, 2001 and on or prior to June
30, 2002, the Holder shall then be entitled to receive from the Company (on
exercise of such Warrants and payment of the Exercise Price then in effect for
such Warrant Shares) (together, if applicable, with cash payable as provided in
Section 13 hereof and any dividends or distributions payable as provided in
Section 14 hereof) (a) 0.714286/10/ Warrant Shares in the event the Adjustment
Event has not occurred prior to the Exercisability Date or (b) 0.615385/11/
Warrant Shares in the event the Adjustment Event has occurred prior to the
Exercisability Date. If the Exercisability Date is after June 30, 2002 and on or
prior to December 31, 2002, the Holders shall then be entitled to receive from
the Company (on exercise of such Warrants and payment of the Exercise Price then
in effect for such Warrant Shares) (together, if applicable, with cash payable
as provided in Section 13 hereof and any dividends or distributions payable as
provided in Section 14 hereof) (a) 0.333333/12/ Warrant Shares in the event the
Adjustment Event has not occurred prior to the Exercisability Date or (b)
_________________
/9/ This number shall be adjusted in the final Agreements and Warrant in order
to reflect that at the Effective Time the aggregate number on which it is
based, when taken together with the shares of Parent Common Stock issuable
to holders of Company Common Stock in the Merger, shall equal 40% of the
shares of Parent Common Stock on a fully diluted basis (excluding the
effect of the Algos Warrants and after giving effect to the Adjustment
Event as if it had occurred).
/10/ This number shall be adjusted in the final Agreement and Warrants in order
to reflect that at the Effective Time the aggregate number on which it is
based, when taken together with the shares of Parent Common Stock issuable
to holders of Company Common Stock in the Merger, shall equal 30% of the
shares of Parent Common Stock on a fully diluted basis (excluding the
effect of the Algos Warrants as if no Adjustment Event had occurred).
/11/ This number shall be adjusted in the final Agreement and Warrants in order
to reflect that at the Effective Time the aggregate number on which it is
based, when taken together with the shares of Parent Common Stock issuable
to holders of Company Common Stock in the Merger, shall equal 35% of the
shares of Parent Common Stock on a fully diluted basis (excluding the
effect of the Algos Warrants and after giving effect to the Adjustment
Event as if it had occurred).
/12/ This number shall be adjusted in the final Agreement and Warrants in order
to reflect that at the Effective Time the aggregate number on which it is
based, when taken together with the shares of Parent Common Stock issuable
to holders of Company Common Stock in the Merger, shall equal 25% of the
shares of Parent Common Stock on a fully diluted basis (excluding the
effect of the Algos Warrants as if no Adjustment Event had occurred).
A-3
<PAGE>
0.285714/13/ Warrant Shares in the event the Adjustment Event has occurred prior
to the Exercisability Date.
The Exercise Price and number of Warrant Shares issuable upon exercise of
the Warrants are subject to adjustment upon the occurrence of certain events as
set forth in the Warrant Agreement.
No Warrant may be exercised before the Exercisability Date or after
5:00 p.m., New York City Time, on the Expiration Date and to the extent not
exercised by such time such Warrants shall become void.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
_________________
/13/ This number shall be adjusted in the final Agreement and Warrants in order
to reflect that at the Effective Time the aggregate number on which it is
based, when taken together with the shares of Parent Common Stock issuable
to holders of Company Common Stock in the Merger, shall equal 30% of the
shares of Parent Common Stock on a fully diluted basis (excluding the
effect of the Algos Warrants and after giving effect to the Adjustment
Event as if it had occurred).
A-4
<PAGE>
IN WITNESS WHEREOF, Endo Pharmaceuticals Holdings Inc. has caused this
Warrant Certificate to be signed by its [OFFICER] and by its Secretary, each by
a facsimile of his or her signature, and has caused a facsimile of its corporate
seal to be affixed hereunto or imprinted hereon.
Dated: , ____
ENDO PHARMACEUTICALS HOLDINGS INC.
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title: Secretary
Countersigned:
[WARRANT AGENT],
as Warrant Agent
By: ___________________________
Name:
Title:
A-5
<PAGE>
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring on the "Expiration Date," entitling the
holder on exercise to receive shares of Common Stock, par value $.01 per share,
of the Company (the "Common Stock"), and are issued or to be issued pursuant to
a Warrant Agreement dated as of ________ __, ____ (the "Warrant Agreement"),
duly executed and delivered by the Company to [WARRANT AGENT], as warrant agent
(the "Warrant Agent"), which Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holders or registered holder)
of the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
Warrants may be exercised at any time on or after the "Exercisability
Date" and on or before the "Expiration Date." The holder of Warrants evidenced
by this Warrant Certificate may exercise them by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon properly
completed and executed, together with payment in the manner provided for in the
Warrant Agreement at the office of the Warrant Agent. In the event that upon any
exercise of Warrants evidenced hereby, the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the holder hereof or his, her or its assignee a new Warrant Certificate
evidencing the number of Warrants not exercised.
The Warrant Agreement provides that upon the occurrence of certain
events the number of Warrants set forth on the face hereof and the Exercise
Price may, subject to certain conditions, be adjusted. No fractions of a share
of Common Stock will be issued upon the exercise of any Warrant, but the Company
will pay the cash value thereof determined as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service
A-6
<PAGE>
charge, for another Warrant Certificate or Warrant Certificates of like tenor
evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
A-7
<PAGE>
[Form of Election to Purchase]
(To Be Executed upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive _____shares of Common Stock
and herewith tenders payment for such shares to the order of Endo
Pharmaceuticals Holdings Inc. in the amount of $______ payable in (select one or
more: (i) cash and/or (ii) pursuant to a Cashless Exercise) in accordance with
the terms hereof and of the Warrant Agreement. The undersigned requests that a
certificate for such shares be registered in the name of _________, whose
address is ________ and that such shares be delivered to ________ whose address
is ________. If said number of shares is less than all of the shares of Common
Stock purchasable hereunder, the undersigned requests that a new Warrant
Certificate representing the remaining balance of such shares be registered in
the name of ________, whose address is ________, and that such Warrant
Certificate be delivered to ________, whose address is ________.
Signature:
Date:
Signature Guaranteed:
A-8
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS
The following exchanges of a part of this Global Warrant for certificated
Warrants have been made:
<TABLE>
<CAPTION>
Number of
Warrants of
Amount of Amount of this Global
decrease in increase in Warrant Signature of
Number of Number of following authorized
Date of Warrants of this Warrants of this such decrease officer of
Exchange Global Warrant Global Warrant (or increase) Warrant Agent
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
A-9
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF
CLASS A TRANSFERABLE WARRANTS
Re: Class A Transferable Warrants to Purchase Common Stock (the "Warrants") of
Endo Pharmaceuticals Holdings Inc.
This Certificate relates to Warrants held in* ___book-entry or * ____
certificated form by ____________ (the "Transferor").
The Transferor:*
[_] has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrant held by the
depository a Warrant or Warrants in definitive, registered form equal to its
beneficial interest in Warrants represented by such Global Warrant (or the
portion thereof indicated above); or
[_] has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
________________________________
[INSERT NAME OF TRANSFEROR]
By: __________________________
Date: _____________________
*Check applicable box.
<PAGE>
INDEX OF DEFINED TERMS
----------------------
<TABLE>
<CAPTION>
<S> <C>
Affiliate.................................................................... 20
Agreement.................................................................... 1
Business Day................................................................. 11
Cashless Exercise............................................................ 12
closing bid price............................................................ 20
Common Stock................................................................. 1
Company...................................................................... 1
Current Market Value......................................................... 19
Definitive Warrants.......................................................... 2
Exchange Act................................................................. 19
Exercisability Date.......................................................... 11
Exercise Price............................................................... 12
Exercise Rate................................................................ 16
Expiration Date.............................................................. 8
FDA.......................................................................... 11
Fully Diluted Shares......................................................... 18
Global Warrants.............................................................. 2
Holders...................................................................... 3
Independent Financial Expert................................................. 20
Legal Holiday................................................................ 11
Merger Agreement............................................................. 1
Ordinary Cash Distribution................................................... 20
Reorganizations.............................................................. 22
Security..................................................................... 19
shares of Common Stock....................................................... 23
Sub.......................................................................... 1
Target....................................................................... 1
Time of Determination........................................................ 17
Transfer Agent............................................................... 14
Ultimate Expiration Date..................................................... 10
Warrant...................................................................... 1
Warrant Agent................................................................ 1
Warrant Certificates......................................................... 2
Warrant Register............................................................. 3
Warrant Shares............................................................... 1
Warrants..................................................................... 1
</TABLE>
<PAGE>
Exhibit D-1 - Parent's Year 2000 Representation
Year 2000
- ---------
Parent has evaluated the impact of the Year 2000 Issue and completed
upgrading or modifying critical applications and systems to accommodate Year
2000 dating. This includes all computer systems, office machines, phone and
security systems, off-the-shelf systems and applications, custom software
applications, and accounting systems. Parent believes that the financial and
operational systems of Parent, as currently used, will function adequately with
respect to the Year 2000 Issue.
Parent has limited information concerning the compliance status of its
third-party contractors. Parent's current third party contractors generally
test Parent products and provide Parent with the results of those tests and
manufacture drug supplies. Parent has initiated formal communications with all
of its significant suppliers and vendors to determine the extent to which Parent
may be vulnerable if those third parties fail to remediate their own Year 2000
issues. Parent is continually receiving and evaluating written assurances from
all significant suppliers and vendors that they have completed, or are working
on Year 2000 projects with deadlines well in advance of December 1999. To date,
approximately all suppliers and vendors contacted, have reported that they will
be fully operational on January 1, 2000.
Parent is not significantly reliant on computer software applications
and systems during its developmental stage.
As part of the commercialization of products, Parent has third parties
manufacture and distribute its products. Parent places significant dependence
on such third parties' computer systems for purchasing, production, customer
order entry and invoicing and other related activities. A disruption in these
systems could result in lost revenue from inventory shortages, improper
execution of customer orders and/or delays in the resolution and collection of
outstanding invoices. Parent may make significant additions to and changes in
its existing computer software applications and systems and/or the use of such
systems. If Parent makes any such additions or changes, it would affect
Parent's exposure to the Year 2000 Issue since Parent would become more reliant
on its computer software applications and systems.
<PAGE>
At this time, Parent does not expect that the cost of its Year 2000
Issue compliance program will be material to its business, financial condition
or results of operations and does not currently anticipate any material
disruption in its operations.
2
<PAGE>
Exhibit D-2 - Company's Year 2000 Representation
Year 2000
- ---------
The Company has evaluated the impact of the Year 2000 Issue and completed
upgrading or modifying critical applications and systems to accommodate Year
2000 dating. This includes all computer systems, office machines, phone and
security systems, off-the-shelf systems and applications, custom software
applications, and accounting systems. The Company believes that the financial
and operational systems of the Company, as currently used, will function
adequately with respect to the Year 2000 Issue.
The Company has limited information concerning the compliance status of its
third-party contractors. The Company's current third party contractors generally
test the Company products and provide the Company with the results of those
tests and manufacture drug supplies. The Company has initiated formal
communications with all of its significant suppliers and vendors to determine
the extent to which the Company may be vulnerable if those third parties fail to
remediate their own Year 2000 issues. The Company is continually receiving and
evaluating written assurances from all significant suppliers and vendors that
they have completed, or are working on Year 2000 projects with deadlines well in
advance of December 1999. To date, approximately all suppliers and vendors
contacted, have reported that they will be fully operational on January 1, 2000.
The Company is not significantly reliant on computer software applications
and systems during its developmental stage.
As part of the possible future commercialization of products, the Company
intends to have third parties manufacture and distribute its products. The
Company will place significant dependence on such third parties' computer
systems for purchasing, production, customer order entry and invoicing and other
related activities. A disruption in these systems could result in lost revenue
from inventory shortages, improper execution of customer orders and/or delays in
the resolution and collection of outstanding invoices. In preparation for the
possible future commercialization of products, the Company may make significant
additions to and changes in its existing computer software applications and
systems and/or the use of such systems. If the Company makes any such additions
or changes, it would affect the Company's exposure to the Year 2000 Issue since
the Company would become more reliant on its computer software applications and
systems.
<PAGE>
At this time, the Company does not expect that the cost of its Year 2000
Issue compliance program will be material to its business, financial condition
or results of operations and does not currently anticipate any material
disruption in its operations.
2
<PAGE>
Exhibit E - 1 Form of Representation Letter
CERTIFICATE OF ENDO PHARMACEUTICALS HOLDINGS, INC.
________ __, 1999
Skadden, Arps. Slate, Meagher, & Flom LLP
919 Third Avenue
New York, NY 10022-3897
Latham & Watkins
53rd at Third, Suite 1000
885 Third Avenue
New York, NY 10022-4802
Re: Merger pursuant to the Agreement and Plan of Merger dated as of
________ __, 1999 (the "Merger Agreement") by and among Endo
Pharmaceuticals Holdings, Inc., a Delaware corporation
("Parent"), Algos Pharmaceutical Corporation, a Delaware
corporation (the "Company") and [Endo Newco], a Delaware
corporation ("Sub").
This certificate is supplied to you in connection with your rendering
of opinions regarding certain federal income tax consequences of the merger (the
"Merger") of the Company with and into Sub pursuant to the Merger Agreement.
Unless otherwise indicated, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement.
A. Representations. After consulting with its counsel and auditors
---------------
regarding the meaning of and factual support for the following representations,
the undersigned hereby certifies and represents the following facts will be true
at the Effective Time:
1. Pursuant to the Merger Agreement, the Company will merge with and
into Sub, and Sub will acquire all of the assets and liabilities of the Company;
2. Parent is participating in the Merger for good and valid business
reasons and not for tax purposes;
<PAGE>
3. Except for cash paid in lieu of fractional shares of Parent Common
Stock, all shares of Company Common Stock will be exchanged solely for Parent
Common Stock and Parent Warrants. In addition, no shares of Sub will be issued
to any shareholder of the Company in the Merger, and Parent will issue the
Parent Common Stock and Parent Warrants that are to be received by each Company
Common shareholder in the Merger;
4. The sum of the cash paid in lieu of fractional shares of Parent
Common Stock, the fair market value of the Parent Warrants, and the fair market
value of Parent Common Stock to be received by each shareholder of the Company
pursuant to Section 1.7(c) of the Merger Agreement will be approximately equal
to the fair market value of Company Common Stock surrendered in exchange
therefor. In connection with the Merger no holder of Company Common Stock will
receive in exchange for Company Common Stock, directly or indirectly, any
consideration from Parent other than Parent Common Stock, Parent Warrants, and
cash in lieu of a fractional share of Parent Common Stock;
5. Neither Parent nor any person related to Parent, as defined in
Treas. Reg. (S) 1.368-1(e)(3), (i) has acquired any stock of the Company or (ii)
has a plan or intention to redeem or otherwise reacquire any Parent Common Stock
issued in the Merger to the shareholders of the Company;
6. Prior to the Merger, Parent will be in control of Sub within the
meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code");
7. At the time of the Merger, Sub will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire common stock in Sub that, if exercised or
converted, would affect Parent's retention of control of Sub within the meaning
of Section 368(c) of the Code;
8. Following the Merger, Sub will not issue additional shares of its
stock that would result in Parent losing control of Sub within the meaning of
Section 368(c) of the Code;
9. As of the Effective Time, neither Parent nor any corporation
affiliated with Parent: (i) will be under any obligation, or will have entered
into any agreement to redeem or repurchase any shares of Parent Common Stock
issued in the Merger or to make any extraordinary distributions in respect of
Parent Common Stock; or (ii) will have any plan or intention to reacquire shares
of Parent Common Stock issued in the Merger. After the Merger, no dividends or
distributions will be made to the former Company stockholders by Parent other
than regular, normal dividends or distributions made to all holders of Parent
Common Stock;
10. Except for dispositions made in the ordinary course of business
and transfers described in Section 368(a)(2)(C) of the Code and Treas.
Reg. (S) 1.368-2(k)(1), Parent
2
<PAGE>
has no plan or intention to cause Sub to sell or otherwise dispose of the assets
acquired from the Company in the Merger;
11. Following the Merger, Sub will continue the "historic business"
of the Company or use a "significant portion" of the Company's "historic
business assets" in a business, as each such term is used in Treas. Reg. (S)
1.368-1(d);
12. Parent, Sub, the Company and the shareholders of the Company will
each pay their respective expenses incurred in connection with the Merger,
provided that all filing fees and printing expenses for the Proxy Statement and
Registration Statement shall be shared equally by the Company and the Parent.
Neither Parent nor Sub has agreed to assume, nor will it directly or indirectly
assume, any expense or other liability, whether fixed or contingent, of any
holder of Company Common Stock;
13. Parent has no plan or intention: (i) to liquidate Sub, (ii) to
merge Sub with and into another corporation or (iii) to sell or otherwise
dispose of the stock of Sub;
14. There is no intercorporate indebtedness existing between the
Company and Parent that was issued, acquired, or will be settled at a discount
as a result of the Merger, and Parent will assume no liability of any
shareholder of the Company in connection with the Merger;
15. None of the compensation received by any shareholder-employee of
the Company will be separate consideration for, or allocable to, any of their
shares of Company Common Stock; none of the Parent Common Stock or the Parent
Warrants to be received by any shareholder-employee of the Company will be
separate consideration for, or allocable to, any employment agreement; and the
compensation to be paid to any such shareholder-employee will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services;
16. As of the Effective Time, neither Parent nor any corporation
affiliated with Parent will own, directly or indirectly, nor has Parent or any
such affiliated corporation owned during the past five years, directly or
indirectly, any shares of stock of the Company or securities, options, warrants
or instruments giving the holder thereof the right to acquire Company stock or
other securities issued by the Company;
17. Neither Parent nor Sub are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code;
18. Parent is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code;
3
<PAGE>
19. The fair market value of the assets of the Company to be
transferred to Sub in the Merger will equal or exceed the sum of the liabilities
assumed by Sub plus the amount of liabilities to which the transferred assets
are subject;
20. Parent will not assume any of the Company's liabilities in the
Merger;
21. The payment of cash in lieu of fractional shares of Parent Common
Stock is solely for the purpose of avoiding the expense and inconvenience to
Parent of issuing fractional shares and does not represent separately bargained
for consideration. The total consideration that will be paid in the Merger to
the shareholders of the Company in lieu of fractional shares of Parent Common
Stock will not exceed one percent (1%) of the total consideration that will be
issued in the Merger to shareholders of the Company in exchange for their
Company Common Stock. The fractional share interests of each shareholder of the
Company will be aggregated and no shareholder will receive cash in an amount
greater than the value of one full share of Parent Common Stock;
22. The Merger Agreement and the transactions contemplated therein
represent the full and complete agreement among Parent, Sub and the Company
regarding the Merger, [and excluding the Stock Exchange Agreement], there are no
other written or oral agreements regarding the Merger other than those expressly
referred to or contemplated in the Merger Agreement;
23. The terms of the Merger Agreement and all other agreements
entered into in connection therewith are the product of arm's-length
negotiations;
24. The facts relating to the Merger, as such facts are described in
the Form S-4 are, insofar as such pertain to Parent, true, complete and accurate
in all material respects and each of the representations made by Parent in the
Merger Agreement and other documents associated therewith is true and accurate;
and
25. Parent is authorized to make all of the representations set forth
herein.
B. Reliance by Latham & Watkins and Skadden, Arps, Slate, Meagher & Flom
---------------------------------------------------------------------
LLP in Rendering Opinion: Limitation on the Opinion.
---------------------------------------------------
1. The undersigned recognizes and agrees that (i) the opinion of
Latham & Watkins and the opinion of Skadden, Arps, Slate, Meagher & Flom LLP
(the "Opinions") will be based on the representations set forth herein and on
the statements contained in the Merger Agreement and the documents related
thereto, (ii) the Opinions will be subject to certain limitations and
qualifications including that they may not be relied upon if any such
representations are not accurate in all material respects, and (iii)
notwithstanding any provisions
4
<PAGE>
of the Merger Agreement to the contrary, the representations set forth in this
letter shall survive without limitation.
2. The undersigned recognizes and agrees that the Opinions will not
address any tax consequences of the Merger or any action taken in connection
therewith except as expressly set forth in such opinion.
3. The undersigned hereby undertakes to inform Latham & Watkins,
Skadden, Arps, Slate, Meagher & Flom LLP, and the Company immediately should any
of the statements or representations set forth in this letter become untrue,
incorrect or incomplete in any respect on or prior to the Effective Time.
5
<PAGE>
In witness whereof, Endo Pharmaceuticals Holdings, Inc. executed this
certificate as of the date and year first above-written.
ENDO PHARMACEUTICALS HOLDINGS INC.,
a Delaware corporation
By: _______________________
Name: _______________________
Title:_______________________
6
<PAGE>
Exhibit E - 2 Form of Representation Letter
CERTIFICATE OF ALGOS PHARMACEUTICAL CORPORATION
________ ___, 1999
Skadden, Arps. Slate, Meagher, & Flom LLP
919 Third Avenue
New York, NY 10022-3897
Latham & Watkins
53rd at Third, Suite 1000
885 Third Avenue
New York, NY 10022-4802
Re: Merger pursuant to the Agreement and Plan of Merger dated as of
_______ __, 1999 (the "Merger Agreement") by and among Endo
Pharmaceuticals Holdings, Inc., a Delaware corporation
("Parent"), Algos Pharmaceutical Corporation, a Delaware
corporation (the "Company") and [Endo Newco], a Delaware
corporation ("Sub").
This certificate is supplied to you in connection with your rendering
of opinions regarding certain federal income tax consequences of the merger (the
"Merger") of the Company with and into Sub pursuant to the Merger Agreement.
Unless otherwise indicated, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement.
A. Representations. After consulting with its counsel and auditors
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regarding the meaning of and factual support for the following representations,
the undersigned hereby certifies and represents the following facts will be true
at the Effective Time:
1. Pursuant to the Merger Agreement, the Company will merge with and
into Sub, and Sub will acquire all of the assets and liabilities of the Company;
2. The Company is participating in the Merger for good and valid
business reasons and not for tax purposes;
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3. Except for cash paid in lieu of fractional shares of Parent
Common Stock, all shares of Company Common Stock will be exchanged solely for
Parent Common Stock and Parent Warrants. In addition, no shares of Sub will be
issued to any shareholder of the Company in the Merger;
4. The sum of the cash paid in lieu of fractional shares of Parent
Common Stock, the fair market value of the Parent Warrants, and the fair market
value of Parent Common Stock to be received by each shareholder of the Company
pursuant to Section 1.7(c) of the Merger Agreement will be approximately equal
to the fair market value of Company Common Stock surrendered in exchange
therefor. In connection with the Merger no holder of Company Common Stock will
receive in exchange for Company Common Stock, directly or indirectly, any
consideration from Parent other than Parent Common Stock, Parent Warrants, and
cash in lieu of a fractional share of Parent Common Stock;
5. Neither the Company nor any person related to the Company, as
defined in Treas. Reg. (S) 1.368-1(e)(3), determined without regard to Treas.
Reg. (S) 1.368-1(e)(3)(i)(A), has (i) redeemed or otherwise acquired any stock
of the Company with consideration other than stock of the Company prior to the
Merger or (ii) made any extraordinary distribution (within the meaning of Treas.
Reg. (S) 1.368-1T(e)(1)(ii)(A)) with respect to any stock of the Company;
6. The Company has made no transfer of its assets (including any
distribution of assets with respect to, or in redemption of, stock) in
contemplation of the Merger or during the period beginning with the commencement
of negotiations (whether formal or informal) with Parent or Sub regarding the
Merger and ending at the Effective Time other than (i) in the ordinary course of
business and (ii) payments made in connection with the Merger;
7. Parent, Sub, the Company and the shareholders of the Company will
each pay their respective expenses incurred in connection with the Merger,
provided that all filing fees and printing expenses for the Proxy Statement and
Registration Statement shall be shared equally by the Company and the Parent.
Neither Parent nor Sub has agreed to assume, nor will it directly or indirectly
assume, any expense or other liability, whether fixed or contingent, of any
holder of Company Common Stock;
8. There is no intercorporate indebtedness existing between the
Company and Parent or between the Company and Sub that was issued, acquired, or
will be settled at a discount as a result of the Merger, and Parent and Sub will
assume no liability of any shareholder of the Company in connection with the
Merger;
9. None of the compensation received by any shareholder-employee of
the Company will be separate consideration for, or allocable to, any of their
shares of Company Common Stock; none of the Parent Common Stock or the Parent
Warrants to be received by any
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shareholder-employee of the Company will be separate consideration for, or
allocable to, any employment agreement; and the compensation to be paid to any
such shareholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length for
similar services;
10. The business currently carried on by the Company is its "historic
business" within the meaning of Treas. Reg. (S) 1.368-1(d) and no assets of the
Company have been sold, transferred or otherwise disposed of which would prevent
Sub from continuing the "historic business" of the Company or from using a
"significant portion" of the Company's "historic business" assets in a business
following the Merger, as such terms are used in Treas. Reg. (S) 1.368-1(d);
11. The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended (the
"Code");
12. The Company is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code;
13. The fair market value of the assets of the Company to be
transferred to Sub in the Merger will equal or exceed the sum of the liabilities
assumed by Sub plus the amount of liabilities to which the transferred assets
are subject. In addition, the liabilities of the Company assumed by Sub and the
liabilities to which the transferred assets of the Company are subject were
incurred by the Company in the ordinary course of its business;
14. Parent will not assume any of the Company's liabilities in the
Merger;
15. At least 90 percent of the fair market value of the net assets
and at least 70 percent of the fair market value of the gross assets held by the
Company immediately prior to the Merger will be acquired by Sub in the Merger.
For purposes of determining the percentage of the Company's net and gross assets
to be acquired by Sub pursuant to the Merger, the following assets will be
treated as held by the Company immediately prior, but not acquired by Sub
pursuant to the Merger: (i) assets disposed of by the Company prior to the
Merger and in contemplation thereof (including, without limitation, any asset
disposed of by the Company, other than in the ordinary course of business,
pursuant to a plan or intention existing during the period ending on the
Effective Date and beginning with the earlier of the commencement of
negotiations (whether formal or informal) with Parent or Sub regarding the
Merger), (ii) assets used by the Company to pay shareholders, if any, who
perfect dissenters' rights, (iii) assets used by the Company to pay
reorganization expenses or other liabilities incurred in connection with the
Merger, and (iv) assets used to make distributions, redemptions or other
payments in respect of the Company's stock (including payments treated as such
for tax purposes) that are made prior to the Merger and are part of the plan of
the Merger;
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16. The payment of cash in lieu of fractional shares of Parent Common
Stock is solely for the purpose of avoiding the expense and inconvenience to
Parent of issuing fractional shares and does not represent separately bargained
for consideration. The total consideration that will be paid in the Merger to
the shareholders of the Company in lieu of fractional shares of Parent Common
Stock will not exceed one percent (1%) of the total consideration that will be
issued in the Merger to shareholders of the Company in exchange for their
Company Common Stock. The fractional share interests of each shareholder of the
Company will be aggregated and no shareholder will receive cash in an amount
greater than the value of one full share of Parent Common Stock;
17. The Merger Agreement and the transactions contemplated therein
represent the full and complete agreement among Parent, Sub and the Company
regarding the Merger, and excluding the Stock Exchange Agreement, there are no
other written or oral agreements regarding the Merger and which the Company is
party to other than those expressly referred to or contemplated in the Merger
Agreement;
18. The terms of the Merger Agreement and all other agreements
entered into in connection therewith are the product of arm's-length
negotiations;
19. The facts relating to the Merger, as such facts are described in
the Form S-4 are, insofar as such pertain to the Company, true, complete and
accurate in all material respects and each of the representations made by the
Company in the Merger Agreement and other documents associated therewith is true
and accurate;
20. The Company is not currently, and during the five years preceding
the Effective Time will not have been, a "United States real property holding
corporation" within the meaning of Section 897(c)(2)of the Code; and
21. The Company is authorized to make all of the representations set
forth herein.
B. Reliance by Latham & Watkins and Skadden, Arps, Slate, Meagher & Flom
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LLP in Rendering Opinion: Limitation on the Opinion.
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1. The undersigned recognizes and agrees that (i) the opinion of
Latham & Watkins and the opinion of Skadden, Arps, Slate, Meagher & Flom LLP
(the "Opinions") will be based on the representations set forth herein and on
the statements contained in the Merger Agreement and the documents related
thereto, (ii) the Opinions will be subject to certain limitations and
qualifications including that they may not be relied upon if any such
representations are not accurate in all material respects, and (iii)
notwithstanding any provisions
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of the Merger Agreement to the contrary, the representations set forth in this
letter shall survive without limitation.
2. The undersigned recognizes and agrees that the Opinions will not
address any tax consequences of the Merger or any action taken in connection
therewith except as expressly set forth in such opinion.
3. The undersigned hereby undertakes to inform Latham & Watkins,
Skadden, Arps, Slate, Meagher & Flom LLP, and Parent immediately should any of
the statements or representations set forth in this letter become untrue,
incorrect or incomplete in any respect on or prior to the Effective Time.
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In witness whereof, Algos Pharmaceutical Corporation executed this
certificate as of the date and year first above-written.
ALGOS PHARMACEUTICAL CORPORATION,
a Delaware corporation
By: ____________________________
Name: __________________________
Title: _________________________
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Exhibit F-1 - Form of Affiliate Letter
FORM OF AFFILIATE LETTER
________ _______, ______
_________________________
_________________________
_________________________
Attention________________
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed
to be an "affiliate" of Endo Pharmaceuticals Holdings Inc., a Delaware
corporation ("Parent"), as the term "affiliate" is defined for purposes of
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paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and
---------
Regulations") of the Securities and Exchange Commission (the "Commission") under
- ----------- ----------
the Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of
---
the Agreement and Plan of Merger, dated as of November _____, 1999 (the
"Agreement"), by and among Parent, Endo Inc., a newly-formed, wholly-owned
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subsidiary of Parent ("Sub"), and Algos Pharmaceutical Corporation, a Delaware
---
corporation (the "Company"), pursuant to which the Company has agreed to merge
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with and into Sub, with Sub continuing as the surviving corporation (the
"Merger").
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I represent, warrant and covenant to the Company that in the event I
receive shares of common stock, par value $.01, of Parent ("Parent Common
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Stock") as a result of the Merger:
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A. I shall not make any sale, transfer or other disposition of the
Parent Common Stock in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of Parent Common Stock to the
extent I felt necessary, with my counsel or counsel for Parent.
C. I have been advised that the issuance of Parent Common Stock to
me pursuant to the Merger has been registered with the Commission under the Act
on a Registration Statement on Form S-4. However, I have also been advised that,
because at the time the Merger is submitted for a vote of the stockholders of
the Company, I may be deemed to be an affiliate of Parent, I may not sell,
transfer or
F-1
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otherwise dispose of Parent Common Stock issued to me in the Merger unless (i)
such sale, transfer or other disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the Commission under the Act,
(ii) such sale, transfer or other disposition has been registered under the Act
or (iii) in the opinion of counsel reasonably acceptable to the Company, such
sale, transfer or other disposition is otherwise exempt from registration under
the Act.
D. I understand that Parent is under no obligation to register the
sale, transfer or other disposition of the Parent Common Stock by me or on my
behalf under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available solely as a result
of the Merger.
E. I also understand that there will be placed on the certificates
for the Parent Common Stock issued to me, or any substitutions therefor, a
legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED
IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY
THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN A REGISTERED
PUBLIC OFFERING OR IN ACCORDANCE WITH THE RESALE PROVISIONS
OF RULE 145 PROMULGATED UNDER THE SECURITIES ACT."
F. I also understand that unless a sale or transfer is made in
conformity with the provisions of Rule 145, or pursuant to a registration
statement, Parent reserves the right to put the following legend on the
certificates issued to any transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED
FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH
A VIEW TO, OR FOR RE SALE IN CONNECTION WITH, ANY DISTRIBUTION
THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OF 1933."
F-2
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It is understood and agreed that the legends set forth in paragraphs E
and F above shall be removed by delivery of substitute certificates without such
legend after one year unless the provisions of Rule 145(d)(2) have been amended
to require a longer period than one year.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of Parent as described in the first paragraph of
this letter, as or a waiver of any rights I may have to object to any claim that
I am such an affiliate or on after the date of this letter.
Very truly yours,
By:
Name:
Title:
Accepted this _______ day of _______:
By:
Name:
Title:
F-3
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EXHIBIT F-2
to the Agreement and Plan of Merger
FORM OF AFFILIATE LETTER
_______________ ______, _____
_________________________
_________________________
_________________________
Attention:_______________
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed
to be an "affiliate" of Algos Pharmaceutical Corporation, a Delaware corporation
(the "Company"), as the term "affiliate" is defined for purposes of paragraphs
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(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
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Regulations") of the Securities and Exchange Commission (the "Commission") under
- ----------- ----------
the Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of
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the Agreement and Plan of Merger, dated as of November _____, 1999 (the
"Agreement"), by and among Endo Pharmaceuticals Holdings Inc., a Delaware
---------
corporation ("Parent"), Endo Inc., a Delaware corporation and a newly-formed,
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wholly-owned subsidiary of Parent ("Sub"), and the Company, pursuant to which
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the Company has agreed to merge with and into Sub, with Sub continuing as the
surviving corporation (the "Merger").
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As a result of the Merger, I may receive shares of common stock, par
value $.01 per share, of Parent ("Parent Common Stock"). I would receive the
Parent Common Stock in exchange for shares (or options for shares) owned by me
of common stock, par value $.01 per share, of the Company (the "Company Common
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Stock").
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I represent, warrant and covenant to the Parent that in the event I
receive Parent Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Parent Common Stock in violation of the Act or the Rules and Regulations.
F-1
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B. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of Parent Common Stock to the
extent I felt necessary, with my counsel or counsel for the Company.
C. I have been advised that the issuance of Parent Common Stock to
me pursuant to the Merger has been registered with the Commission under the Act
on a Registration Statement on Form S-4. However, I have also been advised that,
because at the time the Merger is submitted for a vote of the stockholders of
the Company, (a) I may be deemed to be an affiliate of the Company and (b) the
distribution by me of the Company Common Stock has not been registered under the
Act, I may not sell, transfer or otherwise dispose of Parent Common Stock issued
to me in the Merger unless (i) such sale, transfer or other disposition is made
in conformity with the volume and other limitations of Rule 145 promulgated by
the Commission under the Act, (ii) such sale, transfer or other disposition has
been registered under the Act or (iii) in the opinion of counsel reasonably
acceptable to Parent, such sale, transfer or other disposition is otherwise
exempt from registration under the Act.
D. I understand that Parent is under no obligation to register the
sale, transfer or other disposition of the Parent Common Stock by me or on my
behalf under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available solely as a result
of the Merger.
E. I also understand that there will be placed on the certificates
for the Parent Common Stock issued to me, or any substitutions therefor, a
legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN A
REGISTERED PUBLIC OFFERING OR IN ACCORDANCE WITH THE RESALE PROVISIONS
OF RULE 145 PROMULGATED UNDER THE SECURITIES ACT."
F. I also understand that unless a sale or transfer is made in
conformity with the provisions of Rule 145, or pursuant to a registration
statement, Parent reserves the right to put the following legend on the
certificates issued to any transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE
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ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH
RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE
SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE
IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E
and F above shall be removed by delivery of substitute certificates without such
legend after one year unless the provisions of Rule 145(d)(2) have been amended
to require a longer period than one year.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of the Company as described in the first paragraph
of this letter, as or a waiver of any rights I may have to object to any claim
that I am such an affiliate or on after the date of this letter.
Very truly yours,
By:___________________________
Name:
Title:
Accepted this _______ day of ___________ _______:
By:___________________________
Name:
Title:
F-3
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Exhibit G - Form of Tax Sharing Agreement
TAX SHARING AGREEMENT
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This TAX SHARING AGREEMENT (the "Agreement") by and among Endo
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Pharmaceuticals Holdings Inc., a Delaware corporation ("Endo"), Endo Inc., a
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Delaware corporation and wholly owned subsidiary of Endo, and [Newco], LLC, a
Delaware limited liability company ("[Newco] LLC"), is effective as of this __
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day of ______, ____.
WHEREAS the members of [Newco] LLC have agreed to exchange the shares
of common stock, par value $.01 per share, of Endo ("Endo Common Stock")
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currently beneficially owned by them for membership interests of [Newco] LLC;/1/
WHEREAS under the Parent Plan certain officers and employees of Endo
have been granted stock options exercisable against Endo to purchase newly
issued shares of Endo Common Stock in certain circumstances;
WHEREAS Endo and Sub entered into an Agreement and Plan of Merger with
[Target] Pharmaceutical Corporation, a Delaware corporation, on November ___,
1999 (the "Merger Agreement");
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WHEREAS, in connection with the Merger, employee stock options granted
or to be granted under the Parent Plan will be amended as provided in Section
5.9 of the Merger Agreement in order to provide that such options will be
exercisable solely into shares of Parent Common Stock that are beneficially
owned by certain holders of Parent Common Stock immediately following the Parent
_____________________
/1/ Consider whether all Endo Common Stock owned by the members will be
contributed or whether contribution will be limited to the maximum number of
shares of Endo Common Stock issuable pursuant to the Options. In the case of an
exercise of Options prior to a sale of a significant number of Endo shares by
[Newco] LLC (or significant dilution of [Newco] LLC through new stock issuances
by Endo) there may be a tax advantage to limiting the number of shares placed in
the LLC. For business reasons the members may also prefer to hold their Endo
shares individually rather than through [Newco] LLC.
<PAGE>
Recapitalization and prior to the Effective Time (such amended options, the
"[Newco] LLC Options");
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WHEREAS the shares of Endo Common Stock to be delivered upon exercise
of the [Newco] LLC Options will be provided entirely by [Newco] LLC and not
directly or indirectly by Endo or any other Endo stockholder; and
WHEREAS under the Internal Revenue Code of 1986, as amended (the
"Code") and the Treasury Regulations, rulings and other interpretations
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thereunder, deductible compensation expense resulting from the exercise of a
[Newco] LLC Option by an Endo officer or employee is treated for income tax
purposes as a deduction of Endo;
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
PAYMENTS
Section 1.1 Payments to [Newco] LLC.
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(a) Upon the occurrence of a Liquidity Event, Endo (or any successor
entity) shall pay to [Newco] LLC or its designees by wire transfer in
immediately available funds in U.S. dollars the Tax Benefit Amount to the extent
such Tax Benefit Amount has not previously resulted in a payment under this
Section 1.1.
(b) For purposes of this Agreement, "Liquidity Event" shall mean any
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transaction or series of transactions resulting in (A) a sale of greater than
20% on a fully diluted basis of the common equity of Endo through (i) a primary
offering by Endo, (ii) a secondary sale of Endo Common Stock by [Newco] LLC or
other holders of Endo Common Stock pursuant to a registration rights agreement
or (iii) a combination of primary and secondary offerings described in clauses
(i) and (ii) of this subsection, (B) a Change of Control or (C) a sale of all or
substantially all of the assets of Endo.
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(c) For purposes of this Agreement, "Change of Control" shall mean
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(i) any merger, consolidation or other business combination that requires the
approval of holder of Endo Common Stock, (ii) any transaction or series of
transactions resulting in an acquisition by any Person (or Persons acting in
concert) unrelated to [Newco] LLC or its Affiliates of greater than 50% of the
equity of Endo measured by vote or value on a fully diluted basis or (iii) the
consummation by Endo of a plan of complete liquidation or a dissolution of Endo.
(d) For purposes of this Agreement, "Tax Benefit Amount" means the
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cumulative excess (if any) of (A) the Taxes that would have been payable by Endo
and its Subsidiaries for all taxable periods or portions thereof after the
Effective Date if none of the [Newco] LLC Options had been exercised over (B)
the actual Taxes payable by Endo and its Subsidiaries for such periods. For the
avoidance of doubt and for purposes of this Section 1(d), in order to determine
the Tax Benefit Amount for any taxable period of Endo and its Subsidiaries in
which a net operating loss carryforward deduction ("NOL") is utilized, the
---
portion of the NOL attributable to deductions resulting from the exercise of
[Newco] LLC Options shall be treated as utilized last. By way of example, and
solely for the avoidance of doubt, if Endo has a loss for tax purposes in Year 1
of $100, consisting of $65 of deductions attributable to the exercise of
[Newco] LLC Options and $35 of deductions attributable to interest expense, and
in Year 2 Endo has $40 of taxable income prior to application of the NOL, $35 of
the $40 NOL applied against Year 2 income will be deemed to be attributable to
the interest expense and $5 of the NOL will be deemed attributable to the
exercise of the [Newco] LLC Options. Therefore, the Tax Benefit Amount would be
the Taxes that would have been payable by Endo if its NOL in Year 2 had been
only $35. The NOL carryforward to Year 3 of $60 would then be treated as
consisting entirely of deductions resulting from the exercise of the [Newco] LLC
Options.
(e) The parties hereby agree that no payments shall be made and no
rights to any payment shall accrue to [Newco] LLC under this Agreement until the
occurrence of a Liquidity Event, if any, and that Endo and its Subsidiaries
shall not credit to an account of [Newco] LLC or any other Person, set aside any
funds or assets, or otherwise make available to or subject to a claim of [Newco]
LLC or any other Person any amounts hereunder until such amounts become payable
to [Newco] LLC pursuant to Section 1.1(a) hereof.
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(f) The parties hereby agree that, notwithstanding anything herein to
the contrary, (i) any payments made pursuant to this Section 1.1 shall be
treated as payments described in Section 302 of the Code and shall take no
position inconsistent with this treatment for any tax purpose and (ii) no amount
shall be payable hereunder, and [Newco] LLC shall not be entitled to any payment
hereunder, to the extent any such payment is not permitted under Endo's Senior
Credit Facility, unless or until such time as such payment is either permitted
under the Senior Credit Facility or the Senior Credit Facility is terminated.
For purposes hereof, "Senior Credit Facility" shall mean the Credit Agreement
dated as of _____, 1999 [the Effective Time], among Endo, the lenders party
thereto, and The Chase Manhattan Bank, as amended, restated, modified, renewed,
refunded, replaced, or refinanced, in whole or in part, from time to time.
ARTICLE II
GENERAL PROVISIONS
Section 2.1 Survival This Agreement shall survive until the later of
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(a) the close of the last taxable period of Endo or any successor to Endo in
which a deduction may be allowable to Endo or its Subsidiaries or their
successors as a result of or attributable to the exercise of an Option or (b)
the payment by Endo of all amounts payable under Section 1.1 hereof.
Section 2.2 Notices. All notices and other communications hereunder
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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 Endo 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
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(b) if to [Newco] LLC or Kelso & Company:
Kelso & Company
320 Park Avenue, 24/th/ Floor
New York, New York 10022
Attn.: James J. Connors, II
Fax No.: (212) 223-2379
and with copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attn.: Eileen Nugent Simon and David Rievman
Fax No.: (212) 735-2000
Section 2.3 Interpretation. When a reference is made in this Agreement
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to a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The 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 2.4 Counterparts. This Agreement may be executed in counter
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parts, 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 2.5 Entire Agreement; No Third-Party Beneficiaries. Except for
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the Merger Agreement and the Mutual Confidentiality and Non-Disclosure
Agreement between the parties dated October 21, 1998, this Agreement is the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
This Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
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Section 2.6 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 ENDO, [NEWCO] LLC, OR SUB IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
Section 2.7 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. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 2.8 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 2.9 Modifications, Supplements and Amendment. This Agreement
----------------------------------------
may be modified, supplemented or amended from time to time by the parties
hereto; provided that any such modification, supplement or amendment must be
-------- ----
approved by a majority of the members of the Board of Directors of Endo who do
not then (by themselves or through an Affiliate) have a financial interest in
the Parent LLC or otherwise have a financial interest in any payments that may
be made by Parent or any successor to Parent hereunder).
Section 2.10 Definitions. Terms not otherwise defined herein have the
-----------
meaning given such terms in the Merger Agreement.
6
<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:_____________________________________
Name:
Title:
ENDO INC.
By:_____________________________________
Name:
Title:
[NEWCO], LLC
By:_____________________________________
Name:
Title:
<PAGE>
Exhibit H--Form of Lyle Agreement
FORM OF EMPLOYMENT AGREEMENT
Parties
-------
This Employment Agreement (the "Agreement") made as of ___________,
2000 is entered into by and between Endo Pharmaceuticals Holdings Inc., with its
principal business address at 223 Wilmington-West Chester Pike, Chadds Ford,
Pennsylvania 19317 (the "Company"), and John W. Lyle, residing at 28 Inlet
Terrace, Belmar, New Jersey 07719 ("Executive").
Recitals
--------
A. The Company has entered into an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of November ___, 1999, among the Company, Endo
Inc., a Delaware corporation and a newly formed wholly owned subsidiary of the
Company ("Sub"), and [Target] Pharmaceutical Corporation, a Delaware Corporation
(the "Target"), pursuant to which, among other things, the Target will merge
with and into Sub.
B. The Company desires to retain Executive to provide the services
hereinafter set forth.
C. Executive is willing to continue to provide such services to the
Company on the terms and conditions hereinafter set forth.
Terms of Agreement
------------------
The parties agree as follows:
1. Employment.
----------
1.1 The Company hereby retains Executive's employment (subject
to the provisions of Section 6) in a senior executive capacity with the Company.
The Executive shall perform such duties and services, consistent with his
positions, as may be assigned to him from time to time by the Board of Directors
of the Company or its designee. In furtherance of the foregoing, the Executive
hereby agrees to perform well and faithfully the aforesaid duties and
responsibilities and the other reasonable senior executive duties and
responsibilities assigned to him from time to time by the Board of Directors of
the Company or its designee. During the Employment Period, the Company shall
provide the Executive with an office, secretarial and other support services
comparable to those provided to other senior executive officers of the Company
at its headquarters and at the Company's facility at 1333 Campus Parkway,
Neptune, New Jersey 07753 for so long as the Company maintains such facility and
afterward at another facility of the Company convenient to the Executive to be
chosen at Executive's discretion.
1.2 Executive hereby accepts this employment on and subject to
the terms and conditions set forth in this Agreement, and shall use his
reasonable best efforts to promote the Company's interests.
<PAGE>
2. Compensations Benefits.
----------------------
2.1 Salary. During the Employment Period, as compensation for
------
Executive's performance of Executive's duties under this Agreement, the Company
shall pay Executive a Base Salary ("Base Salary") at the annual rate of $325,000
from the date of this Agreement through December 31, 2000. Thereafter, the Base
Salary shall be subject to increase at the option and in the sole discretion of
the Board of Directors of the Company annually. The Base Salary shall be payable
in installments pursuant to the Company's executive payroll policies in force at
the time of payment (but not less frequently than monthly) for the month or
shorter pay period then ended, subject to applicable withholding for FICA,
income taxes and other required payroll deductions.
2.1.1 The Executive's Base Salary will be supplemented
by payment of performance bonuses at the option and in the sole discretion of
the Board of Directors of the Company annually.
2.2 Expenses. During the Employment Period, to the extent such
--------
expenditures meet the requirements and the policies of the Company for senior
executives, the Company shall reimburse Executive promptly for all reasonable
travel, entertainment, parking, business meeting and similar expenditures in
pursuance and furtherance of the Company's business, upon presentation of proper
vouchers or receipts therefor and in accordance with the Company's customary
procedures. During the Employment Period, the Company shall provide Executive
with a mobile phone, facsimile machine and photocopying machine for his home
office, and the Company shall reimburse Executive for expenses incurred in the
use thereof by Executive in pursuance and furtherance of the Company's business,
upon presentation of proper vouchers or receipts therefor and in accordance with
the Company's customary procedures.
2.3 Other Benefits. Executive shall be entitled to participate,
--------------
at Executive's option and as eligible, in any Company plans for the benefit of
officers and key employees as from time to time established, including, without
limitation, profit sharing, pension plan, stock option plans, performance bonus
plans, disability, medical and group life insurance. If the Company shall not
provide coverage for comprehensive family major medical, family dental,
disability and life insurance to Executive, he shall be reimbursed for the cost
of such coverage acquired by him elsewhere.
3. Employment Period; Termination.
------------------------------
3.1 Employment Period. Executive's employment term ("Employment
-----------------
Period") shall terminate on the fifth anniversary of the date of this Agreement
unless earlier terminated pursuant to Section 3.2.
3.2 Termination.
-----------
3.2.1 Termination for Cause. The Company may, upon the
---------------------
approval of a majority of the members of the Board of Directors of the Company,
discharge Executive and terminate the Employment Period for cause. Discharge for
cause shall be effective ten (10) days after Executive's receipt of written
notice of discharge or at such later date as may be specified in that notice,
provided such notice contains the specific reasons and the
2
<PAGE>
specific events upon which discharge is predicated. If Executive is discharged
for cause, Executive shall only be entitled to Base Salary through the effective
date of the discharge or termination. As used in this paragraph, "cause" shall
mean any or all of the following:
(i) Willful and grossly negligent action taken
by Executive which materially harms, or can reasonably be expected to harm, the
Company;
(ii) Commission of a fraud, misappropriation,
embezzlement, or criminal misconduct that would constitute a felony or adversely
affect the reputation of the Company or any of its affiliates (for purposes of
this Employment Agreement the term "affiliates" shall be deemed to include, but
not necessarily be limited to the corporation to which the Company assigns its
rights to the name, "Endo Pharmaceuticals" or any variation thereof); or
(iii) If Executive shall be in breach of, or in
default under, any material provision, term or covenant of Article 4 of this
Agreement (other than a breach or default described in clauses (i) and (ii)) and
shall fail to cure such breach or default within a reasonable time after written
notice describing such breach or default in particular by the Company; provided,
--------
however, that the Company need not give such notice of, and Executive shall not
- -------
have such opportunity to cure, any material breach or default of any provision,
term or covenant of Article 4 of this Agreement if Executive had previously
committed such material breach or default and received notice thereof pursuant
to this clause (iii). The Employment Agreement shall only be terminable by the
Company with cause;
provided, however, that "cause" shall in no event include failure by Executive
- -------- -------
to perform services under this Agreement because the Company and Executive have
failed to agree on the nature, amount, scope or timing of his services.
3.2.2 Termination for other than Cause. During the
--------------------------------
Employment Period, the Company may terminate Executive's employment at any time
for other than cause on 30 days' written notice to Executive. Such termination
shall be deemed effective 30 days after Executive's receipt of the written
notice of termination or at such later date as may be specified in such notice.
3.2.3 Involuntary Termination. If, during the Employment
-----------------------
Period, Executive becomes ill, disabled or otherwise incapacitated so as to be
unable regularly to perform his usual duties for a period in excess of 120
consecutive days, or more than 150 days in any consecutive twelve-month period
(such condition being hereinafter referred to as "Disability"), the Company
shall have the right, with the approval of a majority of the members of the
Board of Directors, to terminate Executive's employment on 30 days' written
notice to Executive (such termination, or Executive's death, being herein
referred to as "Involuntary Termination"). If the Executive dies during the
Employment Period, his employment hereunder shall be deemed to have ceased as of
the date of his death.
3.2.4 Voluntary Termination. Any termination of the
---------------------
employment of the Executive hereunder effectuated by the Executive shall be
deemed to be a
3
<PAGE>
"Voluntary Termination." A Voluntary Termination shall be deemed to be effective
immediately upon such termination.
3.3 Effect of Termination of Employment.
-----------------------------------
3.3.1 Upon the termination of the Executive's employment
hereunder pursuant to a Voluntary Termination or a Termination for Cause,
neither the Executive nor his beneficiary or estate shall have any further
rights or claims against the Company under this Agreement except to receive:
(i) the unpaid portion of the Base Salary provided
for in Section 2.1, computed on a pro rata basis to the date of termination; and
(ii) reimbursement for any expenses for which the
Executive shall not have theretofore been reimbursed as provided in Section 2.2.
3.3.2 Upon the termination of the Executive's employment
hereunder pursuant to an Involuntary Termination or a Termination for other than
Cause, neither the Executive nor his beneficiary or estate shall have any
further rights or claims against the Company under this Agreement except to
receive:
(i) the unpaid portion of the Base Salary provided
for in Section 2.1, to the fifth anniversary of the date of this Agreement;
(ii) reimbursement for any expenses for which the
Executive shall not have theretofore been reimbursed as provided in Section 2.2;
and
(iii) the continuation of the benefits afforded
pursuant to Section 2.3(i) through the fifth anniversary of the date of this
Agreement.
4. Executive's Covenants.
---------------------
4.1 Executive agrees that he will not from and after the date
hereof through the fifth anniversary of the termination of the Employment Period
(for whatever reason), directly or indirectly, through any other person, firm or
corporation, solicit, raid, entice, induce or encourage any employee, sales
representative, agent or consultant of or for the Company or its affiliates, to
(i) cease his or her association with or leave the employ of the Company or its
affiliates, (ii) solicit customers or suppliers of the Company or its affiliates
for Executive's or any other person's or entity's benefit or (iii) otherwise act
in violation of that person's obligations to the Company or its affiliates, and
Executive shall not authorize or knowingly approve the taking of such actions by
any other person.
4.2 Executive acknowledges that, by reason of his employment
with the Company, he will obtain confidential or non-public proprietary
knowledge or information pertaining to the business and policies of the Company
and its affiliates. Executive agrees that during and after the term of this
Agreement, he shall not disclose, without the prior written consent of the Board
of Directors of the Company or the Chairman of the Board, any confidential or
non-public proprietary knowledge or information pertaining to the Company and
4
<PAGE>
its affiliates ("Confidential Information"), including, but not limited to (1)
trade secrets concerning the business and affairs of the Company and its
affiliates, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current and planned research and development, current and
planned manufacturing or distribution methods and processes, customer lists,
information regarding customers of the Company (including such customers'
requirements), price lists, market studies, business plans, computer software
and programs (including object code and source code), computer software and
database technologies, systems, structures, and architectures (and related
formulae, compositions, processes, improvements, devices, know-how, inventions,
discoveries, designs, methods and information); (2) information concerning the
business and affairs of the Company and its affiliates (which includes
historical financial statements, financial projections and budgets, historical
and projected sales, capital spending budgets and plans, the names and
backgrounds of key personnel, personnel training and techniques and material)
however documented; and (3) notes, analyses, compilations, studies, summaries
and other materials prepared by or for the Company and its affiliates containing
or based, in whole or in part, on any information included in the foregoing.
Confidential Information shall not include information that: (a) was known to
Executive prior to his first employment with the Company or its affiliates, or
(b) is public knowledge, or becomes public knowledge other than by action (or
omission) of (i) Executive or persons obtaining access to such information
directly or indirectly from Executive or (ii) other persons disclosing such
information in breach of obligations to the Company.
4.3 Executive acknowledges and agrees that all memoranda, notes,
reports, records and other documents made or compiled by Executive, or made
available to Executive prior to or during the term of this Agreement concerning
the Company's and its affiliates, business, shall be the Company's or its
affiliates' property and shall be delivered to the Company on the termination of
this Agreement or at any other time on request by the Board of Directors or
Chairman of the Board of the Company.
4.4 Executive agrees that he will not, from and after the date
hereof through the fifth anniversary of the termination of the Employment Period
(for whatever reason), (i) directly or indirectly engage in, represent in any
way, or be connected with, any business or activity (such business or activity
being hereinafter called a "Competing Business"), which engages in pain
management, generic pharmaceuticals or such other activities that (during
Executive's Employment Period) the Company engages in or intends to engage in
and is set forth in a detailed written business plan that has been submitted to
the Company's Board of Directors prior to the termination of the Executive's
Employment Period, within any state in which the Company or its affiliates
transact business, whether such engagement shall be as an officer, director,
owner, employee, partner, affiliate or other participant in any Competing
Business; or (ii) assist others in engaging in any Competing Business in the
manner described in the foregoing clause (i); provided, however, that it shall
-------- -------
not be a violation of this Section 4.4 for Executive (a) to be the registered or
beneficial owner of up to twelve percent (12%) of any class of capital stock of
U.S. Dermatalogics, Inc., and the amount and percentage ownership of shares
beneficially owned by Executive, as of the date of this Agreement is set forth
on Schedule 4.4 hereto, (b) to be the registered or beneficial owner of shares
of any class of capital stock of a Competing Business that Executive owns as of
the date of this Agreement, the amounts and percentage ownership of which is set
forth on Schedule 4.4 hereto or (c) to become the registered
5
<PAGE>
or beneficial owner of up to five percent (5%) of any class of the capital stock
of a Competing Business, provided that in the case of each of clauses (a), (b)
--------
and (c) Executive does not actively participate in the business of such
Competing Business until such time as this covenant expires. The Executive
acknowledges and understands that the foregoing restrictions may limit his
ability to earn a livelihood in a business similar to the business of the
Company, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits in connection with the Company's
issuance of certain stock to the Executive, as an employee of the Company and as
otherwise provided hereunder to clearly justify such restrictions which, in any
event (given his education, skills and ability), the Executive does not believe
would prevent him from earning a living; provided, however, that the Executive
-------- -------
may actively engage in a Competing Business during the term of the covenant set
forth in this Section 4.4 if the Executive provides written notice to the
Company prior to engaging in any such Competing Business and the Executive
thereafter receives the written consent of the Board of Directors of the Company
to engage in such Competing Business. Notwithstanding the foregoing, during the
period from and after the date of this Agreement through the fifth anniversary
of the termination of the Employment Period, the Executive shall keep the Board
of Directors apprised of his business activities.
4.5 The Executive shall promptly disclose, grant and assign to
the Company for its sole use and benefit any and all inventions, improvements,
technical information and suggestions relating in any way to the business of the
Company, which he may develop or acquire during the Employment Period (whether
or not during usual working hours), together with all patent applications,
letters patent, copyrights and reissues thereof that may at any time be granted
for or upon any such invention, improvement or technical information. In
connection therewith:
(i) The Executive shall without charge, but at the expense
of the Company, promptly at all times hereafter execute and deliver such
applications, assignments, descriptions and other instruments as may be
reasonably necessary or proper in the reasonable opinion of the Company to vest
title to any such inventions, improvements, technical information, patent
applications, patents, copyrights or reissues thereof in the Company and to
enable it to obtain and maintain the entire right and title thereto throughout
the world; and
(ii) The Executive shall render to the Company at its
expense (including a reasonable payment for the time involved in case he is not
then in its employ) all such assistance as it may reasonably require in the
prosecution of applications for said patents, copyrights or reissues thereof, in
the prosecution or defense of interferences which may be declared involving any
said applications, patents or copyrights and in any litigation in which the
Company may be involved relating to any such patents, inventions, improvements
or technical information.
4.6 The provisions of this paragraph 4 shall survive the
termination or expiration of this Agreement irrespective of the reason therefor.
4.7 Executive acknowledges that the services to be rendered by
him are of a special, unique and extraordinary character and, in connection with
such services, he will have access to Confidential Information vital to the
Company's business. By reason of this,
6
<PAGE>
Executive consents and agrees that if he violates any of the provisions of this
Agreement with respect to the diversion of the Company's or its affiliates'
employees or confidentiality, the Company or its affiliates would sustain
irreparable harm and, therefore, in addition to any other remedies which the
Company may have under this Agreement or otherwise, the Company shall be
entitled to apply to any court of competent jurisdiction for an injunction
restraining Executive from committing or continuing any such violation of this
Agreement, and Executive shall not object to any such application.
5. Indemnification. The Company agrees to indemnify and hold
---------------
harmless Executive on the terms set forth in the Company's Bylaws and
Certificate of Incorporation as they exist on the date of this Agreement and in
any event to the same extent that the Company provides indemnification for its
other executive employees.
6. Conflicting Duties. The Company acknowledges that during his
------------------
tenure pursuant to this Employment Agreement, Executive shall not be required to
work "full-time" for the Company and shall work on an as-needed basis, the dates
and times of which to be mutually agreed upon by the Company and Executive. In
addition, the Company acknowledges that during the Employment Period Executive
shall retain the right to pursue and/or fulfill other business opportunities,
commitments and obligations so long as such opportunities, commitments and
obligations would not constitute a breach by Executive of his obligations under
Section 4 of this Employment Agreement.
7. Miscellaneous.
-------------
7.1 Notices. Any notice or communication given by either
-------
party hereto to the other party shall be in writing and shall be deemed duly
given (i) when personally delivered, or (ii) when five days have elapsed after
its transmittal, by registered or certified mail, return receipt requested,
postage prepaid, or (iii) if transmitted by telecopy, when sent, or (iv) if
transmitted by telex (or equivalent service), when the sender's receiving
apparatus has printed the answerback of the addressee on a copy of the telex
message. Notices shall be addressed as follows:
If to the Company:
Endo Pharmaceutical Holdings Inc.
223 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
Telecopier No.: 610-558-9683
Attention: Chief Executive Officer
If to Executive:
Mr. John W. Lyle
28 Inlet Terrace
Belmar, New Jersey 07719
With copies in each case to:
7
<PAGE>
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Telecopier No.: 212-986-8866
Attention: James R. Ledley, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: 212-735-2000
Attention: Eileen Nugent Simon, Esq.
Any person entitled to receive notice (or a copy thereof) may designate in
writing, by notice to the others, such other address to which notices to such
person shall thereafter be sent.
7.2 Entire Agreement; Amendment; Waiver. This Agreement
-----------------------------------
contains the entire understanding of the parties covering its subject matter and
supersedes all prior agreements between the parties. This Agreement may be
amended or waived only by a writing signed by both parties. The waiver by either
party of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any other breach of that provision nor as a waiver of
any breach of another provision.
7.3 Headings. The headings of the paragraphs of this Agreement
--------
are inserted for convenience only and shall not be considered a part of or be
referred to in interpreting this Agreement.
7.4 Governing Law; Interpretation; Service of Process. This
-------------------------------------------------
Agreement shall be construed in accordance with and governed for all purposes by
the laws and public policies of the State of New Jersey applicable to contracts
executed and to be wholly performed in that State. Service of process in any
dispute shall be effective: (a) upon the Company, if service is made on any
officer of the Company; and (b) upon Executive, if service is made to
Executive's residence last known to the Company with an information copy to
Executive at any other residence, or care of a subsequent employer, of which the
Company may be aware.
7.5 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall constitute an original, but all of which
together shall constitute one and the same instrument.
7.6 Assignment. Assignment of the rights and obligations of
----------
this Agreement shall bind and enure to the benefit of any successor of the
Company by reorganization, merger or consolidation, or any assignee of all or
substantially all of the Company's business and properties, provided that the
successor shall assume the obligations of the Company under this Agreement.
Executive's rights or obligations under this Agreement may not be assigned by
Executive.
7.7 Further Assurances. Each of the parties agrees to execute,
------------------
acknowledge, deliver and perform, and/or cause to be executed, acknowledged,
delivered and
8
<PAGE>
performed, at any time and/or from time to time, as the case may be, all such
further acts, deeds, assignments, transfers, conveyances, powers-of-attorney
and/or assurances as may be necessary and/or proper to carry out the provisions
and/or intent of this Agreement.
7.8 Severability. If any one or more of the terms, provisions,
------------
covenants or restrictions of this Agreement shall be determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated, unless the parties hereto would not have entered into this
Agreement without said invalid, void or unenforceable term, provision, covenant
or restriction. If, moreover, any one or more of the provisions contained in
this Agreement shall for any reason be determined by a court of competent
jurisdiction to be excessively broad as to duration, geographical scope,
activity or subject, it shall be construed by limiting or reducing it, so as to
be enforceable to the extent compatible with then applicable law.
9
<PAGE>
Execution
---------
The parties have duly executed this Agreement as of the date first
above written whereupon this Agreement enters into full force and effect in
accordance with its terms.
ENDO PHARMACEUTICALS HOLDINGS
ATTEST: INC.
a Delaware Corporation
By:________________________________ By:________________________________
Name: Name:
Title: Title
___________________________________
John W. Lyle
<PAGE>
Schedule 4.4
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Competing Business Shares Beneficially Owned Percentage Ownership
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Dermatalogics, Inc. 970,250 shares of common 7.9%, fully diluted for
stock the exercise of the
options and issuance
23,944 shares of common the issuance of the
issuable under a 23,944 shares issuable
convertible note shares issuable upon
conversion of the note
Options to purchase 25,000
shares of common stock
- --------------------------------------------------------------------------------
Warner Lambert Less than 500 shares Less than 1.0%
- --------------------------------------------------------------------------------
American Home Products Less than 500 shares Less than 1.0%
- --------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Exhibit I - Form of Endo Warrant
____________________________________________________________________
WARRANT AGREEMENT
by and between
ENDO PHARMACEUTICALS HOLDINGS INC.
and
[WARRANT AGENT],
as
Warrant Agent
_____________________
Dated as of _____________, ____
____________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Appointment of Warrant Agent................. 1
Section 2. Warrant Certificates......................... 1
Section 3. Execution of Warrant Certificates............ 2
Section 4. Registration and Countersignature............ 3
Section 5. Transfer and Exchange of Warrants............ 3
Section 6. Registration of Transfers and Exchanges...... 4
Section 7. Terms of Warrants; Exercise of Warrants...... 7
Section 8. Payment of Taxes............................. 10
Section 9. Mutilated or Missing Warrant Certificates.... 11
Section 10. Reservation of Warrant Shares................ 11
Section 11. Obtaining Stock Exchange Listings............ 12
Section 12. Adjustment of Exercise Price and Number
of Warrant Shares Issuable................... 12
Section 13. Fractional Interests......................... 20
Section 14. Notices to Warrant Holders; Reservation
of Dividends................................. 20
Section 15. Notices to the Company and Warrant Agent..... 23
Section 16. Supplements and Amendments................... 24
Section 17. Concerning the Warrant Agent................. 24
Section 18. Change of Warrant Agent...................... 27
Section 19. Successors................................... 28
Section 20. Termination.................................. 28
Section 21. GOVERNING LAW................................ 28
Section 22. Benefits of This Agreement................... 29
Section 23. Counterparts................................. 29
Section 24. Headings..................................... 29
Exhibit A. Form of Warrant Certificate............................... A-1
Exhibit B. Certificate to be Delivered Upon Transfer................. B-1
</TABLE>
i
<PAGE>
WARRANT AGREEMENT (the "Agreement"), dated as of _______ __, ____, by
---------
and between Endo Pharmaceuticals Holdings Inc., a Delaware corporation
(together with any successors and assigns, the "Company"), and [WARRANT AGENT],
-------
as Warrant Agent (the "Warrant Agent").
-------------
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of November __, 1999 (the "Merger Agreement"), by and among the Company, Endo
----------------
Inc., a Delaware corporation and wholly owned subsidiary of the Company ("Sub"),
---
and [TARGET] Pharmaceutical Corporation, a Delaware corporation ("Target"), the
------
Company proposes to issue warrants (each a "Warrant," and collectively, the
-------
"Warrants") for the purchase of an aggregate of 29,834,075/1/ shares of common
--------
stock, par value $.01 per share, of the Company (the "Common Stock," and the
------------
shares of Common Stock issuable upon exercise of the Warrants being referred to
herein as the "Warrant Shares");
--------------
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company and the Warrant Agent is willing to act in connection with the issuance,
transfer, exchange and exercise of Warrants as provided herein; and
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein, the Company and the Warrant Agent hereby agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby
----------------------------
appoints the Warrant Agent to act as agent for the Company in accordance with
the instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
Section 2. Warrant Certificates. The Warrants will initially be
--------------------
issued in global form (the "Global Warrants"), substantially in the form of
---------------
Exhibit A hereto. Any certificates evidencing the Global Warrants to be
delivered pursuant to this Agreement (the "Warrant Certificates") shall be
--------------------
substantially in the form set forth in Exhibit A hereto. Such Global Warrants
shall represent such of the outstanding Warrants as shall be specified therein
and each shall provide that it shall represent the aggregate amount of
outstanding Warrants from time to time endorsed thereon and that the aggregate
amount of outstanding Warrants represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of a Global Warrant to
reflect the amount of any increase or decrease in the amount of
__________________
/1/ These numbers shall be adjusted in the final Endo Warrant. See
footnotes 2-5 below.
<PAGE>
outstanding Warrants represented thereby shall be made by the Warrant Agent and
the Depositary (as defined below) in accordance with instructions given by the
holder thereof. [The Depository Trust Company] shall act as the Depositary with
respect to the Global Warrants until a successor shall be appointed by the
Company. Upon written request, a Warrant holder who holds Warrants may receive
from the Depositary and Warrant Agent Warrants in registered form as definitive
Warrant Certificates (the "Definitive Warrants") as set forth in Section 6
-------------------
below.
Section 3. Execution of Warrant Certificates. Warrant Certificates
---------------------------------
shall be signed on behalf of the Company by its Chairman of the Board, its
President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer or Treasurer or a Vice President and by its Secretary or an Assistant
Secretary. Each such signature upon the Warrant Certificates may be in the form
of a facsimile signature of the present or any future Chairman of the Board,
President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, Treasurer, Vice President, Secretary or Assistant Secretary and may be
imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person who
shall have been Chairman of the Board, President, Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, Treasurer, a Vice President,
Secretary or an Assistant Secretary, notwithstanding the fact that at the time
the Warrant Certificates shall be countersigned and delivered or disposed of
such person shall have ceased to hold such office.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of countersignature by
the Warrant Agent.
Section 4. Registration and Countersignature. The Warrants shall
---------------------------------
be numbered and shall be registered on the books of the Company maintained at
the
2
<PAGE>
principal office of the Warrant Agent in [LOCATION OF WARRANT AGENT'S OFFICES]
(the "Warrant Register") as they are issued.
----------------
Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. The
Warrant Agent shall, upon written instructions of the Chairman of the Board, the
President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, Treasurer, a Vice President, the Secretary or an Assistant Secretary of
the Company, initially countersign and deliver Warrants entitling the holders
thereof to purchase not more than the number of Warrant Shares referred to above
in the first recital hereof and shall thereafter countersign and deliver
Warrants as otherwise provided in this Agreement.
The Company and the Warrant Agent may deem and treat the registered
holders (the "Holders") of the Warrant Certificates as the absolute owners
-------
thereof (notwithstanding any notation of ownership or other writing thereon made
by anyone) for all purposes, and neither the Company nor the Warrant Agent shall
be affected by any notice to the contrary.
Section 5. Transfer and Exchange of Warrants. The Warrant Agent
---------------------------------
shall from time to time, subject to the limitations of Section 6 hereof,
register the transfer of any outstanding Warrants upon the records to be
maintained by it for that purpose, upon surrender thereof duly endorsed or
accompanied (if so required by it) by a written instrument or instruments of
transfer in form satisfactory to the Warrant Agent, duly executed by the
registered Holder or Holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney. Subject to the terms of
this Agreement, each Warrant Certificate may be exchanged for another
certificate or certificates entitling the Holder thereof to purchase a like
aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitle each Holder to purchase. Any Holder desiring to
exchange a Warrant Certificate or Certificates shall make such request in
writing delivered to the Warrant Agent, and shall surrender, duly endorsed or
accompanied (if so required by the Warrant Agent) by a written instrument or
instruments of transfer in form satisfactory to the Warrant Agent, the Warrant
Certificate or Certificates to be so exchanged.
Upon registration of transfer, the Warrant Agent shall countersign and
deliver by certified or first class mail a new Warrant Certificate or
Certificates to the persons entitled thereto. The Warrant Certificates may be
exchanged at the option of the Holder thereof, when surrendered at the office or
agency of the Company
3
<PAGE>
maintained for such purpose, which initially will be the corporate trust office
of the Warrant Agent in [LOCATION OF WARRANT AGENT'S CORPORATE TRUST OFFICE],
for another Warrant Certificate, or other Warrant Certificates of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares.
No service charge shall be made for any exchange or registration of
transfer of Warrant Certificates, but the Company may require payment of a sum
sufficient to cover any stamp or other tax or other governmental charge that is
imposed in connection with any such exchange or registration of transfer.
Section 6. Registration of Transfers and Exchanges.
---------------------------------------
(a) Transfer and Exchange of Definitive Warrants. When Definitive
--------------------------------------------
Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of Definitive
Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if its requirements under this Agreement are met; provided, however, that the
-------- -------
Definitive Warrants presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Warrant Agent, duly executed by the Holder
thereof or by such Holder's attorney, duly authorized in writing.
(b) Restrictions on Transfer of a Definitive Warrant for a Beneficial
-----------------------------------------------------------------
Interest in a Global Warrant. The Warrant Agent may exchange a Definitive
- ----------------------------
Warrant for a beneficial interest in a Global Warrant only if the Warrant Agent
has received such Definitive Warrant, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Warrant Agent,
together with written instructions directing the Warrant Agent to make, or to
direct the Depositary to make, an endorsement on the Global Warrant to reflect
an increase in the aggregate amount of the Warrants represented by the Global
Warrant. If such conditions have been satisfied, the Warrant Agent shall cancel
such Definitive Warrant and cause, or direct the Depositary to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Warrant Agent, the number
4
<PAGE>
of Warrant Shares represented by the Global Warrant to be increased accordingly.
If no Global Warrant is then outstanding, the Company shall issue and the
Warrant Agent shall countersign a new Global Warrant in the appropriate amount.
(c) Transfer and Exchange of Global Warrants. The transfer and
----------------------------------------
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Warrant Agreement (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) Transfer of a Beneficial Interest in a Global Warrant for a
-----------------------------------------------------------
Definitive Warrant.
- ------------------
(i) Any person having a beneficial interest in a Global Warrant may upon
his, her or its request exchange such beneficial interest for a
Definitive Warrant. Upon receipt by the Warrant Agent of written
instructions (or such other form of instructions as is customary for
the Depositary) from the Depositary or its nominee on behalf of any
person having a beneficial interest in a Global Warrant and upon
receipt by the Warrant Agent of a written order or such other form of
instructions as is customary for the Depositary or the person
designated by the Depositary as having such a beneficial interest
containing registration instructions, then the Warrant Agent will
cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Warrant Agent, the aggregate
amount of the Global Warrant to be reduced and, following such
reduction, the Company will execute and, upon receipt of a
countersignature, the Warrant Agent will countersign and deliver to
the transferee a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial interest in a
Global Warrant pursuant to this Section 6(d) shall be registered in
such names and in such authorized denominations as the Depositary,
pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Warrant Agent in writing, provided such
designation is in accordance with this Section 6(d). The Warrant Agent
shall deliver such Definitive Warrants to the persons in whose names
such Definitive Warrants are registered.
5
<PAGE>
(e) Restrictions on Transfer and Exchange of Global Warrants.
--------------------------------------------------------
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in subsection (f) of this Section 6), a Global Warrant may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Warrants in Absence of Depositary.
--------------------------------------------------------------
If at any time:
(i) the Depositary for the Global Warrants notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the
Global Warrant and a successor Depositary for the Global Warrant is
not appointed by the Company within 90 days after delivery of such
notice; or
(ii) the Company, at its sole discretion, notifies the Warrant Agent in
writing that it elects to cause the issuance of Definitive Warrants
under this Warrant Agreement,
then the Company will execute, and the Warrant Agent, upon receipt of an
officers' certificate, signed by the President, Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer or a Vice President of the Company,
requesting the counter-signature and delivery of Definitive Warrants, will
countersign and deliver Definitive Warrants, in an aggregate number equal to the
aggregate number of Warrants represented by the Global Warrant, in exchange for
such Global Warrant.
(g) Cancellation and/or Adjustment of a Global Warrant. At such time
--------------------------------------------------
as all beneficial interests in a Global Warrant have either been exchanged for
Definitive Warrants, redeemed, repurchased or cancelled, such Global Warrant
shall be returned to or retained and cancelled by the Warrant Agent. At any
time prior to such cancellation, if any beneficial interest in a Global Warrant
is exchanged for Definitive Warrants, redeemed, repurchased or cancelled, the
number of Warrants represented by such Global Warrant shall be reduced and an
endorsement shall be made on such Global Warrant, by the Warrant Agent to
reflect such reduction.
6
<PAGE>
(h) Obligations with Respect to Transfers and Exchanges of Definitive
-----------------------------------------------------------------
Warrants.
- --------
(i) To permit registrations of transfers and exchanges in accordance with
the terms of this Agreement, the Company shall execute, and the
Warrant Agent shall countersign Definitive Warrants and Global
Warrants.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration, transfer or exchange of Definitive Warrants or Global
Warrants shall be the valid obligations of the Company, entitled to
the same benefits under this Warrant Agreement as the Definitive
Warrants or Global Warrants surrendered upon the registration of
transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any Warrant,
the Warrant Agent and the Company may deem and treat the person in
whose name any Warrant is registered as the absolute owner of such
Warrant, and neither the Warrant Agent nor the Company shall be
affected by notice to the contrary.
Section 7. Terms of Warrants; Exercise of Warrants. Subject to the
---------------------------------------
terms of this Agreement, the Warrant Holders shall have the right, which may be
exercised commencing on or after the Exercisability Date (as defined below) and
until 5:00 p.m., New York City time, on July 7, 2003 (the six-month anniversary
of the Exercisability Date) (the "Expiration Date"), to receive from the Company
---------------
(on exercise of such Warrants and payment of the Exercise Price then in effect
for such Warrant Shares) (together, if applicable, with cash payable as provided
in Section 13 hereof and any dividends or distributions payable as provided in
Section 14 hereof) (a) 29,834,075 Warrant Shares (in the aggregate) (with each
Warrant being exercisable for 0.416667 Warrant Shares)/2/ in the event the
Adjustment Event has not occurred prior to such time or (b) 17,900,445 Warrant
Shares (in the aggregate) (with
____________________
/2/ These numbers shall be adjusted in the final Agreement and Warrants in
order to reflect that at the Effective Time such aggregate number, when taken
together with the shares of Parent Common Stock held by Persons who had been
holders of Parent Common Stock immediately prior to the Effective Time, shall
equal 80% of the shares of Parent Common Stock on a fully diluted basis
(excluding the effect of the Algos Warrants and after giving effect to the
Adjustment Event as if it had occurred).
7
<PAGE>
each Warrant being exercisable for 0.250000 Warrant Shares)/3/ in the event the
Adjustment Event has occurred prior to such time. Each Warrant not exercised
prior to the Expiration Date shall become void and all rights thereunder and all
rights in respect thereof under this Agreement shall cease as of the Expiration
Date. If applicable, dividends and other distributions will be made upon
exercise of the Warrants as set forth in Section 14 hereof.
"Exercisability Date" shall mean the fifth (5/th/) Business Day (as
-------------------
defined below) following December 31, 2002 if the Company (or any of its
subsidiaries) has not received approval from the U.S. Food and Drug
Administration (the "FDA") with respect to its New Drug Application for
---
MorphiDex(R) for the treatment of any pain prior to December 31, 2002.
In addition to the notices required by Section 14 hereof, the Company
shall give prompt written notice to the Warrant Agent that the Exercisability
Date has occurred and shall cause the Warrant Agent, on behalf of and at the
expense of the Company, within 5 Business Days after such notification is
received by the Warrant Agent, to mail by first class mail, postage prepaid, to
each Holder a notice specifying that the Exercisability Date has occurred and
that the Warrant has become exercisable pursuant to its terms and that the
Warrant will expire at 5:00 p.m., New York City time, on the Expiration Date.
In addition, the Company shall post appropriate notices of the Exercisability
Date on its web pages and issue press releases to wire services. A "Business
--------
Day" is a day that is not a Legal Holiday. A "Legal Holiday" is a Saturday, a
- --- -------------
Sunday, a federally recognized holiday or a day on which banking institutions
are not required to be open in the State of New York.
The initial price per share at which Warrant Shares shall be
purchasable upon exercise of Warrants (the "Exercise Price") shall equal $0.01.
--------------
A Warrant may be exercised upon surrender at the office or agency of the Company
maintained for such purpose, which initially will be the corporate trust office
of the Warrant Agent or its agents in [LOCATION OF WARRANT AGENT'S OFFICE], of
the Warrant Certificate(s) evidencing the Warrants to be exercised with the form
of
______________________
/3/ These numbers shall be adjusted in the final Agreement and Warrants in
order to reflect that at the Effective Time such aggregate number, when taken
together with the shares of Parent Common Stock held by Persons who had been
holders of Parent Common Stock immediately prior to the Effective Time, shall
equal 85% of the shares of Parent Common Stock on a fully diluted basis
(excluding the effect of the Algos Warrants as if no Adjustment Event had
occurred).
8
<PAGE>
election to purchase on the reverse thereof duly filled in and signed, which
signature shall be guaranteed by a participant in a recognized Signature
Guarantee Medallion Program, and upon payment to the Warrant Agent for the
account of the Company of the Exercise Price, as adjusted as herein provided,
for the number of Warrant Shares together, if applicable, with cash payable as
provided in Section 13 hereof and any dividends or distributions as provided in
Section 14 hereof in respect of which such Warrants are then exercised. Payment
of the Exercise Price may be made (a) in the form of cash or by certified or
official bank check payable to the order of the Company in New York Clearing
House Funds, (b) by delivering to the Company a written notice accompanying the
surrender of a Warrant to, at the time of exercise, apply to the payment of the
Exercise Price such number of Warrant Shares as shall be specified in such
notice, in which case an amount equal to the excess of the Current Market Value
(as defined in Section 12(d) hereof) of such Warrant Shares on the date of
exercise over the Exercise Price required for such exercise shall be deemed to
have been paid to the Company and the number of Warrant Shares issuable upon
such exercise shall be reduced by such specified number (a "Cashless Exercise")
-----------------
or (c) any combination of (a) and (b) above.
Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
Holder and in such name or names as the Warrant Holder may designate a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants together with cash as provided in Section 13
hereof. Such certificate or certificates shall be deemed to have been issued
and any person so named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the surrender of such Warrants
and payment of the Exercise Price.
On or after the Exercisability Date, the Warrants shall be
exercisable, at the election of the Holders thereof, either in full or from time
to time in part and, in the event that a certificate evidencing Warrants is
exercised in respect of fewer than all of the Warrant Shares issuable on such
exercise at any time prior to the Expiration Date, a new certificate evidencing
the remaining Warrant or Warrants will be issued, and the Warrant Agent is
hereby irrevocably authorized to countersign and to deliver the required new
Warrant Certificate or Certificates pursuant to the provisions of this Section 7
and of Section 3 hereof, and the Company, whenever required by the Warrant
Agent, will promptly supply the Warrant Agent with Warrant Certificates duly
executed on behalf of the Company for such purpose.
9
<PAGE>
All Warrant Certificates surrendered upon exercise of Warrants shall
be cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall
then be either delivered to the Company or disposed of by the Warrant Agent in a
manner consistent with the Warrant Agent's customary procedure for such disposal
and in a manner reasonably satisfactory to the Company. The Warrant Agent shall
account promptly to the Company with respect to Warrants exercised and
concurrently pay to the Company all monies received by the Warrant Agent for the
purchase of the Warrant Shares through the exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement available for
inspection by the Holders during normal business hours at its office. The
Company shall supply the Warrant Agent from time to time with such numbers of
copies of this Agreement as the Warrant Agent may request.
Section 8. Payment of Taxes. The Company will pay all documentary
----------------
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided, however, that the Company shall not be required
-------- -------
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue of any Warrant Certificates or any certificates for Warrant Shares
in a name other than that of the registered Holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
Section 9. Mutilated or Missing Warrant Certificates. In case any
-----------------------------------------
of the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue and the Warrant Agent may countersign, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity, if requested, also satisfactory to them.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or the Warrant Agent may prescribe.
Section 10. Reservation of Warrant Shares. The Company will at all
-----------------------------
times reserve and keep available, free from preemptive rights, out of the
aggregate
10
<PAGE>
of its authorized but unissued Common Stock or its authorized and issued Common
Stock held in its treasury, for the purpose of enabling it to satisfy any
obligation to issue Warrant Shares upon exercise of Warrants, the maximum number
of shares of Common Stock which may then be deliverable upon the exercise of all
outstanding Warrants.
The Company will keep a copy of this Agreement on file with the
transfer agent for the Common Stock (the "Transfer Agent") and with every
--------------
subsequent transfer agent for any shares of the Company's capital stock issuable
upon the exercise of the rights of purchase represented by the Warrants. The
Warrant Agent is hereby irrevocably authorized to requisition from time to time
from such Transfer Agent the stock certificates required to honor outstanding
warrants upon exercise thereof in accordance with the terms of this Agreement.
The Company will supply such Transfer Agent with duly executed certificates for
such purposes and will provide or otherwise make available any cash which may be
payable as provided in Section 13 hereof. The Company will furnish such
Transfer Agent a copy of all notices of adjustments and certificates related
thereto transmitted to each Holder pursuant to Section 14 hereof.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon payment of the Exercise Price therefor and
issue, be validly authorized and issued, fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issuance thereof. The Company will use its reasonable best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Agreement.
Section 11. Obtaining Stock Exchange Listings. The Company will
---------------------------------
from time to time take all action which may be necessary so that the Warrants
and, immediately upon their issuance upon exercise of the Warrants, the Warrant
Shares will be listed on the principal securities exchanges and markets within
the United States of America, if any, on which other shares of Common Stock are
then listed.
11
<PAGE>
Section 12. Adjustment of Exercise Price and Number of Warrant
--------------------------------------------------
Shares Issuable.
- ---------------
(a) If the Company:
(i) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock or other capital stock of the Company;
or
(ii) subdivides, splits, combines or reclassifies its outstanding
shares of Common Stock into a different number of securities of
the same class,
then the number of shares of Common Stock issuable upon the exercise of each
Warrant (the "Exercise Rate") in effect immediately prior to such action shall
-------------
be proportionately adjusted so that the Holder of any Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital stock
of the Company which such Holder would have owned immediately following such
action if such Warrant had been exercised immediately prior to such action and
the Exercise Price in effect immediately prior to such action shall be adjusted
to a price determined by multiplying the Exercise Price in effect immediately
prior to such action by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding before giving effect to such action and
the denominator of which shall be the number of shares of Common Stock and/or
such other capital stock outstanding referred to in the foregoing clause (a)(1)
after giving effect to such action.
An adjustment pursuant to this Section 12(a) shall become effective
immediately after the record date in the case of a dividend or distribution and
immediately after the effective date in the case of a subdivision, combination
or reclassification.
If, after an adjustment pursuant to this Section 12(a), a Holder of
a Warrant upon exercise of it may receive shares of two or more classes of
capital stock of the Company, the board of directors of the Company shall
determine the allocation of the adjusted Exercise Price between the classes of
capital stock. After such allocation, the exercise privilege and the Exercise
Price of each class of capital stock shall thereafter be subject to adjustment
on terms comparable to those applicable to Common Stock in this Section 12.
Such adjustment shall be made successively whenever any event listed
above shall occur.
12
<PAGE>
(b) Adjustment for Certain Issuances of Common Stock. If the
------------------------------------------------
Company issues or sells to any Affiliate (as defined in Section 12(d) hereof) of
the Company (other than KIA V, L.P. and KEP V, L.P.) shares of its Common Stock
or distributes to any Affiliate of the Company (other than KIA V, L.P. and KEP
V, L.P.) any rights, options or warrants entitling them to purchase shares of
Common Stock, or securities convertible into or exchangeable for Common Stock,
in each case, at a price per share less than the Current Market Value on the
record date for determining entitlements of such Affiliates to participate in
such issuance, sale or distribution (the "Time of Determination") and prior to
--------------------- ---
such issuance, sale or distribution the Com pany did not first offer to issue,
sell or distribute such shares of its Common Stock or such rights, options or
warrants or such securities convertible into or exchangeable for Common Stock to
all holders of Common Stock on the same economic terms and on a pro rata basis
with the issuance, sale or distribution to such Affiliates of the Company, then
----
the Exercise Rate shall be adjusted in accordance with the formula:
E' = E x O + N
---------------
O + N x P
-----
M
and the Exercise Price shall be adjusted in accordance with the following
formula:
EP' = EP x E
---
E'
where:
E' = the adjusted Exercise Rate.
E = the Exercise Rate immediately prior to the Time of
Determination for any such issuance, sale or distribution.
EP' = the Adjusted Exercise Price.
EP = the Exercise Price immediately prior to the Time of
Determination for any such issuance, sale or distribution.
13
<PAGE>
O = the number of Fully Diluted Shares (as defined below)
outstanding immediately prior to the Time of Determination for
any such issuance, sale or distribution.
N = the number of additional shares of Common Stock issued, sold or
issuable upon exercise of such rights, options or warrants.
P = the per share price received and receivable by the Company in
the case of any issuance or sale of Common Stock or rights,
options or warrants as to which such adjustment is being made,
inclusive of the exercise price per share of Common Stock
payable upon exercise of such rights, options or warrants.
M = the Current Market Value per share of Common Stock on the Time
of Determination for any such issuance, sale or distribution.
For purposes of this Section 12(b), the term "Fully Diluted Shares"
--------------------
shall mean (i) the shares of Common Stock outstanding as of a specified date,
and (ii) the shares of Common Stock into or for which rights, options, warrants
or other securities of the Company outstanding as of such date are exercisable
or convertible (other than the Warrants).
Any adjustments shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
relevant Time of Determination. Notwithstanding the foregoing, the Exercise
Rate and the Exercise Price shall not be subject to adjustment in connection
with (i) the issuance of any shares of Common Stock upon exercise of any such
rights, options or warrants which have previously been the subject of an
adjustment under this Agreement for which the required adjustment has been made
and (ii) any exercise of the Warrants. If at the end of the period during which
any such rights, options or warrants are exercisable, not all rights, options or
warrants shall have been exercised, the Warrant shall be immediately readjusted
to what it would have been if "N" in each of the above formulas had been the
number of shares actually issued.
14
<PAGE>
(c) When De Minimis Adjustment May Be Deferred. No adjustment
------------------------------------------
in the Exercise Rate need be made unless the adjustment would require an
increase or decrease of at least 1% in the Exercise Rate. Notwithstanding the
foregoing, any adjustments that are not made shall be carried forward and taken
into account in any subsequent adjustment, provided that no such adjustment
-------- ----
shall be deferred beyond the date on which a Warrant is exercised.
All calculations under this Section 12 shall be made to the nearest
cent or to the nearest 1/100/th/ of a share, as the case may be.
(d) Certain Definitions. "Current Market Value" per share of
------------------- --------------------
Common Stock or of any other security (herein collectively referred to as a
"Security") at any date shall be:
--------
(1) if the Security is not registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (i) the value of the Security
------------
determined in good faith by the board of directors of the Company and
certified in a board resolution, based on the most recently completed
arm's-length transaction between the Company and a person other than an
Affiliate of the Company and the closing of which occurs on such date or
shall have occurred within the six months preceding such date or (ii) if no
such transaction shall have occurred on such date or within such
six-month period, the value of the Security determined as of a date within
30 days preceding such date by an Independent Financial Expert (as defined
below), or
(2) if the Security is registered under the Exchange Act, the average
of the daily closing bid prices of such Security for 30 consecutive
Business Days selected by the Company from the period of 45 Business Days
preceding such date, but only if such Security shall have been listed on a
national securities exchange or the Nasdaq National Market or traded
through an automated quotation system during such entire 45-Business Day
period.
The "closing bid price" for any Security on each Business Day means
-----------------
the closing price, regular way, on such day on the principal exchange on which
such Security is traded, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day.
15
<PAGE>
"Independent Financial Expert" shall mean any nationally recognized
----------------------------
investment banking firm that is not an Affiliate of the Company. Any such
person may receive customary compensation and indemnification by the Company for
opinions or services it provides as an Independent Financial Expert.
"Affiliate" of any specified person means any other person which
---------
directly or indirectly through one or more intermediaries controls or is
controlled by, or is under common control with, such specified person. For the
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling," "controlled by" and "under common control with") as used
with respect to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
person, whether through the ownership of voting securities, by agreement or
otherwise.
"Ordinary Cash Distribution" means any quarterly cash dividend on the
--------------------------
Common Stock to the extent that the aggregate cash dividend per share of Common
Stock in any calendar quarter does not exceed the greater of (x) the amount per
share of Common Stock of the next preceding quarterly cash dividend on the
Common Stock (as adjusted to reflect subdivisions or combinations of the Common
Stock) and (y) 3.0% of the average of the last reported sales prices of the
Common Stock during the ten trading days immediately prior to the date of
declaration of such dividend.
(e) When No Adjustment Required. If an adjustment is made upon the
---------------------------
establishment of a record date for an issuance, sale or distribution subject to
subsection (a) or (b) hereof and such issuance, sale or distribution is
subsequently cancelled or is not otherwise made, the Exercise Rate and Exercise
Price then in effect shall be readjusted, effective as of the date when the
board of directors of the Company determines to cancel such issuance, sale or
distribution or when it is otherwise evident that such issuance, sale or
distribution will not be so made, to that which would have been in effect if
such record date had not been fixed. If an adjustment would be required under
both subsections (a) and (b) above, such adjustments will be determined without
duplication.
To the extent the Warrants become convertible into cash, no adjust
ment need be made thereafter as to the amount of cash into which such Warrants
are exercisable. Interest will not accrue on the cash.
16
<PAGE>
(f) Notice of Adjustment. Whenever the Exercise Rate or Exercise
--------------------
Price is adjusted, the Company shall provide the notices required by Section 14
hereof.
(g) Voluntary Reduction. The Company from time to time may increase
-------------------
the Exercise Rate or reduce the Exercise Price by any amount for any period of
time (including, without limitation, permanently) if the period is at least 20
Business Days and the Company has given notice of such increase or reduction in
accordance with Section 14 hereof.
An increase of the Exercise Rate or reduction in the Exercise Price
under this subsection (g) (other than a permanent increase) does not change or
adjust the Exercise Rate otherwise in effect for purposes of subsection (a) and
(b) of this Section 12.
(h) When Issuance or Payment May Be Deferred. In any case in which
----------------------------------------
Section 12 shall require that an adjustment in the Exercise Rate or Exercise
Price be made effective as of a record date for a specified event, the Company
may elect to defer until the occurrence of such event (i) issuing to the Holder
of any Warrant exercised after such record date the Warrant Shares and other
capital stock of the Company, if any, issuable upon such exercise over and above
the Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Exercise Rate prior to such adjustment, and
(ii) paying to such Holder any amount in cash in lieu of a fractional share
pursuant to Section 13 hereof; provided, however, that the Company shall deliver
-------- -------
to the Warrant Agent and shall cause the Warrant Agent, on behalf of and at the
expense of the Company, to deliver to such Holder a due bill or other
appropriate instrument evidencing such Holder's right to receive such additional
Warrant Shares, other capital stock and cash upon the occurrence of the event
requiring such adjustment.
(i) Reorganizations. In case of (i) any capital reorganization, other
---------------
than in the cases referred to in Section 12(a) and (b) hereof and other than any
capital reorganization that does not result in any reclassification of the
outstanding shares of Common Stock into shares of other stock or other
securities or property, or (ii) the consolidation or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the continuing corporation and which does not result in any
reclassification of the outstanding shares of Common Stock into shares of other
stock or other securities or property), or
17
<PAGE>
(iii) the sale of all or substantially all of the assets of the Company
(collectively such actions being hereinafter referred to as "Reorganizations"),
---------------
there shall thereafter be deliverable upon exercise of any Warrant
in accordance with the terms hereof (in lieu of the number of shares of Common
Stock theretofore deliverable) the number of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock that would
otherwise have been deliverable upon the exercise of such Warrant would have
been entitled upon such Reorganization if the Exercisability Date had occurred
and such Warrant had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the board of directors of the Company, whose
determination shall be described in a duly adopted resolution certified by the
Company's Secretary or Assistant Secretary, shall be made in the application of
the provisions herein set forth with respect to the rights and interests of
Holders so that the provisions set forth herein shall thereafter be applicable,
as nearly as possible, in relation to any such shares or other securities or
property thereafter deliverable upon exercise of Warrants.
The Company shall not effect any such Reorganization unless prior to
or simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such Reorganization or the corporation or
other entity purchasing such assets shall expressly assume, by a supplemental
warrant agreement or other acknowledgment executed and delivered to the Warrant
Agent, the obligation to deliver to the Warrant Agent and to cause the Warrant
Agent to deliver to each such Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holder may be entitled to
purchase in accordance with the terms hereof upon the occurrence of the
Exercisability Date, and the due and punctual performance and observance of each
and every covenant, condition, obligation and liability under this Agreement to
be performed and observed by the Company in the manner prescribed herein.
The foregoing provisions of this Section 12(i) shall apply to
successive Reorganization transactions.
(j) Form of Warrants. Irrespective of any adjustments in the number
----------------
or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
18
<PAGE>
(k) Warrant Agent's Disclaimer. The Warrant Agent has no duty to
--------------------------
determine when an adjustment under this Section 12 should be made, how it should
be made or what it should be. The Warrant Agent has no duty to determine
whether any provisions of a supplemental warrant agreement under subsection (i)
of this Section 12 are correct. The Warrant Agent makes no representation as to
the validity or value of any securities or assets issued upon exercise of
Warrants. The Warrant Agent shall not be responsible for the Company's failure
to comply with this Section 12.
(l) Miscellaneous. For purpose of this Section 12 the term "shares
------------- ------
of Common Stock" shall mean (i) shares of the class of stock designated as the
- ---------------
Common Stock, par value $.01 per share, of the Company as of the date of this
Agreement, and (ii) shares of any other class of stock resulting from successive
changes or reclassification of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that at any time, as a result of an adjustment made pursuant to this
Section 12, the Holders of Warrants shall become entitled to purchase any
securities of the Company other than, or in addition to, shares of Common Stock,
thereafter the number or amount of such other securities so purchasable upon
exercise of each Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Warrant Shares contained in subsec subsections (a) through (l) of
this Section 12, inclusive, and the provisions of Sections 7, 8, 10 and 13 with
respect to the Warrant Shares or the Common Stock shall apply on like terms to
any such other securities.
Section 13. Fractional Interests. The Company shall not be require
--------------------
to issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the excess of the Current Market
Value of a Warrant Share over the Exercise Price on the day immediately
preceding the date the Warrant is presented for exercise, multiplied by such
fraction.
19
<PAGE>
Section 14. Notices to Warrant Holders; Reservation of Dividends.
----------------------------------------------------
Upon any adjustment pursuant to Section 12 hereof, the Company shall give prompt
written notice of such adjustment to the Warrant Agent and shall cause the
Warrant Agent, on behalf of and at the expense of the Company, within 10 days
after notification is received by the Warrant Agent of such adjustment, to mail
by first class mail, postage prepaid, to each Holder a notice of such
adjustment(s) and shall deliver to the Warrant Agent a certificate of the Chief
Financial Officer of the Company, setting forth in reasonable detail (i) the
number of Warrant Shares purchasable upon the exercise of each Warrant and the
Exercise Price of such Warrant after such adjustment(s), (ii) a brief statement
of the facts requiring such adjustment(s) and (iii) the computation by which
such adjustment(s) was made. Where appropriate, such notice may be given in
advance and included as a part of the notice required under the other provisions
of this Section 14.
In case the Exercisability Date has occurred and:
(a) the Company shall authorize the issuance to all holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants; or
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets or cash; or
(c) of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, or of any reclassification or change of Common Stock issuable
upon exercise of the Warrants (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or a tender offer or exchange offer for shares of
Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action that would require an
adjustment to the Exercise Rate pursuant to Section 12 hereof;
20
<PAGE>
then the Company shall give prompt written notice to the Warrant Agent and shall
cause the Warrant Agent, on behalf of and at the expense of the Company to give
to each of the registered holders of the Warrant Certificates at his, her or its
address appearing on the Warrant Register, at least 30 days (or 20 days in any
case specified in clauses (a) or (b) above) prior to the applicable record date
hereinafter specified, or the date of the event in the case of events for which
there is no record date, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of Common Stock
to be entitled to receive any such rights, options, warrants or distribution are
to be determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure by the Company or
the Warrant Agent to give such notice or any defect therein shall not affect the
legality or validity of any distribution, right, option, warrant, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any action.
The Company shall give prompt written notice to the Warrant Agent and
shall cause the Warrant Agent, on behalf of and at the expense of the Company
to give to each Holder written notice of any determination to make a
distribution or dividend to the holders of its Common Stock of any assets
(including cash (other than any Ordinary Cash Distribution)), debt securities,
preferred stock, or any rights or warrants to purchase debt securities,
preferred stock, assets or other securities (other than Common Stock, or rights,
options, or warrants to purchase Common Stock) of the Company, which notice
shall state the nature and amount of such planned dividend or distribution and
the record date therefor, and shall be given by the Company at least 20 days
prior to such record date therefor.
At any time prior to the date that is 30 Business Days after the
Exercisability Date, with respect to any distribution or dividend made by the
Company to all of the holders of its Common Stock for which notice to the
Holders of the Warrants under this Section 14 would be required had such
dividend or distribution occurred after the Exercisability Date and except for
such distributions or dividends as are provided for in Section 12 hereof, the
Company shall hold in reserve the
21
<PAGE>
amount of any such dividend or distribution that would have been payable to the
Holders in respect of their Warrant Shares had the Holders exercised their
Warrants immediately prior to such dividend or distribution. The Company shall
release to each Holder of Warrants his, her or its pro rata share of such
reserved dividends or distributions upon the exercise of such Holder's Warrants
pursuant to Section 7 hereof. Any notice delivered to the Holders by the Company
pursuant to this Section 14 shall state the nature and amount of such dividend
or distribution that shall be held in reserve.
Nothing contained in this Agreement or in any Warrant Certificate
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as stockholders in respect of the meetings of
stockholders or the election of directors of the Company or any other matter, or
any rights whatsoever as stockholders of the Company.
Section 15. Notices to the Company and Warrant Agent. Any notice or
----------------------------------------
demand authorized by this Agreement to be given or made by the Warrant Agent or
by any Holder to or on the Company shall be sufficiently given or made when
received at the office of the Company expressly designated by the Company as its
office for purposes of this Agreement (until the Warrant Agent is otherwise
notified in accordance with this Section 15 by the Company), as follows:
Endo Pharmaceuticals Holdings Inc.
c/o Kelso & Company
320 Park Avenue
24/th/ Floor
New York, New York 10022
Attention: Managing Director
with copy to General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
Attention: Eileen Nugent Simon, Esq.
22
<PAGE>
Any notice pursuant to this Agreement to be given by the Company or by
any Holder(s) to the Warrant Agent shall be sufficiently given when received by
the Warrant Agent at the address appearing below (until the Company is otherwise
notified in accordance with this Section by the Warrant Agent).
[WARRANT AGENT]
[ADDRESS]
Attention: [CONTACT]
Section 16. Supplements and Amendments. The Company and the Warrant
--------------------------
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any way
adversely affect the rights of any holder of Warrants hereunder. Any amendment
or supplement to this Agreement that has a material adverse effect on the rights
of holders hereunder shall require the written consent of registered holders of
a majority of the then outstanding Warrants, which consent shall then be
effective against all the Holders of Warrants hereunder. The consent of each
holder of a Warrant affected shall be required for any amendment pursuant to
which the Exercise Price would be increased or the number of Warrant Shares
purchasable upon exercise of Warrants would be decreased (not including
adjustments contemplated hereunder). The Warrant Agent shall be entitled to
receive and shall be fully protected in relying upon an officers' certificate
and opinion of counsel as conclusive evidence that any such amendment or
supplement is authorized or permitted hereunder, that it is not inconsistent
herewith, and that it will be valid and binding upon the Company in
accordance with its terms.
Section 17. Concerning the Warrant Agent. The Warrant Agent
----------------------------
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the Holders, by
their acceptance of Warrants, shall be bound:
(a) The statements contained herein and in the Warrant Certificate
shall be taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or any action taken by it. The Warrant Agent assumes no
responsibil-
23
<PAGE>
ity with respect to the distribution of the Warrants except as herein otherwise
provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with the covenants contained in this Agreement or in the
Warrants to be complied with by the Company.
(c) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself (through
its employees) or by or through its attorneys or agents (which shall not include
its employees) and shall not be responsible for the misconduct of any agent
appointed with due care.
(d) The Warrant Agent may consult at any time with legal counsel
satisfactory to it (who may be counsel for the Company), and the Warrant Agent
shall incur no liability or responsibility to the Company or to any Holder in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel.
(e) Whenever in the performance of its duties under this Agreement
the Warrant Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless such evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the President,
Chief Financial Officer, one of the Vice Presidents, the Treasurer or the
Secretary of the Company and delivered to the Warrant Agent; and such
certificate shall be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(f) The Company agrees to pay the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the performance
of its duties under this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent (including reasonable fees and expenses of
the Warrant Agent's counsel and agents) in the performance of its duties under
this Agreement, and to indemnify the Warrant Agent and save it harmless against
any and all liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the
24
<PAGE>
Warrant Agent in the performance of its duties under this Agreement, except as a
result of the Warrant Agent's negligence or bad faith.
(g) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more Holders shall furnish the Warrant
Agent with reasonable security and indemnity satisfactory to the Warrant Agent
for any costs and expenses which may be incurred, but this provision shall not
affect the power of the Warrant Agent to take such action as the Warrant Agent
may consider proper, whether with or without any such security or indemnity.
All rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrants or
the production thereof at any trial or other proceeding relative thereto, and
any such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery of judgment shall be for
the ratable benefit of the Holders, as their respective rights or interests may
appear.
(h) The Warrant Agent and any stockholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transactions in which the Company may be interested, or contract with or lend
money to the Com pany or otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement or such director, officer or employee.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity including, without
limitation, acting as Transfer Agent or as a lender to the Company or an
Affiliate thereof.
(i) The Warrant Agent shall act hereunder solely as agent, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not be liable for anything which it may do or refrain from doing in
connection with this Agreement except for its own negligence or bad faith.
(j) The Warrant Agent will not incur any liability or responsibility
to the Company or to any Holder for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument reasonably believed by it to be genuine and to have been signed, sent
or presented by the proper party or parties.
25
<PAGE>
(k) The Warrant Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant (except its countersignature thereof); nor shall the
Warrant Agent by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Warrant Shares (or other
stock) to be issued pursuant to this Agreement or any Warrant, or as to whether
any Warrant Shares (or other stock) will, when issued, be validly issued, fully
paid and nonassessable, or as to the Exercise Price or the number or amount of
Warrant Shares or other securities or other property issuable upon exercise of
any Warrant.
(l) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President or the Secretary of
the Company, and to apply to such officers for advice or instructions in
connection with its duties, and shall not be liable for any action taken or
suffered to be taken by it in good faith and without negligence in accordance
with instructions of any such officer or officers.
Section 18. Change of Warrant Agent. The Warrant Agent may resign at
-----------------------
any time and be discharged from its duties under this Agreement by giving to the
Company 30-days' notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Warrant Agent. If the Company shall fail to make
such appointment within a period of 30 days after such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Holder (who shall with such notice submit
his, her or its Warrant for inspection by the Company), then any Holder may
apply to any court of competent jurisdiction for the appointment of a successor
to the Warrant Agent. Pending appointment of a successor warrant agent, either
by the Company or by such court, the duties of the Warrant Agent shall be
carried out by the Company. Any successor warrant agent, whether appointed by
the Company or such a court, shall be a bank or trust company in good standing,
incorporated under the laws of the United States of America or any State thereof
or the District of Columbia and having at the time of its appointment as warrant
agent a combined capital and surplus of at least $10,000,000. After
appointment, the successor warrant agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named
26
<PAGE>
as Warrant Agent without further act or deed; but the former Warrant Agent shall
deliver and transfer to the successor warrant agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for such purpose. Failure to file any notice provided for
in this Section 18, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor warrant agent, as the case may be. In the event of
such resignation or removal, the Company or the successor warrant agent shall
mail by first class mail, postage prepaid, to each Holder, written notice of
such removal or resignation and the name and address of such successor warrant
agent.
Section 19. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company, the Warrant Agent or any holder
of Warrants shall bind and inure to the benefit of their respective successors
and assigns hereunder.
Section 20. Termination. This Agreement shall terminate at 5:00
-----------
p.m.,New York City time, on the Expiration Date. Notwithstanding the foregoing,
this Agreement will terminate on any earlier date if all Warrants have been
exercised pursuant to this Agreement.
Section 21. GOVERNING LAW. THIS AGREEMENT AND EACH WARRANT CERTIFICATE
-------------
ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF SAID STATE, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
Section 22. Benefits of This Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any person or corporation other than the Company,
the Warrant Agent and the registered Holders of the Warrant Certificates any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the registered Holders of the Warrant Certificates.
Section 23. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
27
<PAGE>
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 24. Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
ENDO PHARMACEUTICALS HOLDINGS INC.
By: ________________________________
Name:
Title:
[WARRANT AGENT],
as Warrant Agent
By: ________________________________
Name:
Title:
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
[Face]
THIS SECURITY IS A GLOBAL CERTIFICATE AND IS REGISTERED IN THE NAME
OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON
OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE WARRANT AGREEMENT, DATED AS OF ____________, ____, BY AND
BETWEEN THE COMPANY AND THE WARRANT AGENT (THE "WARRANT AGREEMENT"), AND NO
TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY
TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT. UNLESS
THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
A-1
<PAGE>
EXERCISABLE ON OR AFTER THE EXERCISABILITY DATE
AND ON OR BEFORE JULY 7, 2003
No. __________ __________ Warrants
Warrant Certificate
ENDO PHARMACEUTICALS HOLDINGS INC.
This Warrant Certificate certifies that _______, or registered
assigns, is the registered holder of Warrants expiring on or before July 7, 2003
(the "Warrants") to purchase shares of Common Stock, par value $.01 per share
(the "Common Stock"), of Endo Pharmaceuticals Holdings Inc., a Delaware
corporation (the "Company"). Each Warrant entitles the holder upon exercise to
receive from the Company on or after the Exercisability Date and on or before
5:00 p.m. New York City Time on July 7, 2003 (the six-month anniversary of the
Exercisability Date), (a) 0.416667/4/ fully paid and nonassessable shares of
Common Stock (each such share, a "Warrant Share") in the event the Adjustment
Event (as defined in that certain Agreement and Plan of Merger, dated as of
November __, 1999, by and among the Company, Endo Inc., a Delaware corporation
and wholly owned subsidiary of the Company, and [TARGET] Pharmaceutical
Corporation, a Delaware corporation) has not occurred prior to such time or (b)
0.250000/5/ Warrant Shares in the event the Adjustment Event has occurred prior
to such time, in either case, at the initial exercise price (the "Exercise
Price") equal to $0.01 payable upon surrender of this Warrant Certificate and
payment of the Exercise Price in the manner set forth in the Warrant Agreement,
subject only to the conditions set forth herein and in the Warrant Agreement
referred to on the reverse hereof. The Exercise Price and number of Warrant
Shares issuable
______________________
/4/ This number shall be adjusted in the final Agreement and Warrants in
order to reflect that at the Effective Time the aggregate number on which it is
based, when taken together with the shares of Parent Common Stock held by
Persons who had been holders of Parent Common Stock immediately prior to the
Effective Time, shall equal 85% of the shares of Parent Common Stock on a fully
diluted basis (excluding the effect of the Algos Warrants as if no Adjustment
Event had occurred).
/5/ This number shall be adjusted in the final Agreement and Warrants in
order to reflect that at the Effective Time the aggregate number on which it is
based, when taken together with the shares of Parent Common Stock held by
Persons who had been holders of Parent Common Stock immediately prior to the
Effective Time, shall equal 80% of the shares of Parent Common Stock on a fully
diluted basis (excluding the effect of the Algos Warrants and after giving
effect to the Adjustment Event as if it had occurred).
A-2
<PAGE>
upon exercise of the Warrants are subject to adjustment upon the occurrence of
certain events as set forth in the Warrant Agreement.
No Warrant may be exercised before the Exercisability Date or after
5:00 p.m., New York City Time, on July 7, 2003 and to the extent not exercised
by such time such Warrants shall become void.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
A-3
<PAGE>
IN WITNESS WHEREOF, Endo Pharmaceuticals Holdings Inc. has caused this
Warrant Certificate to be signed by its [OFFICER] and by its Secretary, each by
a facsimile of his or her signature, and has caused a facsimile of its corporate
seal to be affixed hereunto or imprinted hereon.
Dated: , ____
ENDO PHARMACEUTICALS HOLDINGS INC.
By: __________________________
Name:
Title:
By: __________________________
Name:
Title: Secretary
Countersigned:
[WARRANT AGENT],
as Warrant Agent
By: ____________________________
Name:
Title:
A-4
<PAGE>
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring July 7, 2003, entitling the holder on
exercise to receive shares of Common Stock, par value $.01 per share, of the
Company (the "Common Stock"), and are issued or to be issued pursuant to a
Warrant Agreement dated as of ________ __, ____ (the "Warrant Agreement"), duly
executed and delivered by the Company to [WARRANT AGENT], as warrant agent (the
"Warrant Agent"), which Warrant Agreement is hereby incorporated by reference in
and made a part of this instrument and is hereby referred to for a description
of the rights, limitation of rights, obligations, duties and immunities
thereunder of the Warrant Agent, the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
Warrants may be exercised at any time on or after the "Exercisability
Date" and on or before July 7, 2003. The holder of Warrants evidenced by this
Warrant Certificate may exercise them by surrendering this Warrant Certificate,
with the form of election to purchase set forth hereon properly completed and
executed, together with payment in the manner provided for in the Warrant
Agreement at the office of the Warrant Agent. In the event that upon any
exercise of Warrants evidenced hereby, the number of Warrants exercised shall
be less than the total number of Warrants evidenced hereby, there shall be
issued to the holder hereof or his, her or its assignee a new Warrant
Certificate evidencing the number of Warrants not exercised.
The Warrant Agreement provides that upon the occurrence of certain
events the number of Warrants set forth on the face hereof and the Exercise
Price may, subject to certain conditions, be adjusted. No fractions of a share
of Common Stock will be issued upon the exercise of any Warrant, but the Company
will pay the cash value thereof determined as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the
A-5
<PAGE>
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
A-6
<PAGE>
[Form of Election to Purchase]
(To Be Executed upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive _____shares of Common Stock
and herewith tenders payment for such shares to the order of Endo
Pharmaceuticals Holdings Inc. in the amount of $______ payable in (select one or
more: (i) cash and/or (ii) pursuant to a Cashless Exercise) in accordance with
the terms hereof and of the Warrant Agreement. The undersigned requests that a
certificate for such shares be registered in the name of _________, whose
address is ________ and that such shares be delivered to ________ whose address
is ________. If said number of shares is less than all of the shares of Common
Stock purchasable hereunder, the undersigned requests that a new Warrant
Certificate representing the remaining balance of such shares be registered in
the name of ________, whose address is ________, and that such Warrant
Certificate be delivered to ________, whose address is ________.
Signature:
Date:
Signature Guaranteed:
A-7
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS
The following exchanges of a part of this Global Warrant for certificated
Warrants have been made:
Number of
Warrants of
Amount of Amount of this Global
decrease in increase in Warrant Signature of
Number of Number of following authorized
Date of Warrants of this Warrants of this such decrease officer of
Exchange Global Warrant Global Warrant (or increase) Warrant Agent
- --------------------------------------------------------------------------------
A-8
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of Endo Pharmaceuticals
Holdings Inc.
This Certificate relates to Warrants held in* ___book-entry or* ____
certificated form by ____________ (the "Transferor").
The Transferor:*
[ ] has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrant held by the
depository a Warrant or Warrants in definitive, registered form equal to its
beneficial interest in Warrants represented by such Global Warrant (or the
portion thereof indicated above); or
[ ] has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
________________________________
[INSERT NAME OF TRANSFEROR]
By: ____________________________
Date: _____________________
*Check applicable box.
<PAGE>
INDEX OF DEFINED TERMS
----------------------
<TABLE>
<S> <C>
Affiliate................................................................ 16
Agreement................................................................ 1
Business Day............................................................. 9
Cashless Exercise........................................................ 9
closing bid price........................................................ 16
Common Stock............................................................. 1
Company.................................................................. 1
Current Market Value..................................................... 15
Definitive Warrants...................................................... 2
Exchange Act............................................................. 16
Exercisability Date...................................................... 8
Exercise Price........................................................... 9
Exercise Rate............................................................ 12
Expiration Date.......................................................... 7
FDA...................................................................... 8
Fully Diluted Shares..................................................... 15
Global Warrants.......................................................... 1
Holders.................................................................. 3
Independent Financial Expert............................................. 16
Legal Holiday............................................................ 9
Merger Agreement......................................................... 1
Ordinary Cash Distribution............................................... 17
Reorganizations.......................................................... 18
Security................................................................. 15
shares of Common Stock................................................... 20
Sub...................................................................... 1
Target................................................................... 1
Time of Determination.................................................... 13
Transfer Agent........................................................... 11
Warrant.................................................................. 1
Warrant Agent............................................................ 1
Warrant Certificates..................................................... 1
Warrant Register......................................................... 3
Warrant Shares........................................................... 1
Warrants................................................................. 1
</TABLE>
<PAGE>
Exhibit 99.5
Algos Pharmaceutical Corporation
1333 Campus Parkway
Neptune, New Jersey 07753-6815
November 26, 1999
KIA V, L.P. and KEP V, L.P.
c/o Kelso & Co.
320 Park Avenue, 24th Floor
New york, New York 10022
Endo Pharmaceuticals Holdings Inc.
233 Wilmington West Chester Pike
Chadds Ford, Pennsylvania 19317
Ladies and Gentlemen:
This letter agreement (the "Letter Agreement") will confirm the
----------------
understanding and agreement among Algos Pharmaceutical Corporation, a Delaware
corporation (the "Company"), Endo Pharmaceuticals Holdings Inc., a Delaware
-------
corporation ("Parent"), and KIA V, L.P. and KEP V, L.P. (collectively, the
------
"Majority Stockholders"), in connection with the proposed merger of the Company
---------------------
with and into Endo Inc., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), pursuant to the Merger Agreement, dated as of November 26, 1999,
by and among Parent, Sub and the Company (the "Merger Agreement"). Capitalized
----------------
terms used in this Letter Agreement but not otherwise defined herein shall have
the meanings ascribed to them in the Merger Agreement.
In order to induce the Company to enter into the Merger Agreement,
each Majority Stockholder hereby agrees that for a period of two years from the
Effective Time, such Majority Stockholder will not, and will cause any of its
Affiliates to which it has transferred any of its shares of Parent Common Stock
(other than Parent and any of Parent's Subsidiaries) (each, a "Subsequent
Transferee") not to, (a) sell any shares of the Parent Common Stock owned by
such Majority Stockholder or transferred by such Majority Stockholder to a
Subsequent Transferee (the "Shares") other than pursuant to (i) Rule 144 under
------
the Securities Act of 1933, as amended (the "Act"), or any successor rule
---
promulgated under the Act, (ii) an effective registration statement filed under
the Act, (iii) privately negotiated sales to any one Person or group of
affiliated Persons that do not aggregate more than 5.0% of the issued and
outstanding Parent Common Stock at the time of any such sale, (iv) a transaction
in which all of the stockholders of Parent are permitted to participate on equal
economic terms and on a pro rata basis in accordance with their ownership or (v)
any transfer, sale or distribution
<PAGE>
to any Affiliates or partners of such Majority Stockholder or (b) engage in any
transaction that would be a "going private" transaction within the meaning of
Rule 13e-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor rule promulgated under the Exchange Act;
------------
provided, however, that a Majority Stockholder can engage in such a transaction
- -------- -------
if such a transaction has been approved by a vote of, or other action by, the
majority of the then stockholders of Parent not Affiliated with a Majority
Stockholder; provided further that nothing contained in this Letter Agreement
-------- ------- ----
shall prevent Parent or a Majority Stockholder from purchasing Algos Warrants
from the holders thereof on negotiated terms. In addition, each Majority
Stockholder hereby agrees that for a period of three years from the Effective
Date, it will vote, and will cause each Subsequent Transferee to vote, in any
election of the Board of Directors of Parent, the Shares of Parent in favor of
the Company Designees.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
This Letter Agreement shall inure to the benefit of the stockholders
of Parent other than the Majority Stockholders. 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,
ALGOS PHARMACEUTICAL CORPORATION
By:_____________________________
Name:
Title:
Confirmed as of the date above:
KIA V, L.P.
By:_______________________________
Name:
Title:
KEP V, L.P.
By:_______________________________
Name:
Title:
ENDO PHARMACEUTICALS HOLDINGS INC.
By:_______________________________
Name: Carol A. Ammon
Title: President & Chief Executive Officer
3
